Q4 2022 Upstart Holdings Inc Earnings Call

[music].

Okay.

Good day and welcome to the upstart fourth quarter 2022 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jason Schmidt head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss upstart fourth quarter and full year 2022 financial results with US on today's call are Dave Gerard Upstarts, Chief Executive Officer and Sanjay.

Jay <unk>, our Chief Financial Officer, before we begin I want to remind you that shortly after the market close today upstart issued a press release announcing its fourth quarter and full year 2022 financial results Ed published an Investor Relations presentation. Both are available on our Investor Relations website, IR Dot upstart dotcom.

During the call we will make forward looking statements such as guidance for the first quarter of 2023 related to our business and our plans to expand our platform in the future.

These statements are based on our current expectations and information available as of today.

Subject to a variety of risks uncertainties and assumptions.

Actual results may vary materially as a result of various risk factors that are described in our filings with the SEC.

As a result, we 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.

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

And one follow up.

Later this quarter upstart will be participating at the JMP Securities Technology Conference on March six and the loop capital markets Investor Conference on March 13th now.

Like to turn it over to Dave Girard CEO of upstart.

Good afternoon, everyone. Thank you for joining us on our earnings call covering our fourth quarter and full year 2022 results I'm, Dave Gerard co founder and CEO of upstart.

Obviously 2022 was a challenging year for Utstarcom, we're not happy with the results were sharing today in many ways last year. It was the perfect storm for our business model the withdrawal of federal stimulus disproportionately harmed our borrowers akin to a stimulated recession, where millions of mainstream Americans suddenly lost what.

Had become their primary source of income.

Its interest rate hikes, the fastest in several decades.

Both lenders and capital markets cautious and concerned about what might come next in our economy.

Out of an abundance of caution with respect to the economy, many lenders cut back or paused their originations. Despite the fact that theyre upstart powered loan portfolios have met or exceeded expectations.

Program began in 2018.

Having said that we're not into excuses the best companies take advantage of the opportunities presented in the most difficult times 2022 was in some ways a gift because it laid bare some parts of our business that we needed to improve.

We've made great progress in many of these areas and I'll share a few of them with you shortly.

But first I want to make it clear that we're committed to running an operationally and fiscally tight ship and always have been.

We have been profitable for most of the time that we've been public and it's our intention to return to profitability as soon as possible given.

Given the reduction in lending volume two weeks ago, we took the unfortunate but necessary step of reducing the size of our workforce by 365 team members representing about 20% of our staff.

I am deeply grateful for the immeasurable contributions. These upstart has made to our mission over the years and a profoundly sorry that their time at upstart came to such an abrupt end.

With this reduction in staffing, we also decided to pause development of our small business lending product.

This was a necessary step to ensure we can adequately resource the rest of the roadmap.

We look forward to the day, when we can resume our pursuit of the world's best AI powered business.

Yeah, we haven't just focused on reducing expenses, we grabbed the opportunity that 2022 presented to make important improvements across that start in ways that have made us a stronger company for the future. Let me share a few examples.

First.

We traditionally viewed our business model in the simplest terms as a marketplace for loans based on price discovery and at well participation for consumers and lenders.

While this is true. It is also useful to think of the funding on our platform as a strategic supply chain that needs to be scaled and strengthened continually in our earnings call. In August I told you that we would begin to investigate partnerships that can provide more reliable and persistent funding to the upstart platform I'm happy to report that.

We are in late stage discussions with multiple potential partners in support of this goal.

Second.

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

Last quarter, I announced our plan to product ties the upstart macro index or you EMI.

This new metric measures, how changing economic conditions like inflation and unemployment are impacting credit performance.

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

This is an exciting development from our machine learning team and.

An industry first upstart will provide lenders with near real time insight into the financial health of the American consumer, allowing them to adjust their lending programs accordingly.

This is a big step toward providing banks and credit unions with lending infrastructure.

Conversely continuously and rapidly adapt to changes in the economy, you'll be hearing more about this soon.

Third 2022 confirmed that we have both strong unit economics and considerable pricing power even in the most challenging environment.

The fact that our lending volume in 2022 was down 14% versus the prior year.

Contribution profit was actually up 13% year on year.

Optimizing our pricing represents a large surface area of opportunity, which we have only just begun to explore.

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

I believe we made more progress with our technology in 2022.

Any year in our history.

And as capital markets and the overall economy normalizes I expect this will become obvious to all of you.

Areas of progress from last year include model accuracy, our AI models continue to separate risk significantly better than a traditional FICO based model and we continue to increase our pace of model development.

The increase in our model accuracy in the last seven months is more than what we delivered in the prior two and a half years automd.

Automation in the fourth quarter, we saw a record 82% of personal loans fully automated by automated I mean, there was no human intervention anywhere in the process of originating the loan.

This growth came primarily from eliminating or automating processes that our loan operations team has traditionally done manually.

Auto retail we finished the year with 778 total dealerships under contract a 90% increase from a year ago.

As automobile inventories are replenished and prices normalize our ability to modernize the car buying experience for our dealer partners will only become more important.

Piloting our AI powered auto loan in 27 of our dealerships, helping them approved more applicants with less friction as of now when borrowers are presented with an upstart powered mode in the dealerships they choose us 42% of the time.

Also in Q4 about one in every three upstart powered auto retail loan were fully automated and increase of 25% from the prior quarter.

Small dollar loans, we launched this innovative product in June of 2022 today are small dollar product includes loans from 200 $2500 with tenors from three months to 18 months.

To date, we've originated more than 24000 small dollar loans to individuals who otherwise would not have been approved for our personal loans.

More than 12000 of these loans were originated in Q4 alone.

This expansion of borrower coverage means we are dramatically increasing the pace at which our machine learning models are improving and.

And just as importantly in Q4, 88% of small dollar loans were fully automated.

Lending partners.

Our earnings call a year ago I told you we had 42 lenders on the upstart platform.

That number is 92 representing growth of 130%.

Bite the hostile 2022 environment banks and credit unions recognize and appreciate our fundamental secular change in technology when they see it. These partners are starting cautiously with us, but they represent a significant expansion of potential lending capacity on the upstart platform. Once there is a bit more clarity on the direction of the economy.

<unk>.

Now I'd like to turn your attention to 2023 and our priorities for this year.

Our first priority is to continue to assure proper model calibration and model accuracy for all our products, regardless of which way the economy turns.

This is the foundation on which all other success is based.

This implies as much as anything taking a conservative position relative to the <unk> trends, we observe today.

From there our next stop is to return to profitability as soon as possible, while we can't make promises given the unknowns in the economy. We are intensely focused on generating operating cash and positive GAAP net income once again.

And with some modest cooperation from the economy, we expect to return to our pattern of quarter on quarter growth. This year, while the expansion of both bank and capital market funding are foundational to this effort growth is also gated by the approval rates and interest rates that the prevailing risk in the world dictates.

This risk is conveniently captured on a monthly basis by <unk>.

This year, it's also a priority of ours to reduce the volatility in transaction volume on our platform in the future. This is the primary motive of committed capital initiative I mentioned earlier. It also means improving our ability to serve prime or borrowers more competitively, which is in the interest of upstart as well as our bank and credit.

Union partners and lastly, we can reduce future volatility by continuing our expansion into secured products such as auto loans and home loans, which are generally preferred by lenders in times of uncertainty.

Through all of this we're focused on using our balance sheet efficiently and wisely, we've been a model of capital efficiencies since our earliest days and I expect to continue on this path in 2023 and beyond.

Before I turn it over to Sanjay I wanted to share why I'm as optimistic as ever about <unk> future.

Our thesis of our business that AI can unlock smarter credit decisions then.

30 year old credit score can is now obvious the recent launches of products powered by generative AI has opened our eyes to the unlimited potential of artificial intelligence and machine learning.

A couple of weeks ago Award in school MBA Professor admitted that chat GPT has successfully passed his final exam. So it's no giant lead to believe that AI can lead to more accurate credit decisions. Indeed, we're proving this every day.

It is clear that upstart is an established market leader in the application of AI to lending. Despite the economic challenges 2022, we are a much better company than we were a year ago with more advanced technology accelerated model development and dramatically more training data.

And our founder led leadership team is stronger than ever.

As I've said before the price of credit is the price of the American Dream. We chose this path reinventing credit so that it works for everyone not because it's easy, but because it's important we chose it because no one else was doing it and it needed to be done.

I can think of no better journey to improve the financial health of mainstream Americans than the one we're on and we certainly won't be let a little economic turbulence getting our way.

Thank you and now I'd like to turn it over to Sanjay Our Chief Financial Officer to walk through our Q4 and full year 2022 financial results and guidance Sanjay.

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

Reflecting back over the past year, and our outlook of a year ago.

It's safe to say that the macro has exceeded our most wildly bearish expectations.

One year ago on our earnings call.

We have begun to sound the alarm on encouraging consumer delinquencies.

And the potentially adverse impact of the disappearing government stimulus and the time when the broader markets, we're still quite sanguine about the economy.

Over the course of the ensuing year the impact of change in income and consumption patterns on consumer delinquency proves greater than we could have predicted.

And the resulting contraction in the funding markets with sharp.

Indeed, as we exit 2022 and enter a new year.

Consumer delinquencies remained elevated in the funding markets remains limited in their appetite for risk.

Despite this we are starting to see some encouraging signs that the worst of the macro may be behind us.

The personal savings rate, which we watch closely as an aggregate barometer of consumer physical health.

Has now nudged upwards for three consecutive months, reaching in December its highest level since the prior spring.

Underpinning this trend is a relatively recent reversal in the growth of real personal consumption, coupled with a nascent recovery in workforce participation rates over the same period.

Prompting income and consumption to begin drifting back towards their historically closer alignment.

The ongoing recovery of workforce participation rates and real hourly wages.

Both of which still languish below pre pandemic levels.

Yes to us ample runway for continued improvement the personal savings rates over the coming quarters.

Reflecting this improving consumer physical health.

Our internal measure of the macro impact on consumer defaults upstart powered loans.

Next upwards from Q3 to Q4, but at a much slower rate than in prior quarters and has shown encouraging signs of stabilization in the early weeks of 2023.

As you remind stabilizes we are seeing a corresponding re re convergence of long return performance to target for our more recent vintages as they continue to season.

On the funding side spreads for senior Securities in the securitization markets have also shown some initial signs of tightening in 2023 after a very challenging Q4.

Concurrent with and perhaps related to these encouraging trends as David alluded to we are engaged with multiple prospective partners, who are actively exploring long term capital relationships with us.

Of which we would qualify as being at an advanced stage, including formal expressions of interest.

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

With these data points as backdrop here are some financial highlights from the fourth quarter.

On the top line revenue from fees of $156 million was largely in line with our expectations.

Net interest income came in above forecast largely a result of choosing to retain more loans on our balance sheet than anticipated given the market conditions in Q4.

Taken together net revenue in Q4 was $147 million ahead of our guidance, but representing a 7% contraction sequentially.

52% contraction year over year.

The volume of loan transactions across our platform in Q4.

There was approximately 154000 loans.

Down 69% year over year, and representing over 106000, new borrowers.

Average loan size was up 22% versus last year.

Our contribution margin.

non-GAAP metric, which we define as revenue from fees minus variable costs for borrower acquisition verification and servicing as a percentage of revenue from fees.

Came in at 53% in Q4 up from 52% last year.

We continue to expand our margins in Q4 through higher take rates and more efficient marketing spend.

Operating expenses were $205 million in Q4.

Down 16% year over year and 5% sequentially.

And the majority of the reduction was achieved through reduced sales and marketing.

Which was down by 56% year over year following the trends in volume.

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

Taken together these components resulted in a Q4 GAAP net loss of $55 3 million.

Adjusted EBITDA was negative $16 6 million.

Well ahead of our guided number of negative $35 million and.

And adjusted earnings per share was negative <unk> 25.

Based on the diluted weighted average share count of $82 2 million.

We ended the full year with net revenue of $842 million.

Down 1% from 2021.

Our contribution margin of 49% roughly flat from the prior year.

And adjusted EBITDA of $37 million.

Representing a 4% adjusted EBITDA margin versus 27% a year earlier.

During Q4, we made the decision to sell fewer loans from our balance sheet than were originally contemplated in our guidance.

Liquidity in the secondary markets remained firm during the quarter and in our view the market prices for personal credit did not ultimately reflect the extent to which our models have recalibrated to the new trends of consumer default.

Chose to retain loans on our balance sheet and harvest the interest income.

We plan to continue testing the market is pricing normalizes and selling becomes a more attractive strategic option.

In the meantime, the balance of loans on our balance sheet rose in Q4, two 1.01 billion.

Up $310 million from last quarter.

Of that total loans made for the purpose of the RMB principally within the auto segment represented $492 million of that total.

We are now roughly at the maximum size of balance sheet that we are planning to maintain.

We will therefore, largely limit new additions to the balance sheet until we can find suitable sources of liquidity for existing loans.

Despite this we remain in a comfortable position of corporate liquidity with $532 million of total cash on the balance sheet and approximately $674 million in net loan equity at fair value.

Looking to Q1.

The near term outlook continues to be tied to the macro economy and despite some of the encouraging trends previously mentioned, we continued to price loans with a conservative assumption of further degradation in the macro environment and consequently in our upstart macro index.

More specifically our topline guidance for Q1.

Next a higher forward assumption for you and I in our loan pricing.

Traditional Q1 seasonal headwinds.

Some further tightening from our funding partners that we have experienced coming into the year.

And the withdrawal of our own balance sheet as a funding source for new loans.

On the expense side of the ledger.

Dave referred to the workforce reduction, which we announced two weeks ago.

As a result of this reduction we expect to realize cash savings of approximately $57 million in operating expenses over the next 12 months, primarily related to employee cash compensation and benefits.

In addition to $42 million of savings from reduced stock based compensation expense over the next three years.

Also related to this event, we anticipate incurring $15 million in restructuring charges in the first quarter, which we have excluded from our non-GAAP guidance.

With these specifics in mind for Q1 of 2023, we expect total revenues of approximately $100 million.

Consisting of revenue from fees of $110 million and net interest income of approximately negative $10 million.

Our contribution margin of approximately 55%.

Net income of approximately negative $145 million.

Adjusted net income of approximately negative $70 million.

Adjusted EBITDA of approximately negative $45 million and.

Diluted weighted average share count of approximately $81 9 million shares.

Before wrapping up with it.

I'd like to take a moment to acknowledge the group of upstairs that were affected by the reduction enforced that we recently went through.

The time, you spent with us and the contributions you made will always be a part of the upstart journey.

And we will do our best to honor them and just take your work forward in a way that would make you proud.

We look forward to seeing what amazing things you will do in the next chapter.

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

Back to you.

Yeah.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Please press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Yeah.

Our first question comes from Ramsey El <unk> with Barclays.

Hi, This is John .

Alright. This is Jon Kaufman on for Ramsey I had a question for you on pricing power I believe a couple of quarters ago. You commented that on the given the tighter environment you had a little bit more pricing power and I think you also mentioned something like this in your prepared comments. So I was wondering can you say whether or not any of the revenue declines you saw this.

Warner were partially offset by higher pricing.

Hey, John this is Sanjay.

I would say that our take rates were very similar to the <unk>.

Prior quarter, maybe up a little bit. So we did we were able to offset them marginally but.

But I don't I don't think the impact was a it was significant enough obviously Youtube.

To change the trajectory.

Okay, great. Thank you.

Okay.

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

Thank you and good afternoon.

Dave I was wondering if you could talk.

You talked to great extent about on the supply side funding I was just wondering if we could dive a little bit into the demand side I recognize that you pulled back from marketing.

Quite a bit.

Your sense for overall loan demand for the category of borrower that you serve that.

It would be helpful and then as a follow up.

Just wondering if you can give us a sense of the allocation levels that you have with your existing bank partners have you seen any changes.

And that dynamic thank you.

Sure. Thanks, Pete this is Dave.

I would say I don't know if there is an absolute measure of demand for loans in the environment, but I would I would I think we can safely say demand is very strong consumer demand for credit.

In a time when people are.

Personal savings rates been down it's up recently, but just just given where the American consumer has been I think it's normal to expect that demand for credit is quite strong we're headed into a seasonal time when it usually actually weakened.

Due to tax returns and that kind of thing so we'll see sometimes that's overwhelmed by.

Something else, but for now I think we can safely say that.

Consumer demand for credit continues to be very strong.

Great.

Yes.

Yeah no worries.

Yes, just just wondering I know like some banks for instance have like a 10% cap of upstart loans.

Or something like that.

Have you seen like those those allocation levels that some of your bank partners typically take have you seen them Sam alter at all.

A few months.

Well for sure.

Every bank partner has kind of a capacity for each.

Each month and they can change it at will as soon as they go and that a lot depends on whatever else is going on in their business.

<unk>.

The state of their balance sheet et cetera. So it's very common that banks would increase or decrease generally speaking without question over the last year banks have been tightening and in reducing lending as that just had concern about the economy. They are watching the same.

See CNBC, everyone else's and I've had concerns and that's probably been one of the most.

Impactful and then challenging quite sharp to our business in the last year is really just.

Banks get very conservative naturally and cautious when they're unsure about what's next in the economy.

Great. Thank you.

Thanks Pete.

Our next question comes from David Scharf with JMP Securities. Please go ahead.

Hi, good afternoon, thanks for taking my questions.

First one maybe just following up on <unk>.

Loan demand and specifically the.

Kind of the Q1 outlook.

Your commentary on both kind of credit trends and consumer demand seem very consistent with the other kind of non prime.

Personal lenders we've heard from this quarter.

As we think about.

The step down in revenue.

Is does that primarily setting aside taxi tax refunds seasonality.

David is that more a function of tightening the credit box further or.

Or is it just kind of the limitations imposed by your balance sheet at this point.

Thanks, David for the question.

Generally speaking.

We are kind of a supply and demand balanced or.

Business model, so, sometimes we have excess borrowers and not enough funding out of the times. It can be the opposite today actually most of the decline in our business is because rates approval approvals are way down and rates are way up and that's largely due to higher levels of risk in the environment now at the same time actually as I had.

Said earlier.

Question from Pete lenders have pulled back as well so in a strange way, we're relatively balanced but at a much much higher much lower profitability much higher interest rate and that's what's driving lower volumes and over over the year as we look into 2023 of course.

It's hard to say, which way it will go but we're always.

You're trying to maintain balance between supply and demand.

But right now most of the decline in volume in our platform. The most fundamental reason really is because the rates are much much higher the approval rates are much on slower and Thats. This thing we call. It <unk> its just a function of the risk that's out there in the environment.

Got it got it helpful and maybe as a follow up just.

Turning to the.

The expense side.

I realize it's always dangerous doing just.

Simple math, but if I just kind of divide.

Annualized cost savings and one third of the stock comp into the number.

Of employees.

<unk> sized it averages about 200000.

For employees.

Which is not insignificant, but I'm just wondering is there any color you can provide on perhaps.

Okay.

Type of disciplines.

That were rationalized I don't know if this was primarily.

Engineering product development or in other areas, but.

Is there anything in kind of the downsizing that kind of altar is a longer term.

Sort of new product and technology initiatives outlook.

Hey, David This is Sanjay.

Let's see in terms of the sort of the.

The allocation of the reduction enforce it was it's pretty evenly spread across the company means functions took a bit of a different.

Absorption than others, but overall.

Almost all teams were affected as you would expect when you have a workforce reduction on the order of 20%, which is what I was where it was.

With respect to the product roadmap.

I think the main thing that we can make it to the market is that this will at least for the time being put our efforts in small business lending on pause.

We do have every intention of getting back to them.

Right, but.

I think that's that's sort of the main call out there's a couple of other things.

On the margins that maybe.

Maybe werent quite quite as understood a public but I think that's sort of the big impact to the.

Call it the near to medium term road map.

Got it great. Thank you.

Yeah.

Our next question comes from Simon <unk> with Atlantic Equities. Please go ahead.

Okay.

Hi, guys. Thanks for taking my questions.

Not to really useful information.

Today's report thanks very much.

I guess I just wanted to get a sort of a bigger picture perspective on the business model here, because when I think back to the performance.

The market share gains you have.

Coming out of the pandemic and I was wondering what I guess.

What are the differences in the market structure today, and the business model and the institutional funding channels that.

Mean, the share gains that you're the advanced since you've made with your AI models.

Mike.

Perhaps not live up to the standards that we still coming out of that.

Very unusual periods pandemic I'm, just wondering sort of how to think about the pace of those share gains.

Alright.

Working or what might work against coming out of this particular environment.

Sure so.

I think our technology has only gotten better and the.

The environment of course change pretty dramatically and as I kind of acknowledged in my remarks, beginning it definitely showed us some things we needed to know kind of that and at will model, where funding can come and go or lending <unk> investing and those can come and go.

Two months is well it might be sort of beautiful wanted on a whiteboard and from a pure economists point of view makes a lot of sense, but in reality, we need to have volume more locked in secured which is an important initiative for us. So the issues. We've had really to date are almost entirely related to the funding side some of them.

It is macroeconomic and some of it frankly is on us and things we need to fix none of it and my views on our technology I think it continues to be extraordinary.

And differentiated if not more so today than it has been all the improvements I kind of talked about in my remarks earlier.

In some sense masked because if the funding markets arent operating properly and if lenders arent deciding it makes sense to lend and there's only so much we can do.

So we are <unk>.

Pursuing some initiatives as we've said to sort of make sure. We don't make the same mistake twice and.

So having secured funding committed funding over longer periods of time to US is very fundamental also this effort we're doing with what we call <unk> is really to be really transparent with lenders in particular with banks and credit unions of what's going on in the economy. So they can make very informed decisions, which might be the tightened standards and.

Slow down volumes at times, but it hopefully it won't be as dramatic as it has been in the past where maybe they didn't have as much insight as they needed to what's going on out there. So these are all efforts on our side to fix what we think are needed to be fixed in our business.

None of them at least in my view are really related to the core AI and its predictive et cetera, which we feel very.

And.

Okay.

And maybe just touching then as a follow up on the <unk> index.

Is this something thats.

That will potentially improve.

Really useful too.

Accelerating the pace of bank partners coming onto the platform and also.

Yes, keeping keeping it.

And our relationships, even stickier than they have been in the past.

Well, we certainly hope so I mean, I think the idea of having a very quantified.

And in near real time meeting just Youre getting information about the month that just that's just finished <unk>.

Indication the health of the consumer that you lend to and with different sort of slices and dices available for a lender is really powerful because it's not it's not something our lenders done in the past they have either over performance or underperformance and their credit program, it's really hard to attribute that either to something about well.

How you see your system up in the rules you have in your system or maybe the economy is deteriorating in some way you don't have visibility. This is really powerful way to say no. We can actually isolate the performance of credit model from the impact of the macro economy and that itself I think is going to be a very powerful new tool and one we think that lenders of all.

Flavors.

We will get excited about.

That's released well thank you very much.

Thanks, Tom.

Our next question comes from Rob <unk> with Autonomous Research. Please go ahead.

Hi, guys I wanted to ask about your more committed funding source I was wondering if you could give me some more detail there.

What type of partners you might be in discussions with what kind of arrangements youre working out with them any additional color.

Online too.

It would be really helpful. Thanks.

Yes.

Hey, Rob this is sanjay.

Let's see on sort of the more committed capital.

Style relationships I guess I would say first of all I think we've always been.

Pretty cautious in saying that this is sort of a transition over time for us, it's not something that would necessarily happen.

In the in the near term I think these are large very strategic relationships.

That I think we sounded a note of optimism.

In our prepared remarks.

And just to sort of reiterate the points that you know I don't think we have anything definitive to call out right now, but we are.

And a number of conversations with with multiple partners that I guess I would qualify as.

Sort of advanced stage, and we sort of.

I mentioned that we had some indications of interest.

So again.

Hopefully, we'll have some something more definitive to announce soon but I.

I think in the meantime, we're sounding some sort of.

The notes have optimism if you will and I think they are related to some of the optimistic trends, we're seeing in the broader environment. Some of the things that we take through.

And then your question really is it like what is it sort of the nature of these arrangements at the simplest form.

On the one hand, they would sort of on the partner side be more committed.

Forward forward commitments at scale of capital and then an exchange you would imagine some kind of.

Premium and the economics.

Could take a couple of different forms and you know what I think.

We are discussing different.

Different structures with different partners as we speak so it's a bit hard to.

So it would be too precise, but that's sort of the most general sort of description of.

How these how these partnerships will work.

Got it that's very helpful and then.

On your current funding partners, how do your conversations with them.

Jerry by type I'm wondering if the conversations with say a larger bank might be different.

And that with a credit union or where the credit fall under your ABS partners any additional color you could add there would be that would be really helpful.

Sure. This is Dave well I would just say maybe on the bank and credit Union side I mean, it may do vary a bit.

Credit unions, we're really flushed with deposits.

Year ago that is much less the case today.

So where we're credit units are really starved for loans because they were.

Then very flush with deposits I think that's a little reverted to normal.

And so that just changes their appetite.

And banks not much so I mean I think.

Banks, there's a lot of interesting competition for borrowers going on out there with regard to deposits. So I think it's one of the more interesting dynamics is really saying some of the new guys in the market really pushing.

The <unk> pay for deposits up so there's just a lot going on out there that I think is changing.

Pretty quickly, but we don't we don't fundamentally see any overwhelming change in dynamic other than as usual you can hear it from the Ceos of the largest banks I mean, there's caution about the economy, they're all kind of Cajun <unk>.

And in and out.

Small recession will not be a recession hard hard landing Sop I think so I think that just sort of the cautiousness that's out there.

But.

A year ago or I would say generally there was on all sides. There is definitely swimming in deposits and in need of credit.

As a result, and thats definitely much less so today.

Thanks, Dave.

Yeah.

Our next question comes from Mike <unk> with Goldman Sachs. Please go ahead.

Hey, good afternoon. Thanks for the question I just have two.

They are both on the on the $1 23 guidance and it was helpful to get a lot of color around what was driving.

Some of the sequential decline in revenue, which sounds like it was mostly a funding can train.

So first I was just wondering if you could.

Talk about whether that.

The sequential decline in revenue was solely due to a tougher and tougher funding environment or are you actually expecting lower levels of our rate request.

Conversion. Thank you.

Hey, Mike This is Sanjay.

I would say I think that the sort of the constraints that are conditioning, our guidance for Q1 are happening on both sides of the ecosystem.

On the let's call it the borrower side accrue ability.

Is constricted on a couple of friends. One we did sort of mentioned that the that the assumptions around a sort of macro.

Our forecast and their impact on them on.

On an <unk> on loan performance are becoming more conservative as we go from Q4 to Q1.

Some of that is not necessarily a reflection of what we're actually seeing is a reflection of conservatism because the most important thing we need to do in our business as you get the loan performance right and so.

We sort of doubled down on that as we exited Q4 and that will spill into Q1.

And then of course, there is the seasonality impact that David referred to which is the fact that traditionally in Q1 as you get sort of course with tax season, we do see a 10% to 15%.

Trough, depending on the year.

And then the funding side as I said the other there's some continuing to pull back.

On funding sources, particularly those who are more reliant on leverage and liquidity those who rely on the ABS markets.

Q4 was turned out to be a tough quarter for ABS issuance.

And so I think that sort of affected some of what we had coming into Q1, and then of course, we mentioned sort of the loss of our own balance sheet as a funding source, which was not.

Not the majority of our funding source, but it wasn't a factor as well. So I think when you add all of those things together you sort of some things on the borrower you prove annuity side, sometimes on the spending side and then they sort of add up to where we guided.

Great. Thank you for all that color Sanjay and then just the last question the second question.

What's the what's a good way to think about the rest of the year appreciating your comments about <unk>.

<unk> like.

Likely being.

The trough should we.

I expect to grow off of that.

$110 million of fee revenue throughout the year.

Assuming that the funding environment in the <unk> environment doesn't necessarily change or.

Can it be significantly better than that thanks.

Sure Yeah, I mean, I guess at the highest level I think the mechanics that we most focus on and the way I think this will play out. So two things that are very closely related to the first one of the most important one really is expressed by that metric I can call you EMI.

Essentially you know as that stabilizes and starts to come back down it means that risk.

In so far as the macro is sort of contributing to more risk of borrow delinquency that it's subsiding and as that happens. We believe what you will see as a REIT convergence.

To target for loan performance, which some of that some of those materials on our investor slides.

And that that sort of performance will go back to target and in fact back to exceeding target as it has historically and as those two things happen.

The approve ability side on the borrower side of the ecosystem becomes accretive to the business. So that the approvals go up risk goes down and typically the funding markets will follow that when they start to see signals of subsiding risking signals is sort of loan target performance and other performance.

Typically that's that's accompanied by easier ABS markets and and certainly if we get a couple of deals in place along with us.

In the style of committed capital.

That will provide the <unk>.

On the on the funding side to sort of go back to our prior levels.

Excellent. Thank you for all the thoughts Andre I really appreciate it.

Thanks, Mike.

Thanks, Mike.

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

Thank you. This is sandy BD on for James I have a question on on the loan performance trends. So so the ABS data that we track.

Has shown a pretty meaningful deterioration just looking at annualized losses delinquencies.

The majority of the public deals over the last call it three or five months or so and so I just wanted to make sure are we interpreting that correctly. How is your team thinking about that and then just contextualized west with the U M. I and then the general comments on the consumer.

Yeah sure Hey, Sandy this is Sanjay so I guess, there's a couple of if you're looking at sort of a broader ABS issuance right now.

And so there are a couple of states delays I would I would call out.

The first one is just.

The time it takes from the issuance or the origination of alone for it to get sort of issues into the season and an ABS deal.

And so that's sort of.

Thank you.

A bit of a lagging indicator in that sense.

And so to to sort of speak in the language of vintage.

And this is.

Reflected in what you would see us sort of produced with respect to the loan performance.

Target a chart that we have in our investor materials, I think that the trough for the the low point of loan performance or maybe the high point of excess delinquency if you will.

And in our view in sort of late 2021.

Maybe towards the end of 2021, if you will.

And then there's a second phase delay, which I think is probably relevant to what youre looking at if you're looking at broader issuance which is in.

In our view, it's pretty clear that from.

From a phasing perspective, it's the lower income borrowers that.

Became impaired first and then now it's the sort of the prime or borrowers that are coming under stress.

Of course, I think in our sort of issuance and in our collateral you'll typically see the former more reflect it because we tend to work with lower income borrowers and you'd be looking at broader issuance. It does probably.

Air towards the side of a higher prime borrowers certainly if you're looking at other digital players.

And so I guess it might be the way I would describe it as.

I think the lower income borrowers probably hit their trough at the end of 2021, the primary borrowers probably alright sort of dropping somewhere mid 2022, and all of that you know it takes a quarter or two to actually flushed through the ABS sort of numbers and so that's how I would maybe describe the systems from our perspective.

Got it that's very helpful.

One that's more general in nature and really on the back of the January a restructuring plan I know, we've talked about <unk> and and the forecast in terms of cost cutting I just wanted to ask generally how you're thinking about timing with respect to the path to profitability, obviously, a focus of the market this year given rates.

Et cetera, but has that been a conversation is there a general target and what's the thought process at a high level.

Sure James This is Dave.

I would say generally when we took the action we took a few weeks back we.

We definitely thought we need to put ourselves in a position where fixed expenses makes sense in the environment as it exists not in the environment as we wish it will it will be later this year. So we've largely set ourselves up to be.

Fairly neutral or if you will on fixed expenses and not making any large assumptions about the economy, improving et cetera.

And that's just how we think about it.

We're in a very stable position in.

In our view the business week the market, we serve is not likely to deteriorate. This year it could stay where it is for a while and that.

We can live with that.

That was the nature of it is let's get ourselves.

Forget about how many people we had last month or whatever let's get ourselves to a fixed expense position that we feel like makes sense in the environment, we're dealing with right now.

And it will it will not only.

Give us more confidence in our future from a financial perspective, we will in fact.

To emerge out of this at some point.

With a lot of leverage in a lot of a lot of.

Sort of profit potential in our business because we have slimmed down fixed expenses. We've also gotten really good about marginal spending on marketing.

Contribution margins are way up our acquisition costs on a per loan basis are way down. So we're just set up I think really well for the future, but again, we're not making any assumptions about a dramatic improvement in the macro.

Perfect. Thank you for taking my questions.

Yeah.

Thanks James.

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

Hey, guys. Thanks, very much I guess.

Thinking about what you guys did about 1 billion and a half of volume this quarter or Q4, it looks like youre doing somewhere between call it closer to one in Q1.

Youre not balance sheeting it.

I'm wondering kind of can you can you characterize over that six month period, who are the buyers.

Kind of a keetch.

Channels are buyers are investors and kind of what's the transfer pricing within each of those channels.

Okay.

Hey, John .

Sanjay so that the channels are largely similar to what we've described in the past yeah Theres a channel that's.

Sort of balance sheeting, I would say that the primary end of the spectrum and they tend to be banks and credit unions.

And then of course in the capital markets are there sort of maybe a bifurcation between.

Let's call it folks who rely on the ABS markets and folks sometimes you do not.

I think most of the remaining funds that are working with us are the ones that do not rely on the ABS markets.

Just given the volatility in the ABS markets.

And.

When you think about that.

<unk> of loans, while the banks, who are using our technology to put loans on their own balance sheet.

Through their own origination channel.

Or pretty much setting their own prices with respect to what the borrowers paying and we just charge a pretty standard fee. So theres no real transfer is alone in that regard they use our technology and on the loan is originated for their own for their own use for their own balance sheet.

With respect to the capital markets, we've always originator.

Originated and transferred at par.

There's been some minor exceptions to that for folks who have committed volumes forward.

Hum.

In exchange for that and it must change for scale, we provide a bit of a discount, but it's something that's let's say very close to par.

Okay, and then can you.

We know you've raised pricing over the past year, you mentioned the loan sizes are a little bit larger than average can you give us like what or maybe what's the kind of goalpost.

Ration right.

<unk> is just for us to think about the portfolio what the portfolio originating portfolio looks like at this point.

Well, let's see so with respect to duration and loan size.

We don't necessarily have a proactive view on what we're trying to achieve we present the options for the borrower and the market will go to the marketplace. We will do its thing I think in the way that the marketplace has trended because we've restricted approvals so much and because we've raised rates so much the remaining or.

The resulting collateral its primer than it was call it six to nine months ago.

And primary loans tend to be bigger loans and so the fact that many of the.

The sort of the lower grade loans have been removed from the approval box has opted to increase loan size. So that's maybe a bit of a mix effect.

With respect to I think when you say rates are you're talking you're sort of describing our take rates or are you talking about interest rates well I guess I'd be interested yet in the fee. The average fee per per dollar of origination and then.

What are the yields that you are passing on.

Like for like whether it's a prior cohort or non prime what's the yield differential now versus say a year ago.

Sure well on the take rate side, I guess in a general sense, you'll see that the take rates. If you look at our sort of fee revenue as a percentage of origination they've gone up.

And they've gone up.

Really as a reflection of you know I think Dave answered a question earlier about underlying loan demand right now fundamental demand is very high profitability is low.

But when demand is oh when demand is high there's a lot of elasticity and we said in the past that we can use that as a way to improve our unit economics in times, where volume is contracting so as you've seen volume volume contract over the course of the year, our take rates have gone up and that's despite the fact that the banks.

And the prime loans are increasingly a larger fraction of the mix right because they are less impacted by that.

The changes that that kick loans out of the approval box, so you've seen an improving take rate.

Even even despite the fact that the you know the.

The percentage of loans in the percentage of bank capital has gone up.

And with respect to yield.

There's that bifurcation, where banks typically originating.

Lower loss rate sort of primary loans, if you will.

Setting their own.

Rates and they're selling them as a function of what they see in the economy and what their cost of capital is.

Dave obviously not had a direct impact on their own cost of capital.

As for say the capital markets. So I would say that their yields have gone up on.

On average somewhat but you know, it's a little bit bank by bank as a bit of a different case.

In the capital markets, where we have one essentially monolithic a program you can sort of see them.

Certainly in the in the Investor materials, we sort of laid out what our gross loan targets are after loss.

And just in rough terms.

Year ago, they were around the sort of seven to eight ballpark there now sort of near 11, so they've gone up.

It's roughly commensurate with what what has happened to treasury rates are sort of at the two year duration.

Okay, Great makes sense. Thanks.

Thank you John .

Okay.

Okay.

Our next question comes from Howard <unk> with loop capital. Please go ahead.

Hey, Thanks for taking my question just want to ask.

Asked about your automotive business.

And just wanted to make sure I understand what you said you're.

AI powered platform is it only 27 of the 778 dealerships is that right.

You are making a <unk> 27 and 27.

In those 27.

It's taken nearly 42% share of loans.

On those dealer management system.

Best way to think about that.

That's right.

Yeah, citing when our loan offers shown shown to somebody.

Okay and is the loan like shown.

No.

It's a participating every time and being given an opportunity because this is the point of sale part of your business. The other part of your business is kind of you know refinancing or the.

The other expenditures this is a pretty cool part of your business at this point of sale essentially very large ticket and just wanted to know.

Uh huh.

How many extra deals maybe you know.

Your system is helping the dealership complete on an average week because those are very profitable transactions.

Transactions for a party like could you just share with us what you can about that.

Yeah, I think I mean, I don't have a specific number for you but for sure we have.

One of our.

Very primary values for dealerships is that we can make an offer.

Two borrowers that arent getting them elsewhere.

And sometimes its just better rates than agency elsewhere and also the close rate because it's a very automated process is significantly faster and better for the dealer that's the kind of primary.

Value proposition I think.

If you wanted to just look at kind of wallet share, which is a different sort of cut on things.

And you take out the captives, meaning that the Oems doing running programs themselves outside of the captor, If I think about it in those 2007 dealers about 20%.

Wallet share outside of the captive loans.

Okay, so 20% outside of cats, okay.

Great.

In.

One on the overall market for.

Or the.

You know the side of the platform for supply the supply for loans buyers.

How much of the recent.

No.

Issue is it.

Those buyers have so many more places to go now that rates have moved up how would you characterize it is that a fair characterization of what's going on at this.

Two or three years ago.

Well I'm trying to find something yielding 678, 9% was hard now it's a little bit easier.

Hey al.

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

Yeah, you know, let's call it hedge funds that previously needed to.

Sort of.

Bye and lever up in order to get the high single digit returns can now buy senior bonds kind of a training 7% in some cases.

And so they can meet their hurdles with with a with different alternatives.

Compared to before.

So theres been a lot more competition for yield.

And I think that that's been an environment.

That has been a little bit anomalous and I think that we're starting to see signs certainly of the.

Of the senior instruments out there starting to revert a little bit and tighten up in terms of.

How their pricing, but but yes, there's been a there's been some substitution.

Okay.

One last question back to you on your 92 lenders now.

Is there generally like kind of same store sale growth or is it or are we still in a period now where the macro is still causing even the 42 that were originally on there to lend less because you really don't have that view yet because the macro has changed even though the original 42 you started with.

Yes for sure I mean, the macro effects.

Thanks, everybody.

Meaning all of our partners generally to one degree or another.

Our feeling the impact of the macro so that can mean theyre slowing down or they are pausing, sometimes they are signing with us and implementations are taking longer because they're not as.

They're just more cautious so they they know this is a direction that going in but they are moving a little cautiously in the beginning of 2023 or the end of 2022.

So for US we are adding them at a good clip and if you're starting to see the pace of addition of lenders on the platform, we're really happy with that but they're not converting into large quota. Its monthly quotas vary as quickly as they would have in the past and that's a function of the economy, but having said that.

I think we feel happy that we're adding future capacity right now and when when the clouds part a little bit and there's a lot more clarity I think we will.

Have a much larger number of lenders on the platform that they're ready to go and perhaps had been running at a very small level for a while out of caution.

But.

Jim will you be ready to go to larger volumes when they have confidence.

Great. Okay. Thank you so much.

You bet. Thank you.

Our next question comes from Amit <unk> with Piper Sandler. Please go ahead.

Hi, Thanks for taking my question.

Just wanted to ask about the lenders are lending partners that you're onboard.

I mean, how much of that is like yeah.

Hum.

Sales process, where you have a sales team going out there.

Looking to two kind of.

Sign up new lenders and then onboard them and then once they're on boarded due to kind of you know kind of show them loans are kind of a syndicate loans.

With this particular lenders I understand like you know kind of the loan process.

You know you have like 80% above our kind.

Kind of a processing rate, but in terms of lenders. If you can just kind of walk through that process, but that'd be helpful.

Sure This is Dave.

I think it's.

Just to compare it to the kind of an enterprise selling process right, we're selling technology to banks to help them learn along with the flow of borrowers, but the process really looks like what you might expect out of seeing somebody selling I don't know a SaaS software for for this or that so.

You have to win the business side, there's a lot of effort to get through committees and such because they're at risk committees from credit committees and such.

We know the drill now so.

A lot of times, but it's an enterprise selling process and then an onboarding process, which you could think of is the customer success team et cetera, helping somebody walked through a process of getting live in originating loans.

And then after the fact, there's just we're almost constantly in touch with them and they're thinking about what they wanted to do next and where volumes are what we're seeing so there's a lot of.

Fairly heavy amount of account management, that's why I think we said 90 plus lenders on the platform today, and we're imagining a day when theres 500 or more.

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

Okay.

Great and and so like you know to throw a number out there, but it's 500 or number of bigger greater will that sort of kind of this problem of kind of a constrained lending environment like.

Maybe two.

Too late to kind of solve the problem.

Right now in view potentially even getting out of it but like let's say we.

We go through another kind of tough economic cycle, and then you are sitting with the base of maybe 500 or more like lenders.

That kind of make this situation.

Situation a lot easier.

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

And say well it turns out the upstart loans performed all the way through that.

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

They do pull back and they do sometimes pause so I think first of all having another proof point.

Or having this very large proof point, if you want to call. It that of the last 12 months will serve us well in the future because the loans for these banks and credit unions have really performed well.

We will also be in different categories. So if they started with us in personal lending it maybe in auto lending or home lending et cetera, and that of course, I think has a lot of opportunity to sort of cement. The relationship further so the lenders definitely have a lot of potential for us to fill out a large part the primer and of what is originate through our platform a lot of things we can do.

And we are doing so the next time around you know they'll always be some volatility in our business given the nature of what we do but we certainly hope it won't look like it has in the last year and we are working very hard at that.

Perfect and just kind of last question I mean.

When we provided guidance, which was helpful and kind of kind of provided some some guardrails on what what you don't need to do to kind of kind of mid to meet those numbers.

But if you kind of think of like.

What what scenario what kind of.

Kind of drive like either upside or downside to kind of the the estimates.

Provided.

What kind of what the what needs to happen.

With a broader macro.

For like kind.

And as a range of outcomes would change as the year progresses.

Yeah Harlan this is sanjay.

It's relatively straightforward and it's sort of an answer both on the border and on the funding side, but upside would look a lot like what I described earlier.

It comes down mechanically loan performance will sort of achieve target SaaS over perform.

And then you know I think.

As a consequence of that funding will.

<unk> returned to the platform, where we will sort of create some partnerships that will create.

Create some scale that would create upside certainly over and I sort of a trajectory back to where we were previously.

And downside would be the opposite I mean, if the world.

Degrades or divulge further if personal savings rates do a U turn and sort of go back down to low levels in the <unk>.

And the way the funding markets get even more skittish versus where they are today that I you know I guess theoretically could create some downside as well.

Perfect and just last one if I could.

This AI chat JBT and.

Bunch of these things that have kind of made kind of more mainstream press.

Has it kind of as some of your kind of conversations with some of your partners become a lot easier right like I mean.

I could imagine like two years back when you were talking about AI people, where they are.

There have been a cohort of folks.

You're expressing some level of skepticism that that just yet.

As.

You know kind of.

Not very tangible but now with it becoming more.

Kind of broadly kind of well known and publicized but you know.

And then just the way JBT have some of those garner additions changed.

Okay. If I can get you are using.

I can I can actually kind of wrap my hands around that.

I've touched it.

I think in some sense chat DPT in this kind of generative AI as it's known there's obviously a different class of AI trying to do something very differently, but in some sense of Jeffrey marketing for us because the category is AI is getting credence.

And when you see what chat GPT does you can sort of stunning to just try it if you haven't tried it.

And it sort of says well if it can do that certainly it can build a better credit model and can make smarter lending decisions. What we're trying to do actually seems much more straightforward in many ways. So.

It's an advertisement for the power of AI and because of the fact that AI is going to be very central and our economy for.

For the decades to come so if you're a bank executive you really want to think about how that fits in the future. How you start to get awareness of it and it just makes upstart I think a more attractive partner.

Great. Thank you very much.

Thanks Harlan.

Our next question comes from Dan <unk> with Mizuho. Please go ahead.

Hey, guys I only have one question I'm going to make it easy.

Are you guys. So just really quick it looks like the.

Like the subprime and even near Prime.

Kind of beyond there.

Yeah.

Does that mean that you can like reopen the credit box in Q1.

Hey, Dan sorry, I didn't quite hear you said that.

There's sort of a lower prime borrowers or beyond there.

Yeah. It looks like based on what you said is that the you know the.

The near Prime and subprime is kind of beyond the trough in terms of their credit risk does that mean that you can actually have reopened the credit box.

In the first quarter and that was my other question. Thank you.

I think we would look to well reopening we would look to.

Sort of increase approvals.

As they started to trend back down and I don't think.

I don't think we've quite reached the point, where we're willing to call that I think they've been at a very stable level now for multiple months.

But you know we'd need to see evidence of them.

Well, let me maybe talk about it in macro terms, we need to see.

Further evidence of personal savings rates rebounding, we'd need to see further evidence.

Of income coming back into line with consumption.

And the model will adjust as it sort of detects the patterns.

In repayment, which will result from that so it's not necessarily a thing.

We need to sort of.

Take a decision on the model, we'll react to improving trends as they begin to play out in the data.

Got it.

I appreciate it and nice results in the quarter.

Okay. Thank you Dan.

Yeah.

Our final question comes from Vincent <unk> with Stephens. Please go ahead.

Alright, thanks for taking my questions.

So two part question both related to the funding side. So first.

On the balance sheet, if you could discuss how much capacity you do have four.

For increasing the amount of loans that you have on balance sheet.

If there may be other ways too.

Increase that capacity you know so for example have.

Have banks as an example.

The second part of your question is I saw that you recently had the and I'll start securitization. So the 220 <unk> I'm just wondering if you could talk about that.

The appetite there and.

Any learnings you can have like if there is some potentially more opportunity there. Thank you.

Sure. Thanks Vincent.

Let's see on the first one.

<unk>.

Ah well, let me start by saying that I don't think we have a desire to substantially increase our balance sheet capacity.

Certainly in terms of its percentage.

Of the overall platform and what it represents.

I don't think are sustainable strategy would be to create bigger and bigger balance sheet capacity in the way that some of you know our peers.

Here's a pursuit through bank charter I, just don't think that's the model for us for a lot of reasons, which we've covered in the past.

I mean, we could effectively scale up our capacity as the platform scales up you could imagine when we're doing many different products and running different R&D projects with maybe wanted their capacity, but I think we're at a local maximum now and I think it's I think it's.

I think it's suitable to the size and the scale of the platform. We would want the recovery of the platform to be driven by the funding markets not by increasing balance sheet capacity. So that's I think a fairly deliberate strategic choice.

With respect to the ABS markets. We did we did close in price the deal in January .

And yes, like I said, I I guess I would characterize it at a high level I would say that the if you think about basically the senior and subordinate parts of a securitization.

The senior instruments seemed.

Seem to have a lot.

A lot of rebound in demand and their spreads have tightened a lot. So I think they priced significantly better than they did in Q4.

Still not at the point, where there is a real market for subordinate risk that has not improved versus Q4, but typically that's the way that things get sequenced, the senior or that sort of less risky instruments come back first and then you sort of essentially the theory that at the in the subordinate parts as well. So I think we're sort of maybe hope.

Hopefully it's nothing.

There's nothing.

Does it you turn were sort of midway through that that.

That transition hopefully.

Okay. That's very helpful. Thanks very much.

Thank you.

Okay.

Thank you and this does conclude today's call.

Thank you for your participation and you may now disconnect.

Yeah.

Okay.

Yeah.

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