Q1 2025 Upstart Holdings Inc Earnings Call

Later, we will conduct a question and answer session and instructions will be given at that time.

John Coffey: And our next question comes from Ramsey Ellis Hall with Barclays.

As a reminder, this conference call is being recorded.

John Coffey: Hi, this is John Coffey on for Ramsey. Thanks for taking my question. I just had two short questions. I was wondering, now that you know, you've been updating your models, and it seems like that's been a process that's been ongoing. Is there a good way to think about your conversion rates for the remainder of the year of the next two quarters? Should we expect that those rates could start to touch that 20% level? So that's that first question I had. And also, I noticed that, you know, it used to be your UMI had a slide kind of like, I think last quarter is maybe around page 10.

Speaker Change: I will now turn the conference over to Sonya Banerjee head of Investor Relations. Please.

Good afternoon and welcome to the Upstart First Quarter 2025 earnings call. At this time, all participants are no listening only mode to prevent any background noise. Later, we will conduct a question and answer session and instructions will be given at that time.

Please go ahead.

Speaker Change: Thank you welcome to the upstart earnings call for the first quarter of 2025 with me on today's call are Dave Gerard our co founder and CEO and Sanjay data our CFO.

Speaker Change: As a reminder, this conference call is being recorded. I will now turn the conference over to Sonya, Banerjee, head of investor relations. On yet, please go ahead.

Speaker Change: During today's call we will make forward looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and beliefs as of today, which are subject to a variety of risks uncertainties and assumptions and should not be viewed as a guarantee of future performance.

Speaker Change: Thank you. Welcome to the Upstart earnings call for the first quarter of 2025. With me on today's call, our Dave Girouard, our co-founder and CEO , and Sanjay Datta, our CFO .

John Coffey: And there was quite a few data points attached to it. When I look at this quarter here, it's kind of pushed back to the back of the deck and slide 20. And I don't see any numbers really tied to is there any reason for that? Are you deemphasizing this is something you're reporting to the street?

Speaker Change: Actual results may differ materially as a result of various risk factors that have been described in our SEC filings.

Speaker Change: During today's call, we will make four looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and believe as of today, which are subject to a variety of risks, uncertainties and assumptions, and should not be viewed as a guarantee of future performance.

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

Dave Girouard: Hey, John, just quickly on conversion rates. I mean, the conversion rates, which really are a very principal driver of growth, they did grow nicely from, I think, 14 percent a year ago to 19 percent in the most recent quarter. And all else being equal, we would expect to drive them up with better you know, models and improved automation, et cetera. And things like lower, you know, the Fed lower rates. Those are things that can also be helpful. So there's a bunch of things that go into conversion. Generally, we would like to drive it, drive it up.

Speaker Change: Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results reconciliations.

Speaker Change: Actual results may differ materially as a result of various risk factors that have been described in our SEC filings. We assume no obligation to update any forward-looking statements as the result of new information or future events except as required by law.

Speaker Change: Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website.

Dave Gerard: With that Dave over to you.

Dave Gerard: Thanks, Tania and good afternoon, everyone. Thank you for joining us today.

Speaker Change: Our discussion will include non-GAAP financial measures, which are not a substitute for our gap results. Reconciliation of our historical gap to non-GAAP results can be found in our earnings materials, which are available on our IR website. And with that, Dave, over to you.

Dave Gerard: The first quarter was a strong one for us despite being our seasonally slowest time of the year.

Dave Girouard: And some of that is macro dependent and some of it is just technology that we could deliver.

Dave Girouard: But we are definitely you know, we kind of showed in our investor deck a little bit new way to look at the conversion rate in terms of, you know, how many unfulfilled requests there were there. And we just think there's a lot of ways that we can begin to fill in those fill in those bar graphs and convert more people.

Dave Gerard: That form originations grew 89% year on year with model wins and improved borrower.

Dave Gerard: Combining with more competitive capital should drive meaningfully higher conversion rates.

Dave Girouard: Thanks, Sonya. Good afternoon, everyone. Thank you for joining us today.

Dave Gerard: Revenue grew 67% year on year.

Dave Gerard: Just to EBITDA reached 20% for the first time in three years with fees generating 87% of our revenue. We were also right on the doorstep of GAAP profitability in Q1.

Dave Girouard: The first quarter was a strong one for Upstart, despite being our seasonally slowest time in the year. Platform originations grew 89% year-on-year, with model wins and improved borrower health, combining with more competitive capital to drive meaningfully higher conversion rates.

Sanjay Datta: Hey, John. Thank you. Yeah, just quickly touching on your question about the macro index.

Sanjay Datta: First of all, I think it's moved back in the deck, hopefully, because we've put some more stuff in the front for you, so it wasn't meant to be personal with respect to the index. And look, some of the numbers we had on there previously, it was all Fed-reported data. It was things like the personal savings rate, some inflation indicators, and some unemployment indicators. I think it was causing a bit of confusion, because I think people thought that we were deriving our index from those numbers, when in fact, we just view those to be correlative. And so we just clean up the page a little bit.

Dave Gerard: Just as importantly home and auto continues their torrid growth pace with the rate originations growing 52% and 42% respectively on a sequential basis.

Dave Girouard: Our revenue grew 67% year-on-year and our adjusted EBITDA reached 20% for the first time in three years.

Dave Gerard: From our perspective consumer financial health as represented by the upstart macro index has been largely improving for almost a year now currently remains elevated but stable.

Dave Girouard: With fees generating 87% of our revenue, we were also right on the doorstep of Gap profitability in Q1. [inaudible]

Dave Girouard: Just as importantly, home and auto continued their toward growth pace with the rate of originations growing 52% and 42% respectively on a sequential basis.

Dave Gerard: Our credit continues to perform well and while we have a vigilant with respect to any of the disruptions that recent government trade policy might cause. We're also confident that our ability to adapt to changing macroeconomic conditions is miles better than it was just a couple of years ago.

Sanjay Datta: I think if those fed data points are useful, we can we can certainly point you to them. They're publicly, publicly printed. All right. Thank you.

Dave Girouard: From our perspective, Consumer Financial Health, as represented by the Upstart macroindex, has been largely improving for almost a year now. Currently, it remains elevated but stable.

Simon Clinch: Our next question comes from Simon Clinch with Redburn Atlantic. Hi guys, thanks for taking my question. I was wondering if you could just touch on the contribution margin and the mixed impacts we've had on that and just have a think about that through the year, ultimately what's embedded in your guidance. I'm in the contribution margin. I guess I would point out a couple of dynamics in our sort of core. sort of personal loan product, I think in our sort of historic torso of the borrowing base, we have a relatively consistent margin. I would point to two dynamics.

Dave Gerard: Time of trade disruption and we're also happy that upstart because a 100% in the U S business, that's 100% digital.

Dave Girouard: Our credit continues to perform well, and while we're vigilant with respect to any disruptions that recent government trade policy might cause, we're also confident that our ability to adapt to changing macroeconomic conditions is miles better than it was just a couple of years ago.

Dave Gerard: Now I'll take you through some of the progress we made in each of our product areas in Q1.

Dave Gerard: With our core personal loan product originations were flat sequentially and up 83% year over year.

Dave Gerard: We continue to make rapid improvements to our models, but that facilitate underwriting and automated approvals. Additionally, we continue to strengthen and diversify the capital supply that is the fuel of our business.

Dave Girouard: At the time of trade disruption, we're also happy that Upstart is a 100% U.S. business that's 100% digital.

Dave Girouard: Now I'll take you through some of the progress we made in each of our product areas in Q1.

Dave Gerard: These improvements have contributed to increasing our conversion rates from 14% a year ago to 19% in Q1, we.

Dave Girouard: With our core personal loan product, originations were flat sequentially and up 83% year-over-year.

We also reached an all time high of 92% of loans fully automated meeting the entire process from rate request to loan closing is entirely driven by AI powered software with no human intervention by upstart.

Dave Girouard: We continue to make rapid improvements to our models that facilitate underwriting and automated approvals. Additionally, we continue to strengthen and diversify the capital supply that is the fuel of our business.

Sanjay Datta: One, we're increasingly adding to our mix, maybe on the primer side of the borrower segment. It's obviously a more competed market. And so I think the margins in that segment would not sort of touch the level that we have in some of the more historic segments that we play in. And so that will sort of act to decrease the margin numbers, as we talked about in some of the prepared remarks. And then, of course, as the newer products scale, whether it's HELOC or auto lending, or even some of our small dollar efforts, as those scale and gain traction, those, because they're earlier in their life cycle, don't have sort of mature margins yet either.

Dave Girouard: These improvements have contributed to increasing our conversion rates from 14% a year ago to 19% in Q1.

All else being equal, we believe that a faster automated process selects for better borrowers.

Dave Girouard: We also reached an all-time high of 92% of loans fully automated, meaning the entire process from rate request to loan closing is entirely driven by AI-powered software with no human intervention by Upstart.

Dave Gerard: Additionally, our best rates best process for all mantra has really begun to pay dividends in Q1, 32% of our originations were to Super Prime borrowers, which we as well as the CFPB define as borrowers with credit scores higher than $7 20.

Dave Girouard: While also being equal, we believe a faster automated process selects for better borrowers.

Dave Gerard: We measure progress against best rates, not just by portfolio mix, but also by the win rate versus competitors across the entire spectrum.

Dave Girouard: Additionally, our best rates, best process for all mantra has really begun to pay dividends.

Sanjay Datta: And so those two things are going to act to bring down the average number on the P&L. And that's some of what we pointed out with respect to our earlier remarks.

Dave Gerard: In this vein we have also made extraordinary strides in recent months I'm excited to share more about this with you, which I expect to do at our AI day event next week.

Dave Girouard: Q-1, 32% of our originations work to super prime borrowers, which we, as well as the CFPB, define as borrowers with credit scores to higher than 720.

Simon Clinch: Okay, thanks. And just as a follow up, just in terms of the environment we're in, we're hearing from some other players in the industry that there's very strong demand for personal loans, feeding off the the desire to consolidate debt from your very large credit card balances. I was wondering if you could just talk to that demand trend. And yeah, any any sort of fluctuations you might be seeing in that or cooperation?

Dave Gerard: We continue to stack up model wins, putting more distance between upstart AI and the rest of the industry. Since last we spoke we introduced embedding to our core personal loan underwriting model embedding or a machine learning technique that convert complex unstructured data into useful model inputs or features.

Dave Girouard: We measure progress against best rates, not just by portfolio mix, but also by win rate versus competitors across the entire spectrum.

Dave Girouard: In this vein, we've also made extraordinary strides in recent months. I'm excited to share more about this with you, which I expect to do at our AI Day event next week.

Dave Gerard: In ml speak this is done by clustering data that have meaningful relationships, allowing seemingly random data to become valuable to predicting credit performance.

Dave Girouard: We continue to stack up model wins, putting more distance between Upstart AI and the rest of the industry.

Simon Clinch: Hey, Simon. You know, I think credit demand continues to be strong. In fact, I would just say on a seasonal basis, it tends to strengthen at this time of year as you come out of Q1. So we are definitely, you know, kind of experiencing the end of the seasonality, the sort of tax season seasonality.

Dave Girouard: Since last week's book, we introduced embeddings to our core personal loan underwriting model. Embeddings are a machine learning technique that convert complex unstructured data into useful model inputs or features in ML Speak.

Dave Gerard: For example to consumers may have different credit cards say, an amex and its chase Sapphire card with embedding our model can learn that these cards might reflect similar consumer behaviors. What makes this approach. So powerful is that embedded in his help us uncover subtle patterns that would be difficult or even impossible to IV.

Dave Girouard: This is done by clustering data that have meaningful relationships, allowing seemingly random data to become valuable to predicting credit performance.

Simon Clinch: And whether there's anything special to this year, a little unclear. But you know, I guess from our perspective, gross demand, you know, sort of the amount of just gross demand for credit out there doesn't vary a ton. It always tends to be quite strong. And for sure, right now, we're seeing a lot of demand up.

Dave Gerard: <unk> otherwise.

Dave Girouard: For example, two consumers may have different credit cards, say an Amax and its Chase Sapphire card. With embeddings, our model can learn that these cards might reflect similar consumer behaviors

Dave Gerard: Leads to better model generalization improved accuracy and more informed credit decisions. While embedded is a widely used in other domains like natural language processing applying them to credit underwriting is entirely novel, we're excited about what <unk> can do to drive our risk separation metrics forward and we're equally.

Simon Clinch: Great, thanks.

Dave Girouard: What makes this approach so powerful is that embeddings help us uncover subtle patterns that would be difficult or even impossible to identify otherwise.

Kyle Peterson: Our next question comes from Kyle Peterson with Needham and Company. Great. Thanks.

Dave Gerard: Excited about the pipeline of modeling innovations in front of us in 2025.

Dave Girouard: This leads to better model generalization, improved accuracy, and more informed credit decisions.

Sam Salvezon: Hey guys, it's Sam Salvezon for Kyle today. Nice results. And thanks for taking the questions.

Dave Gerard: Last quarter I told you that our auto business finished 2024 by growing originations about 60% sequentially well in the first quarter of 2025 originations grew another 42% sequentially.

Sam Salvezon: Good to see the agreement with Fortress today.

Dave Girouard: While embeddings are widely used in other domains, like natural language processing, applying them to credit underwriting is entirely novel.

Sanjay Datta: I was wondering if you guys could talk a bit more about how you're thinking about funding and the funding mix kind of given the more noisy macro climate we're in today. Hey, Sam. Yeah, just maybe as a refresher on it, contextually, there's maybe three sort of general sources of funding we think about. There is, you know, the originations that happen by other lenders who are using our technology. They tend to be banks and credit unions originating for their own balance sheet. We've got a number of large-scale partnerships. You referenced the latest one we announced, which is with Fortress.

Dave Girouard: We're excited about what embeddings can do to drive our risk separation metrics forward, and we're equally excited about the pipeline of modeling innovations in front of us in 2025.

Dave Gerard: Q1, being the seasonally softest time of the year.

Dave Gerard: Our auto lending grew almost five X compared to a year ago.

Dave Girouard: Last quarter, I told you that our auto business finished 2024 by growing originations about 60% sequentially. Well, in the first quarter of 2025, originations grew another 42% sequentially, despite Q1 being the seasonally softest time of the year.

Dave Gerard: The increases were driven principally by a model updates and pricing improvements at the same time, our continued focus on cross selling existing customers reduced acquisition cost for our auto refinance product by 57% quarter over quarter. This mega improvement in CAC was driven as usual by <unk>.

Dave Girouard: Upstart auto-lending grew almost 5x compared to a year ago. [inaudible]

Dave Gerard: Conversion rate, which more than doubled sequentially in Q1.

Dave Girouard: These increases were driven principally by a model updates and pricing improvements.

Dave Gerard: In Q1, we also saw our first instant approval of an auto refinance loan where the borrower completed the entire process in a single session of just nine minutes as far as we know this could be the first instantly approved auto refinance flown in the world. This is a modest beginning but sets us down the path of automation.

Dave Girouard: At the same time, our continued focus on cross-selling existing customers [inaudible]

Sanjay Datta: And then there's what you might think of as the sort of at-will or securitization market. And we like a balance between all three of those. I think they each have a place in our ecosystem. Obviously, with the added uncertainty in today's market, securitization markets and sort of at-will funding is a little bit less reliable. And I think that the things that were behind our strategy for creating a number of large committed partnerships is kind of playing out right now and really shining. And so, you know, in the current market, maybe there's a bit more. Reliance placed on those agreements given that they're sort of designed for this market in particular.

Dave Gerard: That has been so central to our success in personal loans.

Dave Girouard: In Q1, we also saw our first instant approval of an auto refinance loan, where the borrower completed the entire process in a single session of just nine minutes.

Dave Gerard: And our home lending category, we're thrilled with how quickly our HELOC product is maturing in December reported our personal loan models for instantly verifying income and identity to our HELOC product. This increased instant income and identity verification from less than half of loans in Q4 to nearly two third.

Dave Girouard: As far as we know, this could be the first instantly-approved auto refinance loan in the world. This is a modest beginning, but sets us down the path of automation that has been so central to our success in personal loans.

Dave Gerard: A few blocks this past quarter.

Dave Girouard: In the Home Lending Category, we're thrilled with how quickly our heat lock product is maturing. In December , we ported our personal loan models for instantly verifying income and identity to our heat lock product.

Dave Gerard: This is an experienced borrowers love instantly approved applications converted more than twice the rate of those require manual intervention.

Sanjay Datta: Got it. Okay. Yeah, makes sense.

Dave Gerard: It's also a strong demonstration of how our core technology can be generalized across credit categories.

Sanjay Datta: And then I just you guys called out some take rate pressure from higher subprime. borrowers. Could you talk about how you guys are thinking about take rates as you kind of update your models throughout the remainder of the year? Yeah, just to clarify that sort of take rate, I wouldn't call it pressure, we're sort of increasingly successful in the super prime segment, not the sub prime. And very prime borrowers have a lot of, you know, competitive alternatives. And, you know, take rates and margins are necessarily lower in that segment. So as we gain share or increase mix from maybe the prime and the super prime segments of borrowers, you'll see the average take rates, you know, come down.

Dave Girouard: This increased instant income and identity verification from less than half of loans in Q4 to nearly two thirds of Helox in this past quarter. This is an experienced borrower's love, instantly approved applications convert it more than twice the rate of those requiring manual intervention.

Dave Gerard: In Q1, we also finally launched the upstart HELOC and California, bringing our footprint to 37 States plus Washington D. C now covering almost 75% of the U S population.

Dave Gerard: As I mentioned earlier in Q1, our HELOC originations grew 52% quarter on quarter and more than <unk> compared to a year ago. We now have agreements signed with three lending partners for a HELOC product and have begun the process of moving funding off of our balance sheet. We expect this will take considerable time as we bring in <unk>.

Dave Girouard: It's also a strong demonstration of how our core technology can be generalized across credit categories.

Dave Girouard: In Q1, we also finally launched the Upstart Key Lock in California, bringing our footprint to 37 states plus Washington DC, now covering almost 75% of the U.S. population.

Dave Gerard: Both depository and institutional capital to this category.

Dave Girouard: As I mentioned earlier, in Q1, our hillock originations grew 52% quarter on quarter and more than 6x compared to a year ago.

Dave Gerard: Our small dollar product continues to perform well with originations growing 7% sequentially and almost tripling year on year. Our STL continues to be a critical customer acquisition tool accounting for nearly 16% of new borrowers an upstart in Q1.

Dave Girouard: We now have agreement signed with three lending partners for our helot product and have begun the process of moving funding off of our balance sheet. We expect this will take considerable time as we bring both depository and institutional capital to this category.

Sanjay Datta: I think it's also important to say that our, you know, our contribution margin and take rates are well above what they were back in 2021. So we have a lot of room. It's not really our goal to maximize our contribution margin at this point. So diversifying into super prime loans has such value to us that I think taking down our contribution margin, you know, back toward where it was in our earlier days is actually a very good thing. Okay, yeah, sure.

Dave Gerard: As I previewed back in February in Q1, we moved to a single underwriting model for both of our unsecured products. This mean for small dollar product is benefiting straight away from machine learning innovations such as embedding that I described earlier.

Dave Girouard: Our small dollar product continues to perform well with originations growing 7% sequentially and almost tripling year on year. Our STL continues to be a critical customer acquisition tool, accounting for nearly 16% of new borrowers on Upstart in Q1.

Dave Gerard: In Q1, we continue to work to modernize and scale our servicing operations, we're rapidly automating routine tasks like processing payment failures and check handling. So we can spend human time on more valuable tasks in Q1, we automated 90% of hardship applications, making the process more seamless for.

Sanjay Datta: Okay, thanks guys.

Mihir Bhatia: Our next question comes from Mihir Bhatia with Bank of America. Hi, good afternoon. Thank you for taking my question. The first question I wanted to ask was about just how have funding partners reacted to the volatility? Did you see any pullback from either your forward flow partners or even from, I guess, the third party partners, you know, the more opportunistic capital in early April from the volatility we saw in the fixed income markets? Yeah, I'm here.

Dave Girouard: There's a previewed back in February . In Q1, we move to a single underwriting model for both of our unsecured products. This means the small-dollar product is benefiting straight away from machine learning innovations, such as embedding for that described earlier.

Dave Gerard: Borrowers and more efficient for upstart.

Dave Girouard: In Q1 we continue to work to modernize and scale our servicing operations. We rapidly automated routine tasks like processing payment failures and check handling so we can spend human time on more valuable tasks.

Dave Gerard: Beyond the technology. The work we've done to prioritize direct collections efforts for borrowers that risk of default have continued to have a meaningful impact.

Dave Gerard: For example in Q1, we realized a 50% increase in debt settlement acceptances by except extending repayment terms for at risk borrowers and our auto business, we doubled our recovery rates year over year in Q1.

Dave Girouard: In Q1, we automated 90% of hardship applications, making the process more seamless for borrowers and more efficient for upstart

Sanjay Datta: I think that these committed partnerships are frankly behaving exactly as designed, you know, that the basis of those partnerships was that we essentially committed to navigating the different parts of the macro cycle together. And the structure of these deals helps to even out the different phases of that cycle. And, you know, those things are going exactly the way we expect them to. We believe we have the tools to react, to read and react to shifts in the credit risk environment very quickly on behalf of the partners. And a lot of these partnerships, frankly, have now accumulated some overperformance in these structures that are there for a rainy day.

Dave Girouard: Beyond the technology, the work we've done to prioritize direct collections efforts for borrowers at risk of default have continued to have a meaningful impact

Dave Gerard: We've been improving our data collection and structuring and servicing for quite some time now and expect to launch our first machine learning model in this area very soon.

Dave Girouard: For example, in Q1, we realized a 50% increase in debt settlement acceptances by extending re-payment terms for at-risk borrowers. In our auto business, we doubled our recovery rates year over year in Q1.

Dave Gerard: We're excited about the potential for ml and loan servicing to increase efficiency and reduced loss rates.

Dave Gerard: This is a necessary step towards launching our servicing and collections as a highly differentiated the standalone offering in the market, which we hope to do in the future.

Dave Gerard: I'd like to quickly touch on up starts 2025 priorities that I mentioned to you in February we're making great strides against this list and I'm grateful for the many upstart as who are putting their all in to making this an incredible year for upstart.

Sanjay Datta: So I think that they are exactly as intended. You know, more broadly, the sort of securitization markets and the at-will markets are still functioning. I think that, you know, spreads are a little bit higher in events. Events rates are not as you know, are not as low as high as they were before. But, but, you know, the beautiful thing about the large committed partnerships we have is that we don't have to rely as much on the at will markets. And so, you know, as a result, our funding rails are as resilient as ever, and we haven't had any pullback.

Dave Girouard: This is the necessary step toward launching our servicing and collections as a highly differentiated standalone offering in the market, which we hope to do in the future.

Dave Gerard: First tenex our leadership in AI already this year, we've made great leaps forward both in process and substance that reinforce that when it comes to AI lending I've started a category of one embedding are a real breakthrough for our AI Foundation model and I'm convinced it will pay dividends across all of our products over.

Dave Girouard: I'd like to quickly touch on Upstart's 2025 priorities that I mentioned to you in February . We're making great strides against this list, and I'm grateful for the many Upstart artists who are putting their all into making this an incredible year for Upstart.

Dave Gerard: Time or.

Dave Gerard: Our pipeline of modeling wins is beyond robust so I couldnt be happier about our progress here.

Dave Girouard: First, connects our leadership in AI. Already this year with a great leaps forward both in process and substance, that reinforced that when it comes to AI levelling, Upstart is the category of one.

Sanjay Datta: Let me just add to that, Mihir. I mean, just for clarity, we've had no pullbacks from our private credit kind of committed capital partners. And we've likewise had no pullbacks from banks or credit unions. So I think our credit continues to perform. And I think the confidence that they have in Upstart is quite strong. No, that is helpful. Thank you.

Dave Gerard: Second prepare our funding for supply for rapid growth.

Dave Gerard: We continue to have well over 50% of loan funding and committed partnership agreements in early April we signed our first committed capital arrangement with fortress, who is an industry leader in private credit.

Dave Girouard: Embeddings are a real breakthrough for our AI foundation model and I'm convinced it will pay dividends across all of our products over time. Our pipeline of modeling wins is beyond robust so I couldn't be happier about our progress here.

Dave Gerard: Looking forward, we expect to add our newer products to these partnerships, which will greatly expand on the value and efficiency they bring to upstart.

Dave Girouard: And then I did want to one other question on a similar topic, really, in terms of the macro volatility. Dave, you mentioned you'll have more tools to react to it. I guess the question really is, how has Upstart reacted so far to like, how have you changed to the rising uncertainty around macro? Have you changed any underwriting, any of your product mix, maybe where you're trying to commit more marketing dollars?

Dave Girouard: Second, prepare a funding supply for rapid growth. We continue to have well over 50% of loan funding in committed partnership agreements.

Dave Gerard: Additionally, we added 15, new lending partners to our Super Prime offering growing capital, 38% quarter to quarter for that market segment.

Dave Girouard: In the early April , we signed our first committed capital arrangement with Fortress, who's an industry leader in private credit.

Dave Gerard: Third return to GAAP net income profitability in the second half of the year.

Dave Girouard: Looking forward, we expect to add our newer products to these partnerships which will greatly expand on the value and efficiency they bring to Upstart. Additionally, we added 15 new lending partners to our superprime offering, growing capital 38% quarter to quarter for that market segment.

We're on track for this right now and excited to demonstrate the leverage in our business as both our core and newer products expand rapidly through the year.

Dave Gerard: Last but not least giant leaps toward best rates best process for all earlier this year I challenged each of our product items to have the best rates against major market competitors for each borrower segment. They serve by the end of 2025.

Dave Girouard: Has there been any changes so far to how you're operating the business to the way the macro uncertainty has changed over the last four months? Thank you. Well, I'll say first of all, I mean, we're definitely a conservative business who is very careful about fixed costs and hiring and things of that nature. So we have been forever, but I think, you know, for years now, I think we're extremely cautious about how we plan our own business.

Dave Girouard: Third, return to gap net income profitability in the second half of the year. We're in track for this right now and excited to demonstrate the leverage in our business as both our core and newer products expand rapidly through the year.

Dave Gerard: Specifically this means that our win rate it should be higher than any other digital competitor in each of our products. This is of course comps of the prerequisite of on target or better credit performance as well as solid unit economics I'm pleased to share that we're running well ahead of this target, particularly in our core personal loan product you'll hear me.

Dave Girouard: Just by way of example, all of our guidance and all does not assume any reduction in Fed rates this year. So that would just be a sample of that. With respect to credit, which you seem like maybe you're asking that as well. You know, generally, we rely on our models being very, very quick and adapt at adapting to macroeconomic changes. And we also build some conservatism in there so that we don't assume the future will be as good as the past was. So that combination, we think, is as good as you get in the market.

Dave Gerard: More about this next week at AAD.

Dave Girouard: Specifically this means that our win rate should be higher than any of the digital competitor in the nature of our products.

Dave Gerard: To wrap up my remarks today I think much of the world has come down with the case of AI fatigue. There's just so much discussion and so many predictions about what AI will do or what it might do to the world through our lives into our children's lives I admit I roll my eyes at some of the debates and the discussions as well.

Dave Girouard: This, of course, comes with a prerequisite of on-target or better credit performance as well as solid unit economics. I'm pleased to share that we're running well ahead of this target, particularly in our core personal loan product. You'll hear more about this next week at AI Day.

Mihir Bhatia: I don't think there's anyone else that has models that are as adaptive and quick to hone in on any changes in the macro. And we have some conservatism built in and it's serving us really well, as well as, of course, our lending partners and our private capital partners. Alright, thank you for taking my question.

Speaker Change: But not sure it's case AI and its unique capabilities are unquestionably aligned with a better future for all when it comes to financial wellness improvements to our risk models and expansion of our product line, we are reducing the price of credit for the world more and more each day.

Dave Girouard: To wrap up my remarks today, I think much of the world has come down with a case of AI fatigue. There's just so much discussion in so many predictions about what AI will do or what it might do to the world, to our lives, and to our children's lives.

Dave Girouard: I admit I roll my eyes at some of the debates in the discussions as well. But not start case AI in its unique capabilities are unquestionably aligned with the better future for all when it comes to financial wellness.

Speaker Change: You are still unclear about the incredible opportunity for AI enabled lending and Im sorry. Its leadership in this vital category I hope you'll join US next week for AIA I promise you won't be disappointed.

Les Trent: And we'll move to our next question from Pete Christiansen with Citi. Thank you. Good evening.

Les Trent: Les Trent here. I do want to talk. You give some good color on the consumer credit side. Seems still pretty healthy. Also, your partners and the outwill side still fairly healthy.

Speaker Change: Thank you and I'd now like to turn it over to Sanjay Our Chief Financial Officer to walk through our Q1 2025 financial results and guidance Sanjay.

Dave Girouard: Improvements to our risk models and expansion of our product line, we are reducing the price of credit for the world more and more each day.

Dave Girouard: If you're still unclear about the incredible opportunity for AI-enabled lending and Upstart's leadership in this vital category, I hope you'll join us next week for AI Day. I promise you won't be disappointed.

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

Pete Christiansen: I want to dig a little deeper onto the ABS side. I know you had a $320 million transaction, was it two weeks ago? Just curious if you had any feedback on the health of what you're seeing in the ABS market for more consumer loans. Do you think there's opportunity to do more there this year? And then if you can comment on some of your risk retention and how do you believe that that's going to trend in the next few quarters. Thank you.

Sanjay Data: Financially the first quarter of 2025 came in slightly ahead of expectations without performance on the top and bottom line, owing primarily to higher than anticipated net interest income.

Dave Girouard: Thank you, and now I'd like to turn it over to Sanjay, our chief financial officer, to walk through our Q1 2025 financial

Sanjay Data: The impact of the typically soft tax seasonality in Q1 played out largely as expected and despite recent turbulence in the financial markets. The effects of the macro environment on credit performance is in our estimation remained relatively stable throughout the quarter and roughly consistent with our prior assumptions.

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

Sanjay Datta: Financially, the first quarter of 2025 came in slightly ahead of expectation, without performance on the top and bottom line, owing primarily to higher than anticipated net interest income.

Sanjay Data: Revenue for Q1 came in at approximately $213 million up 67% year on year.

Pete Christiansen: Hey, Pete. Yeah, we were really pleased with the way that the latest ABS deal printed. Frankly, it was a very healthily oversubscribed book on the bonds. The spreads were a little bit wider than they were earlier in the year. That's sort of natural. But overall, I think we were really happy with the way it worked. And in particular, we use that market opportunistically. We don't rely on it. Our committed capital partners don't rely on it. When it's available and we can print deals like that, it's great. But if it's not, it's not sort of a cog in the wheel that we've got a lot of reliance on.

Sanjay Datta: The impact of the typically soft tax seasonality in Q1 played out largely as expected, and despite recent turbulence in the financial markets, the effects of the macro environment on credit performance, as in our estimation remain relatively stable throughout the quarter and roughly consistent with our prior assumptions.

Sanjay Data: This overall number included revenue from fees of $185 million, which was up 34% year over year.

Sanjay Data: This amount was in line with guidance, although from a mixed perspective, we outperformed our expectations.

Sanjay Data: And Super Prime borrowers segment, resulting in higher overall origination volumes than anticipated at lower take rates.

Sanjay Datta: Total revenue for Q1 came in at approximately $213 million, up 67% year-on-year.

Sanjay Data: Additionally, net interest income represented roughly $28 million of overall revenue.

Sanjay Datta: This overall number included revenue from fees of 185 million, which was up 34% Eurovere.

Sanjay Data: Feeding our outlook by $13 million.

Sanjay Datta: This amount was in line with guidance, although from a mixed perspective, we outperformed our expectations in super prime borrower segment, resulting in higher overall origination volumes that anticipated at lower take rates. [inaudible]

Sanjay Data: Approximately half of this amount came in the form of higher net interest spreads from our balance sheet as we pass peak charge offs from older vintages.

Pete Christiansen: So all in all, it was a good story.

Pete Christiansen: You know, I guess that's part of your question is where the ABS markets go from here. I don't I don't know that we have a strong view on that. They're famously hard to predict. But I guess the fact that they are just an opportunistic channel for us makes it less, you know, acutely important.

Sanjay Data: And half came in the form of unrealized fair value gains as the recently declining <unk> trend worked its way into our various fair value marks.

Sanjay Datta: Additionally, net interest income represented roughly $28 million of overall revenue, exceeding an hour outlook by $13 million.

Sanjay Data: The volume of loan transactions across our platform was approximately 241000 up 102% from the prior year, but down 2% sequentially and.

Sanjay Datta: Approximately half of this amount came in the form of higher net interest spreads from Arvind Ramnani as we passed peak charge-offs from older ventages. A half came in the form of unrealized fair value gains as the recently declining UMI trend worked its way into our various fair value marks.

Pete Christiansen: That's helpful.

Pete Christiansen: And then, I guess, on the fortress... Plan, and then also I guess you added 15 new partners as well. Just curious if there's any trend changes in risk retention, co-investment, and how that's been going. Not really. I think the structure of these deals is very consistent now, so no trend particularly in either direction in terms of how they work or how they're structured or what the terms are.

Sanjay Data: And representing 163000, new borrowers.

Sanjay Data: Average loan size of approximately $8865 nudged up from 8580 in the prior quarter as the proportion of loans made the super Prime borrowers increased.

Sanjay Datta: The volume of loan transactions across our platform was approximately 241,000, up 102% from the prior year, but down 2% sequentially.

Sanjay Data: Our contribution margin non-GAAP metric, which we define as revenue from fees.

and representing 163,000 new borrowers. [inaudible]

Sanjay Data: Variable costs per borrower acquisition verification and servicing as a percentage of revenue from fees came in at 55% in Q1 down.

Sanjay Datta: Average loan size of approximately $8,865 nudged up from $8,580 in the prior quarter, as the proportion of loans made to super prime borrowers increased.

Pete Christiansen: Thank you. Nice report.

Sanjay Data: Down six percentage points from the prior quarter and two points below guidance.

James Faucette: And our next question comes from James Faucette with Morgan Stanley.

Sanjay Data: Due to the lower take rates realized in the primary borrower segments, where we exceeded expectations.

Sanjay Datta: Our contribution margin, a 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.

Sanjay Data: GAAP operating expenses were roughly $218 million in Q1 down 3% sequentially from Q4.

Sanjay Datta: Damon at 55% in Q1, down 6% points from the prior quarter and two points below guidance, largely due to the lower take rates realized in the primer borrower segments where we exceeded expectations.

Sanjay Data: Expenses that are considered variable relating to borrower acquisition verification and servicing.

Michael Infante: Hey guys, this is Michael Infante for James. Hey, it's Michael Infante, thanks for taking our question. I just wanted to sort of dig in on how you're thinking about the TAM opportunity today. So if I just think about the overall unsecured personal lending market, like is there any rough segmentation you can provide just on how that how that TAM opportunity of call it 150 billion sort of segments by FICO score, I'm just trying to contextualize your relative penetration with a more traditional upstart borrower versus a newer prime borrower. I would say we have some sort of like back-of-the-envelope-like notion of that.

Sanjay Data: We're up 7% sequentially relative to a 2% decline in transaction volume, which is reflective of the lower contribution margins previously referenced.

Sanjay Datta: Gap operating expenses were roughly $280 million in Q1, down 3% sequentially from Q4.

Sanjay Data: Fixed expenses were down 8% quarter over quarter some of the temporary catch up accruals from Q4 rolled off and the new in the new year.

Sanjay Datta: Expenses that are considered variable relating to borrower acquisition, verification, and servicing were up 7% sequentially relative to a 2% dope coin in transaction volume, which is reflective of the lower contribution margins previously referenced.

Taken together Q1, GAAP net loss was $2 million well ahead of expectation and reflecting the outperformance on net interest income against our tightly managed fixed cost base.

Sanjay Datta: Fixed expenses were down 8% quarter-over-quarter as some of the temporary catch-up accruals from Q4 rolled off in the new year.

Sanjay Data: Adjusted EBITDA was $43 million also scaling nicely in accordance with our operating leverage.

Sanjay Data: Adjusted earnings per share was 30 cents.

Michael Infante: We don't try to measure that too particularly, but I would say roughly that consumers in the U.S. split somewhat evenly between what you would call a prime or even super-prime borrower, you know, 720-plus, or more of the people that we have typically served, you know, low 600s to 720, and if you just want to – I think that at least my take is the personal loan perspective, the size of those markets are relatively similar. So I think from that perspective, as we began to really open up to the super-prime part of the market, we've kind of doubled the TAM, particularly in personal loans, and then, of course, that's all quite small relative to the TAM in home and auto put together.

Sanjay Datta: Taken together, Q1 gap net loss was $2 million, well ahead of expectation and reflecting the outperformance of a net interest income against our tightly managed fixed cost space.

Sanjay Data: Based on a diluted weighted average share count of $104 million.

Sanjay Data: We ended Q1 with $726 million of loans held directly on the balance sheet.

Sanjay Datta: Adjusted EBITDA was $43 million, also scaling nicely in accordance with our operating leverage.

Sanjay Data: Which is down 21% from the prior year, but up sequentially from $703 million in Q4, as our newer R&D products continued to scale.

Sanjay Datta: Adjusted earnings per share was $0.30 based on a diluted weighted average share count of $104 million.

Sanjay Data: Additionally, we recognized $89 million in loans from the consolidation of the securitization deal in which we retained minimal economic exposure.

Sanjay Datta: We ended Q1 with $726 million of loans held directly on the balance sheet, which is down 21% from the prior year, but up sequentially from $703 million in Q4 as our newer R&D products continued to scale. [inaudible]

Sanjay Data: We ended Q1 with unrestricted cash of approximately $600 million.

Sanjay Data: From $788 million in the prior quarter with the Delta primarily going towards R&D loan funding for new products third party risk capital partnerships and a reduction in working capital from the beginning of your corporate bonus payouts.

Michael Infante: But that's how we would think about that.

Sanjay Datta: Additionally, we recognized $89 million in loans from the consolidation of a securitization deal in which we retain minimal economic exposure.

Michael Infante: That's helpful. Maybe just on customer acquisition, anything you would call out just in terms of how your mix is evolving between pure organic traffic, upstart.com, how much is originated by direct mail, and what you're sourcing via third party marketplaces?

Sanjay Data: In Q1, we put in place a universal shelf and a $500 million at the market program, which gives us additional balance sheet flexibility.

Sanjay Datta: We ended Q1 with unrestricted cash of approximately $600 million down from $788 million in the prior quarter.

Sanjay Data: We remain extremely pleased with our network of third party capital relationships and are excited to welcome to the fortress investment group.

Sanjay Datta: with the Delta primarily going towards R&D loan funding for new products.

Michael Infante: Thanks. Yeah, nothing really to call out in terms of channel trends from last quarter to this.

Sanjay Datta: Third-party Risk Capital Partnerships, and a reduction in working capital from beginning of your corporate bonus payouts.

Sanjay Data: New committed capital provider on our platform.

Sanjay Data: Overall these relationships now comprise well north of 50% of the funding on our platform.

John Hecht: All of them are pretty study- And we'll move to our next question from James Hecht, Jeffrey.

Sanjay Datta: In Q1, we put in place a universal shelf and a $500 million at the market program which gives us additional balance sheet flexibility.

Sanjay Data: And they are demonstrating their intended resilience in the current market climate of uncertainty.

Sanjay Data: As we look to Q2 and the remainder of 2025 much of the discussion has shifted to potential impacts from the macro environment.

Sanjay Datta: We remain extremely pleased with our network of third-party capital relationships and are excited to welcome the Fortress Investment Group as a new committed capital provider on our platform.

John Hecht: Hey, guys, it's actually it's John Hecht from Jefferies. Hope you guys, thanks for taking my questions. Real quick, Sanjay, maybe a little bit more just kind of on, I guess, thinking about the fluctuations in the take rate. Obviously, we know there's a difference between core and super prime, or the prime customer. But maybe what does, what are you guys thinking about in terms Mix © The Bulletproof Executive 2013 And then at maturity, what is the take rate of like HELOC and AUTO? I mean, I know those are different markets with different sets of factors. So what are the kind of mature take rates of those versus the current take?

As mentioned, we've seen little discernible impact of the macro on credit performance so far.

Sanjay Datta: Overall, these relationships now comprise well more than 50% of the funding on our platform, and they are demonstrating their intended resilience in the current market climate uncertainty.

Sanjay Data: Uncertainty has increased.

Sanjay Data: And we see the potential for both upside and downside scenarios that are credible in the near to medium term.

Sanjay Data: The main near term risk in our estimation is re inflation as any persistent tariffs placed on a significant share of our important economy will make things less affordable for consumers a clear negative influence on credit.

Sanjay Datta: As we look to Q2 and the remainder of 2025, much of the discussions has shifted to potential impacts from the macro environment.

Sanjay Datta: As mentioned, we've seen little discernible impact of the macro on credit performance so far.

Sanjay Data: On the other hand in the context of an already high default environment with razor thin savings rates are continuing stance is that any dynamic, which tempers current high levels of consumption back into line with underlying income would represent a positive effect on credit.

Sanjay Datta: Uncertainty has increased and we see the potential for both upside and downside scenarios that are credible in the near to medium term.

Sanjay Datta: The main near-term risk in our estimation is reinflation, as any persistent tariffs placed on the significant share of our import economy will make things less affordable for consumers a clear negative influence on credit.

Sanjay Data: We remain sanguine about the prospective risks and the labor market, where we observe as many job openings and the economy as there are unemployed workers and continue to perceive a structural shortage of labor supply that is under continuing pressure from demographic trends.

Sanjay Datta: Hey, John. Sorry about the name flip there. I don't think we have an explicit... Blitz between maybe sort of like supercrime and, you know, near prime segments within our guidance. I will say that You know, as we said in our remarks, I think we did disproportionately well in the primer segments. And we hope for that to continue. It's an area we're very, we're bullish on, we're earlier on, obviously, and we're sort of at maybe the more beginning stages. So we would maybe hope to grow that disproportionately. With respect to take rates on the newer products, it's still a little bit early to tell, I think, but I think in general, I would say both.

Sanjay Datta: On the other hand, in the context of an already high default environment with razor-thin savings rates, our continuing stance is that any dynamic, which tempers current high levels of consumption back into line with underlying income, would represent a positive effect on credit.

Sanjay Data: Given this context, our macro assumptions for the duration of this year remained consistent with the prior quarter, namely we factor in no explicit expectation of any rate cuts and are planning for a steady macro environment in which the upstart macro index remains in a range of one four to one five.

Sanjay Datta: We remain sanguine about the prospective risks in the labor market, where we observe as many job openings in the economy as there are unemployed workers, and continue to perceive a structural shortage of labor supply that is under continuing pressure from demographic trends.

Sanjay Data: With this as background for Q2.

Sanjay Datta: Given this context, our macro assumptions for the duration of this year remained consistent with the prior quarter, namely we factor in no explicit expectation of any rate cuts and are planning for a steady macro environment in which the upstart macro index remains in a range of $1 four to one five.

Sanjay Data: We are expecting total revenues of approximately $225 million.

Consisting of revenue from fees of approximately $210 million and total net interest income of approximately positive $15 million.

Sanjay Datta: Home and Auto would have the profile of being larger loans, maybe with more modest, at least, you know, initially more modest take rates. until our models can create the type of separation we have in personal lending, which allows us to sort of increase take rates over time. But there'll be larger loans with initially lower take rates and maybe sort of similar dollar contributions per loan. And then in the case of some products such as maybe, for example, auto is a good one, that contribution will be more ratable over the life of the loan in the form of servicing economics and less about upfront transaction take as we have almost exclusively on our core PL business.

Sanjay Data: Contribution margin of approximately 55%.

Sanjay Datta: With this as background for Q2.

Sanjay Data: Net income of approximately negative $10 million.

Sanjay Datta: We are expecting total revenues of approximately $225 million.

Sanjay Data: Adjusted net income of approximately positive $25 million.

Sanjay Datta: Consisting of revenue from fees of approximately $210 million and total net interest income of approximately positive $15 million.

Sanjay Data: Adjusted EBITDA of approximately $37 million.

Sanjay Data: With a basic weighted average share count of approximately 96 million shares in the diluted weighted average share count of approximately 104 million shares.

Sanjay Datta: Contribution margin of approximately 55%.

Sanjay Datta: Net income of approximately negative $10 million.

Sanjay Data: For the full year of 2025.

Sanjay Datta: Adjusted net income of approximately positive 25 million.

Sanjay Data: We now expect total revenues of approximately 1.01 billion <unk>.

Sanjay Datta: Adjusted EBITDA.

Sanjay Datta: <unk> $37 million.

Sanjay Data: Consisting of revenue from fees of approximately $920 million and net interest income of approximately positive $90 million.

Sanjay Datta: With a basic weighted average share count of approximately 96 million shares in the diluted weighted average share count of approximately 104 million shares.

Sanjay Datta: Okay, that's super helpful. And then follow up. Clearly, the private credit markets, they can structure, I guess, mutually favorable deals with you guys. And as a result, and they have a lot of liquidity in that market, as a result, it's pretty active. How would you define kind of the banks? I know earlier on, they were fairly active, and obviously, just given economic uncertainty and inflation and just sort of the last few years, I think they've been less active. How would you characterize that? And then what are you looking for in terms of ability to kind of re-engage more aggressively with that?

Sanjay Data: Adjusted EBITDA margin of approximately 19%.

Sanjay Datta: For the full year of 2025.

Sanjay Data: And we expect GAAP net income to be positive in the second half of the year and positive for the full calendar year.

Sanjay Datta: We now expect total revenues of approximately 1.01 billion <unk>.

Sanjay Data: Beyond the numbers I would just like to reiterate our gratitude to all of the hard working teams at upstart will make these results achievable.

Sanjay Datta: Consisting of revenue from fees of approximately $920 million.

Sanjay Datta: Net interest income of approximately positive $90 million.

Sanjay Data: And with that operator over to you for Q&A.

Sanjay Datta: Adjusted EBITDA margin of approximately 19%.

Speaker Change: Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Sanjay Datta: And we expect GAAP net income to be positive in the second half of the year and positive for the full calendar year.

Sanjay Datta: Beyond the numbers I would just like to reiterate our gratitude to all of the hard working teams at upstart will make these results are achievable.

Again press Star one to ask a question.

Sanjay Datta: And with that operator over to you for Q&A.

Well pause for just a moment to allow everyone the opportunity to ask a question.

Sanjay Datta: Well, I think the thing that you can say about banks is they love secured products much more than unsecured products. So you know, personal loans, a lot of the funding at the primer end comes from credit unions, and increasingly institutional capital, private credit, you know, blended in certain ways, we think will compete quite well in the super prime part of our business. But with respect to banks, they really prefer secured products, and right now, there is certainly more demand from them for our HELOC product. And I believe soon enough, our auto products that will we would be struggling to fill that demand for a very long time.

Speaker Change: Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function turned off to allow your signal to reach our equipment again press star one to ask a question.

And our first question comes from Dan Donlan with Mizuho. Please go ahead.

Speaker Change: Hey, guys really nice results here.

Speaker Change: Grads.

Speaker Change: One question and one follow up was really excited to see the Walmart partnership can you talk a little bit more about that and then I have a.

Sanjay Datta: Well pause for just a moment to allow everyone the opportunity to ask a question.

And our first question comes from Dan Donlan with <unk>.

Speaker Change: A follow up as well thank you.

Speaker Change: Mr. Oh. Please go ahead.

Dave Gerard: Hey, Dan This is Dave Thanks for the question.

Speaker Change: Hey, guys really nice results here.

Speaker Change: Yes.

Speaker Change: So much we can really say there, but we did sign a one year agreement.

Speaker Change: Grads.

Speaker Change: One question and one follow up was really excited to see the Walmart partnership can you talk a little bit more about that and then I have a.

Speaker Change: With Walmart's majority owned Fintech called <unk> to basically make our products available to Walmart customers in and that's actually already been launched which is kind of how it got out into the public sphere.

Sanjay Datta: So I think that's okay. I think it's a good balance where personal loans are, are mostly credit unions plus institutional funding, combined in interesting ways. And then secured products really have a lot of interest from banks. And honestly, we, it will take us some time to grow those businesses large enough to really begin to fill that demand.

Speaker Change: Follow up as well thank you.

Speaker Change: Hey, Dan.

Speaker Change: But I will just say generally I think.

Speaker Change: Hey, Thanks for the question.

Speaker Change: Yes, we hope so.

Speaker Change: With our move to have the best rates in best process for everybody, which I know you keep hearing from US you know Walmart has the kind of partner that we're really excited about it because <unk> been really focused on delivering value for a mere American consumers for a very long time like more than 60 years. So it's exactly the kind of partnership we like where we can deliver the best value when it comes to a credit.

Speaker Change: We can really say there, but we did sign a one year agreement.

Speaker Change: With Walmart's majority owned Fintech called <unk> to basically make our products available to Walmart customers and Thats actually already been launched which is kind of how it got out into the public sphere.

Sanjay Datta: Okay, perfect, thanks very much to the caller. Thank you.

Rob Wildhack: And our next question comes from Rob Wildhack with Autonomous Research. Hi, guys, a question on, I guess, both funding and the outlook, you know, the fortress agreement obviously comes with a big headline number. But the full year guidance, kind of up only a little bit.

But I will just say generally I think.

Speaker Change: With our move to have the best rates in best process for everybody, which I know you keep hearing from US you know Walmart has the kind of partner that we're really excited about it because they've been really focused on delivering value for Mary American consumers for a very long time like more than 60 years. So it's exactly the kind of partnership we like where we can deliver the best value when it comes to a credit.

Speaker Change: And hopefully this will be a great win for both companies over time.

Speaker Change: Got it thank you and just as a quick follow up and I apologize. If this has been addressed can you maybe give us a little bit of a sense of sort of trends in April and maybe early may.

Rob Wildhack: I mean, given that you're not seeing any pullback in funding, and you've added sort of 1.2 billion in incremental funding from fortress, I guess I'm just curious why the why the 2025 outlook isn't up even more.

Speaker Change: If theres anything you can you can provide that.

Speaker Change: And hopefully this will be a great win for both companies over time.

That'd be great.

Sanjay Data: Hey, Dan how are you doing it's Sanjay here I think anything we can say with respect to this quarter, it's probably absolutely captured.

Speaker Change: Got it thank you and just as a quick follow up and I apologize. If this has been addressed can you maybe give us a little bit of a sense of sort of trends in April and maybe early may.

Rob Wildhack: Hey, Rob. The short answer is that we were never short of funding, per se. So we're not funding gated in 2025. Having more funding is good and allows us to handle upside scenarios and have more diversification in the funding. But really, the gating item really is kind of economic acquisition of the right borrowers. And that's almost always in our history been what gates our growth. And so it's great to have more funding, and we hope to add more partners. But it doesn't translate directly into growth.

Sanjay Data: And our guidance I think thats about as much color as required.

Speaker Change: Okay fair enough really appreciate it congrats again.

Speaker Change: If theres anything you can you can provide that.

Speaker Change: That would be great.

Ken: Thanks, Ken.

Sanjay Datta: Hey, Dan how are you doing it's Sanjay here.

Speaker Change: And our next question comes from Ramsey El <unk> with Barclays.

Sanjay Datta: I think anything we can say with respect to this quarter, it's probably absolutely captured.

Speaker Change: Hi, This is John coffee on for Ramsey. Thanks for taking my question I just had two two short questions. So I was wondering now that you know you've been updating your models and it seems like that's been a process. That's been ongoing is there a good way to think about your conversion rates for the remainder of the year or the next two quarters should we expect that those <unk>.

Sanjay Datta: In our guidance I think that's about as much color as leases.

Sanjay Datta: Okay fair enough really appreciate it congrats again.

Sanjay Datta: Thanks, Dan.

Speaker Change: And our next question comes from Ramsey El <unk> with Barclays.

Rob Wildhack: Okay, if I could just ask one more on one pay, can you comment at all on the underwriting or credit box there?

Speaker Change: Hi, This is John coffee on for Ramsey. Thanks for taking my question I just had two two short questions. So I was wondering now that you know you've been updating your models and it seems like that's been a process. That's been ongoing is there a good way to think about your conversion rates for the remainder of the year or the next two quarters should we expect that those <unk>.

Speaker Change: Rates could start to touch that 20% level. So that's the first question I had and also I noticed that you know.

Rob Wildhack: Is that Upstart's decision? And then are there like any minimum value commitments or approval rates embedded in the agreement? It is our underwriting in our models that drive these things to a joint venture structure with them that we have, you know, we sit alongside them and bear some of the risk, which is the nature of these co-investment partnerships, but it is purely our technology and our, our models that drive the origination.

Speaker Change: It used to be your you am I had a slide kind of like I think last quarter was maybe around page 10, and there was quite a few data points attached to it when I look at this quarter here, it's kind of pushed back to the back of the deck Slide 20, I don't see any numbers really tied to is there any reason for that are you deemphasizing. This is something you're reporting to the street.

Speaker Change: Rates could start to touch that 20% level. So that's the first question I had also I noticed that you know.

Speaker Change: It used to be your U M. I had a slide kind of like I think last quarter is maybe around page 10, and there was quite a few data points attached to it when I look at this quarter. It was kind of pushed back to the back of the deck slide 20, and I don't see any numbers really tied to is there any reason for that or are you deemphasizing. This is something you're reporting to the street.

Speaker Change: Hey, John just quickly on conversion rates I mean, the conversion rates, which really.

Rob Wildhack: Got it, thank you.

Reggie Smith: And our next question comes from Reggie Smith with J.P. Morgan. Hey guys, congrats on the quarter. I'm not sure if this was covered, but I was curious, you know, it's nice to see the increase in, you know, super prime borrowers over the last couple of quarters. I guess my question is, you know, how do you drive that? Does that require different marketing messages or are you marketing in different channels? Like, how are you kind of controlling that and what's driven the shift there? And I have a follow up if you have time.

Speaker Change: Our a very principal driver of growth they did grow nicely from I think 14% a year ago to 19% in most recent quarter and all else being equal we would expect to drive them up with better models and improved automation et cetera and.

Speaker Change: Hey, John just quickly on conversion rates I mean, the conversion rates, which really.

Speaker Change: Things like lower the fed lower rates those are things that can also be helpful. So there's a bunch of things that go into conversion generally we would like to.

Speaker Change: Alright, very principal driver of growth they did grow nicely from I think 14% a year ago to 19% in most recent quarter and all else being equal we would expect to drive them up with better models and improved automation et cetera.

Speaker Change: Drive it drive it up and some of that is macro dependent and some of it is just technology that we can deliver but we are definitely we.

Speaker Change: Showed in our investor deck, a little bit new way to look at the conversion rate in terms of how many unfulfilled requests there were there and we just think there's a lot of ways that we can begin to full in those filling those bar graphs and convert more people.

Speaker Change: Things like lower the fed lower rates those are things that can also be helpful. So there's a bunch of things that go into conversion generally we would like to.

Speaker Change: Drive it drive it up and some of that is macro dependent and some of it is just technology that we can deliver but we are definitely.

Dave Girouard: Hey, Reggie, this is Dave. A great question. I mean, this is a transition that is in process, but it started first with having a competitive product. And that means, you know, competitive rates for very high FICO, high credit borrowers. And that really came through working with our lending partners to realize that we had to have a lower take rate ourselves, and then they had to have lower expectations, but also have corresponding lower loss rates. And that's what we announced as our T Prime program a while back. And we've really been focused on that since mid-2024.

Jonathan: Alright, Hey, Jonathan Thanks Sanjay.

Jonathan: Quickly touching on your question about the macro index.

We kind of showed in our investor deck, a little bit new way to look at the conversion rate in terms of how many unfulfilled requests there were there and we just think there's a lot of ways that we can begin to full in those filling those bar graphs and convert more people.

Jonathan: First of all I think its move back in the deck hopefully because we.

Jonathan: We put some more stuff in the front for you. So it wasn't meant to be personal.

Jonathan: With respect to the index and look some of the numbers we had on their previously.

John Coffee: Alright, Hey, John Thank you Andre.

It was all said reported data it was things like the personal savings rate from inflation indicators and some unemployment indicators.

Speaker Change: Quickly touching on your question about the macro index.

Speaker Change: First of all I think its move back into that closely because.

Jonathan: I think it was causing a bit of confusion because I think people thought that we were deriving our index from those numbers. When in fact, we just view those to be correlated.

We've put some more stuff in the front for you. So it wasn't meant to be personal.

Dave Girouard: So, if you sort of fast forward to today, we have very competitive products across the credit spectrum, including for the primest borrowers out there. And now, as you suggest, there's more to the puzzle in terms of becoming, you know, the leader in all segments, which is our goal. And that really is to adjust our messaging and our marketing targets. But if most people perceive Upstart as really good for people who, you know, are treated poorly by traditional lenders, then that's, of course, a dated message. And we have a lot of work going on to update, you know, our story to the market, particularly to consumers, to realize that Upstart is always going to be a great first place to start if you want the best rate and the fastest process.

Speaker Change: With respect to the index and look some of the numbers we had on their previously.

Jonathan: And so it is just clean up the page a little bit I think if those fed data points are a useful we can we can certainly point you to them that they are publicly publicly printed.

Speaker Change: It was all said reported data with things like the personal savings rate from inflation indicators and some unemployment indicators.

Speaker Change: I think it was causing a bit of confusion because I think people thought that we were driving our index from those numbers. When in fact, we just view those to be correlative.

Jonathan: Alright, thank you.

Speaker Change: Our next question comes from Simon clips with Redburn Atlantic.

Speaker Change: And so we've just clean up the page a little bit I think if those fed data points are a useful we can we can certainly point you to them that they are publicly publicly printed.

Simon: Hi, guys. Thanks for taking my question I.

I was wondering if you could just touch on the.

Simon: The contribution margin and the mix impacts we have on that and just how to think about that through the year ultimately what's embedded in your guidance question.

Speaker Change: Alright, thank you.

Speaker Change: Our next question comes from Simon clips with Redburn Atlantic.

Simon: Yes, I mean the contribution margin.

Speaker Change: Hi, guys. Thanks for taking my question I.

Reggie Smith: Okay, okay. That sounds good.

Reggie Smith: And then, I guess you have a slide toward the back of your deck that shows your kind of return bands and it compares it to the two-year treasury yield. And clearly, that spread has widened the last couple of quarters, which is great. to the extent you could, how do your... investor partners kind of think about that dynamic and you know what type of spread is reasonable? Or are they satisfied with over the two year yield? Like, how do they think about that? I would imagine that the volatility of returns plays in that as well. But like that, that The interplay between those two variables, like how was that received or thought about by your investors?

Speaker Change: Was wondering if you could just touch on the.

Simon: I guess I would point out a couple of dynamics.

Simon: Our sort of core.

Speaker Change: The contribution margin and the mix impacts we've had on that and just how to think about that through the year ultimately what's embedded in your guidance question.

Simon: Sort of.

Simon: Personal loan product.

Simon: I think in our sort of historic towards of the borrowing base, we have a relatively.

Speaker Change: Yeah, So I mean the contribution margin.

Simon: Consistent margin I would point to two dynamics, one where increasingly.

Speaker Change: I guess I would point out a couple of dynamics in our sort of core.

Simon: Adding to our mix maybe on the primary side of the borrower segment. It's obviously more competed market.

Speaker Change:

Speaker Change: Sort of a.

Speaker Change: Personal loan product.

Simon: And so I think the margins in that segment.

Speaker Change: I think in our sort of historic towards the borrowing base, we have a relatively.

Would not sort of touch the level that we have in.

Speaker Change: Consistent margin I would point to two dynamics, one where increasingly.

Simon: And some of the more historic segments that we plan and so.

Speaker Change: Adding to our mix maybe on the primary side of the borrowers segment. It's obviously more competed market.

Simon: We'll sort of active decrease the margin number as we talked about in some of the prepared remarks, and then of course as the newer products scale, whether its HELOC or auto lending or even some of our small dollar efforts.

Speaker Change: And so I think the margins in that segment.

Speaker Change: Would not touch the level that we have in our income.

Reggie Smith: Hey, Reggie. Let's see on the institutional side, it's very much a function or a reference with respect to how the market is in credit. And, you know, when, obviously, when uncertainty is higher is now, spreads are wider, and we would then reflect that in our product that we deliver to investors. If you rewind many years before this chart, if you rewind pre-COVID and sort of like the 2018-2019 timeframe, base rates were low and spreads were also very tight, and you would have seen a much tighter spread. So, I think that that spread there is just a reflection of, you know, the risk environment, the environment of uncertainty.

Simon: Those scale and gain traction those because they're earlier in their lifecycle.

Speaker Change: More historic segments that we plan and so that will sort of act to decrease the margin number as we talked about in some of the prepared remarks, and then of course as the newer products scale, whether its HELOC or auto lending or even kind of a very small dollar efforts.

Simon: Don't have sort of mature margins, yet either and so those two things are going to act to bring down the average number on the P&L and that's some of what we pointed out with respect to.

Simon: Our earlier remarks.

Simon: Okay, Thanks, and just as a follow up.

Those scale and gain traction those because they are earlier in their lifecycle don't have sort of mature margins yet either and so there's those two things are going to act to bring down the average number on the P&L and that's some of what we pointed out with respect to our.

Simon: In terms of the environment. We're in we're hearing from some of the laser industry that there's very strong demand for personal loans feeding off the the desire to consolidate debt. So very large credit card balances I was wondering if you could just talk to that demand trend.

Speaker Change: Our earlier remarks.

Speaker Change: Okay, Thanks, and just as a follow up.

Simon: And.

Reggie Smith: And that's exactly how it functions in the underlying credit markets as well. Yeah, I guess to drill in on that, you know, at where it is today, is that kind of perceived as excess spreads to those guys? Like, is there alpha in there for them? Or is that about, you know, kind of We're their expectations are. I mean, their expectations ultimately are around a return on equity. The spread is a component of the return on equity. And the spread itself, you know, you think of as, I mean, I guess, some premium above what you might think of as a risk-free rate or a government rate, in this case, it's the Treasury.

Simon: Any sort of fluctuations you might be seeing in that well.

In terms of the environment. We're in we're hearing from some of the laser industry that there's very strong demand for personal loans feeding off the the desire to consolidate debt. So very large credit card balances I was wondering if you could just talk to that demand trends.

Simon: Thanks.

Simon: Hey, Simon.

Simon: I think <unk>.

Simon: Credit demand continues to be strong in fact, I would just say on a seasonally basis.

Simon: Seasonal basis it tends to strengthen at this time of year as you come out of Q1.

Speaker Change: And any any sort of fluctuations about staying in that will cooperate.

Simon: So we are definitely kind of experiencing the end of the seasonality of the sort of tax season seasonality.

Simon: And whether there is anything special to this year, a little unclear, but I guess from our perspective gross demand sort of the amount of just gross demand for credit out there.

Speaker Change: Hey, Simon.

Simon: I think.

Speaker Change: Credit demand continues to be strong in fact, I would just say on a seasonally seasonal.

Speaker Change: Seasonal basis it tends to strengthen at this time of year as you come out of Q1. So we are definitely kind of experiencing the end of the seasonality of the sort of tax season seasonality.

Simon: Doesn't vary a ton it always tends to be quite strong and I am for sure right now we're seeing a lot of demand out there.

Simon: Okay, great. Thanks.

Reggie Smith: So, you know, the way that this builds is, you know, there's some requirement of spread given the uncertainty of the environment and that results in a certain target ROE and ultimately what we talk about with our counterparties is the ROE. Okay. It sounds good. Thank you for taking the questions. Congrats in the quarter. Thank you, Eddie. Thanks, Fred.

Speaker Change: And whether there is anything special to this year, a little unclear, but I guess from our perspective gross demand sort of.

Kyle Peterson: Our next question comes from Kyle Peterson with Needham <unk> Company.

Speaker Change: Out of just gross demand for credit out there.

Speaker Change: Doesn't vary a ton it always tends to be quite strong and for sure right now we're seeing a lot of demand out there.

Speaker Change: Great. Thanks, Hey, guys Thats Samsung the song for trial today.

Speaker Change: Nice results and thanks for taking the questions.

Speaker Change: Okay, great. Thanks.

Speaker Change: Good to see the agreement with sports for Us today.

Speaker Change: I was wondering if you guys could talk a bit more about how you're thinking about funding and the funding mix given the more noisy macro climate we're in today.

Speaker Change: Our next question comes from Kyle Peterson with Needham <unk> Company.

Giuliano Bologna: And our next question comes from Giuliano Bologna from Compass Point. All right. Good afternoon and congrats on the quarter. One thing I'm curious about, kind of digging into a little bit is, you know, the first thing is that obviously you've mixed a bit more towards prime and that's putting pressure on take rate. I'm curious if there's any, has there been any real change in the take rate for subprime or if it's, you know, entirely mixed driven. And then related to that, you know, if I think about, you know, sales and marketing as a percentage of origination volume, that stayed roughly flat.

Great. Thanks, Hey, guys Thats Samsung the song for calls today.

Speaker Change: Nice results and thanks for taking the questions.

Sam: Hey, Sam Yeah, just maybe as a refresher on contextually. There is maybe three sort of general sources of funding we think about there is.

Speaker Change: Good to see the agreement with fortress today.

Speaker Change: I was wondering if you guys could talk a bit more about how you're thinking about funding and the funding mix given the more noisy macro climate we're in today.

Sam: The originations that happen by other lenders.

Sam: Who are using our technology they tend to be banks and credit unions are originating for their own balance sheet.

Speaker Change: Yeah, Hey, Sam Yeah, just maybe as a refresher on contextually, there's maybe three sort of general sources of funding we think about there is.

Sam: We've got a lot.

Giuliano Bologna: I mean, and I think I like 263 basis points the last two quarters. So I would think that if you're mixing more towards prime, you know, that would come down to reflect, you know, the lower take rate for prime. But I'm curious, you know, how we should think about the interplay of those two, you know, dynamics.

Sam: A number of large scale partnerships.

Sam: You referenced the latest one we announced which is with fortress.

Sam: And then there is what you might think of as the sort of that will or securitization market.

Speaker Change: The originations that happened by other lenders.

Sam: And we like a balance between all three of those.

Speaker Change: We're using our technology they tend to be banks and credit unions are originating for their own balance sheet.

Sam: They each have a place in our ecosystem.

With the added uncertainty in today's market.

Speaker Change: Got.

Speaker Change: There's a number of large scale partnerships.

Sanjay Datta: Hey, Giuliano. I guess the first question is, What's going on with the take rates in maybe sort of the core or the nearer prime segments? I would say they're largely stable. We are doing some what we call revenue science, some origination fee experimentation. And so I guess on the different parts of the curve, we're maybe going through optimizations and that may have some minor impacts. But I think writ large, these are relatively stable take rates. And then your second question had to do with acquisition costs, I believe, and whether they're very different in the prime space.

Speaker Change: Referenced the latest one we announced which is with fortress.

Securitization markets and sort of at will.

Speaker Change: And then there is what you might think of as the sort of at will or securitization market.

Sam: <unk> is a little bit less reliable and I think that the.

Sam: The things that we're behind our strategy for creating a large number of large sort of committed partnerships is kind of.

Speaker Change: And we like a balance between all three of those I think they each have a place in our ecosystem, obviously with the added uncertainty in today's market.

Sam: It's kind of.

It's kind of playing out right now.

Speaker Change: <unk> markets and sort of at will.

Sam: And really shining and so.

Speaker Change: It's a little bit less reliable and I think that the.

Sam: In the current market, maybe there is a bit more.

Sam: So our reliance placed on those.

Speaker Change: The things that were behind our strategy for creating a large number of large sort of committed partnerships.

Sam: <unk> given that there was sort of designed for this market in particular.

Speaker Change: It's kind of.

Sam: Got it okay, yes that makes sense.

Speaker Change: It's kind of.

Sanjay Datta: I don't think they're dramatically different. Our margins are consequently slimmer, which we called out. And as Dave said, I think our distribution programs and our marketing are still at a relatively nascent stage in this sort of relatively new segment for ours, so they're not yet at a place where they're mature. But I think when they are, you'll see something like maybe similar acquisition costs, lower take rates, and consequently, you know, more modest margins in a more competed space. But, you know, also, I guess, important to point out, this is all dollar accretive, right? This is all additional dollars to the bottom line, which is ultimately what we care about.

Speaker Change: It's kind of playing out right now.

Speaker Change: And really shining and so in the current market, maybe there is a bit more.

Sam: And then I guess, you guys called out some take rate pressure from higher subprime.

Speaker Change: So reliance placed on those agreements given that there was sort of designed for this market in particular.

<unk>.

Sam: Could you talk about how you guys are thinking about take rates as you can.

Sam: Update your models.

Speaker Change: Got it okay that makes sense.

Sam: Throughout the remainder of the year.

Speaker Change:

Speaker Change: And then I guess, you guys called out some take rate pressure from higher subprime.

Speaker Change: Yes, and just to clarify that that sort of take rate.

Speaker Change: I wouldn't call it pressure, we're sort of increasingly successful in the Super Prime segment not the subprime.

Speaker Change: <unk>.

Speaker Change: Could you talk about how you guys are thinking about.

And a very prime borrowers have a lot of competitive alternatives and take rates and margins are necessarily lower in that segment. So as we gain share or increased mix from.

Speaker Change: About take rates as you.

Speaker Change: Update your models.

Speaker Change: Throughout the remainder of the year.

Speaker Change: Yes, and just to clarify that that sort of take rate.

Giuliano Bologna: That makes sense.

Giuliano Bologna: And, you know, let's say you change the slide around in the presentation, it kind of shows loan performance and, you know, the tracking over time. It looks like the 4Q24, which is coming down a little bit versus 3Q24. And I'm curious, I'm curious if that's because there's a higher mix of, you know, of primer loans in there, or that's just representative of kind of the core subprime or credit tier loan. Yeah, that's the main thing going on, which is as you get a higher mix of primer loans, you'll get lower spreads and lower returns. There may be some also some normalization.

Speaker Change: Maybe the prime and Super Prime segments of borrowers.

I wouldn't call it pressure, we're sort of increasingly successful in the Super Prime segment not the subprime.

Speaker Change: Youll see the average take rates.

Speaker Change: Come down.

Speaker Change: And a very prime borrowers have a lot of competitive alternatives and take rates and margins are necessarily lower in that segment. So as we gain share or increased mix from maybe the prime and super Prime segments of borrowers.

Speaker Change: And it's also important to say that our our contribution.

Speaker Change: Contribution margin in take rates are well above what they were back in 2021. So we have a lot of room its not really our goal to maximize our contribution margin at this point, so diversifying into Super Prime loans has such value to us that I think.

Speaker Change: Youll see the average take rates.

Speaker Change: Taking down our contribution margin.

Speaker Change: Come down.

Speaker Change: It's also important to say that our.

Speaker Change: Back toward where it was.

Speaker Change: Our contribution margin and take rates are well above what they were back in 2021. So we have a lot of room its not really our goal to maximize our contribution margin at this point, so diversifying into Super Prime loans has such value to us that I think.

Speaker Change: In our earlier days is actually very good thing.

Speaker Change: Okay Gotcha, Okay. Thanks, guys.

Sanjay Datta: I think that in the Q2 to Q3 vintages, we were probably overperforming our targets and the models will act to recalibrate that over time. But I think the main dynamic is the one you called out. That's very helpful.

Mihir Bhatia: Our next question comes from Mihir Bhatia with Bank of America.

Speaker Change: Hi.

Speaker Change: Taking down our contribution margin.

Speaker Change: Good afternoon. Thank you for taking my question.

Speaker Change: Back towards where it was.

Dave Girouard: I appreciate the time, and I'll jump back to you, Caint. I just want to add a comment. I had gotten a question. This is Dave. I got a question earlier from Rob about the OnePay Walmart partnership. I misheard him and was when my answer was referencing the Fortress partnership. So just so it's clear, I didn't want any confusion there. I was actually referencing Fortress. And if Rob wants to hop in again and re-ask about OnePay Walmart, we're happy to talk.

First question wanted to ask was about just how have funding partners reacted to the volatility did you see any pullback from either of our workflow box those all even from I guess, the third party partner.

Speaker Change: Our earlier days is actually a very good thing.

Speaker Change: Okay Gotcha, Okay. Thanks, guys.

Mihir Bhatia: Our next question comes from Mihir Bhatia with Bank of America.

Speaker Change: Hi.

Speaker Change: Ball opportunistic capital in early April from the volatility we saw in the.

Speaker Change: Good afternoon. Thank you for taking my question.

Speaker Change: First question wanted to ask was about just how.

Speaker Change: Fixed income markets.

Speaker Change: Funding partners.

Speaker Change: Yeah I'm here.

We acted to the volatility did you see any pullback from either of our workflow box those all even from I guess, the third party partner.

I think that these committed partnerships.

Operator: And ladies and gentlemen, if you would like to ask a question, please press star one.

Speaker Change: Our frankly behaving exactly as designed the basis of those partnerships.

Matt O'Neill: We'll move right now to Matt O'Neill with FT Parts. Yeah, hi, thanks so much. I think most of the questions are often answered. So I'll follow up on Rob's on OneFinance, Walmart. And in addition, could you just make it clear, you know, is that being accounted for in any of the guidance changes? Or did that deal have any effect on the guide? Or, you know, any other moving pieces to the guide beyond the one key result, obviously? Yeah, absolutely. Hey, Matt, this is Dave. The, you know, I think we said that this one pay Walmart agreement, we didn't expect to be materially financial this year.

All opportunistic capital in early April from the volatility we saw in the.

Speaker Change: Who is that we've essentially committed to navigating the different parts of the macro cycle together in the structure of these deals helps to even out the different phases of that cycle.

Speaker Change: Fixed income markets.

Speaker Change: Yeah I'm here.

Speaker Change: I think that these committed partnerships.

Speaker Change: And those things are going exactly the way, we expect them to we believe we have the tools to react.

Speaker Change: Our frankly behaving exactly as designed the basis of those partnerships.

Speaker Change: To read and react to shifts in the credit risk environment very quickly on behalf of the partners and a lot of these partnerships frankly, you've now accumulated some over performance in the structures that are there for a rainy day. So I think that they are behaving exactly as intended.

Speaker Change: Who is that essentially committed to navigating the different parts of the macro cycle together the structure of these deals helps to even out the different phases of that cycle.

Speaker Change: And those things are going exactly the way, we expect them to we believe we have the tools to react.

Speaker Change: More broadly the securitization markets.

And the <unk> markets are still functioning I think that spreads are a little bit higher and events.

Speaker Change: To read and react to shifts in the credit risk environment very quickly on behalf of the partners and a lot of these partnerships frankly, you've now accumulated some over performance in the structures that are there for a rainy day. So I think that they are behaving exactly as intended.

Dave Girouard: It doesn't mean it can't be it just means we unable to know that right now, because it's very early stage just launched in the last few weeks. So I certainly think there's upside to it. We're hopeful there's more things we can do beyond, you know, the initial phase with them. But it is not today, sort of influencing our 2025 guidance. Got it. And as far as any other sort of underlying changes, whether it's macro or otherwise, any other moving pieces to the guide beyond the results being incorporated? I think what we said is, you know, we assume the macro doesn't change dramatically one way or the other, we also assume no reduction in Fed rates or no reduction in the underlying rates that tend to fuel the platform.

Speaker Change: Advance rates.

Speaker Change: Are not us.

Speaker Change: Yes.

Speaker Change: As low as high as they were before but.

Speaker Change: More broadly the securitization markets.

Speaker Change: But the beautiful thing about the the globe committed partnerships. We have is that we don't have to rely as much on the <unk> markets and so as a result, our funding rails are as resilient as ever and we haven't had any pullbacks.

Speaker Change: And the markets are still functioning I think that spreads are a little bit higher and events.

Speaker Change: Advance rates.

Speaker Change: Or not.

Speaker Change: Yes.

Speaker Change: Let me just add to that me here I mean, just for clarity we've had no pullbacks.

Speaker Change: As low as high as they were before but.

Our private credit kind of committed capital partners and <unk>.

Speaker Change: But the beautiful thing about the grudge committed partnerships. We have is that we don't have to rely as much on the atmel markets and so as a result, our funding rail there is as resilient as ever and we haven't had any pullbacks.

Speaker Change: Likewise had no pullbacks from banks or credit unions. So I think our credit continues to perform and I think the confidence they have an upstart is quite strong.

Speaker Change: No that is helpful. Thank you and then one other question just on a similar topic really in terms of the macro volatility. David you mentioned that you will have more tools to react to it.

Speaker Change: Let me just add to that me here I mean, just for clarity we've had no pullbacks from our private credit kind of committed capital partners.

Dave Girouard: So there's, you know, upside and downside in those, but we take what we feel is a fairly conservative stance. And, you know, we, we always have confidence that our pipeline of model, model improvements and technology improvements will lead to growth. And we try to account for them conservatively as well. So, you know, I think we feel pretty good to reaffirm and at least modestly raise the guidance that we shared. Understood. Thank you.

Speaker Change: Likewise had no pullbacks from banks or credit unions. So I think our credit continues to perform and I think the confidence they have an upstart is quite strong.

Speaker Change: But I guess the question really is how.

Speaker Change: Has upstart reacted so far to like how have you changed.

Speaker Change: No that is helpful. Thank you.

Speaker Change: Due to the rising uncertainty around macro have you changed any underwriting any appeal.

Speaker Change: I did want to one other question just on a similar topic really in terms of the macro volatility David you mentioned, you'll have more tools to react to it.

Speaker Change: The product mix, maybe where youre trying to commit more.

Speaker Change: Marketing has there been any changes so far how you're operating the business the way.

Speaker Change: But I guess the question really is how it.

Speaker Change: Has upstart reacted so far to like how have you changed.

Rob Wildhack: And our last question comes from Rob Wildhack with Autonomous Research. Hey guys, thanks for that, Dave. And thanks for letting me back on.

Speaker Change: Macro uncertainty has changed over the last four months. Thank you.

Speaker Change: To the rising uncertainty around macro have you changed any underwriting any of your up the product mix, maybe where youre trying to commit more.

Speaker Change: Oh, we're I'll say first of all I mean, we're definitely a conservative business, who is very careful about fixed costs and hiring and things of that nature. So.

Rob Wildhack: I was just curious with respect to OnePay, who controls the underwriting and credit box there, if that's Upstart decision, and if there were any minimum volume commitments or approval rates in the in the OnePay agreement. Thanks again. Hey, Rob. No, it's entirely our business, our model, you know, all the 100 plus, you know, banks, credit unions, private credit have exposure to that or can benefit from that borrower flow. So it's, it's fairly perfect. I mean, there are people who will get from Walmart, that could be 800 FICO and wealthy, there's certainly people that are middle America.

Speaker Change: Marketing has there been any changes so far how you're operating the business the way.

Speaker Change: We have been forever, but I think.

Speaker Change: For years now I think we're extremely cautious about how we plan our own business just by way of example, all of our guidance does not assume any reduction in fed rates. This year. So that would just be a sample of that with respect to credit which seem like maybe you were asking that as well.

Speaker Change: Macro uncertainty has changed over the last four months. Thank you.

Speaker Change: Well I'll say first of all I mean, we're definitely a conservative business, who is very careful about fixed costs and hiring and things of that nature. So.

Speaker Change: We have been forever, but I think.

Speaker Change: Generally we rely on our model as being very very quick and adept at.

Speaker Change: For years now I think we're extremely cautious about how we plan our own business just by way of example, all of our guidance does not assume any reduction in fed rates. This year. So that would just be a sample of that with respect to credit which seem like maybe you were asking that as well.

Speaker Change: And.

Speaker Change: Adapting to macroeconomic changes and we also built some conservatism in there so.

Rob Wildhack: So, you know, that's the beauty of our platform. And I think one of the reasons we have that agreement is that we can serve a very, very broad swath of America with the products and the diversity of the marketplace structure that we have. And so I think the timing is, works out perfectly with, you know, this whole notion of best rate for everybody. Got it. Thanks.

Speaker Change: So that we don't assume the future will be as good as the past was so that combination. We think is as good as you get in the market I don't think theres anyone else that has model centers adaptive and quick to hone in on any changes in the macro and we have some conservatism built in and it is serving us really well as well as of course are our lending partners.

Speaker Change: Generally we rely on our model as being very very quick and adept at.

Speaker Change: And.

Speaker Change: Adapting to macroeconomic changes and we also build some conservatism in there so.

Speaker Change: So that we don't assume the future will be as good as the past was so that combination. We think is as good as you get in the market I don't think theres anyone else that has model centers adaptive and quick to hone in on any changes in the macro.

Speaker Change: And our private capital partners.

Rob Wildhack: And just quick, do you share any economics back with OnePay, maybe like take rate or anything like that? Well, for sure, they have a financial interest in it. I mean, they're kind of bringing a customer to us. So there is some shared but you know, we feel very good about the economics in the agreement. I think it is it is definitely a win win for them for us for their for their customers. So very excited about the partnership.

Speaker Change: Alright, Thank you for taking my questions.

Speaker Change: Yes.

Pete Christiansen: And we'll move to our next question from Pete Christiansen with Citi.

Pete Christiansen: Thank you good evening nice trends here.

Speaker Change: And we have some conservatism built in and it's serving us really well as well as of course are our lending partners and our private capital partners.

Pete Christiansen: You want to talk.

Speaker Change: Could you give some good color on.

Speaker Change: On the consumer credit side seems still pretty healthy also your partners in the <unk> side still.

Speaker Change: Alright, Thank you for taking my question.

Speaker Change: Right.

Speaker Change: And we'll move to our next question from Pete Christiansen with Citi.

Rob Wildhack: Okay, thanks a lot.

Speaker Change: Healthy I wanted to dig a little deeper onto the ABS side I know.

Dave Girouard: And ladies and gentlemen, that was the end of our question and answer session.

Pete Christiansen: Thank you good evening nice trends here.

Speaker Change: You had a $320 million transaction was two weeks ago. Just curious if you had any feedback on the health of.

Dave Girouard: I'll now turn the conference back to Dave for closing remarks. This concludes today's call. Thank you for your participation. You may now disconnect. Goodbye.

Do you want to talk.

Pete Christiansen: Can you give some good color on.

Pete Christiansen: On the consumer credit side seems still pretty healthy also your partners in the <unk> side still fairly healthy I wanted to dig a little deeper onto the ABS side. I know you had a $320 million transaction was two weeks ago. Just curious if you had any feedback on the health of.

Speaker Change: Of what Youre seeing in the ABS market for more consumer loans do you think there's.

Speaker Change: Opportunities to do more there this year.

Speaker Change: And then if you could comment on some of your risk retention and how do you believe that that's going to trend in the next few quarters. Thank you.

Speaker Change: Yeah, Hey, Pete Yes, we're really pleased with the way that the latest ABS deal printed frankly.

Pete Christiansen: Of what Youre seeing in the ABS market for more consumer loans do you think there is.

Pete Christiansen: Opportunities to do more there this year.

Speaker Change: It was a very healthily oversubscribed book on the bonds.

Pete Christiansen: And then if you could comment on some of your risk retention and how do you believe that that's going to trend in the next few quarters. Thank you.

The spreads were a little bit lighter than they were earlier in the year, that's sort of natural but.

Speaker Change: But overall I think we're really happy with the way. It worked in particular, we used that market Opportunistically. We don't we don't rely on it are committed capital partners don't rely on it when it's available and we can print deals like that it's great, but if it's not it's not sort of.

Speaker Change: Yeah, Hey, Pete Yes, we were.

Speaker Change: Pleased with the way that the latest ABS deal printed frankly.

Speaker Change: It was a very healthily oversubscribed book on the bonds.

Speaker Change: The spreads were a little bit lighter than they were earlier in the year, that's sort of natural but.

Speaker Change: A cog in the wheel that is that we've got a lot of reliance on so so.

Speaker Change: But overall I think we're really happy with the way. It worked in you know in particular, we use that market Opportunistically. We don't we don't rely on it are committed capital partners don't rely on it when it's available and we can print deals like that it's great.

Speaker Change: So all in all it was a.

Speaker Change: Good story.

Speaker Change: I guess, that's part of your question is where are the avs market still from here I don't know that we have a strong view on that they are famously hard to predict but I guess the fact that they are just an opportunistic channel for us makes it less.

Speaker Change: But if it's not it's not sort of a cog in the wheel that is that we.

Speaker Change: <unk> got a lot of reliance on so.

Speaker Change: Acutely important.

Speaker Change: So all in all it was it was a little.

Speaker Change: That's helpful and then I guess on the fortress.

Speaker Change: Good story.

I guess, that's part of your question is where are the avs market still from here I don't know that we have a strong view on that their statements were hard to predict but I guess the fact that they are just an opportunistic channel for us makes it less.

Speaker Change: Plant and then also I guess you had a 15 new partners as well just curious if theres any trend changes in risk retention co investment.

Speaker Change: And how that how that's been going.

Speaker Change: Acutely important.

Speaker Change: That's helpful and then I guess on the fortress.

Speaker Change: Not really I think the structure of these deals is very consistent now.

Speaker Change: Planned and then also I guess you had a 15 new partners as well just curious if theres any trend changes in risk retention co investment.

Speaker Change: No no trend.

Speaker Change: Particularly in either direction in terms of how they work or how they're structured or what the terms are.

Speaker Change: Okay. Thank you.

Speaker Change: And how that how that's been going.

Nice report.

Speaker Change: And our next question comes from them.

Speaker Change: Not really I think the structure of these deals is very consistent now.

Speaker Change: No trend.

Speaker Change: James <unk> with Morgan Stanley.

Speaker Change: Particularly in either direction in terms of <unk>.

Speaker Change: They work or how they're structured or what the terms are.

Speaker Change: Okay.

Speaker Change: Nice report.

Speaker Change: And our next question comes from.

James: Hey, good afternoon.

James: Fantastic for James.

James: Hey, it's Michael <unk> on for Dan. Thanks for taking my question I, just wanted to sort of dig in on how you're thinking about the Tam opportunity today. So if I just think about the overall unsecured personal lending market like is there any rough segmentation you can provide just on how that how that tam opportunity as call. It a one.

Speaker Change: James Faucette with Morgan Stanley.

Speaker Change: Yes.

Speaker Change: Fantastic for James.

Speaker Change: It's not going to contract for that and thanks for taking my question I just wanted to sort of dig in on how youre thinking about the Tam opportunity today. So if I just think about the overall unsecured personal lending market like is there any rough segmentation you can provide.

James: $150 billion set of segments by FICO score or I'm, just trying to contextualize your relative penetration with.

James: From more traditional upstart borrower versus a newer prime borrower. Thanks.

I would say we have some sort of like back of the envelope like notion of that we don't try to measure that too, particularly but I would say roughly that consumers in the U S split somewhat evenly between.

Speaker Change: Just on how that how that Tam opportunity is call. It 150 billion sort of segments by FICO score or I'm, just trying to contextualize your relative penetration with.

Speaker Change: Our more traditional upstart borrowers versus newer prime borrower. Thanks.

James: What you would call a prime or even super Prime borrower 720, plus hours or more of the people that we have typically served.

Speaker Change: I would say we have some sort of like back of the envelope like notion of that we don't try to measure that too, particularly but I would say roughly that consumers in the U S split somewhat evenly between what.

James: Low six hundreds to $700000.

James: Just wanted to I think at.

At least my take is the from a personal loan perspective, the size of those markets are relatively similar.

Speaker Change: What you would call a prime or even super Prime borrower 720, plus hours or more of the people that we have typically served.

James: So I think from that perspective, as we began to really open up to the Super Prime part of the market, we've kind of doubled the Tam, particularly in personal loans and then of course, that's all quite small relative to the Tam and in home and auto put together so.

Speaker Change: Low six hundreds to 720.

Speaker Change: Just wanted to I think at.

Speaker Change: At least my take is the from a personal loan perspective, the size of those markets are relatively similar.

James: That's how we would think about that.

Speaker Change: So I think from that perspective, as we began to really open up to the Super Prime part of the market, we've kind of doubled the Tam, particularly in personal loans and then of course, that's all quite small relative to the Tam and in home and auto put together so.

Speaker Change: That's helpful. Maybe just on customer acquisition anything you would call out just in terms of how your mix is evolving between pure organic traffic to upstart dot com. How much is originated by a direct now and what your sort of thing by a third party marketplaces.

Speaker Change: That's how we would think about that.

Speaker Change: That's helpful. Maybe just on customer acquisition anything you would call out just in terms of how your mix is evolving between pure organic traffic, perhaps start dot com. How much is originated by a direct now and what your sort of thing by a third party marketplaces.

Yeah, Hey, Mike Yeah, nothing really to call out in terms of channel trends from last quarter to this.

Speaker Change: Oh, it's been pretty steady.

Speaker Change: Yeah.

Speaker Change: And we'll move to our next question from James Hecht Jefferies.

Speaker Change: Yeah, Hey, Mike Yeah.

Speaker Change: Hey, guys, it's actually it's John Hecht from Jefferies Hope you guys are.

Speaker Change: Nothing really to call out in terms of channel trends from last quarter to this.

Speaker Change: Thanks for taking my questions.

Speaker Change: A real quick sorry, Jim maybe little bit more just kind of on them.

Speaker Change: Pretty steady.

I guess thinking about the fluctuations in the take rate. Obviously, we know there's a difference between core and super prime or prime customer, but maybe what does what are you guys thinking about in terms of.

And we'll move to our next question from James.

Speaker Change: Jefferies.

John Hecht: Hey, guys. It's actually it is John Hecht from Jefferies Hope you got a.

For taking my questions.

John Hecht: Real quick sorry, Jay maybe little bit more just kind of.

Speaker Change: Mix over the quarter.

This year will prime continue to be a growing part of the mix.

Speaker Change: Thinking about the fluctuations in the take rate obviously, we know there's a difference between core and super prime or prime customer, but maybe what does.

Speaker Change: At maturity.

Speaker Change: What is the take rate of like HELOC auto.

Speaker Change: I mean, I know those are different markets with different sets of factors. So what are the kind of mature take rates of those versus the current take rate.

What are you guys thinking about in terms of <unk>.

Speaker Change: Mix over the quarter or for this year will prime continue to be a growing part of the mix.

Speaker Change: Hey, John.

Speaker Change: Sorry about that named slip there.

Speaker Change:

Speaker Change: And then at maturity what is the take rate of like HELOC and auto.

Speaker Change: I don't think we have an explicit.

Speaker Change: Split between maybe sort of like Super Prime and near Prime segments within our guidance I will say that.

Speaker Change: I mean, I know those are different markets with different sets of factors. So what are the kind of mature take rates of those versus the current take rate.

Speaker Change: As we said in our remarks, I think we did disproportionately well in the prime our segments and we hope for that to continue.

Speaker Change: Hey, John sorry about the name slip there.

Speaker Change: I don't think we have an explicit.

Speaker Change: An area, we're very we're bullish on where earlier on obviously and we're sort of maybe the more beginning stages.

Speaker Change: Blitz between maybe sort of like Super Prime and near Prime segments within our guidance I will say that.

Speaker Change: Maybe hope to hope to grow that disproportionately.

Speaker Change: With respect to take rates on the newer products is still little bit.

Speaker Change: As we said in our remarks, I think we did disproportionately well in the prime our segments.

Speaker Change: Early to tell I think but I think in general I would say both.

Speaker Change: We hope for that to continue.

Speaker Change: Our home and auto wood.

Speaker Change: So it's an area, we're very we're bullish on where earlier on obviously and we're sort of maybe the more beginning stages. So we would hope to hope to grow that.

Speaker Change: Have the profile of being larger loans.

Speaker Change: Maybe with more modest at least initially more modest take rates.

Speaker Change: Proportionately.

Speaker Change: With respect to take rates on the newer products is still a little bit.

Speaker Change: Until our models can create the type of separation, we have in personal lending, which allows us to sort of increase take rates overtime, but there'll be larger loans with initially lower take rates and maybe sort of similar maybe sort of similar dollar contributions.

Speaker Change: Early to tell I think but I think in general I would say both.

Speaker Change: Our home and auto would have.

Speaker Change: Have the profile of being larger loans.

Speaker Change: Maybe with more modest at least initially more modest take rates.

Speaker Change: Per loan.

Speaker Change: And then in the case of some products such as maybe to for example auto is a good one.

Speaker Change: Until our models can create the type of separation, we have in personal lending, which allows us to sort of increase take rates overtime, but there'll be larger loans with initially lower take rates and maybe sort of similar maybe sort of similar dollar contributions.

Speaker Change: That contribution will be more ratable over the life of the loan in the form of servicing economics and less about upfront transaction take as we have almost exclusively on them on our core <unk> business.

Speaker Change: Per loan.

Speaker Change: And then in the case of some products such as maybe so for example, the auto is a good one.

Speaker Change: Okay. That's super helpful and then follow up.

Speaker Change: Clearly the private credit markets.

Speaker Change: That contribution will be more ratable over the life of the loan in the form of servicing economics and lasted out upfront transaction take as we have almost exclusively on them on our core <unk> business.

They can structure I guess mutually favorable deals with you guys and.

Speaker Change: As a result, and they have a lot of liquidity in that market. As a result, you know its pretty active.

Speaker Change: How would you define kind of the banks I know like there was earlier on they were fairly active and obviously, just given economic uncertainty and inflation and just sort of.

Speaker Change: Okay. That's super helpful and then follow up.

Speaker Change: Clearly the private credit markets.

Speaker Change: They can structure I guess mutually favorable deals with you guys and.

Speaker Change: The last few years I think they've been less active or how would you characterize that and then what are you looking for in terms of ability to kind of re re engage more aggressively with that that that group.

Speaker Change: As a result, and they have a lot of liquidity in that market as a result, it's pretty active.

Speaker Change: How would you define kind of the banks I know like there was earlier on they were fairly active and obviously just given the economic uncertainty and inflation and just sort of.

Speaker Change: Well I think the thing that you can say about banks is.

Speaker Change: The last few years I think they've been less active or how would you characterize that and then what are you looking for in terms of ability to kind of re re engage more aggressively with that that that group.

Speaker Change: They love secured products much more than unsecured product so.

Speaker Change: Personal loans a lot of the funding at the primary end comes from credit unions and increasingly institutional capital private credit blended in certain ways. We think we'll compete quite well in the Super Prime part of our business.

Speaker Change: Well I think the thing that you can say about banks is.

Speaker Change: They love secured products much more than unsecured products. So.

Speaker Change: But with respect to banks, they really prefer secured products and right now there is certainly more demand from them for our HELOC product and I believe soon enough our auto products that.

Speaker Change: Personal loans a lot of the funding at the primary end comes from credit unions and increasingly institutional capital private credit blended in certain ways. We think we will compete quite well in the Super Prime part of our business.

Speaker Change: We would be struggling to fill that demand for a very long time. So I think that's okay. I think it's a good balance where personal loans or are mostly credit unions plus institutional funding combined in interesting ways and then secured products really.

Speaker Change: But with respect to banks, they really prefer secured products and right now there is certainly more demand from them for our HELOC product and I believe soon enough our auto products that.

Speaker Change: A lot of interest from banks and honestly, we it will take us some time to grow those business is large enough to really begin to fill that demand.

Speaker Change: We would be struggling to fill that demand for a very long time. So I think that's okay. I think it's a good balance where personal loans or are mostly credit unions plus institutional funding combined in interesting ways and then secured products really.

Speaker Change: Okay perfect. Thanks, very much for the color.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Rob <unk> with Autonomous research.

Speaker Change: A lot of interest from banks and honestly, we it will take us some time to grow those business is large enough to really begin to fill that demand.

Hey, guys a question on I guess, both funding and the outlook. The fortress agreement obviously it comes with a big headline number.

Speaker Change: Okay perfect. Thanks, very much for the color.

Speaker Change: But the full year guidance kind of up only a little bit I mean, given that youre not seeing any pullback in funding and you've added sort of a $1 2 billion in incremental funding from fortress I guess Im just curious why the why the 2025 outlook isn't up even more.

Speaker Change: Thank you.

And our next question comes from Rob <unk> with Autonomous research.

Speaker Change: Hey, guys a question on I guess, both funding and the outlook. The fortress agreement obviously it comes with a big headline number.

Speaker Change: Hey, Rob the short answer is that we were never short of funding per se. So we're not funding gated in 2025, having more funding is good and allows us to handle upside scenarios and have more diversification in the funding.

Speaker Change: But the full year guidance kind of up only a little bit I mean, given that you are not seeing any pullback in funding and you've added sort of $1 2 billion in incremental funding from fortress I guess Im just curious why the why the 2025 outlook isn't up even more.

Speaker Change: Really the gating item really is kind of economic acquisition of the right borrowers.

Speaker Change: Hey, Rob the short answer is that we were never short of funding per se. So we're not funding gated in 2025, having more funding is good and allows us to handle upside scenarios and have more diversification in the funding.

Speaker Change: That's almost always in our history been what gates our growth in and so it's great to have more funding and we hope to add more partners.

Speaker Change: But it doesn't translate directly into growth.

Speaker Change: But really the gating item really is kind of economic acquisition of the right borrowers and that's almost always in our history been what gates our growth and so it's great to have more funding and we hope to add more partners.

Speaker Change: Okay, and if I could just ask one more on <unk> can you comment at all on the underwriting or credit box. There is that upstart decision and then are there like any minimum volume commitments or our approval rates embedded in the agreement.

Speaker Change: It doesn't translate directly into growth.

Speaker Change: It is our underwriting in our models that drive these things to a joint venture structure with them that we have we sit alongside them and bear some of the risk which is the nature of these co investment partnerships, but it is purely our technology and our our models that drive the originations.

Speaker Change: Okay, and if I could just ask one more on <unk> can you comment at all on the underwriting or credit box. There is that up starts decision and then are there like any minimum volume commitments or our approval rates embedded in the agreement.

Speaker Change: It is our underwriting in our models that drive these things too.

Speaker Change: Got it thank you.

Speaker Change: Oint venture structure with them that we are we sit alongside them and bear some of the risk which is the nature of these co investment partnerships, but it is purely our technology and our our models that drive the originations.

Speaker Change: And our next question comes from Reggie Smith with Jpmorgan.

Reggie Smith: Hey, guys congrats congrats on the quarter.

Reggie Smith: I'm not sure. If this was covered but I was curious and it was nice to see the increase and.

Speaker Change: Got it thank you.

Speaker Change: Super Prime borrowers.

Speaker Change: Okay.

Speaker Change: And our next question comes from Reggie Smith with Jpmorgan.

Speaker Change: Over the last couple of quarters I guess my question is yes.

Speaker Change: So all of that.

Speaker Change: Is that does that require.

Speaker Change: Hey, guys congrats on the rest of the quarter.

Speaker Change: Certain marketing messages or are you.

Speaker Change: I'm not sure. If this was covered but I was curious and it was nice to see the increase and.

Speaker Change: Marketing in different channels like how are you kind of controlling that and what's what's driven this shift shift there and I have a follow up.

Speaker Change: Super Prime borrowers.

Speaker Change: For the last couple of quarters I guess my question is yes.

Tom: Yes, Tom.

Tom: Hey, Rajeev. This is Dave Great question I mean, this is a transition that is in process, but it started first with having a competitive product and that means.

Speaker Change: All of that.

Speaker Change: Does that require.

Speaker Change: Certain marketing messages or are you.

Speaker Change: Marketing in different channels like how are you kind of controlling that and what's what's driven this shift a shift there and I can follow up.

Tom: <unk> rates for very high FICO high high credit borrowers and that really came through working with our lending partners to realize that we had to have a lower take rate ourselves and then they had to have lower expectations, but also have corresponding lower loss rates and thats, what we announced as our T. Prime program, a while back and we.

Speaker Change: Yes.

Speaker Change: Hey, Rajeev. This is Dave Great question I mean, this is a transition that is in process, but it started first with having a competitive product and that means competitive rates for very high FICO high high credit borrowers and that really came through working with our lending partners to realize that.

Tom: Really been focused on that since mid 2024. So if you sort of fast forward to today, we have very competitive products across the credit spectrum, including for the prime Miss borrowers out there and now as you suggest there is more to the puzzle in terms of.

Speaker Change: We had to have a lower take rate ourselves and then they had to have lower expectations, but also have corresponding lower loss rates and thats, what we announced as our prime program, a while back and we've really been focused on that since mid 2024. So if you sort of fast forward to today, we have very competitive products across the credit spectrum.

Tom: Becoming the leader in all segments, which is our goal and that really is to adjust our messaging and our marketing targets. If most people perceive upstart as really good for people who are treated poorly by traditional lenders and that's of course, a dated message and we have a lot of work going on to update our story to the market, particularly to.

Speaker Change: Including for the Prime Miss borrowers out there.

Speaker Change: And now as you suggest there is more to the puzzle in terms of becoming the leader in all segments, which is our goal and that really is to adjust our messaging and our marketing targets. If most people perceive upstart as really good for people who are treated poorly by traditional lenders and that's of course, a dated message and we have a lot of work.

Tom: <unk> to realize that upside is always going to be a great first place to start if you want the best rate and the fastest process.

Tom: Okay.

Tom: Okay.

Tom: Yes.

Speaker Change: Going on to update our story to the market, particularly to consumers to realize that upside is always going to be a great first place to start if you want the best rate and the fastest process.

Speaker Change: Good and then this year the slide towards the back of your debt.

Tom: <unk>.

Tom: You kind of a turn bad and it compares to the 10 year treasury yield and clearly that that spread is widening the last couple of quarters, which is great.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes, yes.

Yes.

Speaker Change: Good and then this year the slide towards the back of your deck that shows.

Tom: So in essence, you could do your.

Tom: Investor partners kind of think about that dynamic and what type of spread.

Speaker Change: You kind of a turn bad and that compares to the two year treasury yield.

Tom: Is it reasonable or are they satisfied with over a two year yield like how do we think about that I would imagine that the volatility of returns plays in that as well, but like.

Speaker Change: Clearly that that spread is widening the last couple of quarters, which is great.

Speaker Change: Yes.

Speaker Change: So in essence, you could do your.

Tom: Net debt.

Speaker Change: Investor partners kind of think about that dynamic.

Tom:

Tom: The interplay between those two variables.

Speaker Change: What type of spread.

Tom: How was that received a thought by brought about by Euro investment partners.

Speaker Change: Is it reasonable or are they satisfied with over a two year yield like how do we think about that I would imagine that the volatility of returns plays in that as well, but like.

Reggie Smith: Hey, Reggie, let's see on the institutional side, it's very much.

Reggie Smith: A function or a reference with respect to how the market.

Speaker Change: Net debt.

Speaker Change:

Speaker Change: The interplay between those two variables, but how how was that received a thought by brought about by your investment partners.

Reggie Smith: Is in credit and when obviously when uncertainty is higher is now spreads are wider and we would then reflect that in our product that we deliver to investors fewer.

Reggie: Hey, Reggie, let's see on the institutional side, it's very much.

Reggie Smith: If you rewind many years before this chart, if youre aligned pre COVID-19 and sort of like the.

Reggie: Function or a reference with respect to how the market.

Reggie Smith: 2018, 2019 timeframe base rates were low and spreads were also very tight and you would've seen a much tighter spread so I think that spread there is just a reflection of.

Reggie: Is in credit and when obviously when uncertainty is higher is now spreads are wider and we would then reflect that in our product that we deliver to investors fewer.

Reggie Smith: The risk environment the environment of uncertainty.

Reggie: If you rewind many years before this chart, if you rewind pre COVID-19 and sort of like the.

Reggie Smith: And that's exactly how it functions in their underlying credit markets as well.

Reggie: 2018, 2019 timeframe base rates were low and spreads were also very tight and you would've seen a much tighter spread so I think that spread there is just a reflection of.

Reggie Smith: Got it I guess.

So to drill in on that.

Reggie Smith: That's where it is today is that kind of seeing this excess spreads. So those guys are visit alpha in there.

Reggie: The risk environment the environment of uncertainty.

Reggie Smith: Or is that about you know kind of.

Reggie Smith: Where.

Reggie: And that's exactly how it functions in their underlying credit markets as well.

Reggie Smith: Their expectations are.

Reggie Smith: I mean their expectations ultimately are around a return on equity.

Reggie: Got it I guess.

Reggie: So to drill in on that.

Reggie: That's where it is today is that kind of perceived as excess spreads. So those guys are visit alpha in there.

Reggie Smith: This spread is a component of the return on equity.

Reggie Smith: And the spread itself you think of as I guess, some premium above what you might think of as a risk free rate or a government rate in this case, it's the treasury. So the way that this builds is there is some.

Reggie: Or is that about you know kind of.

Reggie: Where.

Reggie: Their expectations are.

Reggie: I mean their expectations ultimately are around a return on equity.

Reggie Smith: Requirement of spread given the uncertainty of the environment and that results in a certain target ROE and ultimately what we talk about with our Counterparties is the ROE.

Reggie: This spread is a component of the return on equity.

Reggie: And the spread itself you think of as I guess, the premium above what you might think of as a risk free rate or a government rate in this case, it's the treasury. So the way that this builds is there is some.

Reggie Smith: Okay.

Speaker Change: It sounds good. Thank you for taking my questions congrats on the quarter.

Reggie Smith: Thank you Randy Thanks Reggie.

Reggie: Requirement of spread given the uncertainty of the environment and that results in a certain target ROE and ultimately what we talk about with our Counterparties is the ROE.

Speaker Change: And our next question comes from Guiliano Alanna from Compass point.

Speaker Change: Alright, good afternoon, congrats on the quarter.

Reggie: Okay.

Reggie: It sounds good. Thank you for taking my questions congrats on the quarter.

Speaker Change: One thing I'm curious about kind of dig into a little bit.

Speaker Change: Thank you Andy Thanks Reggie.

Speaker Change: The first thing is obviously the mix a bit more towards prime and that's putting pressure on take rate.

And our next question comes from Guiliano Alanna from Compass point.

Speaker Change: Curious if there's any is there any real change in the take rates for subprime mortgage sale entirely mix, driven and then related to that.

Guiliano Alanna: Alright, good afternoon, congrats on the quarter.

Speaker Change: Think about sales and marketing as a percentage of origination volume that stayed roughly flat.

Speaker Change: One thing I'm curious about kind of dig into a little bit as well.

Speaker Change: I think I.

Speaker Change: Completely.

Speaker Change: The first thing is obviously the mix a bit more towards prime and that's putting pressure on take rate I'm curious if there's any is there any real change in the take rates for subprime mortgage sale entirely mix, driven and then related to that.

Speaker Change: 263 basis points, the last few quarters.

Speaker Change: Alright.

So that's you're mixing more towards prime that would come down to reflect.

The lower take.

Speaker Change: Okay, great for prime, but I'm curious, how we should think about the interplay of those two.

Speaker Change: So I think about sales and marketing as a percentage of origination volume that stayed roughly flat.

Speaker Change: Thanks.

I think I completed a 263 basis points the last few quarters.

Hey, Giuliano I guess the first question is.

Speaker Change: What's going on to take take rates and maybe the sort of the core or the near prime segments.

Speaker Change: I would think that if you're mixing more towards prime that would come down to reflect.

Speaker Change: The lower take.

Speaker Change: I would say, they're largely stable we are doing some what we call revenue signed some original.

Speaker Change: Okay, great for prime, but I'm curious, how we should think about the interplay of those two dynamics.

Speaker Change: <unk>.

Speaker Change: Origination fee experimentation.

Giuliano Alanna: Hey, Giuliano I guess the first question is.

Speaker Change: And so I guess on the different parts of the curve where may be going through optimizations and that may have some minor impacts, but I think writ large these are relatively stable take rates.

Speaker Change: What's going on to take take rates and maybe the sort of the core or the near prime segments.

Speaker Change: I would say they are largely stable we are doing some what we call revenue signed some original.

Speaker Change: And then your second question had to do with acquisition costs, I believe and whether they're very different in the prime space.

Speaker Change: Origination fee experimentation.

Speaker Change: I don't think they're dramatically different.

Speaker Change: And so I guess on the different parts of the curve where may be going through optimizations and that may have some minor impacts, but I think writ large these are relatively stable take rates and.

Speaker Change: Our margins are consequently, slimmer, which we called out.

Speaker Change: And as Dave said, I think our distribution programs and our marketing is still at a relatively nascent stage in this.

Speaker Change: Then your second question had to do with acquisition cost I believe and whether they are very different in the prime space.

Speaker Change: Sort of relatively new segment for hours. So they are not yet at a place where they're mature, but I think when they are youll see something like.

Speaker Change: I don't think they're dramatically different.

Speaker Change: Our margins are consequently, slimmer, which we called out and as Dave said, I think our distribution programs and our marketing is still at a relatively nascent stage in this.

Speaker Change: Maybe similar acquisition costs lower take rates and consequently.

More modest margins in a more competed space.

Speaker Change: But also I guess, it's important to point out that this call. This is all dollar accretive right. This adult additional dollars to the bottom line, which is ultimately what we care about.

Speaker Change: Sort of relatively new segment for <unk>, so they're not yet at a place where they are mature, but I think when they are you will see something like.

Speaker Change: Maybe similar acquisition costs lower take rates and consequently.

Speaker Change: Okay sounds great.

Speaker Change: Change the slide around in the presentation after those loan performance.

Speaker Change: More modest margins in a more competed space.

Speaker Change: Tracking overtime.

Speaker Change: It looks like <unk> 24 machines is coming down a little bit versus Q4, and I'm curious I'm curious if that's because there is a higher mix of.

Speaker Change: But also I guess, it's important to point out that this call. This is all dollar accretive right. This is all additional dollars to the bottom line, which is ultimately what we care about.

Speaker Change: The primary loans in there or if that's just representative of kind of the core subprime barb.

Speaker Change: That makes sense.

Speaker Change: I will tell you just change the slide around in the presentation shows loan performance.

Speaker Change: Our credit tier loans.

Speaker Change: Yes, that's the main thing going on which is as you get a higher mix of primary loans youll get lower spreads and lower returns.

Speaker Change: Tracking over time.

Speaker Change: It looks like <unk> 24 machines is coming down a little bit versus Q4, and I'm curious I'm curious if that's because there is a higher mix of yes.

There may be some.

Speaker Change: Also some normalization I think that.

Speaker Change: The primary loans in there or if that's just representative of the kind of the core subprime borrower.

Speaker Change: In the Q2 to Q3 vintages, we were probably over performing our targets in the models will act to recalibrate that overtime, but I think the main dynamic is that when you called out.

Speaker Change: Our credit tier loans.

Speaker Change: Yes, that's the main thing going on which is you've got a higher mix of primary loans youll get lower spreads and lower returns.

Chad: That's very helpful. I appreciate your time and I'll jump back to you Chad.

Speaker Change: There may be some.

Chad: I just wanted to add a comment I had gotten the question. This is Dave Ive got a question earlier from Rob about the one pay Walmart partnership I misheard him.

Speaker Change: Also some normalization I think that.

Speaker Change: In the Q2 to Q3 vintages, we would probably over performing our targets in the models will act to recalibrate that overtime, but I think the main dynamic is that when you called out.

Chad: My answer was referencing the fortress partnership so just so it's clear don't want any confusion there I was actually referencing fortress and if Rob wants to.

Speaker Change: That's very helpful. So I appreciate your time and I'll jump back in the check.

<unk> been again and re ask about one paywall Mart were happy to talk about it.

Speaker Change: I just wanted to add a comment I had gotten the question. This is Dave Ive got a question earlier from Rob about the <unk> Walmart partnership I misheard him.

Speaker Change: And ladies and gentlemen, if you would like to ask a question. Please press star one.

Speaker Change: And my answer was referencing the fortress partnership. So just so it's clear didn't want any confusion there I was actually referencing fortress and if Rob wants to hop in again and re ask about one paywall Martin we're happy to talk about it.

I'll move right now to Matt Oneill with Ft partners.

Matt Oneill: Yeah, hi, thanks, so much.

I think most of the questions were asked and answered so I'll follow up on Rob's on.

Matt Oneill: On one finance Wal Mart and.

Matt Oneill: In addition could you just make.

Speaker Change: And ladies and gentlemen, if you would like to ask a question. Please press star one.

Speaker Change: Thank you Claire.

Speaker Change: Is that being accounted for and any of the guidance changes or did that deal have any effect on the guide or any other moving pieces to the guide beyond the one key result, obviously.

Speaker Change: Well move right now to Matt Oneill with Ft partners.

Matt Oneill: Yeah, hi, thanks, so much.

Speaker Change: I think most of the questions were asked and answered so I'll follow up on Rob's on.

Matt Oneill: One finance Walmart and.

Speaker Change: Hey, Matt This is Dave.

Speaker Change: In addition could you just made.

Speaker Change: I think we said that this one pay Walmart agreement, we didn't expect to be materially financial this year. It doesn't mean it can't be it just means we are unable.

Claire: Thank you Claire.

Speaker Change: Is that being accounted for any of the guidance changes or did that deal have any effect on the guide or any other moving pieces to the guide beyond the one key result, obviously.

Speaker Change: To know that right now because it's very early stage just launched in the last few weeks. So I certainly think there is upside to it.

Speaker Change: We are hopeful theres more things, we can do beyond the initial phase with them, but it is not today.

Claire: Hey, Matt This is Dave.

Claire: I think we said that this one Walmart agreement, we didn't expect to be materially financial this year. It doesn't mean it can't be it just means we are unable.

Speaker Change: Influencing our 2025 guidance.

To know that right now because it's very early stage just launched in the last few weeks. So I certainly think there is upside to it.

Speaker Change: Got it and as far as any other.

And sort of underlying changes, whether it's macro or otherwise.

Claire: We're hopeful theres more things, we can do beyond the initial phase with them, but it is not today.

Speaker Change: Any other moving pieces to the guide beyond the results being incorporated.

Claire: Sort of influencing our 2025 guidance.

Speaker Change: I think what we said is we assume the macro doesn't change dramatically one way or the other we also assume no reduction in fed rates or no reduction in the underlying rates that tend to fuel the platform.

Claire: Got it and as far as any other.

Claire: And sort of underlying changes, whether it's macro or otherwise.

Claire: Any other moving pieces to the guide beyond the results being incorporated.

Speaker Change: So there is upside and downside in those but we take what we feel is a fairly conservative stance and we we always have confidence that our pipeline of model model improvements and technology improvements will lead to growth and we try to account for them conservatively as well so I think.

Claire: I think what we said is we assume the macro doesn't change dramatically one way or the other we are.

Claire: Also assume no reduction in fed rates or no reduction in the underlying rates that tend to fuel the platform.

Speaker Change: We feel pretty good to reaffirming at least modestly raise the guidance that we shared.

Claire: So there is upside and downside in those but we take what we feel is a.

Claire: Fairly conservative stance and we we always have confidence that our pipeline of model model improvements and technology improvements will lead to growth.

Speaker Change: Understood. Thank you.

Speaker Change: And our last question comes from Rob <unk> with Autonomous research.

Claire: We tried to account for them conservatively as well so I think.

Rob: Hey, guys. Thanks for that David and Thanks for letting me back on I was just curious with respect to one pay who.

Claire: We feel pretty good to reaffirm and at least modestly raise the guidance that we shared.

Rob: Who controls the underwriting and credit box, there if thats upstart decision and.

Speaker Change: Understood. Thank you.

Rob: If there were any minimum volume commitments or approval rates and the one pay agreement. Thanks again.

Speaker Change: And our last question comes from Rob <unk> with Autonomous research.

Speaker Change: Hey, guys. Thanks for that David and Thanks for letting me back on I was just curious with respect to one pay.

Speaker Change: Hey, Rob.

Speaker Change: No it's entirely our business our model all of the 100, plus banks credit unions private credit have exposure to that or can benefit from that borrower flows. So it's it's fairly perfect. I mean, there are people, who will get from Walmart that could be 800, FICO and wealthy Theres certainly people that are Middle America.

Speaker Change: Who controls the underwriting and credit box, there if thats upstart decision and.

Speaker Change: If there were any minimum volume commitments or approval rates and the one pay agreement. Thanks again.

Speaker Change: Hey, Rob.

Speaker Change: No it's entirely our business our model all of the 100, plus banks credit unions private credit have exposure to that or it can benefit from that borrower flows. So it's it's fairly perfect. I mean, there are people, who will get from Walmart that could be 800, FICO and wealthy Theres certainly people that are Middle America.

Speaker Change: So that's the beauty of our platform and I think one of the reasons. We have that agreement is that we can serve a very very broad swath of America with the with the products and the diversity of the marketplace structure that we have.

Speaker Change: And so I think the timing is works out perfectly with this whole notion of best right for everybody.

Speaker Change: So that's the beauty of our platform and I think one of the reasons. We have that agreement is that we can serve a very very broad swath of America with the with the products and the diversity of the marketplace structure that we have.

Speaker Change: Got it thanks, and just quick do you share any economics back with one one pay maybe like take rate or anything like that.

So for sure they have a financial interest in it I mean, they're kind of bringing a customer to us. So there is some shared but we feel very good about.

Speaker Change: And so I think the timing is works out perfectly with this whole notion of best right for everybody.

Speaker Change: The economics in the agreement I think it is it is definitely a win win for them for us for their for their customers. So.

Speaker Change: Got it thanks, and just a quick do you share any economics back with one one pay maybe like take rate or anything like that.

Speaker Change: Very excited about the partnership.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Well for sure they have a financial interest in it I mean, they're kind of bringing a customer to us. So there is some shared but we feel very good about.

Speaker Change: And ladies and gentlemen that was the end of our question and answer session. I will now turn the conference back to date for closing remarks.

Speaker Change: The economics of the agreement I think it is it is definitely a win win for them for us for their for their customers. So.

Speaker Change: Thanks, everybody for joining.

Speaker Change: I'm very excited about the partnership.

Speaker Change: Really pleased with the progress that we've had so far in 2025.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: And I think the rest of the year might be even more exciting. So we will see many of you at AI day next week in New York and I hope that many others will be joining us via streaming if you can find the time in your day to do that if you really want to really understand what we're building and I'm, sorry, I think AI AI, Dave will be Super fun and informative event. Thanks again for joining.

Speaker Change: And ladies and gentlemen that was the end of our question and answer session. I will now turn the conference back to date for closing remarks.

Speaker Change: Thanks, everybody for joining.

Speaker Change: We're actually really pleased with the progress that we've had so far in 2025 and I think the rest of the year might be even more exciting. So we will see many of you at AI day next week in New York and I hope that many others will be joining us via streaming if you can find the time in your day to do that if you really want to really understand what we're building and I'm sorry, I think.

Speaker Change: Yes.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change: Goodbye.

Speaker Change: AI, Dave will be Super fun, and informative event, thanks again for joining us.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Bye.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change:

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Hum.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Right.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change:

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change:

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].