Q2 2026 Upstart Holdings Inc Earnings Call

August 4, 2026

Speaker #1: Please stand by. Good afternoon, and welcome to the Upstart Q2 2026 earnings call. At this time, all participants earn a listen-only mode to prevent any background noise.

Operator: Please stand by. Good afternoon, welcome to the Upstart Q2 2026 earnings call. At this time, all participants are in a listen-only mode to prevent any background noise. Later, we will conduct a question and answer session, instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations. Sonya, please go ahead.

Speaker #1: Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations.

Speaker #1: Sonya, please go ahead.

Speaker #2: Thank you. Upstart earnings call for the Q2 of 2026. Joining Welcome to the co-founder and CEO, and me today are Paul Gu, our Andrea Blankmeier, our CFO.

Sonya Banerjee: Thank you. Welcome to the Upstart earnings call for Q2 2026. Joining me today are Paul Gu, our Co-founder and CEO, Andrea Blankmeyer, our CFO. 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, assumptions, should not be viewed as a guarantee of future performance. 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. Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results.

Speaker #2: 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 #2: 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 #2: Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website.

Sonya Banerjee: Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. For the first time, this quarter we'll discuss contribution margins separately for our unsecured and secured businesses. As a reminder, Upstart has one reportable segment, Unsecured Lending, formerly called Personal Lending. The name change is administrative only and does not affect the underlying disclosures. Our auto and home businesses are not separate reportable segments, in certain earnings materials, we refer to them collectively as secured products, which is derived by subtracting Unsecured Lending from total company results. With that, Paul, over to you.

Speaker #2: For the first time, this quarter we'll discuss contribution margins separately for our unsecured and secured businesses. As a reminder, Upstart has one reportable segment, Unsecured Lending.

Speaker #2: Formerly called Personal Lending. The name change is administrative only and does not affect the underlying disclosures. Our auto and home businesses are not separate reportable segments, but in certain earnings materials we refer to them collectively as secured products.

Speaker #2: Which is derived by subtracting unsecured lending from total company results. With that, Paul, over to you.

Speaker #3: Thanks, Sonya. And thank you, everyone, for joining us today. At the end of our last earnings call, I shared four key commitments and takeaways.

Paul Gu: Thanks, Sonya, thank you everyone for joining us today. At the end of our last earnings call, I shared four key commitments, takeaways. I want to start back there today, right where I left off. First, I said that core personal loans are a superpower. Our technology lead there gives us unusually strong margins, I told you we would re-accelerate its growth. Second, I said home and auto had found their fit with the market, I told you we would turn their focus to improving profitability. Third, I told you that we'd stay capital efficient even as we pursue the enormous opportunity in credit. Putting those together, I told you that we'd drive a rebound in profitability that would show we are on track for our full year guidance. Today, I'm pleased to report that we've executed exactly that plan.

Speaker #3: I want to start back there today. Right where I left off. First, I said that core personal loans are a superpower. Our technology lead there gives us unusually strong margins and I told you we would re-accelerate its growth.

Speaker #3: Second, I said home and auto had found their fit with the market, and I told you we would turn their focus to improving profitability.

Speaker #3: Third, I told you that we’d stay capital efficient even as we pursue the enormous opportunity in credit. And, putting those together, I told you that we’d drive a rebound in profitability that would show we are on track for our full-year guidance.

Speaker #3: Today, I'm pleased to report that we've executed exactly that plan. We grew core personal loan originations 27% quarter on quarter. That's a 526 million dollar sequential increase, which is more than three and a half times the growth of the prior three quarters combined.

Paul Gu: We grew core personal loan originations 27% quarter on quarter. That's a $526 million sequential increase, which is more than three and a half times the growth of the prior three quarters combined. It's also the lion's share of the growth in our unsecured lending segment. Because of our strength in this market, we achieved this re-acceleration while also driving our unsecured contribution margin up six percentage points compared to last quarter. At the same time, our secured products, home and auto, advanced rapidly towards profitability. Combined, their contribution margin improved by 61 percentage points in a single quarter, closing a large part of the remaining gap to break even, and they did so while still managing origination growth of 45% quarter over quarter. Combined, originations across all products grew 23% sequentially, or $782 million compared to last quarter.

Speaker #3: It's also the lion's share of the growth in our unsecured lending segment. Because of our strength in this market, we achieved this re-acceleration while also driving our unsecured contribution margin up 6 percentage points compared to last quarter.

Speaker #3: At the same time, our secured products, home and auto, advanced rapidly towards profitability. Combined, their contribution margin improved by 61 percentage points in a the remaining gap to break even.

Speaker #3: And they did so while still managing origination growth of 45% quarter on over quarter. Combined, originations across all products grew 23% sequentially, or 782 million dollars, compared to last quarter.

Speaker #3: Our third-party funding strategy delivered at an equal and almost equally rapid pace, allowing us to support that growth without additional equity capital. While loans on our balance sheet increased marginally, they declined to just 5.9% of total outstanding loans—our lowest level in almost two years.

Paul Gu: Our third-party funding strategy delivered at an almost equally rapid pace, allowing us to support that growth without additional equity capital. While loans on our balance sheet increased marginally, they declined to just 5.9% of total outstanding loans, our lowest level in almost two years. Our strategy drove a rebound in our overall margins and profitability, including all-time high contribution profit and a return to GAAP profits. To put that in perspective, our previous peak in contribution profit was in Q4 of 2021. Back then, the business benefited from a much easier macroeconomic backdrop and the financial profile of being concentrated almost entirely in a single mature product. UMI was below one, consumer charge-off rates were at historic lows across the industry, and the federal funds rate was near zero.

Speaker #3: Our strategy drove a rebound in our overall margins and profitability, including all-time high contribution profit and a return to GAAP profits. To put that in perspective, our previous peak in contribution profit was in Q4 of 2021.

Speaker #3: Back then, the business benefited from a much easier macroeconomic backdrop and the financial profile of being concentrated almost entirely in a single mature product.

Speaker #3: You and I was below one, consumer, charge-off rates were at historic lows across the industry, and the federal funds rate was near zero. The fact that we've reached a new profit peak in today's environment is a testament to the relentless power of compounding technology wins quarter after quarter, year after year.

Paul Gu: The fact that we've reached a new profit peak in today's environment is a testament to the relentless power of compounding technology wins quarter after quarter, year after year. I always tell people that while our business is sensitive to macro conditions in the short term, its value in the long term will be determined only by the pace of our execution. Also, unlike 2021, we're now a multi-product company. Our business today has a significant and growing share of secured products. Auto and home made up about 14% of total originations in Q2, compared to just 1% back then. Building those businesses is showing up in our operating expenses now ahead of the contribution profit we expect them to generate in the future. These products expand our market opportunity by many multiples, and combined with core personal loans, can fuel profit growth for years to come.

Speaker #3: I always tell people that while our business is sensitive to macro conditions in the short term, its value in the long term will be determined only by the pace of our execution.

Speaker #3: Also, unlike 2021, we are now a multi-product company. Our business today has a significant and growing share of secured products. Auto and home made up about 14% of total originations in Q2, compared to just 1% back then.

Speaker #3: Building those businesses is showing up in our operating expenses now, ahead of the contribution profit we expect them to generate in the future. These products expand our market opportunity by many multiples and combined with core personal loans can fuel profit growth for years to come.

Speaker #3: Next, I want to highlight our progress in three areas: from models, our customer relationships, and our secured products. As always, our most important business lever, especially in core personal loans, is improving our models.

Paul Gu: Next, I want to highlight our progress in three areas, our models, our customer relationships, and our secured products. As always, our most important business lever, especially in core personal loans, is improving our models. In Q2, we shipped three new personal loan underwriting models, cumulatively adding more than 300 new variables. We also moved personal loan underwriting to a new distributed inference platform that is roughly 65% faster at the median relative to the prior architecture, even as it supports much greater complexity. The end result, our model's accuracy lead over a traditional credit scoring benchmark widened again this quarter. Our model is now 2.74 times as accurate as a traditional model, and we're still early. 87.38% of the inaccuracy gap is left for us to solve. That's our runway. Turning to our customers, Q2 was another step toward becoming the most trusted brand in consumer credit.

Speaker #3: In Q2, we shipped three new personal loan underwriting models, cumulatively adding more than 300 new variables. We also moved personal loan underwriting to a new distributed inference platform that is roughly 65% faster at the median relative to the prior architecture.

Speaker #3: Even as it supports much greater complexity. The end result? Our model's accuracy lead over a traditional credit scoring benchmark widened again this quarter. Our model is now 2.74 times as accurate as a traditional model, and we're still early.

Speaker #3: 87.38% of the inaccuracy gap is left for us to solve. That's our runway. Turning to our customers, Q2 was another step toward becoming the most trusted brand in consumer credit.

Speaker #3: Approximately one in every 13 American adults has an Upstart account, and that number continues to grow. Investing in these relationships is important to us.

Paul Gu: Approximately one in every 13 American adults has an Upstart account, and that number continues to grow. Investing in these relationships is important to us. In Q2, we originated more than 558,000 loans, a record high. Historical experience shows that each of those borrowers will take out roughly one and a half loans over time. Recent cohorts are trending even stronger as the addition of new products like home, auto, and Cash Line bring us closer to our vision of having the best product for every American's credit needs. We're also making it easier for consumers to return. In Q2, we launched a new model that allows us to better manage when we pull underwriting data from vendors, allowing us to reengage existing accounts more frequently and at lower cost. Next, I'll talk about our secured products. In home, we streamlined the borrower verification and closing processes.

Speaker #3: In Q2, we originated more than 558,000 loans—a record high. Historical experience shows that each of those borrowers will take out roughly one and a half loans over time.

Speaker #3: Recent cohorts are trending even stronger, as the addition of new products like home, auto, and cash line bring us closer to our vision of having the best product for every American's credit needs.

Speaker #3: We're also making it easier for consumers to return. In Q2, we launched a new model that allows us to better manage when we pull underwriting data from vendors, allowing us to re-engage existing accounts more frequently and at lower cost.

Speaker #3: Next, I'll talk about our secured products. In home, we streamline the borrower verification and closing processes. Our cost to originate a HELOC decreased 15% versus Q1, and we can close in six days while also offering borrowers rates that are on average more than 200 basis points lower than competitors.

Paul Gu: Our cost to originate a HELOC decreased 15% versus Q1. We can close in six days while also offering borrowers rates that are on average more than 200 basis points lower than competitors. That combination, lower cost, speed to close, and better pricing is the basis for a durable competitive advantage that should support our continued growth in this market. In auto retail, we continue to add rooftops and win wallet share. At the same time, because of the great value proposition we offer both dealers and car buyers, we began optimizing our take rates, a clear sign this business has moved from proving demand to improving unit economics. In auto secured personal loans, we improved the efficiency of the funnel and upgraded our ability to automatically identify consumers with eligible vehicles, which lowers acquisition costs and directly supports product margins.

Speaker #3: That combination lower cost, speed to close, and better pricing is the basis for a durable, competitive advantage that should support our continued growth in this market.

Speaker #3: In auto retail, we continue to add roof tops and wind wallet share. At the same time, because of the great value proposition we offer both dealers and car buyers, we began optimizing our take rates, a clear sign this business has moved from proving demand to improving unit economics.

Speaker #3: In auto secured personal loans, we improved the efficiency of the funnel and upgraded our ability to automatically identify consumers with eligible vehicles. Which lowers acquisition costs and directly supports product margins.

Speaker #3: Each of these secured products has the potential to be as important to Upstart as personal loans over time, and we're excited to continue investing in them.

Paul Gu: Each of these secured products has the potential to be as important to Upstart as personal loans over time. We're excited to continue investing in them. At the same time, capital discipline means holding an extraordinarily high bar for investments. Because of that, we decided to sunset our auto refinance business this quarter. While we're proud of what the team built over the past few years, it did not have the same velocity or potential as the other bets in our portfolio. Turning to funding. Since our May earnings call, we've closed three major institutional deals, including our largest ever, which together provide up to $5 billion in new committed capacity. We've also kept our streak intact, renewing every institutional capital partner at a 100% rate since 2023.

Speaker #3: At the same time, capital discipline means holding an extraordinarily high bar for investments. And because of that, we decided to sunset our auto refinance business this quarter.

Speaker #3: While we're proud of what the team built over the past few years, it did not have the same velocity or potential as the other bets in our portfolio.

Speaker #3: Turning to funding. Since our May earnings call, we've closed three major institutional deals, including our largest ever, which together provide up to $5 billion in new committed capacity.

Speaker #3: We've also kept our streak intact, renewing every institutional capital partner at a 100% rate since 2023. Separately, we completed an upsized $569 million asset-backed securitization, our largest issuance since 2021, at the tightest spreads we've seen in three years.

Paul Gu: Separately, we completed an upsized $569 million asset-backed securitization, our largest issuance since 2021, at the tightest spreads we've seen in three years. This activity is another vote of confidence in our ability to deliver strong returns to our capital partners. The average return of our last 12 quarterly vintages of loans exceeds US Treasuries by approximately 660 basis points, with every individual vintage exceeding Treasuries by at least 425 basis points. Finally, a quick update on our bank charter. In July, we received conditional approval from the OCC following a rigorous review of our credit, compliance, and business practices. This process, plus the work remaining to receive regulatory approvals and stand up the bank, is one of the largest undertakings in Upstart's history.

Speaker #3: This activity is another vote of confidence in our ability to deliver strong returns to our capital partners. The average return of our last 12 quarterly vintages of loans exceeds US Treasuries by approximately 660 basis points, with every individual vintage exceeding Treasuries by at least 425 basis points.

Speaker #3: Finally, a quick update on our bank charter. In July, we received conditional approval from the OCC, following a rigorous review of our credit, compliance, and business practices.

Speaker #3: This process, along with the work remaining to receive regulatory approvals and stand up the bank, is one of the largest undertakings in Upstart's history. The bank does not change our strategy of funding loans primarily with third-party capital.

Paul Gu: The bank does not change our strategy of funding loans primarily with third-party capital. We expect it to unlock major operational and regulatory efficiencies which will contribute to our financial goals over the coming years. We aim to launch in early 2027. Before I turn the call over to Andrea, I'll close with a few final thoughts. Q2 was our first quarter executing with a new management team. We defined a strategy and we executed it. At AI Day last year, I told you that lending's oldest truism assumes the technology stays constant, that you can't have growth, credit performance, and profitability all at once. That's not the case for Upstart. This quarter, we delivered all three. We grew, our credit performed, and we expanded margins.

Speaker #3: But we expect it to unlock major operational and regulatory efficiencies, which will contribute to our financial goals over the coming years. We aim to launch in early 2027.

Speaker #3: Before I turn the call over to Andrea, I'll close with a few final thoughts. Q2 was our first quarter executing as a new management team.

Speaker #3: We defined a strategy, and we executed it. At AI Day last year, I told you that lending's oldest truism assumes the technology stays constant.

Speaker #3: That you can't have growth, credit performance, and profitability all at once. That's not the case for Upstart. This quarter, we delivered all three. We grew our credit performed, and we expanded margins.

Speaker #3: We didn't have to trade one for another, and that combination—not any single metric in isolation—is the clearest evidence that our AI advantage is real and compounding.

Paul Gu: We didn't have to trade one for another, and that combination, not any single metric in isolation, is the clearest evidence that our AI advantage is real and compounding. You should expect us to double down in H2 of this year. We expect to compound wins across technology and marketing as we drive growth in core personal loans and profitability in secured loans. That's where the real durable value in this business lies, independent of any macro headwinds or tailwinds. We will continue to steward every dollar of investor capital, expanding and deepening our third-party capital relationships and holding a high bar for operational investment. I want to close by thanking everyone at Upstart for an exceptional quarter. Andrea, over to you.

Speaker #3: You should expect us to double down in second half of this year. We expect to compound wins across technology and marketing as we drive growth, core personal loans, and profitability in secured loans.

Speaker #3: That's where the real durable value in this business lies. Independent of any macro headwinds or tailwinds. And we will continue to steward every dollar of investor capital, expanding and deepening our third-party capital relationships, and holding a high bar for operational investment.

Speaker #3: I want to close by thanking everyone at Upstart for an exceptional quarter. Andrea, over to you.

Andrea Blankmeyer: Thanks, Paul, and good afternoon, everyone. As Sonya noted earlier, we renamed our sole reportable segment to Unsecured Lending this quarter, a naming change only with no impact to the underlying disclosures. As a quick reminder before I walk through the numbers, Unsecured Lending includes personal loans, small-dollar loans, and Cash Line, while secured, comprised of auto and home, isn't a separate reportable segment. It's derived by subtracting Unsecured Lending from total company results. This framing reflects a real shift in our business. We're no longer a single-product company, and our unsecured and secured products are at different levels of maturity and have very different economics today. Our focus on shifting the mix in unsecured towards core means we are leaning into the most profitable part of our business. Secured, on the other hand, is still working towards break-even contribution margin and has been improving quickly.

Speaker #2: Paul. And good afternoon, everyone. As Sonya noted earlier, we renamed our sole reportable segment to Unsecured Lending this quarter. A naming change only, with no impact to the underlying disclosures.

Speaker #2: As a quick reminder before I walk through the numbers, Unsecured Lending includes personal loans, small dollar loans, and Cash Line. While secured, comprised of auto and home, isn't a separate reportable segment.

Speaker #2: It's derived by subtracting unsecured lending from total company results. This framing reflects a real shift in our business. We're no longer a single product company, and our unsecured and secured products are at different levels of maturity and have very different economics today.

Speaker #2: Shifting the mix in unsecured towards core means we are leaning into the most profitable part of our business. Secured, on the other hand, is still working towards break-even. Our focus is on contribution margin, and that has been improving quickly.

Speaker #2: Breaking these out separately is the clearest way to track both stories: the earnings power of our more mature unsecured segment, and the additional profit engine we're building with our secured products.

Andrea Blankmeyer: Breaking these out separately is the clearest way to track both stories, the earnings power of our more mature Unsecured segment and the additional profit engine we're building with our secured products. Turning to the quarter. Q2 was shaped by execution on the priorities we communicated last quarter. The numbers back it up directly. A re-acceleration in core personal loans, a step change in secured product contribution margin, and a rebound in total company margins and profitability. I'll cite both year-over-year and sequential growth as I walk through our results. Year-over-year for the long-term trajectory, sequential for how we executed against the plan. I'll close with what this all means for our full-year outlook. Total originations were $4.2 billion, up 50% year-over-year and 23% sequentially. Within this, Unsecured Lending originations grew 38% year-over-year and 20% sequentially, with the latter reflecting a re-acceleration of core personal loan volume growth.

Speaker #2: Turning to the quarter. Q2 was shaped by execution on the priorities we communicated last quarter, and the numbers back it up directly. A re-acceleration in core personal loans, a step change in secured product contribution margin, and a rebound in total company margins and profitability.

Speaker #2: I'll cite both year-over-year and sequential growth as I walk through our results. Year-over-year for the long-term trajectory, sequential for how we executed against the plan.

Speaker #2: I'll close with what this all means for our full-year outlook. Total originations were $4.2 billion, up 50% year-over-year and 23% sequentially. Within this, unsecured lending originations grew 38% year-over-year and 20% sequentially, with the latter reflecting a reacceleration of core personal loan volume growth.

Speaker #2: At the same time, our secured products continued to scale, with auto originations up 264% year-over-year and 62% sequentially, while home grew 139% year-over-year and 14% sequentially.

Andrea Blankmeyer: At the same time, our secured products continued to scale, with auto originations up 264% year-over-year and 62% sequentially, while home grew 139% year-over-year and 14% sequentially. Total revenue was approximately $365 million, up 42% year-over-year and 18% sequentially. Revenue from fees was $348 million, up 45% year-over-year and 26% sequentially. Within that, unsecured lending contributed $326 million in revenue from fees, up 38% year-over-year and 23% sequentially. Secured products contributed $22 million, up 465% year-over-year and 86% sequentially. Take rate, defined as revenue from fees as a percentage of total originations, improved sequentially in both categories of products. About 24 basis points in unsecured and 81 basis points in secured. That's why fee revenue growth outpaced origination growth versus Q1. Net interest income and fair value adjustments totaled approximately $17 million, roughly flat year-on-year, but down sequentially, reflecting the impact of a higher UMI on fair value.

Speaker #2: Total revenue was approximately $365 million, up 42% year-over-year and 18% sequentially. Revenue from fees was $348 million, up 45% year-over-year and 26% sequentially. Within that, unsecured lending contributed $326 million in revenue from fees, up 38% year-over-year and 23% sequentially.

Speaker #2: Secured products contributed $22 million, up 465% year-over-year and 86% sequentially. Take rate, defined as revenue from fees as a percentage of total originations, improved sequentially in both categories of products.

Speaker #2: About 24 basis points in unsecured and 81 basis points in secured. That's why fee revenue growth outpaced origination growth versus Q1. Net interest income and fair value adjustments totaled approximately $17 million, roughly flat year-on-year, but down sequentially, reflecting the impact of a higher UMI on fair value.

Speaker #2: Next, contribution profit. A non-GAAP metric defined as revenue from fees minus variable costs for borrower acquisition, verification, and servicing. Contribution profit was $193 million in Q2, an all-time high for Upstart.

Andrea Blankmeyer: Next, contribution profit, a non-GAAP metric defined as revenue from fees minus variable costs for borrower acquisition, verification, and servicing. Contribution profit was $193 million in Q2, an all-time high for Upstart. That's up 37% year over year and up 41%, or $56 million, relative to Q1. The sequential increase was almost entirely driven by unsecured lending, with secured products representing less of a drag versus Q1. Contribution margin was 55% versus 58% in Q2 2025 and 50% in Q1 2026. The 5-point improvement versus Q1 was driven by margin gains in both our unsecured and secured products. Unsecured segment contribution margin increased to 62%, up six percentage points from 56% in Q1 and flat to Q2 2025, with the sequential improvement reflecting three things. One, a larger mix of higher-margin core personal loans. Two, lower customer acquisition cost as a percentage of originations.

Speaker #2: That's up 37% year-over-year and up 41% or 56 million relative to Q1. The sequential increase was almost entirely driven by unsecured lending, with secured products representing less of a drag versus Q1.

Speaker #2: Contribution margin was 55% versus 58% in Q2 2025, and 50% in Q1 2026. The five-point improvement versus Q1 was driven by margin gains in both our unsecured and secured products.

Speaker #2: Unsecured segment contribution margin increased to 62%, up 6 percentage points from 56% in Q1 and flat to Q2, 2025. With the sequential improvement reflecting three things.

Speaker #2: One, a larger mix of higher margin core personal loans. Two, lower customer acquisition costs as a percentage of originations. And three, an expected seasonal pickup in demand.

Andrea Blankmeyer: Three, an expected seasonal pickup in demand. The re-acceleration in core personal loan volume was driven by a combination of model improvements, funnel improvements, and efficient targeted customer acquisition, all reflecting our increased focus on this borrower category. Our secured products contribution margin increased to -35%, an improvement of 61 percentage points from -96% in Q1. This was driven by improved take rates and a greater operational efficiency across auto and home. Given this trajectory, we expect our secured products to reach contribution margin breakeven by Q4 of this year. In total, GAAP operating expenses were roughly $350 million in Q2, up 39% year on year and 11% sequentially. Variable expenses, comprised of borrower acquisition, verification, and servicing costs, rose 55% year on year and 11% sequentially.

Speaker #2: The re-acceleration in core personal loan volume was driven by a combination of model improvements, funnel improvements, and efficient targeted customer acquisition, all reflecting our increased focus on the borrower category.

Speaker #2: Our secured products contribution margin increased to negative 35%, an improvement of 61 percentage points from negative 96% in Q1. This was driven by improved take rate and greater operational efficiency across auto and home.

Speaker #2: Given this trajectory, we expect our secured products to reach Q4 of this year. In total, GAAP operating expenses were roughly $350 million in Q2, up 39% year-on-year and 11% sequentially.

Speaker #2: Variable expenses, comprised of borrower acquisition, verification, and servicing costs, rose 55% year-on-year and 11% sequentially. Fixed expenses, defined as total operating expenses minus variable expenses, increased 28% year-over-year and roughly $19 million or 11% sequentially.

Andrea Blankmeyer: Fixed expenses, defined as total operating expenses minus variable expenses, increased 28% year over year and roughly $19 million or 11% sequentially. Looking ahead, we expect fixed expenses to grow in the low single digits sequentially in both Q3 and Q4. In Q2, we returned to GAAP profitability, generating approximately $17 million of net income, up 195% year over year with a 5% net income margin. GAAP diluted EPS was $0.16 based on a weighted average diluted share count of 110 million. Adjusted EBITDA was approximately $77 million, up 45% year over year with a 21% margin. We ended Q2 with approximately $1.06 billion in loans held on our balance sheet, up approximately $50 million or 5% from Q1. That increase was driven by our secured products, which continued to scale quickly. At the same time, our unsecured holdings declined and legacy securitized loans continued to run off.

Speaker #2: Looking ahead, we expect fixed expenses to grow in the low single digits sequentially in both Q3 and Q4. In Q2, we returned to GAAP profitability, generating approximately $17 million of net income, up 195% year-over-year, with a 5% net income margin.

Speaker #2: GAAP diluted EPS was $0.16, based on a weighted average diluted share count of 110 million. Adjusted EBITDA was approximately $77 million, up 45% year-over-year, with a 21% margin.

Speaker #2: We ended Q2 with approximately $1.06 billion in loans held on our balance sheet, up approximately $50 million or 5% from Q1. That increase was driven by our secured products, which continued to scale quickly.

Speaker #2: At the same time, our unsecured holdings declined and legacy securitized loans continued to run off. As a percentage of the total unpaid principal balance of all Upstart loans outstanding, loans on the balance sheet fell to roughly 5.9%, the lowest it's been in almost two years.

Andrea Blankmeyer: As a percentage of the total unpaid principal balance of all Upstart loans outstanding, loans on the balance sheet fell to roughly 5.9%, the lowest it's been in almost 2 years. Supported by consistent credit performance, we've continued to strengthen our capital platform. Year-to-date, we've signed committed capital partnerships that are expected to add up to $10.8 billion in incremental capacity. We also completed 3 securitizations for roughly $1.7 billion in total collateral and increased the proportion of home and auto loans funded via third parties. Looking ahead, we're reiterating our full year guidance. Total revenue of approximately $1.4 billion, fee revenue of approximately $1.3 billion, and adjusted EBITDA of approximately $294 million or roughly 21% of total revenue.

Speaker #2: Supported by consistent credit performance, we've continued to strengthen our capital platform. Year to date, we've signed committed capital partnerships that are expected to add up to $10.8 billion in incremental capacity.

Speaker #2: We also completed three securitizations for roughly $1.7 billion in total collateral, and increased the proportion of home and auto loans funded via third parties.

Speaker #2: Looking ahead, we're reiterating our full-year guidance. Total revenue of approximately $1.4 billion; fee revenue of approximately $1.3 billion; and adjusted EBITDA of approximately $294 million, or roughly $21% of total revenue.

Speaker #2: Keep in mind our guidance is informed by our most recent published read for UMI, which as of yesterday was 1.5. Up 9% from the beginning of Q2, and at the top of the 1.4 to 1.5 range that framed our outlook when we initially shared our 2026 guidance in February.

Andrea Blankmeyer: Keep in mind, our guidance is informed by our most recent published read for UMI, which as of yesterday was 1.5, up 9% from the beginning of Q2 and at the top of the 1.4 to 1.5 range that framed our outlook when we initially shared our 2026 guidance in February. With UMI having trended higher over each of the last 3 months and now at the top of the guidance range, we are maintaining our guide. We expect the underlying strength of the business, as you saw in Q2, to offset this macro headwind. Our outlook assumes UMI holds roughly at this level through the rest of the year.

Speaker #2: With UMI having trended higher over each of the last three months and now at the top of the guidance range, we are maintaining our guide.

Speaker #2: We expect the underlying strength of the business, as you saw in Q2, to offset this macro headwind. Our outlook assumes UMI holds roughly at this level through the rest of the year.

Speaker #2: To close, in Q2, we did what we said we were going to do. Demonstrating that we could drive sequential improvement in contribution and overall profit margins, by one, re-accelerating the growth of core personal loans at an efficient customer acquisition cost; two, meaningfully improving the contribution margin profile of our secured products while maintaining strong growth; and three, managing fixed expenses.

Andrea Blankmeyer: To close, in Q2, we did what we said we were going to do, demonstrating that we could drive sequential improvement in contribution and overall profit margins by, one, re-accelerating the growth of core personal loans at an efficient customer acquisition cost. Two, meaningfully improving the contribution margin profile of our secured products while maintaining strong growth. Three, managing fixed expenses. Along with preparing to launch Upstart Bank, these three areas remain our focus for the balance of 2026. Above all else, we will continue to prioritize consistent credit performance. Whatever the UMI context, if we execute across these domains, our platform will be stronger than ever as we exit 2026. With that, I'd like to turn it over to the operator to begin Q&A.

Speaker #2: Along with preparing to launch Upstart Bank, these three areas remain our focus for the balance of 2026. And above all else, we will continue to prioritize consistent credit performance.

Speaker #2: Whatever the UMI context, if we execute across these domains, our platform will be stronger than ever as we exit 2026. With that, I'd like to turn it over to the operator to begin Q&A.

Speaker #1: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. The first question will come from Kyle Peterson with Needham.

Speaker #1: Again, that is star one if you would like to signal with questions. And the first question will come from Kyle Peterson with Needham.

Speaker #3: Great. Good afternoon. Thanks, guys, and nice results. I wanted to start out and dig a little more into the take rate. Great to see the uplift there.

Kyle Peterson: Great. Good afternoon. Thanks, guys, and nice results. Wanted to start out and dig a little more into the take rate. Great to see the uplift there. It sounds like it was across products. I guess I just wanted to dig in. Is there any mix at play there, whether it's in terms of where in the credit box some of these loans were originated at, or is there anything pricing that you guys did to tweak that? Just any more color there would be great.

Speaker #3: It sounds like it was across products. So I guess I just wanted to dig in. Is there any mix at play there, whether it's in terms of where in the credit box some of these loans were originated at, or is there anything pricing that you guys did to tweak that just any more color there would be great?

Speaker #4: Yeah. Thanks for the question, Kyle. We're really pleased with the results on profitability this quarter, and it's really a reflection of the strategy that we laid out at the end of last quarter's call.

Paul Gu: Thanks for the question, Kyle. We're really pleased with the results on profitability this quarter, and it's really a reflection of the strategy that we laid out at the end of last quarter's call. We said that really there are two important dynamics that are going to be happening through the rest of this year. One is we're going to be focused on re-accelerating growth in this core personal loan segment. That segment carries much higher margins. Because you can see in our results that that segment grew much more than it's been growing in earlier quarters, that's contributing to higher margin results. On secured products, we very intentionally were focused on actually improving significantly the margins of home and auto. We did exactly that in this quarter. That was our number one goal for those products.

Speaker #4: We said that really there are two important dynamics that are going to be happening through the rest of this year. One is we're going to be focused on re-accelerating growth in this core personal loan segment.

Speaker #4: That segment carries much higher margins, and because you can see in our results that that segment grew much more than it's been growing in earlier quarters, there definitely that's contributing to higher margin results.

Speaker #4: And then on secured products, we very intentionally were focused on actually improving significantly the margins of home and auto, and we did exactly that in this quarter.

Speaker #4: That was our number one goal for those products. And so you can see that the margins improved very substantially, 61 points in a single quarter, and obviously that's going to help so the answer is a bit of both.

Paul Gu: You can see that the margins improved very substantially, 61 points in a single quarter, and obviously, that's going to help. The answer is a bit of both. We're very focused on our core personal loan segment, where we're very, very strong. Each of the sort of underlying businesses did really well on their margins, too.

Speaker #4: We're very focused on our core personal loan segment, where we're very, very strong. But also, each of the sort of underlying businesses did really well on their margins too.

Speaker #3: Great, that's really helpful. And then maybe switching gears, I wanted to talk about some of the secured products scaling, and particularly on potential distribution partnerships.

Kyle Peterson: Great. That's really helpful. Maybe switching gears, wanted to talk about some of the secured product scaling and particularly on potential distribution partnerships. I know some competitors in the space, especially in the HELOCs, have kind of used some of these as a way to really ramp up growth, partnering with some mortgage brokers or something to offer HELOCs. I guess, how are you guys evaluating and incorporating these into the growth strategy of some of these secured products? What do you guys have now, and where do you see that going moving forward?

Speaker #3: I know some competitors in the space, especially in Helocs, have kind of used some of these as a way to really ramp up growth, partnering with some mortgage brokers or something that offer Helocs.

Speaker #3: But I guess how are you guys evaluating and incorporating these into the growth strategy of some of these secured products and what do you guys have now, and where do you see that going moving forward?

Speaker #4: Yeah. Each of our home and auto businesses have some differences in the distribution strategy. So you're absolutely right that in the home business, we think ultimately it will be very important to have a home-specific partnerships.

Paul Gu: Yeah. Each of our home and auto businesses have some differences in the distribution strategy. You're absolutely right that in the home business, we think ultimately it will be very important to have home specific partnerships. That's not something we've done yet. It's very much on our roadmap. It's one of the areas that we want to invest in. We think there's a lot of potential in just because our HELOC product is so strong in terms of really best-in-class prices that we can offer the borrowers, plus sort of best-in-class experience. I think putting those together delivers an exceptional product. Distribution obviously will take it the distance. In our auto product, there's two different auto products. There's an auto purchase product, and that's distributed at car dealerships via Upstart's specific proprietary software.

Speaker #4: And so that's not something we've done yet, but it is very much on our roadmap. It's one of the areas that we want to invest in.

Speaker #4: And we think there's a lot of potential in just because our Heloc product is so strong in terms of really best-in-class prices that we can offer the borrowers, plus sort of best-in-class experience.

Speaker #4: And I think putting those together delivers an exceptional product. And so, distribution obviously will take it the distance. In our auto product, there are two different auto products.

Speaker #4: There's an auto purchase product, and that's distributed at car dealerships via Upstart's specific proprietary software. And so that's a strategy that's been ramping really nicely, as you can see in the results.

Paul Gu: That's a strategy that's been ramping really nicely, as you can see in the results. One of the beautiful things about it is that unlike our pure consumer businesses, in addition to being able to grow by getting better models, better user experience, in other words, better conversion rates, the auto purchase business can simply grow by getting to more car dealerships. There are thousands and thousands of car dealerships in America that we aspire to scale to. Then we have some businesses that are more like our traditional personal loan business and being pure direct to consumer. Auto secured personal loans is like that. Each of the products has a distinct distribution strategy, and some of them are already fully in play, and then some of them, like in HELOC, are still to come.

Speaker #4: And one of the beautiful things about it is that unlike our pure consumer businesses, in addition to being able to grow by getting better models, better user experience, in other words, better conversion rates, the auto purchase business can simply grow by getting to more car dealerships, and there are thousands and thousands of car dealerships in America that we aspire to scale to.

Speaker #4: And then we have some businesses that are more like our traditional personal loan business in Indian pure direct consumer, auto secured personal loans is like that.

Speaker #4: So each of the products is a distinct distribution strategy. And some of them are already fully in play, and then some of them, like in HELOC, are still to come.

Speaker #3: Great. Thank you very much, and nice results.

Kyle Peterson: Great. Thank you very much, nice results.

Speaker #1: And the next question will come from Simon Clinch with Rothschild and Company.

Operator: The next question will come from Simon Clinch with Rothschild & Co.

Speaker #5: Hi everyone, thanks for taking my question. And yeah, nice quarter. I was wondering, Paul, could you talk a bit about the auto refinance business that you're on today?

Simon Clinch: Hi, everyone. Thanks for taking my question and yeah, nice quarter. I was wondering, Paul, could you talk a bit about the auto refinance business that you're sunsetting? I'm curious just because that strikes me as a business that would actually be quite important for just repeat business, generally speaking. I'm wondering if you could just put a bit of color around sort of how that has fitted into your strategy there and why it doesn't necessarily belong there cycling the economics.

Speaker #5: I'm curious because that strikes me as a business that would actually be quite important for just repeat business, generally speaking. So I'm wondering if you could just put a bit of color around sort of how that has fit into your strategy there, and why it doesn't necessarily belong there.

Speaker #4: Yeah. We think and we thought that auto refi is a good product. I think we built a good product over the last few years.

Paul Gu: Yeah. We think and we thought that auto refi is a good product. I think we built a good product over the last few years. To your point, it was something that was relevant to returning customers. Ultimately, we just looked at the growth rate of that business and its potential compared to everything else that we were doing, all the debt that we had out there, and we wanted to concentrate on the ones that had the highest velocity and the biggest upside. We decided to just concentrate a little more. That one didn't make the cut, just a necessary consequence of capital discipline.

Speaker #4: And to your point, it was something that was relevant to returning customers. But ultimately, we just looked at the growth rate of that business and its potential compared to everything else that we were doing, all the bets that we had out there.

Speaker #4: And we wanted to concentrate on the ones that had the highest velocity and the biggest upside. And so we decided to just concentrate a little more.

Speaker #4: And so that one didn't make the cut—just a necessary consequence of capital discipline.

Speaker #5: Okay. Understood. Thanks. And then maybe Paul, if you could talk a bit more about as we see the improvements that you're continuing to drive within the secured lending margins, could you talk about some of the sort of low-hanging fruit that's left to be taken, and how we should think about the future profitability of this business, if you can give any color on that, that would be useful.

Simon Clinch: Okay. Understood. Thanks. Maybe, Paul, if you could talk a bit more about as we see the improvements that you're continuing to drive within the secured lending margins, could you talk about some of the sort of low hanging fruit that's left to be taken and how we should think about the future profitability of this business? If you can give any color on that'd be useful.

Speaker #4: Yeah. There's still a lot of pretty well-defined well-known work to be done on improving the profitability of the secured products. Broadly, they fall into two buckets.

Paul Gu: Yeah. There's still a lot of pretty well-defined, well-known work to be done on improving the profitability of the secured products. Broadly, they fall into two buckets. The first bucket is improving and optimizing where we take our economics. For example, you can imagine that in the auto purchase business, there is an enormous variation in how sensitive any particular customer, any particular car purchase deal is to the take rate that we have on it. In some deals, we are offering an extremely unique value proposition. That car would not get sold otherwise. In other deals, we're competing in a more fiercely competitive market, the take rates there can really be optimized pretty significantly.

Speaker #4: The first bucket is improving and optimizing where we take our economics. And you can so for example, you can imagine that in the auto in the auto purchase business, there is an enormous variation in how sensitive any particular customer, any particular car purchase deal is to the take rate that we have on it.

Speaker #4: And some deals, we are offering an extremely unique value proposition. That car would not get sold otherwise. In other deals, we're competing in a more fiercely competitive market.

Speaker #4: And so the take rates there can really be optimized pretty significantly. And that is going to, over time, as our separation in our ability to underwrite the underlying credit grows and also our ability to just understand which deals are the competitive ones and which deals are the ones where we're adding a lot of value, that is going to improve our economics there quite a bit.

Paul Gu: That is going to, over time, as our separation and our ability to underwrite the underlying credit grows, and also our ability to just understand which deals are the competitive ones and which deals are the ones where we're adding a lot of value, that is going to improve our economics there quite a bit. The other sort of big thematic category of how we improve profitability in new products is by making it more efficient to originate them. In particular, in secured products, there's quite a bit more cost involved in originating the loan, the verification, liens, all of the steps of the process. There's a lot of room there just for a combination of data integrations, automations, and ultimately bringing more sophisticated forms of AI to bear that can really automate a lot of the work away.

Speaker #4: And then the other sort of big thematic category of how we improve profitability in new products is by making it more efficient to originate them.

Speaker #4: In particular, in secured products, there's quite a bit more cost involved in originating the loan, the verification, liens, all of the steps of the process.

Speaker #4: And so there's a lot of room there just for a combination of data integrations, automations, and then ultimately bringing more sophisticated forms of AI to bear that can really automate a lot of the work away.

Speaker #4: So all of these things, I would say, have both very short-term components that will hit fast and in a significant way, and then also more of a kind of long-term trajectory where they'll just keep getting better as the underlying product differentiation and the value we create grows.

Paul Gu: All of these things, I would say, have both very short-term components that will hit fast and in a significant way, and then also more of a kind of long-term trajectory where they'll just keep getting better as the underlying product differentiation and the value we create grows.

Simon Clinch: That's brilliant. Thank you very much.

Speaker #5: That's brilliant. Thank you very much.

Speaker #1: And we'll take a question from Will Nance with Goldman Sachs.

Operator: We'll take a question from Will Nance with Goldman Sachs.

Speaker #6: Hey guys, thank you for taking the question. I was wondering if you could talk a little bit about take rate dynamics on the personal side.

Will Nance: Hey, guys. Thank you for taking the question. I was wondering if you could talk a little bit about take rate dynamics on the personal side. There seem to be a couple of different mix shift dynamics between the positive seasonality benefits this quarter, the mix shift, I'm guessing, towards core personal, as well as the pricing investments that you've talked about making. Just how would you kind of frame the puts and takes on that line item from here given the nice improvement that you saw sequentially this quarter? Thanks.

Speaker #6: There seem to be a couple of different makeshift dynamics between the positive seasonality benefits this quarter, the makeshift—I'm guessing—towards core personal, as well as the pricing investments that you've talked about making.

Speaker #6: So, just how would you kind of frame the puts and takes on that line item from here, given the nice improvement that you saw sequentially this quarter?

Speaker #6: Thanks.

Andrea Blankmeyer: Sure. Thanks for the question, Will. Yeah. You sort of nailed it on the drivers of the improvement in take rate on the unsecured segment this quarter on quarter, were driven by the mix shift primarily to core. The increase in growth we saw in core personal loans, where we have a higher take rate on average, as well as some lift that we get from seasonality, where Q1 tends to be softer seasonally and to have lower takes on average. All else, I would say, is sort of relatively consistent quarter on quarter. As we look out over the remainder of the year, expect sort of relative consistency with where we are on take rates today.

Speaker #2: Sure. Thanks for the question, Will. Yeah. And so you sort of nailed it on the drivers of the improvement in take rate on the unsecured segment.

Speaker #2: This quarter, quarter on quarter, we're driven by the makeshift primarily to core, so the increase in growth we saw in core personal loans, where we have a higher take rate on average.

Speaker #2: As well as some lift that we get from seasonality, where Q1 tends to be softer seasonally and have lower takes on average. All else, I would say, is sort of relatively consistent quarter on quarter.

Speaker #2: And as we look out over the remainder of the year, expect sort of relative consistency with where we are on take rates today. We'll expect to continue to focus on driving growth in our core personal loan.

Andrea Blankmeyer: We'll expect to continue to focus on driving growth in our core personal loan sort of segment, which has strong take rates, but ultimately are not optimizing for take rate itself, but for driving high-quality revenue and ultimately contribution profit dollars to the platform.

Speaker #2: Sort of segment, which has strong take rates, but ultimately are not optimizing for take rate itself. But for driving high-quality revenue and ultimately contribution profit dollars to the platform.

Speaker #6: Got it. This is very helpful. If I could squeeze in another one just on the opex. Hear you on the sequential growth trajectory from the second quarter.

Will Nance: Yeah. This is very helpful. If I could squeeze in another one just on the OpEx. Hear you on the sequential growth trajectory from Q2. Just maybe more broadly with OpEx up almost 30% year over year, just can you talk about how you're thinking about the growth algorithm there in OpEx and incremental margins over a longer period of time?

Speaker #6: Just maybe more broadly with opex up almost 30% year over year, just can you talk about how you're thinking about the growth algorithm there in opex and incremental margins over a longer period of time?

Speaker #2: Absolutely. Yeah. So as Paul had alluded to in his comments, part of the reason we're seeing some of the fixed cost growth this year is a factor is related to the fact that we're investing forward in our newer products and our secured products as those are driving towards contribution margin profitable.

Andrea Blankmeyer: Absolutely. Yeah. As Paul had alluded to in his comments, part of the reason we're seeing some of the fixed cost growth this year is related to the fact that we're investing forward in our newer products and our secured products as those are driving towards contribution margin profitable. We made some of those investments in Q1. Here in Q2, seeing the roll forward of some of those into Q2, as well as some incremental investments that we made in Q2 related to tech infrastructure and model infrastructure, as well as starting to look ahead for bank preparations. We also did a one-time restructuring in the quarter that had some severance expense associated with it.

Speaker #2: We made some of those investments in Q1. Here in Q2, seeing the roll forward of some of those. Into Q2, as well as some incremental investments that we made in Q2 related to tech infrastructure and model infrastructure as well as starting to look ahead for bank preparations.

Speaker #2: We also did a one-time restructuring in the quarter that had some severance expense associated with it. And so really, as I look at this year, a lot of the investments that we've made to support the business and our objectives have largely been made in the first part of this year, which is why we've signaled and demonstrated that we expect to grow fixed opex at a pretty moderate rate going forward for the remainder of the year in the low single digits.

Andrea Blankmeyer: Really, as I look at this year, a lot of the investments that we've made to support the business and our objectives have largely been made in the first part of this year, which is why we've signaled and demonstrated that we expect to grow fixed OpEx at a pretty moderate rate going forward through the remainder of the year in the low single digits, which should deliver real operating leverage this year, and we expect to continue that trajectory in outer years.

Speaker #2: Which should deliver real operating leverage this year. And we expect to continue that trajectory in outer years.

Speaker #6: Thanks for taking the question.

Will Nance: Thanks for taking the questions.

Speaker #1: And the next question will come from Dan Dolov with Mizuho.

Operator: The next question will come from Dan Dolev with Mizuho.

Speaker #7: Hey guys, great to see those results. Congrats. Two quick questions. First, on your conversion rate—it has increased to 19.7%. Just wanted to know kind of the DNA of your new borrower in terms of FICO; what can you tell us about it? And then I have a quick follow-up.

Dan Dolev: Hey, guys. Great to see those results. Congrats. Two quick questions. First, on your conversion rate. It has increased to 19.7. Just wanted to know kind of the DNA of your new borrower in terms of FICO. What can you tell us about it? I have a quick follow-up. Thank you.

Speaker #7: Thank you.

Speaker #4: Yeah. I mean, we don't tend to think a lot about our borrower in terms of FICO scores. For two reasons. One, of course, is our core DNA as a company is that that's the thing that we think could be improved in terms of how borrowers are understood.

Paul Gu: Yeah. We don't tend to think a lot about our borrower in terms of FICO scores for two reasons. One, of course, is our core DNA as a company is that that's the thing that we think could be improved in terms of how borrowers are understood, and that's what we do every day. Second, more just down to earth, I would say We've just expanded so significantly in terms of the number of products that we have, the number of use cases, the range of consumers that we serve. We are moving towards this world where we think that we're going to have the best credit product for every type of credit need that any American might have.

Speaker #4: And that's what we do every day. But second, more just down to earth, I would say, we've just expanded so significantly in terms of the number of products that we have, the number of use cases, the range of consumers that we serve.

Speaker #4: We are moving towards this world where we think that we're going to have the best credit product for every type of credit need that any American might have.

Speaker #4: And so we're really serving a pretty full spectrum of people that are just new to credit or trying to repair their credit all the way to people who are really prime and can qualify for really great rates, have a home.

Paul Gu: We're really serving a pretty full spectrum of people that are just new to credit or trying to repair their credit, all the way to people who are really prime and can qualify for really great rates, have a home. We're getting that full spectrum. One of the things you may see in our earnings materials is that we like to note that we're going to be replacing the conversion rate metric and sunsetting that particular one just because it's so sensitive to the mixes that it's a little hard to interpret. That's what I would say about it is we're serving pretty full spectrum. Having said that, this particular quarter, again, I'll just go back to this sort of main point that we did put a lot of focus on re-accelerating core personal loans.

Speaker #4: And so we're getting that full spectrum. And so one of the things you may see in our earnings materials is that we left a note that we're going to be replacing the conversion rate metric in sunsetting that particular one just because it's so sensitive to the mixes that it's a little hard to interpret.

Speaker #4: And so that's what I would say about it is we're serving pretty full spectrum. Having said that, this particular quarter, again, I'll just go back to this sort of main point that we did put a lot of focus on re-accelerating core personal loans and that product tends to be kind of a product that tends to serve borrowers who are maybe in the medium sort of FICO score regions that's historically where it's been and continues to be and that product, we did put a lot of emphasis on this particular quarter.

Paul Gu: That product tends to be kind of a product that tends to serve borrowers who are maybe in the medium sort of FICO score regions. That's historically where it's been and continues to be. That product we did put a lot of emphasis on this particular quarter.

Speaker #7: Great. Thank you. And my quick follow-up, of course, on the guide. Amazing results. You're not raising the guide. I take this as just simply being conservative.

Dan Dolev: Great. Thank you. My quick follow-up, of course, on the guide. Amazing results. You're not raising the guide. I take this as just simply being conservative.

Speaker #2: So, we are very pleased with the results that we saw in Q2 and are seeing very much strong underlying business performance. We are seeing UMI at the end of Q2, and as of the print yesterday, around 1.5, which is at the high end of the range that we set when we set guidance at the beginning of the year of 1.4 to 1.5.

Andrea Blankmeyer: We are very pleased with the results that we saw in Q2 and are seeing very much kind of strong underlying business performance. We are seeing UMI at the end of Q2, and as of the print yesterday, around 1.5, which is at the high end of the range that we set when we set guidance at the beginning of the year of 1.4 to 1.5. That represents a modest headwind on originations and our fair value mark. Sort of taking all of that in combination is the context in which we're maintaining our guide on a full year basis.

Speaker #2: And so that represents a modest headwind on originations and our fair value marks. So sort of taking all of that in combination is the context in which we're maintaining our guide on a full-year basis.

Speaker #7: Makes sense. Thank you so much.

Dan Dolev: Makes sense. Thank you so much.

Speaker #1: And we'll take a question from Peter Christiansen with Citi.

Operator: We'll take a question from Peter Christiansen with Citi.

Speaker #5: Thanks. Good evening. Andrea, I was wondering if we could just interpret some of your previous comments on UMI just a little bit more, help us understand.

Peter Christiansen: Thanks. Good evening. Andrea, I was wondering if we could just interpret some of your previous comments on UMI just a little bit more, help us understand. I think you mentioned that the base business is still doing really well, so you feel good about the outlook for the year. Is that a function of some of the new capital, third-party capital that you brought in the door and/or, I would say, maybe some of the new product areas. Is that what's giving you confidence about maintaining the outlook despite that the UMI has gone up? Thank you.

Speaker #5: So I think you mentioned the base business is still doing really well. So you feel good about the outlook for the year. Is that a function of some of the new capital third-party capital that you brought in the door or and/or I would say maybe some of the new product areas?

Speaker #5: Is that what's giving you confidence about maintaining the outlook despite that the UMI has gone up? Thank you.

Speaker #4: Hey, Pete. It's really all of the above. Starting with our core personal loans business, that's really the centerpiece of what we're focused on and what we're doing.

Paul Gu: Hey, Pete. It's really all of the above. Starting with our core personal loans business, that's really the centerpiece of what we're focused on and what we're doing. That's driving a lot of the financial results that we're excited about in Q2, and it's going to continue driving a lot of the results the rest of this year. As Andrea said, we've been executing, we think, at a really high level against our priorities and the pieces of the puzzle that are within our control. We are sailing against a modest macro headwind with UMI up to that 1.5 level. There's some puts and takes there in the short term on how that affects originations and the trajectory of originations the rest of this year. Certainly the personal loans numbers matter a lot to the financials of the business.

Speaker #4: That's driving a lot of the financial results that we're excited about in Q2, and it's going to continue driving a lot of the results for the rest of this year.

Speaker #4: We as Andrea said, we've been executing, we think, at a really high level against our priorities and the pieces of the puzzle that are within our control.

Speaker #4: We are sailing against a modest macro headwind with UMI up to that 1.5 level. And so there's some puts and takes there in the short term on how that affects originations and the trajectory of originations the rest of this year.

Speaker #4: But certainly the personal loans numbers matter a lot. To the financials of the business, we definitely also expect that the secured products are going to continue on the trajectory they're on.

Paul Gu: We definitely also expect that the secured products are going to continue on the trajectory they're on, and in particular, we're really focused on getting those products to contribution profitable. We have a lot of confidence we're going to drive that this year. That will of course help as well. There's no achieving the numbers without core personal loans.

Speaker #4: And we in particular, we're really focused on getting those products to contribution profitable and so we have a lot of confidence we're going to drive that this year.

Speaker #4: And so that will, of course, help as well. But there's no achieving the numbers without core personal loans.

Speaker #5: Fair. Fair enough. And then it looks like you talked about repeat borrowers. It's been up quite a bit versus previous years. Just curious if you could take us through that dynamic and to what degree is that contributing to a lower borrower acquisition and verification cost?

Peter Christiansen: Fair. Fair enough. It looks like you talked about repeat borrowers. It's been up quite a bit versus previous years. Just curious if you could take us through that dynamic and to what degree is that contributing to a lower borrower acquisition and verification cost?

Speaker #4: Yeah. I mean, that trend is really been playing out gradually over a lot of years now. So it's not any kind of big sharp change in Q2 specifically.

Paul Gu: Yeah, that trend has really been playing out gradually over a lot of years now. It's not any kind of big sharp change in Q2 specifically. Really the thing that's been happening is if you think about Upstart in the early years, we had a single product. We had personal loans. Our accounts didn't even offer support for people to take out second loans in the early days. We really thought of our business as a transactional business. We're very focused on this conversion rate metric, which was really a measure of you come in the door, do you get a loan? It was a very one-time transactional metric. Over the years, increasingly, as we've rolled out new products that could serve people in different circumstances across their credit lifetime, that's auto and home and Cash Line and our small-dollar product.

Speaker #4: But really the thing that's been happening is if you think about upstart in the early years, we had a single product. We had personal loans.

Speaker #4: Our accounts didn't even offer support for people to take out second loans in the early days. And we really thought of our business as a transactional business.

Speaker #4: We're very focused on this conversion rate metric, which was really a measure of you come in the door, do you get a loan? And it was a very one-time transactional metric.

Speaker #4: And over the years, increasingly, as we've rolled out new products that could serve people in different circumstances, across their credit lifetime, that's auto and home and cash line and small dollar product, those products have given us the ability and the relevance to people to be relevant for a long time.

Paul Gu: Those products have given us the ability and the relevance to people to be relevant for a long time and to hopefully serve them with more products over time. We've also invested a lot in the experience of coming back to Upstart and making it way easier, way faster to do that. That continues to be a focus area for us. The net result of those things is that you can see in our earnings materials for the first time, we've shared a set of metrics around how many loans the average borrower gets over time. That historically was in the kind of 1.5 range. You can see in more recent cohorts, it's trending above that. We think that's exactly what you should continue to expect given the investments we're making in more products and better experience.

Speaker #4: And to hopefully serve them with more products over time. We've also invested a lot in the experience of coming back to upstart and making it way easier, way faster to do that.

Speaker #4: And that continues to be a focus area for us. And the net result of those things is that you can see in our earnings materials for the first time we've shared a set of metrics around how many loans the average borrower gets over time.

Speaker #4: That historically was in the kind of 1.5 range. And you can see in more recent cohorts, it's trending above that. And we think that's exactly what you should continue to expect given the investments we're making in more products and better experience.

Speaker #5: Yeah. That makes a lot of sense. Thank you very much. Nice results.

Peter Christiansen: Yeah, that makes a lot of sense. Thank you very much. Nice results.

Speaker #1: And the next question comes from for her, Bhatia with Bank of America.

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

Speaker #7: Hi. Thank you for taking my question, this afternoon. I want to zero in a little bit more on the EBITDA guide, just between the quarters, Q3, Q4 cadence.

Mihir Bhatia: Hi. Thank you for taking my questions this afternoon. I want to just zero in a little bit more on the EBITDA guide, just between the quarters Q3, Q4 cadence. I think your guidance implies about 24% to 25% EBITDA margin in the H2 of the year. I think you've mentioned secured breaks even in the Q4. You have fixed costs increasing single digits. Maybe just talk a little bit about the key difference between Q3 and Q4. Is there some seasonality in there too? Should we just expect step function increases each quarter?

Speaker #7: I think your guidance implies about 24 to 25 percent EBITDA margin in the back half of the year. I think you’ve mentioned you expect to break even in Q4.

Speaker #7: You have fixed costs increasing single digits. So maybe just talk a little bit about the cadence between Q3 and Q4. Is there some seasonality in there to also we just expect that function increases each quarter?

Speaker #2: Yeah. Thanks for the question. We told you last quarter that the guide was back half-weighted. We're continuing to see that here with the EBITDA.

Andrea Blankmeyer: Yeah. Thanks for the question. We told you last quarter that the guide was H2-weighted. We're continuing to see that here with the EBITDA expected to ramp in the H2 of the year. Hopefully, the trajectory you've seen from us here in Q2 going from 13% EBITDA margin to 21% EBITDA margin this quarter versus last quarter is showing a strong trajectory. Really as we look ahead over the remainder of the year, I would say it's just continued progress against the key levers that we operated against in Q2 and expect to continue to deliver against as we move through the year. Continued progress growing our core personal loan segment, which is really the profit and contribution profit engine of the business.

Speaker #2: Expected to ramp in the second half of the year. Hopefully, the trajectory you've seen from us here in Q2 going from 13% EBITDA margin to 21% EBITDA margin this quarter versus last quarter is showing a strong trajectory.

Speaker #2: And then really, as we sort of look ahead over the remainder of the year, I would say it's just continued progress against the key levers.

Speaker #2: That we operated against in Q2 and expect to continue, to deliver against as we move through the year. So continued progress, growing our core personal loan segment, which is really the profit and contribution profit engine of the business.

Speaker #2: That will be further boosted by improving the contribution profit profile and unit economics of our secured products as we ramp through the year again and expectation we expect to be contribution profit positive in Q4.

Andrea Blankmeyer: That will be further boosted by improving the contribution profit profile and unit economics of our secured products as we ramp through the year. Again, an expectation we expect to be contribution profit positive in Q4. All of that supported by fixed cost growth discipline. With fixed cost growing at a moderate low single-digit level as we progress in each quarter of the year.

Speaker #2: And all of that supported by fixed cost growth discipline. So with fixed cost growing at a moderate low single digit level as we progress in each quarter of the year.

Speaker #7: Got it. And then maybe, just to ask a little bit about competitive intensity in core— I mean, you clearly re-engaged this quarter. You had, I think, better growth than you had in the last few quarters in that subsegment, if you will.

Mihir Bhatia: All right. Maybe if I could just ask a little bit about competitive intensity in core. You clearly reengaged this quarter. You had, I think, better growth than you had in the last few quarters in that sub-segment, if you will. Can you talk a little bit about what you're seeing from there? Is your pricing power expanding? Is it holding? Is there anything in the Q2 data that gives you more confidence that the moat, if you will, is widening there? Thank you.

Speaker #7: Can you talk a little bit about what you're seeing from there? Is your pricing power expanding? Is it holding? Is there anything in the Q2 data that gives you more confidence that the moat, if you will, is widening?

Speaker #7: Thank you.

Speaker #4: Yeah. I mean, this has been an area we've gotten a lot of questions over the past couple of quarters. And we've always tried to tell people that our advantage in core personal loans is very significant.

Paul Gu: Yeah. This has been an area we've gotten a lot of questions over the past couple of quarters. We've always tried to tell people that our advantage in core personal loans is very significant. It's very durable. That's driven by how much differentiation we've created over a decade plus of working on building differentiated models for understanding the credit risk of this borrower, being able to separate that risk between people much more and less likely to default. I think it just is much clearer in the results this quarter. You can see that not only did we grow in core personal loans, we grew while actually improving the margins there. The CAC actually came down.

Speaker #4: It's very durable, and that's driven by how much differentiation we've created over a decade plus of working on building differentiated models for understanding the credit risk of this borrower—being able to separate that risk between people much more and less likely to default.

Speaker #4: And I think it just sort of is much clearer in the results this quarter. You can see that not only did we grow in core personal loans, we grew while actually improving the margins there.

Speaker #4: The sort of CAC actually came down. I mean, none of those things I would say in isolation are really the whole story, but it really does come back to this core truism of lending that if you don't have differentiated technology, then you can only choose between one of high growth, profitability, and credit performance.

Paul Gu: None of those things I would say in isolation are really the whole story. It really does come back to this core truism of lending that if you don't have differentiated technology, then you can only choose between one of high growth, profitability, and credit performance. Maybe you can get two. Certainly can't get all three. That's something that we have in our core personal loan business, just the ability to achieve all of those things at once because the level of technology differentiation is so large. The primary difference between this quarter and earlier ones really comes back to one of management focus. We were extremely focused this quarter on this core segment, and it showed up in the results, and we think that's something that can continue.

Speaker #4: Maybe you can get two, but certainly can't get all three. And that's something that we have in our core personal loan business, just the ability to achieve all of those things at once because the level of technology differentiation is so large.

Speaker #4: And the primary difference between this quarter and earlier ones really comes back to one of management focus. We were extremely focused this quarter on this core segment.

Speaker #4: And it showed up in the results, and we think that's something that can continue.

Speaker #7: Thank you.

Mihir Bhatia: Thank you.

Speaker #1: And moving on to John Hecht with Jefferies.

Operator: Moving on to John Hecht with Jefferies.

Speaker #6: Good afternoon. Thanks for taking my questions and appreciate the broken out detail in secured versus unsecured. So thanks. First one is just trying to get maybe Andrea, your thoughts on thinking about the next couple of years.

John Hecht: Afternoon. Thanks for taking my questions, and I appreciate the broken out detail and secured versus unsecured, so thanks. First one is just trying to get, maybe Andrea, your thoughts on thinking about the next couple of years. What would you like to see in terms of the mix of funding from forward flow versus ABS? Do you have any kind of balance in mind that you think is optimal?

Speaker #6: What would you like to see in terms of the mix of funding from forward flow versus AVS? Do you have any kind of balance in mind that you think is optimal?

Andrea Blankmeyer: Sure. Yeah, it's a great question. I think one thing that has been the real progress that the company has made over the last few years is mix-shifting our capital base towards committed capital partnerships. Today, well over half of our capital is from committed capital partnerships. You sort of heard the stats from us on the renewals and the overall quantum of commitments we've gotten year to date. That I would say is probably the most important for us, is the ability to ensure that we have a stable, resilient funding base that is committed through, on average, these terms are 12 to 24 months. As we look out over the one, two, three-year time horizon, most important for us will be continuing to scale this capital base in a sustainable way, potentially tapping different investor bases as we look to do so.

Speaker #2: Sure. Yeah, it's a great question. I think one thing that has been the real progress that the company has made over the last few years is mix-shifting our capital base.

Speaker #2: Towards committed capital partnerships. And so today, well over half of our capital is from committed capital partnerships. And you sort of heard the stats from us on the renewals and the overall quantum of commitments we've gotten year to date.

Speaker #2: That, I would say, is probably the most important for us: the ability to ensure that we have a stable, resilient funding base that is committed. On average, these terms are 12 to 24 months.

Speaker #2: And so as we look out over kind of the one, two, three-year time horizon, most important for us will be continuing to scale this capital base in a sustainable way.

Speaker #2: Potentially sort of tapping different investor bases as we look to do so. And ultimately, most importantly, looking to find that right balance between at-will securitization with sort of focus on the committed capital that allows us to have real visibility into the commitments over a multi-month and ideally over time multi-year time horizon.

Andrea Blankmeyer: Ultimately, most importantly, looking to find that right balance between at-will securitization with a focus on the committed capital that allows us to have real visibility into the commitments over a multi-month and ideally over time, multi-year time horizon.

Speaker #6: Okay. Thanks very much. And then separate question on the secured products. I know I know on the core product, or the unsecured product, your turnaround time is very, very quick.

John Hecht: Okay, thanks very much. Separate question on the secured products. I know in the core product or the unsecured product, your turnaround time is very quick because of the technological base. What is the turnaround time for a HELOC or an auto loan? How does that compare to your perspective on industry standards, and how much more room do you have to go on that product category, on that level of that product?

Speaker #6: Because of the technological base. What is the turnaround time for a HELOC or an auto loan? How does that compare to your perspective on industry standards?

Speaker #6: And how much more room do you have to go on that product category, on that level of that product?

Speaker #4: Yeah. Today, the far slower than personal loans or unsecured products. But we do think there are industry leading in HELOC, for example, we're doing it in about six days.

Paul Gu: Yeah. Today, they're far slower than personal loans or our unsecured products, but we do think they're industry-leading. In HELOC, for example, we're doing it in about six days, and industry standard, if going through a bank or credit union, it could be weeks or months. Very, very significantly faster. We actually think there's still a lot of room to go on these things. That's where a lot of the work I talked about in improving the margins of these products will come from, is actually reducing the complexity of the process, automating the process, and of course, in addition to being cheaper to do, you also make it faster to do, which is a borrower experience benefit. That's a very high focus for us. We are expecting to see a lot of wins there in the rest of this year.

Speaker #4: And industry standard, going through a bank or credit union, it could be weeks or months. So, very, very significantly faster. We actually think there's still a lot of room to go on these things.

Speaker #4: And that's where a lot of the work I talked about in improving the margins of these products will come from, is actually reducing the complexity of the process, automating the process, and, of course, in addition to being cheaper to do, you also make it faster to do, which is a borrower experience benefit.

Speaker #4: So that's a very, very high focus for us. And we are expecting to see a lot of wins there in the rest of this year.

Speaker #6: Great. Thanks very much.

John Hecht: Great. Thanks very much.

Operator: The next question will come from Giuliano Bologna with Compass Point.

Speaker #1: And the next question will come from Juliano Bellona with Compass Point.

Operator: The next question will come from Giuliano Bologna with Compass Point.

Giuliano Bologna: Hey. Congrats on the great results. One thing I'd be curious about asking you, this is hopefully a premature question. There's a new disclosure for loan sale fees. I'm curious if that's related to the gains that you're charging on forward flow deals for HELOC and auto, or if it's one or the other.

Speaker #5: Congrats on the great results. One thing I'd be curious about asking and this is hopefully a nuisance question. A new disclosure for loan sale fees.

Speaker #5: I'm curious if that's related to the gains that you're charging on forward flow deals for HELOC and auto, or if it's one or the other.

Speaker #2: Thanks for the question, Juliano. Yeah. Those are primarily related to our secured products. And our fees associated with forward flow arrangements. Historically, they've been a sort of immaterial amount, reach materiality here in Q2.

Andrea Blankmeyer: Thanks for the question, Giuliano. Yeah, those are primarily related to our secured products, and are fees associated with forward flow arrangements. Historically, they've been a sort of immaterial amount. Reach materiality here in Q2, have pulled it out as a separate line item.

Speaker #2: I've pulled it out as a separate line item.

Speaker #5: And kind of going back to the guide and the kind of interplay around the also commentary around expenses. Continue to move higher. One thing I'm curious about is, is there an expectation that there's kind of a step up in stock-based comp and kind of continuation of the step up that we experienced in Q2 for the balance of the year?

Giuliano Bologna: Going back to the guide and the kind of interplay around the commentary around expenses continuing to move higher. One thing I'm curious about, is there an expectation that there's kind of a step-up in stock-based comp and kind of continuation of the step-up that we experienced in Q2 for the balance of the year? Is that one of the levers that should flow through as part of that step-up in the expenses?

Speaker #5: And is that one of the levers that should flow through as part of that step up in the expenses?

Speaker #2: That's a great question. Thanks for that. So in Q2, about half of the fixed expense growth that we saw quarter on quarter, so about half of the 19 million, was driven by an increase in stock-based comp.

Andrea Blankmeyer: That's a great question. Thanks for that. In Q2, about half of the fixed expense growth that we saw quarter on quarter, so about half of the $19 million, was driven by an increase in stock-based comp. About $4 million of that $9 million increase was discrete to the quarter, and it is not expected to repeat in Q3 and Q4. About $4 million of that is related to kind of the full quarterization, if you will, of performance-based RSUs granted in March for the first time rolling through for a full quarter. About $7, $8 million in total of the increase in stock-based comp quarter on quarter can be attributed to those two factors. As you can see inherent in those two factors, we don't expect that those will repeat quarter on quarter going forward.

Speaker #2: About 4 million of that 9 million increase was discrete to the quarter. And it did not expect it to repeat in Q3 and Q4.

Speaker #2: And about $4 million of that is related to kind of the full quarterization, if you will, of performance-based RSUs granted in March for the first time, rolling through for a full quarter.

Speaker #2: So about $7 to $8 million in total of the increase in stock-based comp quarter on quarter can be attributed to those two factors. As you can see, inherent in those two factors, we don't expect that those will repeat.

Speaker #2: Quarter on quarter going forward. And so if you sort of step back on a full-year basis for stock-based comp, we expect SBC to be about 170 million.

Andrea Blankmeyer: If you sort of step back on a full year basis for stock-based comp, we expect SBC to be about $170 million on a full year basis, representing as a percent of fixed expenses, something in the low to mid-twenties and a modest reduction versus last year.

Speaker #2: On a full-year basis, representing as a percent of fixed expenses, something in the low to mid-20s. And modest reduction versus last year.

Speaker #5: That's very helpful. I may have one brief one. I'm curious, when I think there's been a little bit of increase in auto and home loans on the balance sheet.

Giuliano Bologna: That's very helpful. Maybe one brief one. I'm curious, there's been a little bit of increase in auto and home loans on the balance sheet, and I'm curious where things stand in terms of securing some final agreements in terms of distribution to kind of continue to execute a lot of those loans off the balance sheet going forward.

Speaker #5: And I'm curious, where are things stand in terms of securing some final agreements on in terms of distribution to kind of execute a lot of those loans off the balance sheet going forward?

Speaker #4: Yep. Great question. Funding progress has been really strong. As Andrea mentioned, we've added a lot of new funding deals in the last quarter alone, more than $5 billion of committed capital.

Paul Gu: Yep, great question. Funding progress has been really strong. As Andrea mentioned, we've added a lot of new funding deals, in the last quarter alone, more than $5 billion of committed capital. Some of the new deals that we're signing are flowing into our auto and home products. So we're very happy with the progress on those products. Generally, what I would direct everyone to think about in terms of the net of the funding loss is how much originations grew and how much landed on the balance sheet. If you think about sort of those numbers compared to each other, you can sort of infer that we must be adding a lot of third-party capital both in the core business and in our new businesses. We're very excited about where that's headed.

Speaker #4: And some of the new deals that we're signing are flowing into our auto and home products and so we're very we're very happy with the progress on those products.

Speaker #4: And generally, what I would direct everyone to think about in terms of the net of the funding math is how much originations grew and how much landed on the balance sheet.

Speaker #4: And if you think about sort of those numbers compared to each other, you can sort of infer that we must be adding a lot of third-party capital on both in the core business and in our new businesses.

Speaker #4: And we're very excited about where that's headed.

Giuliano Bologna: That was very helpful. Congrats on the quarter, and I'll jump back in the queue.

Speaker #5: That's very helpful. Congrats on the quarter and I'll jump back in the case.

Speaker #1: And the next question comes from James Faucette with Morgan Stanley.

Operator: The next question comes from James Faucette with Morgan Stanley.

Speaker #7: Thanks very much. I wanted to ask one operational question and then kind of one question on lending philosophy. On the operational question, I noticed that your completely automated origination percentage went down slightly like on a basis point.

James Faucette: Thanks very much. Wanted to ask one operational question and then kind of one question on lending philosophy. On the operational question, I noticed that your completely automated origination percentage went down slightly, like 100 basis points. Obviously not a lot from a very high level at 92%. Just wondering, does that imply that we're bumping up against kind of the top of that range, or do you think you can push it higher and I would imagine drive better profitability that way?

Speaker #7: It's not obviously not a lot from a very high level at 92%. Just wondering, does that imply that we're bumping up against kind of the top of that range or do you think you can push it higher and I would imagine drive better profitability that way?

Speaker #4: No, I don't think we're at the limits of automating. But really, there's a lot of mixed effects under the hood.

Paul Gu: No, I don't think we're at the limits of automating. Really there's a lot of moving parts under the hood, and if you think about the different products, they vary a lot. Certainly it's the case that you can only get to 100%, but the reason that we put out every quarter this nice graph in our earnings deck that shows the percent of applications that are approved in addition to the percent of loans that are fully automated, is that because automated loans convert at such a higher rate compared to non-automated ones, and this is dominated by our unsecured products like personal loans, there's still a lot of room for that to go up. That's only 77% of applications being approved automatically, that number can still go up. That math is even more extreme if you think about the new products.

Speaker #4: And if you think about the different products, they vary a lot. Certainly, it's the case that you can only get to 100%. But the reason that we put out every quarter this nice graph in our earnings deck that shows the percent of people that are the percent of applications that are approved in addition to the percent of loans that are fully automated is that because automated loans convert at such a higher rate compared to non-automated ones, and this is dominated by our unsecured products like personal loans, there's still a lot of room for that to go up.

Speaker #4: That's only 77% of applications being approved automatically, so that number can still go up. And then that math is even more extreme if you think about the new products.

Paul Gu: The discussion we've already had about home and auto, you can imagine that the levels of automation there are significantly lower, and there's just so much more room for those products to run. As they scale, they're going to become a larger part of this math, and there will be more room for them to contribute by raising their levels of automation.

Speaker #4: The discussion we've already had about home and auto, you can imagine that the levels of automation there are significantly lower. And there's just so much more room for those products to run.

Speaker #4: And so as they scale, they're going to become a larger part of this math. And there will be more room for them to contribute.

Speaker #4: By raising their levels of automation.

Speaker #7: Got it. And then philosophically, I wanted to just follow up on the UMI and the trajectory there versus kind of how you're thinking about how aggressively you want to be lending.

James Faucette: Got it. Philosophically, wanted to just follow up on the UMI and the trajectory there versus how you're thinking about how aggressively you want to be lending. I think the way that you characterize UMI and what it's done directionally and how that impacts your outlook for the year makes sense. At the same time, I'm wondering, as you're lending against a little bit higher UMI score, what's your visibility or how do you think about proving out whether you're getting the type of performance from the loans and whether it be in terms of payback rates or delinquencies, et cetera, versus what you would expect? Just trying to sensitize ourself on an ongoing basis to UMI's moves and its impact on your willingness to lend.

Speaker #7: I think the way that you characterized UMI and what it's done directionally and how that impacts your outlook for the year makes sense. But at the same time, I'm wondering as you're lending against a little bit higher UMI score, what's your visibility or how do you think about proving out whether you're getting the type of performance from the loans and whether it be in terms of payback rates or delinquencies, etc.

Speaker #7: versus what you would expect? Just trying to sensitize ourselves on an ongoing basis to UMI's moves and its impact on your willingness to lend.

Speaker #4: Yeah. I mean, measuring and predicting credit performance, that's kind of what we do every day, right? So I mean, starting from UMI, obviously, it's up over the last few months.

Paul Gu: Yeah. Measuring and predicting credit performance, that's what we do every day, right? Starting from UMI, obviously it's up over the last few months. We have a lot of confidence in that system. It's something we've invested a tremendous amount in over the last couple of years. We think we've got the fastest and most precise understanding of macro effects in consumer credit of anyone out there. We trust that system to be able to read what's going on. We publish just this one blended number, but under the hood, there's a lot more sophistication, ability to understand what's going on with different segments of consumers, almost arbitrary combination of segments and characteristics. That's what the deep learning-based approach makes possible.

Speaker #4: And we have a lot of confidence in that system. It's something we've invested a tremendous amount in over the last couple of years. And we think we've got the fastest and most precise understanding of macro effects in consumer credit of anyone out there.

Speaker #4: And so we trust that system to be able to read what's going on. We published just this kind of one blended number, but under the hood, there's a lot more sophistication, ability to understand what's going on with different segments of consumers almost arbitrary sort of combinations of segments and characteristics.

Speaker #4: That's kind of what the deep learning-based approach makes possible. And so we give our powers our models a lot of power to react to the latest in what's going on and to price that risk into how we're underwriting new loans.

Paul Gu: We give our models a lot of power to react to the latest in what's going on and to price that risk into how we're underwriting new loans. What we expect coming out the other end is that we're going to have properly calibrated performance, and that basically means loans that deliver returns similar to the returns that we're targeting. When we share every quarter results about how credit performance is, the number of basis points where performance exceeding treasuries, those are all indications that that credit is going the right direction. Of course, ultimately, this is about whether our third-party capital partners are happy with returns.

Speaker #4: And then what we expect coming out the other end is that we're going to have properly calibrated performance. And that basically means loans that deliver returns similar to the returns that we're targeting.

Speaker #4: And so when we share every quarter results about how credit performance is, the number of basis points where performance is exceeding treasuries, those are all indications that that credit is going the right direction.

Speaker #4: And then, of course, ultimately, this is about whether our capital partners, our third-party capital partners are happy with returns. And given the 100% renewal rates we're seeing, the sort of longer deals, the longer commitments people are making, bigger commitments people are making, I think you can see that the credit performance and the returns have been incredibly strong for our partners.

Paul Gu: Given the 100% renewal rates we're seeing, the longer deals, the longer commitments people are making, bigger commitments people are making, I think you can see that the credit performance and the returns have been incredibly strong for our partners.

Speaker #7: That's great. Appreciate the color there, Paul.

James Faucette: That's great. Appreciate the color there, Paul.

Speaker #1: And we'll take a question from David Sharf with Citizens Capital Markets.

Operator: We'll take a question from David Scharf with Citizens Capital Markets.

Speaker #8: Hi. Good afternoon. Thanks for taking my questions as well and congrats on such strong results. Hey, I wanted to follow up on, I guess, a couple of questions on the capital side.

David Scharf: Hi, good afternoon. Thanks for taking my questions as well, and congrats on such strong results. Hey, wanted to follow up on, I guess a couple of questions on the capital side. The first relates to loan retention. I thought it was very positive on an absolute dollar basis. It looks like the amount of core personal loans retained on the balance sheet is going down. That, Paul, you've kind of referred to it as core, maybe more mature, higher margin at various points on the call. To the extent that it's no longer sort of an R&D product, should investors think about a timeline or a specific target or goal at which point the company possibly feels like it doesn't have to tie up capital in retaining any of the personal loan product?

Speaker #8: And the first relates to loan retention. I thought it was very positive on an actual absolute dollar basis. It looks like the amount of core personal loans retained on the balance sheet is going down.

Speaker #8: And Paul, you've kind of referred to it as core, maybe more mature, higher margin at various points on the call. To the extent that it's no longer sort of an R&D product, should investors think about a timeline or a specific target or goal at which point the company possibly feels like it doesn't have to tie up capital in retaining any of the personal loan product?

Andrea Blankmeyer: That's a great question. When we think about the uses of our balance sheet at Upstart, again, I'll point everyone back to 5.9% of our total principal outstanding is what we're retaining on our balance sheet. The vast majority of what we originate, we are selling through to third parties and holding a minority on our balance sheets. Ultimately, our balance sheet really serves two purposes for us. One is for the purpose of R&D, and the second is just having to do with timing of loan sales and aggregation of sales. On the first point on R&D, we're doing less R&D overall versus a year ago as a percentage of total originations. We still have some R&D sitting inside each of our product categories. That includes inside of personal lending and our unsecured lending, as well as some continued R&D in auto and home.

Speaker #2: That's a great question. And so when we think about the uses of our balance sheet at Upstart, again, I'll point everyone back to 5.9% of our total principal outstanding is what we're retaining on our balance sheet.

Speaker #2: So, the vast majority of what we originate, we are selling through to third parties and holding a minority on our balance sheet. Ultimately, our balance sheet really serves two purposes for us.

Speaker #2: One is for the purpose of R&D. And the second is just having to do with kind of timing of loan sales and aggregation of sales.

Speaker #2: On the first point on R&D, we're doing sort of less R&D overall versus a year ago. As a percentage of total origination, but we still have some R&D sitting inside each of our product categories.

Speaker #2: That includes inside of personal lending and our unsecured lending, as well as some continued R&D in auto and home. So you'll sort of probably continue to see investment there that we're making around different areas that we're working on from a credit perspective or product structuring perspective.

Andrea Blankmeyer: You'll probably continue to see investment there that we're making around different areas that we're working on from a credit perspective or product structuring perspective and loans that are going on the balance sheet. Second has to do with loan sale timing and aggregation. That also is we anticipate something we'll continue to use the balance sheet for as we just think about timing of loan sales, some of which might cross over month-end and quarter-end marks. Stepping back and answering your question, I'd say both on secured and personal loans as well as in an aggregate. We have no goal which is to bring our balance sheet down to zero or to structurally we must reduce it period on period forever here on out.

Speaker #2: And loans that are going on the balance sheet. And then, second, this has to do with loan sale timing and aggregations. For that, we also anticipate we will continue to use the balance sheet as we think about the timing of loan sales, some of which might cross over month-end and quarter-end marks.

Speaker #2: And so it's sort of stepping back and answering your question. I'd say both on unsecured and personal loans, as well as in an aggregate, we have no sort of goal, which is to bring our balance sheet down to zero or to structurally we must reduce it period on period forever here on out.

Speaker #2: As long as we have a strong capital position, strong liquidity position, we're very happy to use our balance sheet to support these two strategic objectives.

Andrea Blankmeyer: As long as we have a strong capital position, strong liquidity position, we're very happy to use our balance sheet to support these two strategic objectives.

Speaker #8: Got it. No, I appreciate that. That's great color. In detail, Andrea. And just, I guess, as a follow-up, switching to the capital partner side, the flow partners, it looks like, I guess, it's about 1.3 billion of cumulative sort of co-invested capital.

David Scharf: Got it. No, I appreciate that. That's great color in detail, Andrea. Just I guess as a follow-up, switching to the capital partner side, the flow partners. It looks like, I guess it's about $1.3 billion of cumulative co-invested capital. Notwithstanding the qualitative advantages of co-investing, obviously, having some skin in the game and aligning interest. Can you talk to perhaps the calculus that the company undertakes when analyzing co-investing capital versus perhaps lower loan sale prices without co-investing? I only ask because other fintech lenders we talk to, pretty much all of their forward flow arrangements are all out whole loan sales. There's no co-investment. Just wanted to get some more color on how you quantify the advantage of committing some capital in that regard.

Speaker #8: Notwithstanding the qualitative advantages of co-investing, obviously, having some skin in the game and aligning kind of interests, can you talk to perhaps the calculus that the company undertakes when analyzing co-investing capital versus perhaps lower loan sale prices without co-investing?

Speaker #8: And I only ask because other fintech lenders we talk to, pretty much all of their forward flow arrangements are all out whole loan sales.

Speaker #8: There's no co-investment. I just wanted to get some more color on how you quantify the advantage of committing some capital in that regard.

Speaker #4: Yeah. It's a great question. And we don't view the nature of our capital co-investments or putting skin in the game as being similar to or comparable to someone that's selling loans at a discount.

Paul Gu: Yeah. It's a great question. We don't view the nature of our capital co-investments or putting skin in the game as being similar to or comparable to someone that's selling loans at a discount. We think these are great loans. They're performing well. We expect to earn returns on these loans. For us, actually, the essential calculus, the reason we switched to this type of deal structure where we would commit some co-invest, is that we wanted to lock in longer commitments from our partners. I think that's something that's relatively unique in the market, is that we've got deals that are committed out 24 months in terms of the capital that investors are going to invest.

Speaker #4: We think these are great loans. They're performing well. We expect to earn returns on these loans. For us, actually, the essential calculus—the reason we switched to this type of deal structure, where we would commit some co-invest—is that we wanted to lock in longer commitments from our partners.

Speaker #4: And I think that's something that's relatively unique in the market is that we've got deals that are committed out 24 months in terms of the capital that investors are going to invest.

Speaker #4: And this is strategically so valuable for us because we want to have predictability in our funding supply for loans. And we want that to be immune to changes in the macro environment, changes to the market environment, changes if there's a liquidity shock, or a bank goes down, or the ABS market seizes up.

Paul Gu: This is strategically so valuable for us because we want to have predictability in our funding supply for loans, and we want that to be immune to changes in the macro environment, changes to the market environment, changes to there's a liquidity shock or a bank goes down or the ABS market seize up. We don't want any of that to have unpredictable impacts on the supply of funding for our loans. From a partner perspective, one of the challenges they face with making a multi-year commit like that, as many of them now have, is that they know what our loans look like today. They know how we're underwriting today, but they don't know what we're going to be doing a year from now or two years from now.

Speaker #4: We don't want any of that to have unpredictable impacts on the supply of funding for our loans. And from a partner perspective, one of the challenges they face with making a multi-year commitment like that, as many of them now have, is that they know what our loans look like today.

Speaker #4: They know how we're underwriting today, but they don't know what we're going to be doing a year from now or two years from now.

Speaker #4: And so how do they get comfortable making a commitment to buy loans in 2028 when they don't know how we're going to be underwriting at that time?

Paul Gu: How do they get comfortable making a commitment to buy loans in 2028 when they don't know how we're going to be underwriting at that time. Skin in the game is our answer to that problem. As you can see by the number of deals we're signing and the size of those deals, the length of those deals, this is an arrangement that's working. We think fundamentally it's a good trade to bring in that predictability and commitment of capital in exchange for a small piece of skin in the game, which we expect generally to produce nice returns for us.

Speaker #4: And so, skin in the game is our answer to that problem. And as you can see by the number of deals we're signing and the size of those deals, the length of those deals, this is fundamentally—it's a good trade to bring in that predictability and commitment of capital in exchange for a small piece of skin in the game, which we expect generally to produce nice returns for us.

Speaker #8: Got it. Got it. No, it's very helpful. It's probably, I think, that duration planning is an underappreciated aspect of your capital plan. Thanks so much.

David Scharf: Got it. No, it's very helpful. It's probably, I think, that duration planning is an underappreciated aspect of your capital plan. Thanks so much.

Speaker #1: And we'll take a question from Rob Wildhack with Autonomous Research.

Operator: We'll take a question from Rob Wildhack with Autonomous Research.

Speaker #7: Hi guys. A question on the July volume number that came out last week. Originations were up 50% in the second quarter, pretty consistent month to month.

Rob Wildhack: Hi, guys. A question on the July volume number that came out last week. Originations were up 50% in the Q2, pretty consistent month to month, then July drops to 34% growth. I don't think there's really a comp issue versus July of last year. The UMI's up a little, but not a ton. Just wondering if there's anything to call out with that slowdown, and then any additional context you can give on volume growth through the remainder of the year. Thanks.

Speaker #7: Then July drops to 34% growth. I don't think there's really a comp issue versus July of last year. The UMI is up a little, but not a ton.

Speaker #7: So just wondering if there's anything to call out with that slowdown. And then any additional context you can give on volume growth through the remainder of the year.

Speaker #7: Thanks.

Speaker #2: Hi, Rob. Thanks for the question. So July is, we saw sort of a modest step-down versus June. And June was kind of flattish to May as we think about the originations trajectory.

Andrea Blankmeyer: Hi, Rob. Thanks for the question. July is we saw sort of a modest step down versus June was kind of flattish to May as we think about the originations trajectory. That trending that we see is partially reflective of the UMI context that was occurring over the course of Q2. What we're seeing in July represents is inclusive of some of that modest headwind from the uptick of UMI from beginning of Q2 up about 9% by the end of the quarter and is reflective of that. That's kind of the UMI impact. As we've alluded to before, to the extent UMI goes up, that has created some headwind for originations. If UMI goes down, that provides tailwinds. All that macro context is happening.

Speaker #2: And so, sort of, that trending that we see is partially reflective of sort of the UMI context that was occurring over the course of Q2.

Speaker #2: And so what we're seeing in July represents as inclusive of some of that modest headwind from the uptick of UMI from beginning of Q2 up about 9% by the end of the quarter.

Speaker #2: And it's reflective of that. And so that's kind of the UMI impact. And as we've alluded to before, to the extent UMI goes up, that creates some headwind for originations.

Speaker #2: If UMI goes down, that provides tailwind. All that macro context is happening. But ultimately, as we look out over the remainder of the year, the thing that we're kind of most focused on are the levers that we control in the business to drive sustainable, durable, and accretive growth.

Andrea Blankmeyer: Ultimately, as we look out over the remainder of the year, the thing that we're most focused on are the levers that we control in the business to drive sustainable, durable, and accretive growth. The same levers we've been pulling in Q2 around driving our model and technology wins, improving customer experience, and driving more efficiency across our marketing channels and optimization across our marketing channels. Those are the key levers that over the last few years in Upstart's history have driven our sustained growth. As we look out over the near term, we expect to continue to drive growth. The UMI context will always move around in the background, but ultimately we're focused on those controllable drivers.

Speaker #2: The same levers we've been pulling in Q2 around driving our model and technology wins, improving customer experience, and driving more efficiency across our marketing channels and optimization across our marketing channels.

Speaker #2: Those are the key levers that over the last few years and upstart's history have sort of driven our sustained growth. And as we look out over the near term, we expect to continue to drive growth.

Speaker #2: And sort of the UMI context will always move around in the background, but ultimately we're focused on those controllable drivers.

Speaker #7: Okay, thanks. And then one more on the bank and the bank charter, now that you're starting to accumulate the necessary approvals. We understand the operational benefits of the bank charter, but I was wondering if you could shed some light on how you're going to run the bank once it's up and running?

Rob Wildhack: Okay, thanks. One more on the bank and the bank charter now that you're starting to accumulate the necessary approvals. We understand the operational benefits of the bank charter, but I was wondering if you could shed some light on how you're going to run the bank once it's running. I'm curious how much capital you think you're going to seed the bank with, and then how quickly you think you can, A, start originating loans through the bank and what portion you might do, and B, how quickly you plan on scaling deposits. Any other details you could provide there would be great.

Speaker #7: I'm curious how much capital you think you're going to see the bank with and then how quickly you think you can, A, start originating loans through the bank and what portion you might do, and B, how quickly you plan on scaling deposits, any other details you could provide there would be great.

Speaker #2: Sure. On the capital side, we have been disclosed the specifics around the capital plan, but I can share that we are sufficiently capitalized upstart today to launch the bank.

Sonya Banerjee: Sure. On the capital side, we haven't disclosed the specifics around the capital plan, but I can share that we are sufficiently capitalized Upstart today to launch the bank, and are looking forward to that. From a how quickly we can turn on the operations of the bank across a number of different dimensions. On the lending side, we expect pretty quickly to move the bulk to all of our originations through to Upstart Bank from the current partners that we're originating with today. Also expect to be able to raise deposits within a relatively short period of time after bank launch. All in all, expect the core elements of the operations of the bank to be up and running relatively shortly after the launch of the bank.

Speaker #2: And are looking forward to that. From a sort of how quickly we can sort of turn on the operations of the bank across the different a number of different dimensions.

Speaker #2: On the lending side, we expect pretty quickly to move the bulk of all of our originations through to Upstart Bank, from the current partners that we're originating with today, and also expect to be able to raise deposits within a relatively short period of time after bank launch.

Speaker #2: And so all in all, expect sort of the core elements of the operations of the bank to be up and running relatively shortly after the launch of the bank.

Speaker #7: Very helpful. Thank you.

Rob Wildhack: Very helpful. Thank you.

Speaker #1: And I will now turn the conference back over to Sonya Banerjee.

Operator: I will now turn the conference back over to Sonya Banerjee.

Speaker #2: Thank you. For the first time this quarter, we invited retail investors to submit questions through X. We received a number of thoughtful submissions, and we've selected a few themes to answer today.

Sonya Banerjee: Thank you. For the first time this quarter, we invited retail investors to submit questions through X. We received a number of thoughtful submissions, and we've selected a few themes to answer today. Paul, starting with the first one, you've talked a lot about LTV efforts and have stated Upstart is deliberately not maximizing take rate today. As the models improve, how much pricing power is accruing that you're choosing not to harvest? How do you think about pulling the lever on take rate over the long term?

Speaker #2: So Paul, starting with the first one, you've talked a lot about LTV efforts and have stated upstart is deliberately not maximizing take rate today.

Speaker #2: As the model's improved, how much pricing power is accruing that you're choosing not to harvest? And how do you think about pulling the lever on take rate over the long term?

Speaker #4: Yeah, it's a great question. Over the last couple of quarters, one of the themes we've talked about is investing in our customer relationships. That's something that's really important to us.

Paul Gu: Yeah, it's a great question. Over the last couple of quarters, one of the themes we've talked about is investing in our customer relationships. That's something that's really important to us. We're talking more and more about that, sharing more and more metrics about that, and we expect to continue doing that. The reason it's so important to us is that we expect to have products that can serve customers across their entire life cycle. Getting customers in the door, getting consumers into our ecosystem, even if they don't take out a loan, and then, of course, even more for the ones who do, is extremely valuable to us and will pay continuing dividends over time. That's really valuable to do. We don't want to over-monetize our consumer.

Speaker #4: We're talking more and more about that, sharing more and more metrics about that, and we expect to continue doing that. The reason it's so important to us is that we expect to have products that can serve customers across their entire lifecycle.

Speaker #4: So getting customers in the door, getting consumers into our ecosystem, even if they don't take out a loan, and then, of course, even more for the ones who do, is extremely valuable to us and will pay continuing dividends over time.

Speaker #4: So that's really valuable to do. And so we don't want to over-monetize our consumer. We don't want to sort of maximize the margin that we can squeeze out of every transaction, even though in some of our products like core personal loans, our pricing power is frankly fairly enormous.

Paul Gu: We don't want to maximize the margin that we can squeeze out of every transaction, even though in some of our products, like core personal loans, our pricing power is frankly fairly enormous, and we certainly could take it to a higher level. That's not what we're choosing to do today. We want to take a healthy margin reflective of how much value we're adding to that consumer, but leave plenty on the table for that consumer to keep for themselves. We think that's something that's going to accrue to our brand, accrue to the relationship. We're going to keep on doing that. In terms of the magnitude of that, we haven't shared any specific metrics around this. I will just say that we didn't achieve our Q2 results by turning the screws on take rates in our core business.

Speaker #4: And we certainly could take it to a higher level. But that's not what we're choosing to do today. We want to take a healthy margin reflective of how much value we're adding to that consumer.

Speaker #4: But we have plenty on the table for that consumer to, sort of, to keep for themselves. And I think we think that's something that's going to accrue to our brand, accrue to the relationship.

Speaker #4: And so we're going to keep on doing that. In terms of the magnitude of that, we haven't shared any specific metrics around this, but I will just say that we didn't achieve our Q2 results by turning the screws on take rates in our core business.

Speaker #4: That's not a primary strategy for us today. And if anything, over the coming quarters, when we have the opportunity to, we're going to look to invest more into our customer relationships, not less.

Paul Gu: That's not a primary strategy for us today. If anything, over the coming quarters, when we have the opportunity to, we're going to look to invest more into our customer relationships, not less.

Speaker #2: Thank you. Next question. You say the model is at an 87% error with lots of room left. Improving roughly linearly. How much of that residual is irreducible?

Sonya Banerjee: Thank you. Next question. You say the model is at an 87% error with lots of room left, improving roughly linearly. How much of that residual is irreducible? Isn't there a natural limit to prediction accuracy, and how do you know you're not close to it?

Speaker #2: Isn't there a natural limit to prediction accuracy? And how do you know you're not close to it?

Speaker #4: Yeah. I mean, physics is real. So there's definitely sort of limits to what can be done in the physical world. And there's limits to predictability.

Paul Gu: Yeah, physics is real. There's definitely limits to what can be done in the physical world, and there's limits to predictability. The really, really good news is that the starting point and the point of comparison is a pretty low bar. That bar is, if you think about how consumer loans have been underwritten for most of human history, it's been something that you underwrote with people, and then you underwrote with really simple scorecards, really simple three-digit numbers about people. None of those metrics were particularly accurate at understanding credit risk. When you look at these metrics about if you were to start from a starting point of totally random and then advance to what a human underwriter could do, what a traditional scorecard could do, you actually only solve a pretty small fraction of all the inaccuracy that's out there.

Speaker #4: But the really, really good news is that the starting point and the point of comparison is a pretty low bar. And that bar is, if you think about how consumer loans have been underwritten for most of human history, it's been something that you underwrote with people, and then you underwrote with really simple scorecards, really sort of simple three-digit numbers about people.

Speaker #4: And none of those metrics were particularly accurate, understanding credit risk. And so when you look at these metrics about if you were to start from a starting point of totally random and then advance to what a human underwriter could do, what a sort of traditional scorecard could do, you actually only solve a pretty small fraction of all the inaccuracies that's out there.

Speaker #4: And what we've done over the past now 12 years of working on this problem in personal loans and less in new products is we've got to this 2.74 times as accurate as those traditional models.

Paul Gu: What we've done over the past now 12 years of working on this problem in personal loans and less in new products is we've got to this 2.74 times as accurate as those traditional models. Actually, that leaves just a ton of room still on the table. That's just because the starting point is so inaccurate that we actually haven't seen any decline, any diminishing marginal returns to our investments in better models, in AI, more data. We're pretty confident that at least in the foreseeable future, our models are going to keep getting better, they're going to keep increasing separation, and therefore, we're going to be able to keep differentiating in our value prop to the customer and ultimately win more of them.

Speaker #4: But actually, that leaves just a ton of room still on the table. And that's just because the starting point is so, so inaccurate that we actually haven't seen any decline any diminishing marginal returns to our investments in better models in AI, more data.

Speaker #4: And so we're pretty confident that, at least in the foreseeable future, our models are going to keep getting better. They're going to keep increasing separation.

Speaker #4: And therefore, we're going to be able to keep differentiating in our value prop to the customer and ultimately win more of them.

Speaker #2: Right. And then the third and final question. What do you believe the market is still missing about upstart? And what specific milestones should shareholders watch over the next 12 months that could help close this valuation gap?

Sonya Banerjee: Right. The third and final question. What do you believe the market is still missing about Upstart, and what specific milestones should shareholders watch over the next 12 months that could help close this valuation gap?

Speaker #4: Yeah, a lot. I would say that all year, really, there's probably been a bigger gap between how we at Upstart see the business and how the market sees us than we've ever experienced in our life as a public company.

Paul Gu: Yeah, a lot I would say that all year really there's probably been a bigger gap between how we at Upstart see the business and how the market sees us than we've ever experienced in our life as a public company. From our perspective, the business is stronger than it's ever been. We've got tech that's the best it's ever been, committed capital that is bigger and longer than it's ever been. We've got more customers. We've got traction in home and auto. We think of all these as sort of wins that are valuable. They add up no matter what kind of macro environment you're in, whether it's a UMI of 1.5 or a UMI of 1 or a UMI of 0.5. Those things we are going to keep delivering on through the execution that we did just like in Q2.

Speaker #4: From our perspective, the business is stronger than it's ever been. We've got tech that's the best it's ever been, committed capital that is bigger and longer than it's ever been.

Speaker #4: We've got more customers. We've got traction in home and auto. When we think of all these as sort of wins that are valuable, they add up no matter what kind of macro environment you're in, whether it's an EOMI of 1.5 or EOMI of 1 or EOMI of 0.5.

Speaker #4: And those things we are going to keep delivering on through the execution that we did, just like in Q2. And then there's sort of the opportunity ahead in the business, which is like consumer credit is just massive.

Paul Gu: There's sort of the opportunity ahead in the business which is like consumer credit is just massive. It's a trillion-dollar market if you look across the different types of consumer credit just in the US. AI is sort of the perfect technology to transform that. Of course, we as a company, we've been working on this particular type of AI relevant to credit, relevant to consumer finance for over 10 years now. We've got a 10-year plus head start to be the one to do it. I think that the market when they look at us has really been focused on a lot of the basics, like can we keep growing? Can we do it profitably? Can we fund the loans that all that growth is generating?

Speaker #4: It's a trillion dollar market if you look across the different types of consumer credit just in the US. And AI is sort of the perfect technology to transform that.

Speaker #4: And of course, we as a company, we've been working on this particular type of AI relevant to credit relevant to consumer finance for over 10 years now.

Speaker #4: We've got a 10-year-plus head start to be the one to do it. And I think that the market, when they look at us, has really been focused on a lot of the basics, like can we keep growing?

Speaker #4: Can we do it profitably? Can we fund the loans that all that growth is generating? And so, for us, what we need to do first is just tackle those doubts head-on and prove that we can do those things.

Paul Gu: For us, what we need to do first is just tackle those doubts head on and prove that we can do those things. I think ultimately the market will decide what it decides. I think the good news is that with those focuses, almost no matter what kind of valuation framework the market wants to use for us, at the end of the day, all of them go up with profit. If the market at some point doesn't want to bet on our future, then we can just earn the profits to bet on our own.

Speaker #4: And I think ultimately, the market will decide what it decides. But I think the good news is that with those focuses, almost no matter what kind of valuation framework the market wants to use for us, at the end of the day, all of them go up with profit.

Speaker #4: And so if the market at some point doesn't want to bet on our future, then we can just earn the profits to bet on our own.

Operator: Thank you. That does conclude today's conference. We do thank you for your participation and have an excellent day.

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