Upstart Holdings, Inc. Q4 FY2024 earnings call

• Model Innovations: Core model had improvements like APR as feature and PTM, back test showed using current tools would have avoided 55% excess defaults. - New Products: Auto refinance and retail saw conversion rate improvements, HELOC had strong growth with 36 states covered and zero defaults, small-dollar loans grew rapidly. - Servicing: Personalized outreach increased delinquent borrower payment rates by 25% sequentially, automation reduced people-related cost per current loan by 50% in 2024, AutoPay enrollment high. - Funding: Upsized commitments with capital partners by $1.3B, closed $150M personal loan warehouse facility.

In Q4, overall origination volume grew 33% sequentially, revenue grew 35% sequentially. Core personal loan had model innovations like Model 19 with Payment Transition Model (PTM) improving accuracy. Auto origination volume grew ~60% sequentially with improved conversion rates. HELOC grew ~60% sequentially, offered in 36 states with 60% of US population coverage and zero defaults in Q4. Small-dollar relief loans had >100% sequential growth in Q4, accounting for ~13% of new borrowers and used to train core personal loan model. Revenue from fees in Q4 was $199M, net interest income ~$20M, net revenue ~$219M. Contribution margin was 61% in Q4.

• Q1 2025: Expect total revenues ~$200M, revenue from fees ~$185M, net interest income ~$15M, contribution margin ~57%, net income ~-$20M, adjusted EBITDA ~$27M. - Full Year 2025: Expect total revenues ~$1B, revenue from fees ~$920M, net interest income ~$80M, adjusted EBITDA margin ~18%, GAAP net income at least breakeven.

• Macro uncertainties: Fluctuations in Upstart Macro Index and interest rates can impact default rates and platform pricing. - Model Dependence: Reliance on model accuracy and calibration to maintain performance. - Funding Constraints: Potential issues with availability of third-party funding affecting platform growth.

Q: Kyle Peterson asked about the mix of funding moving forward between committed capital, at-will buyers, or depositories.

A: Sanjay Datta said medium-term objective is >50% committed capital with balance in various forms, and near-term is to grow capital expeditiously with large deals.

Q: Simon Clinch asked about borrower demand drivers.

A: Sanjay Datta said half from model accuracy improvements, half from UMI subsiding and rate cuts from last fall.

Q: Peter Christiansen asked about risk retention.

A: Sanjay Datta said in capital arrangements, some single-digit percentage of capital at risk, and market has increasing appetite for risk.

Q: Ramsey Assal asked about automation ceiling.

A: Dave Girouard said ceiling not 100% but can go higher with team working on instant approvals.

Q: Dan Dolev asked about operating levers for margin.

A: Sanjay Datta said operating leverage with fee revenue growth translating to bottom line, and models are stronger now.

Q: David Scharf asked about getting back to prior scale.

A: Sanjay Datta said path back involves drop in UMI and stronger models, and margins will be better now.

Q: Vincent Caintic asked about profitability guidance and funding capacity.

A: Sanjay Datta said 2025 GAAP net income breakeven, and funding not gating variable but product and technology drive growth.

Q: John Hecht asked about sources of volumes and small loan mix.

A: Sanjay Datta said growth driven by core business with similar channel mix, and small loans are smaller, shorter duration, used to underwrite more population.

Q: Reggie Smith asked about conversion drivers and model impact on loan buyers.

A: Dave Girouard said conversion from better models and automation, Sanjay Datta said loan buyers are comfortable with model evolution.

Q: James Faucette asked about contribution margin and customer acquisition.

A: Sanjay Datta said contribution margin affected by take rates, acquisition costs, and operating costs, and Upstart is margin dollar efficient.

Q: Matt O'Neill asked about UMI asymmetry.

A: Sanjay Datta said there's conservatism in underwriting as UMI improves.

Q: Rob Wildhack asked about ABS loan buyers and contribution margin.

A: Sanjay Datta said no explicit assumption on ABS in 2025 outlook, and contribution margin not dropping due to efficient acquisition and operations