Upstart Holdings, Inc. Q2 FY2025 earnings call

• Model improvements: Model 22 launched in early May increased separation accuracy advantage, core underwriting had more repayment events to train on. - Growth in newer businesses: Home launched instant property verification, Auto Retail product adoption climbing, small dollar loans growing. - Funding partnerships: Expecting new all-time high monthly available funding in Q3, second ABS deal in 2025 had more investors. - Generative AI: Internal productivity wins with LLM-powered tools, early versions of borrower-impacting tools launched. - Cost efficiency: Operations teams driving down acquisition and origination costs through technology.

In Q2, Upstart's originations on the platform were $2.8 billion, the highest in 3 years. Revenue grew 102% year-on-year. Core personal loans saw growth with Model 22 driving conversion rates. The Home business grew 67% sequentially, launching instant property verification. The Auto business grew 87% sequentially, with Auto Retail product gaining traction. Small dollar loans grew 40% sequentially, accounting for over 10% of originations. Revenue from fees was ~$241M, up 84% y-o-y, transactional revenue more than doubled due to Model 22, servicing fee revenue grew ~20% y-o-y, net interest income was ~$17M.

For Q3 2025, expected total revenues ~$280M, consisting of revenue from fees ~$275M and net interest income ~$5M. For full-year 2025, expected total revenues ~$1.055B, revenue from fees ~$990M, net interest income ~$65M, adjusted EBITDA margin ~20%, and GAAP net income ~$35M.

• Macroeconomic factors: Inflation remains a near-term risk, changes in consumer savings rates, consumption patterns, inflation reacceleration, or significant unemployment could impact UMI and credit trends.

Q: Chat about ABS market health and competitive pressure in near prime/prime space?

A: Sanjay said ABS markets are constructive, equity tranche market is opportunistic with buyers picking and choosing. Dave noted more competitors in the space due to improved funding markets, but Upstart is focused on best offers.

Q: Increase in loans on balance sheet and transition to external funding?

A: Sanjay said balance sheet loans are from new products in R&D/incubation, timeline to transition to third-party capital is between now and end of year, balance sheet expected to start releasing as new flows transition.

Q: Contribution margin improvement breakdown and macro assumptions?

A: Sanjay said contribution margin improved despite growing new products, mix benefit from core borrower segment, model launch improving conversion rates and take rates. Macro assumptions include status quo UMI in 1.4-1.5 range, no real interest rate cuts, resilient labor market.

Q: What could move UMI up or down?

A: Sanjay said improvement in savings rates, consumption patterns relative to income could move UMI down; reacceleration in inflation or significant unemployment could move it up.

Q: Average loan size drift and Walmart partnership?

A: Dave said average loan size drift is due to growth of small dollar product, not a straightforward conversion rate up; no new info on Walmart partnership to share.