Upstart Holdings, Inc. (UPST) Earnings

Management highlights

### Strategic Execution & Core Focus - The company executed on the four key commitments laid out in the prior quarter: reaccelerate growth of core personal lending, improve profitability of secured Home and Auto products, maintain capital efficiency, and deliver a profitability rebound aligned with full-year guidance - Core personal lending is identified as the company's core strength, with large technology advantages driving strong margins; 27% quarter-on-quarter origination growth in Q2 2026 outpaced the combined growth of the prior three quarters - Management maintains a strict high bar for all investments, resulting in the decision to sunset the underperforming auto refinance business to reallocate resources to higher-potential product lines ### AI & Underwriting Model Progress - Three new personal loan underwriting models were shipped in Q2, adding over 300 new variables; underwriting was moved to a new distributed inference platform that is 65% faster at the median while supporting greater model complexity - Upstart's model is now 2.74 times as accurate as traditional credit scoring benchmarks, with 87.38% of the total inaccuracy gap still remaining to be solved, providing significant long-term runway for improvement ### Customer Growth & Relationship Development - Approximately 1 in 13 American adults now hold an Upstart account, with Q2 originations reaching a record 558,000 loans; historical data shows the average borrower takes out roughly 1.5 loans over time, with more recent cohorts trending higher as new products expand use cases - A new underwriting data vendor management model was launched to enable lower-cost, more frequent re-engagement of existing account holders ### Secured Product Operational Improvements - **Home (HELOC)**: Borrower verification and closing processes were streamlined, cutting origination costs by 15% quarter-on-quarter; Upstart can now close HELOCs in 6 days, while offering average rates more than 200 basis points lower than competitors, creating a durable competitive advantage - **Auto**: For auto retail, the company continues adding dealer rooftops and gaining market share, and has begun optimizing take rates as the business moves from demand validation to unit economics improvement; for auto-secured personal loans, funnel efficiency and automatic eligible vehicle identification were upgraded, lowering acquisition costs ### Capital Platform & Bank Update - Three large institutional funding deals were closed after the prior earnings call, providing up to $5 billion in new committed capacity; the company has maintained a 100% institutional partner renewal rate since 2023 - A $569 million upsized ABS issuance was completed, the largest since 2021, at the tightest spreads in three years; average returns for the last 12 quarterly loan vintages exceed U.S. Treasuries by 660 basis points, with every vintage outperforming by at least 425 basis points - Upstart received conditional OCC approval for its bank charter; the bank is expected to launch in early 2027, and will not change the core strategy of relying primarily on third-party funding, but will unlock operational and regulatory efficiencies long-term

Guidance

- Management is maintaining full-year 2026 guidance, with no upward or downward revision: total revenue of ~$1.4 billion, fee revenue of ~$1.3 billion, and adjusted EBITDA of ~$294 million (equal to ~21% of total revenue), with EBITDA weighted to the second half of the year - The Unemployment Macro Index (UMI) ended Q2 2026 at 1.5, which is at the top of the 1.4-1.5 range included in the original 2026 guidance set in February 2026; guidance assumes UMI will remain near this level for the rest of the year, and management expects underlying business strength will offset this macro headwind - Secured products are expected to reach contribution margin break-even by Q4 2026 - Fixed operating expenses are expected to grow at a low single-digit sequential rate in both Q3 and Q4 2026, delivering operating leverage in the back half of the year

Segment performance

Upstart has one official reportable segment: Unsecured Lending (formerly Personal Lending, a name change only, no structural changes). Secured products (Home and Auto) are not a separate reportable segment, and their results are calculated by subtracting Unsecured Lending results from total company results. - **Unsecured Lending Segment**: Total originations grew 38% year-over-year and 20% sequentially, with core personal loan originations growing 27% quarter-on-quarter ($526 million sequential increase). Fee revenue was $326 million, up 38% year-over-year and 23% sequentially. Contribution margin hit 62%, an increase of 6 percentage points from Q1 2026. This segment contributed 93.7% of total company fee revenue in Q2 2026. - **Secured Products (Auto + Home)**: Total originations grew 45% quarter-on-quarter. Auto originations grew 264% year-over-year and 62% sequentially; Home originations grew 139% year-over-year and 14% sequentially. Fee revenue was $22 million, up 465% year-over-year and 86% sequentially, contributing 6.3% of total company fee revenue in Q2 2026. Contribution margin improved 61 percentage points quarter-on-quarter to -35%. - **Total Company**: Total originations were $4.2 billion, up 50% year-over-year and 23% sequentially. Total revenue was $365 million, up 42% year-over-year and 18% sequentially. Contribution profit hit an all-time high of $193 million, up 37% year-over-year and 41% sequentially, with an overall contribution margin of 55% (up 5 percentage points from Q1 2026). GAAP net income was $17 million, returning to GAAP profitability, with diluted EPS of 16 cents. Adjusted EBITDA was $77 million, up 45% year-over-year, with a 21% margin. Loans held on balance sheet totaled $1.06 billion, equal to 5.9% of total outstanding Upstart loans, the lowest share in almost two years.

Risks & headwinds

- Forward-looking statements are based on current expectations, and actual results may differ materially due to a variety of risks and uncertainties, including changes in macroeconomic conditions, fluctuations in the Unemployment Macro Index (UMI), and changes to consumer credit performance - A higher UMI creates a modest headwind to origination growth and fair value marks for loans held on balance sheet - Regulatory approval for the new bank charter remains pending, and building and launching the bank is one of the largest undertakings in Upstart's history, with execution risk associated with the process - Dependence on third-party capital for loan funding creates risk if capital market conditions tighten or institutional partners fail to renew commitments, though Upstart has maintained a 100% renewal rate since 2023 - New secured products are still maturing, and carry execution risk related to achieving break-even profitability and scaling distribution as planned

Analyst Q&A

• Q: What drove the sequential take rate improvement, and how much came from mix shift versus pricing changes? /

  A: The improvement came from both mix shift and targeted margin improvements across segments. The core personal loan segment, which carries higher margins, grew much faster than in previous quarters, which directly lifted the overall take rate. Management also prioritized significant margin improvements for secured products, which delivered 61 percentage points of sequential margin gain in the quarter. /

• Q: Why did Upstart decide to sunset the auto refinance business, given its potential to drive repeat customer business? /

  A: Auto refinance was a solid product that fit the strategic goal of serving repeat customers, but it had lower growth velocity and upside potential than Upstart's other product investments. The decision was a result of the company's strict capital discipline, requiring concentration of resources on the highest-potential opportunities in the portfolio. /

• Q: Why are you maintaining full-year guidance despite strong Q2 results and UMI hitting the top of your forecast range? /

  A: The strong underlying Q2 execution and business performance offsets the modest macro headwind from higher UMI. UMI at 1.5 was the upper bound of the range included in the original guidance set at the start of the year, so the current forecast already incorporates this headwind. Management maintains confidence in hitting the full-year targets based on the strength of core personal loans and the continued improvement trajectory of secured products. /

• Q: What is the strategic rationale for co-investing in forward flow deals, when most peer fintech lenders sell whole loans without co-investment? /

  A: Co-investment allows Upstart to lock in longer-term (up to 24 month) committed capital commitments, which provides critical predictability for funding supply even during market or macro disruptions. Co-investment aligns Upstart's incentives with capital partners, who gain comfort committing to multi-year purchases because Upstart retains skin in the game for future underwriting changes. This structure has worked well to support the large growth in committed capital that Upstart has secured this year. /

• Q: Why is Upstart not maximizing take rates today, and how much untapped pricing power do you have as models improve? /

  A: Upstart's long-term strategy prioritizes building long-term customer relationships and growing its ecosystem of consumers, rather than maximizing short-term margins from individual transactions. While Upstart does have significant untapped pricing power in core personal loans that could increase take rates immediately, management chooses to leave value with consumers to build brand loyalty and drive repeat business, which will deliver higher long-term value. Q2 results were not driven by take rate increases in core, and the company will continue prioritizing relationship investment over short-term monetization.