Upstart Holdings, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Platform originations grew 89% year-over-year. Revenue grew 67% year-over-year. Adjusted EBITDA margin reached 20% for the first time in three years. Right on the doorstep of GAAP profitability in Q1.
• Core personal loan: Continued improving models, increasing conversion rates from 14% to 19% in Q1, and 92% of loans fully automated.
• Home and Auto: HELOC originations saw strong growth, auto lending also had significant sequential growth. Achieved first instant approval auto refinance loan.
• Small-dollar product: Originations grew, benefited from single underwriting model.
• Servicing operations: Automated 90% of hardship applications, prioritized direct collections for at-risk borrowers.
• 2025 priorities: 10X AI leadership, prepare funding supply, return to GAAP net income profitability in the second half of the year, and achieve best rates/best process for all products.

Segment Performance

• Core Personal Loan: Originations flat sequentially, up 83% year-over-year. Conversion rate increased from 14% a year ago to 19% in Q1. 92% of loans were fully automated.
• Home Lending: HELOC originations grew 52% quarter-over-quarter and more than 6X year-over-year. Launched in California, covering 37 states + Washington, D.C. (75% of U.S. population). Signed agreements with 3 lending partners for HELOC.
• Auto Lending: Originations grew 42% quarter-over-quarter and almost 5X year-over-year. Cross-selling reduced acquisition costs by 57% quarter-over-quarter. First instant approval auto refinance loan in 9 minutes.
• Small-Dollar Product: Originations grew 7% quarter-over-quarter and almost tripling year-over-year. Accounts for nearly 16% of new borrowers on Upstart in Q1. Moved to a single underwriting model.
• Revenue: Total revenue for Q1 was approximately $213 million, up 67% year-over-year. Revenue from fees was $185 million, up 34% year-over-year. Net interest income was approximately $28 million, exceeding outlook.
• Contribution Margin: 55% in Q1, down 6 percentage points from the prior quarter.

Guidance

• Q2 2025: Total revenues approximately $225 million, consisting of Revenue from Fees of approximately $210 million, and total net interest income of approximately positive $15 million. Contribution Margin of approximately 55%. Net income of approximately negative $10 million. Adjusted net income of approximately positive $25 million. Adjusted EBITDA of approximately $37 million.
• Full Year 2025: Total revenues of approximately $1.01 billion, consisting of Revenue from Fees of approximately $920 million, and net interest income of approximately positive $90 million. Adjusted EBITDA margin of approximately 19%. Expect GAAP net income to be positive in the second half of the year and positive for the full calendar year.

Risks

• Macro-economic uncertainties, including potential disruptions from recent government trade policy.
• Volatility in financial markets affecting securitization and at-will funding sources.

Question and Answer

Q: Dan Dolev asks about the Walmart partnership.

A: Dave Girouard states they signed a one-year agreement with OnePay (Walmart's majority-owned fintech) to make Upstart's products available to Walmart customers, aligns with delivering best value for consumers.

Q: John Coffey asks about conversion rates and the Upstart Macro Index.

A: Dave Girouard discusses conversion rate growth from 14% to 19%, Sanjay Datta explains the Macro Index moved in the deck for clarity as it was causing confusion.

Q: Simon Clinch asks about contribution margin and demand for personal loans.

A: Sanjay Datta talks about mix impact on contribution margin, Dave Girouard mentions strong credit demand for personal loans.

Q: Unidentified Analyst asks about funding and take rates.

A: Sanjay Datta explains funding sources, Dave Girouard talks about take rates in super prime vs other segments.

Q: Mihir Bhatia asks about funding partners and macro volatility.

A: Sanjay Datta and Dave Girouard say funding partners are stable with no pullbacks, models adapt to macro conditions.

Q: Peter Christiansen asks about ABS market and risk retention.

A: Sanjay Datta says the ABS deal was oversubscribed, securitization is an opportunistic channel.

Q: Michael Infante asks about TAM and customer acquisition.

A: Dave Girouard talks about TAM segments, Sanjay Datta says channel trends are steady.

Q: John Hecht asks about banks and Fortress.

A: Dave Girouard talks about banks preferring secured products, Fortress agreement helps with funding.

Q: Reggie Smith asks about super prime borrowers and spread.

A: Dave Girouard talks about T-Prime program, Sanjay Datta explains spread in credit markets.

Q: Giuliano Bologna asks about take rates and loan performance.

A: Sanjay Datta talks about stable take rates, mix impact on loan performance.

Q: Matt O'Neill asks about OnePay Walmart and guidance.

A: Dave Girouard says the partnership is early stage, no material impact on guidance.

Q: Rob Wildhack asks about OnePay underwriting and economics.

A: Dave Girouard says Upstart controls underwriting, it's a win-win partnership.