Upstart Holdings, Inc. Q3 FY2026 earnings call

• Macro Headwinds: The Upstart Macro Index (UMI) rose to 1.5 in Q3, driven by re-accelerating inflation and rising consumer delinquencies, creating a significant headwind for balance sheet-derived income.
• Core Personal Loans: Added over 140 new model features, widening the accuracy lead over traditional credit scoring to 2.77x. Unique borrowers exceeded 25 million, with over 555,000 unique Americans taking out loans in Q3.
• Secured Products Profitability: Achieved positive contribution margin (17%) ahead of schedule by increasing automation (e.g., 40% fully automated home loans), optimizing dealer compensation, and improving loan sales terms.
• Capital Efficiency: Reduced equity capital usage to 9% of total platform loan balance, down from 11.6% a year ago. More than 95% of loans are now third-party funded.
• Upstart Bank: On track to launch in early 2027 subject to regulatory approval. The bank will capitalize with ~$404.1 million in cash/assets and raise broker deposits, expected to increase consolidated unrestricted cash to over $1 billion and eliminate incremental equity requirements.

Total originations reached $4.1 billion, up 44% year-over-year. Fee revenue from unsecured lending was $330 million (up 30% YoY), while secured products contributed $34 million (up 538% YoY). Net interest income and fair value adjustments totaled approximately $6 million, down 65% YoY due to credit deterioration. Contribution profit hit a record $218 million (up 48% YoY) with a margin of 60%. Unsecured contribution margin was 64%, while secured contribution margin turned positive at 17%, a significant improvement from -35% in Q2.

• Full-Year Total Revenue: Revised downward to approximately $1.35 billion (from original $1.4 billion).
• Full-Year Adjusted EBITDA: Revised downward to approximately $260 million (from original $294 million).
• Fee Revenue & Contribution Profit: Expected to modestly exceed original guidance ($1.32 billion fee revenue; $750 million contribution profit) as execution offsets macro pressure on new originations.
• Assumptions: Guidance assumes UMI does not exceed 1.55 through year-end and no material change in two-year Treasury yields from current levels.

• Macroeconomic Sensitivity: High sensitivity to borrower health and interest rates; rising UMI significantly reduces fair values and net interest income on the balance sheet.
• Credit Deterioration: Rising inflation and falling real wages have increased consumer delinquencies, impacting loan performance.
• Regulatory Approval Risk: Launch of Upstart Bank is subject to remaining regulatory approvals.
• Balance Sheet Volatility: Fair value adjustments and net interest income are highly volatile and sensitive to macro shifts, unlike fee revenue which is more stable.

Q: Analyst asked if growth can be sustained if UMI remains elevated at 1.53-1.55 levels next year, or if better credit conditions are required.

A: Paul Gu stated that Upstart does not rely on macro tailwinds. Growth is driven by 'alpha' from technology and marketing improvements, not waiting for macro to improve. He expressed confidence that even if macro stays flat at high levels, the compounding rate of alpha-driven growth will sustain multi-year targets without needing a macro rebound.

Q: Analyst asked about the impact of higher interest rates on funding partners and second-derivative effects on volume.

A: Andrea Blankmeyer explained that October originations fully reflect the pass-through of September rate increases into platform pricing. While Treasury yields rose ~120bps, improved spreads and cost of funding partially offset this. Institutional capital is levered to Treasuries, while depository/bank capital benchmarks to Fed funds, with monthly pricing lags absorbing most shocks.

Q: Analyst asked how Upstart plans to handle external AI agents (like ChatGPT) accessing pricing/underwriting services.

A: Paul Gu stated Upstart has no fear of external AI agents shopping for their product. They believe in building the objectively best product so it wins regardless of discovery channel. They do not plan to build proprietary AI agents to block competitors but aim to be everywhere, trusting that superior unit economics and product quality will win in an open market.

Q: Analyst asked why Upstart discontinued conversion rate disclosure and what metrics replace it.

A: Paul Gu explained that conversion rate became misleading as the product suite diversified (core, secured, HELOC) and repeat borrowers grew (250k+ returning customers). The metric no longer clearly indicates selectivity or growth potential across different segments. They shifted focus to metrics tracking new vs. returning unique borrowers and product-specific ecosystem engagement.

Q: Analyst asked about the sustainability of take rate improvements and whether they are driven by competitive pricing power or mix.

A: Andrea Blankmeyer noted take rates rose ~60bps, driven by a mix shift toward higher-take-rate core personal loans and improved secured product monetization (better loan sale terms and automation). Paul Gu added that take rate is an output, not a managed input; the primary North Star is contribution profit, ensuring sustainable unit economics rather than arbitrary fee hikes.