Release Date: February 11, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Upstart Holdings Inc (UPST, Financial) reported a strong fourth quarter with a 33% increase in origination volume and a 35% increase in revenue sequentially.
- The company launched Model 19, which introduced the Payment Transition Model (PTM), enhancing model accuracy and risk separation.
- Upstart's auto refinance and HELOC products saw significant growth, with origination volumes increasing by approximately 60% sequentially.
- The company achieved a 25% sequential increase in the rate of delinquent borrowers making payments within 14 days of contact, demonstrating improved borrower outcomes.
- Upstart strengthened its balance sheet by refinancing convertible debt and raising almost $500 million, improving its cash position and liquidity.
Negative Points
- Despite improvements, Upstart Holdings Inc (UPST) reported a GAAP net loss of $2.8 million for the fourth quarter.
- The company faces challenges in reducing the amount of loans held directly on its balance sheet, which rose sequentially in Q4.
- There is uncertainty regarding the macroeconomic environment, with potential rate increases posing a risk to future performance.
- The transition to one-year equity grants is expected to negatively impact stock-based compensation expenses.
- Upstart's contribution margin remained flat at 61% in Q4, indicating potential pressure on margins as the company scales.
Q & A Highlights
Q: How is Upstart thinking about the mix of funding moving forward, particularly between committed capital and other sources?
A: Sanjay Datta, CFO, stated that the medium-term objective remains to have over 50% of capital committed, with the balance between bank and credit union balance sheet capital and at-will sources like ABS and hedge funds. In the short term, they are focusing on expanding borrower volumes and striking large deals with counterparties.
Q: Can you break down what drove the upside in borrower demand this quarter?
A: Sanjay Datta, CFO, explained that the increase in approvability and conversion was due to improvements in model accuracy, moderation in default rates, and the impact of rate cuts from last fall. These factors collectively contributed to lower APRs on the platform.
Q: What is Upstart's view on risk retention in forming new sources of capital?
A: Sanjay Datta, CFO, mentioned that Upstart maintains a target percentage of its platform underpinned by committed capital, with a single-digit percentage of total capital at risk from their balance sheet. There is an increasing appetite for risk in the securitization markets and loan asset purchasing.
Q: How does Upstart plan to manage potential macroeconomic uncertainties in 2025?
A: Dave Girouard, CEO, stated that Upstart takes a conservative position by not assuming changes in interest rates or the Upstart Macro Index (UMI). They build conservatism into their models to target modest overperformance if conditions remain stable, allowing for quick adjustments to any changes.
Q: What are the main drivers of improved conversion rates, and how do these improvements affect loan buyers?
A: Dave Girouard, CEO, highlighted that more accurate models and increased automation drive conversion improvements. Sanjay Datta, CFO, added that loan buyers are accustomed to Upstart's evolving models and that better models typically result in lower APRs for borrowers, rather than altering investor returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
