- Revenue from Fees: $131 million, down 9% year-over-year.
- Net Interest Income: Negative $3 million, an improvement year-over-year and sequentially.
- Net Revenue: $128 million, down 6% year-over-year.
- Loan Transactions: Approximately 144,000 loans, up 31% year-over-year and 21% sequentially.
- Average Loan Size: $7,700, down from $9,500 in the prior quarter.
- Contribution Margin: 58%, flat sequentially and two percentage points above guidance.
- Operating Expenses: $183 million, down 6% sequentially from Q1.
- GAAP Net Loss: $54 million.
- Adjusted EBITDA: Negative $9 million.
- Adjusted Earnings Per Share: Negative $0.17 based on a diluted weighted average share count of 88 million.
- Loans on Balance Sheet: $686 million, down from $924 million in the prior quarter.
- Unrestricted Cash: $375 million on the balance sheet.
- Net Loan Equity: Approximately $449 million at fair value.
- Q3 2024 Revenue Guidance: Approximately $150 million.
- Q3 2024 Contribution Margin Guidance: Approximately 57%.
- Q3 2024 Net Income Guidance: Approximately negative $49 million.
- Q3 2024 Adjusted Net Income Guidance: Approximately negative $14 million.
- Q3 2024 Adjusted EBITDA Guidance: Approximately negative $5 million.
- Q3 2024 Diluted Weighted Average Share Count Guidance: Approximately 90 million shares.
- Second Half 2024 Revenue from Fees Guidance: Approximately $320 million.
- Second Half 2024 Adjusted EBITDA Guidance: Positive in Q4.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Upstart Holdings Inc (UPST, Financial) has made significant progress towards returning to sequential growth and EBITDA profitability.
- The company has rebuilt its funding supply by securing long-term funding partnerships, reducing reliance on its balance sheet for loan funding.
- Upstart Holdings Inc (UPST) launched the most impactful improvements to its core credit pricing model, M.18, which has significantly enhanced model accuracy and funnel conversion rates.
- Automation of the core unsecured loan product reached an all-time high with 91% of loans fully automated, improving cost efficiency and consumer experience.
- The company has expanded its product offerings, including auto loans, small dollar relief loans, and home equity lines of credit, with notable growth and performance improvements in these areas.
Negative Points
- Despite progress, Upstart Holdings Inc (UPST) continues to face challenges from macroeconomic factors, with no dramatic improvements in these areas yet.
- The company reported a GAAP net loss of $54 million and adjusted EBITDA of negative $9 million for Q2 2024, indicating ongoing financial challenges.
- Higher pricing for prime loans has created downward pressure on origination volumes, impacting revenue from fees.
- The macroeconomic climate, including inflation and consumer spending trends, continues to pose risks to the company's performance.
- There is still a reliance on the company's balance sheet to bridge funding gaps, which may lead to volatility in financial performance.
Q & A Highlights
Q: Can you comment on intra-quarter trends and what you saw in July regarding loan demand and credit performance?
A: We observed a positive trajectory in loan demand and credit performance throughout the quarter, leading into Q3 on a good footing. July's trends were representative of this upward trajectory.
Q: How should we think about the fixed versus variable costs of the model as the top line expands?
A: As the business expands, contribution margins may shrink slightly due to reductions in take rates. However, fixed costs should grow slower than the top line, leading to improved operating leverage and profitability.
Q: What should we expect for conversion rates in the next couple of quarters given the model improvements?
A: The upward trajectory in conversion rates is expected to continue, driven by model accuracy improvements. There is still significant runway for further conversion rate improvements.
Q: Can you discuss the impact of small-dollar relief loans on your business?
A: Small-dollar relief loans have been successful in pushing the boundaries of our models and acquiring customers who later qualify for other Upstart products. This product has become economically strong and is expected to continue contributing positively.
Q: How should we think about the pace of runoff on the balance sheet over the next few quarters?
A: The medium-term direction will likely be a reduction in the balance sheet for core loans. However, there may be some timing mismatches along the way, leading to fluctuations.
Q: How do you view the competitive environment for consumer financing?
A: We see increasing liquidity among our lending partners, leading to more competitive rates and improved loan demand. The overall competitive environment appears to be improving.
Q: How do model improvements and a better UMI impact the performance of the co-investment portfolio?
A: Model improvements primarily enhance funnel conversion and business expansion. The UMI's decline directly impacts the performance of loan pools, potentially leading to higher returns for our investment division.
Q: What are the discussions with credit investors focused on, and how has pricing changed?
A: Discussions focus on increasing confidence in credit trends and innovative financial structures. Pricing has improved, and we aim to maintain a balance between committed capital and at-will funding.
Q: How do you expect the business to perform in a more conducive lending environment given your improved models?
A: We anticipate better performance due to significant improvements in model accuracy, automation, and funding structures. These enhancements position us well for growth in a favorable lending environment.
Q: How do you validate that your models are better?
A: We use well-understood statistical techniques to quantify model accuracy. Lending partners and credit investors also see performance data, providing external validation of our model improvements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
