Upstart Holdings, Inc. Q1 FY2025 Earnings Call

Good afternoon and welcome to the Upstart first quarter 2025 earnings call. At this time, all participants are in listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations. Sonya, please go ahead.

Thank you. Welcome to the Upstart earnings call for the first quarter of 2025. With me on today's call are: Dave Girouard, our co-founder and CEO, and Sanjay Datta, our CFO. During today's call we will make forward-looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and beliefs as of today, which are subject to a variety of risks, uncertainties, and assumptions, and should not be viewed as a guarantee of future performance. Actual results may differ materially as a result of various risk factors that have been described in our SEC filings. We assume no obligation to update any forward-looking statements as the result of new information or future events, except as required by law. Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. And with that, Dave, over to you.

Thanks, Sonya. Good afternoon, everyone. Thank you for joining us today. The first quarter was a strong one for Upstart, despite being our seasonally slowest time of the year. Platform originations grew 89% year-on-year, with model wins and improved borrower health combining with more competitive capital to drive meaningfully higher conversion rates. Our revenue grew 67% year-on-year and our Adjusted EBITDA margin reached 20% for the first time in three years. With fees generating 87% of our revenue, we were also right on the doorstep of GAAP profitability in Q1. Just as importantly, Home and Auto continued their torrid growth pace, with originations growing 52% and 42%, respectively, on a sequential basis. From our perspective, consumer financial health, as represented by the Upstart Macro Index, has been largely improving for almost a year now. Currently it remains elevated but stable. Our credit continues to perform well and, while we're vigilant with respect to any disruptions that recent government trade policy might cause, we're also confident that our ability to adapt to changing macroeconomic conditions is miles better than it was just a couple of years ago. In a time of trade disruption, we're also happy that Upstart is a 100% U.S. business that's 100% digital. Now I'll take you through some of the progress we made in each of our product areas in Q1. With our core personal loan product, originations were flat sequentially and up 83% year-over-year. We continue to make rapid improvements to our models that facilitate underwriting and automated approvals. Additionally, we continue to strengthen and diversify the capital supply that is the fuel of our business. These improvements have contributed to increasing our conversion rates from 14% a year ago to 19% in Q1. We also reached an all-time high of 92% of loans fully automated - meaning the entire process from rate request to loan closing is entirely driven by AI-powered software, with no human intervention by Upstart. All else being equal, we believe a faster automated process selects for better borrowers. Additionally, our “best rates, best process for all” mantra has really begun to pay dividends. In Q1, 32% of our originations were to super prime borrowers, which we - as well as the CFPB - define as borrowers with credit scores higher than 720. We measure progress against “best rates” not just by portfolio mix but also by win rates versus competitors across the credit spectrum. In this vein, we've also made extraordinary strides in recent months. I'm excited to share more about this with you, which I expect to do at our AI Day event next week. We continued to stack up model wins, putting more distance between Upstart AI and the rest of the industry. Since last we spoke, we introduced embeddings to our core personal loan underwriting model. Embeddings are a machine-learning technique that convert complex, unstructured data into useful model inputs, or “features” in ML-speak. This is done by clustering data that have meaningful relationships, allowing seemingly random data to become valuable to predicting credit performance. For example, two consumers may have different credit cards - say, an Amex and a Chase Sapphire card. But with embeddings, our model can learn that these cards might reflect similar consumer behaviors. What makes this approach so powerful is that embeddings help us uncover subtle patterns that would be difficult - or even impossible - to identify otherwise. This leads to better model generalization, improved accuracy and more informed credit decisions. While embeddings are widely used in other domains - like natural language processing - applying them to credit underwriting is entirely novel. We're excited about what embeddings can do to drive our risk separation metrics forward, and we're equally excited about the pipeline of modeling innovations in front of us in 2025. Last quarter I told you that our auto business finished 2024 by growing originations about 60% sequentially. Well, in the first quarter of 2025 originations grew another 42% sequentially, despite Q1 being the seasonally softest time of the year. And Upstart auto lending grew almost 5X compared to a year ago. These increases were driven principally by model updates and pricing improvements. At the same time, our continued focus on cross-selling existing customers reduced acquisition costs for our auto refinance product by 57% quarter-over-quarter. This mega improvement to CAC was driven as usual by improved conversion rate, which more than doubled sequentially in Q1. In Q1, we also saw our first instant approval of an auto refinance loan, where the borrower completed the entire process in a single session of just 9 minutes. As far as we know, this could be the first instantly approved auto refinance loan in the world. This is a modest beginning but sets us down the path of automation that has been so central to our success in personal loans. In the Home lending category, we're thrilled with how quickly our HELOC product is maturing. In December, we ported our personal loan models for instantly verifying income and identity to our HELOC product. This increased instant income and identity verification from less than half of loans in Q4 to nearly two-thirds of HELOCs this past quarter. This is an experience borrowers love: Instantly approved applications convert at more than twice the rate of those requiring manual intervention. It's also a strong demonstration of how our core technology can be generalized across credit categories. In Q1, we also finally launched the Upstart HELOC in California, bringing our footprint to 37 states plus Washington, D.C., now covering almost 75% of the U.S. population. As I mentioned earlier, in Q1 our HELOC originations grew 52% quarter on quarter and more than 6X compared to a year ago. We now have agreements signed with three lending partners for our HELOC product and have begun the process of moving funding off of our balance sheet. We expect this will take considerable time as we bring both depository and institutional capital to this category. Our small-dollar product continues to perform well, with originations growing 7% sequentially and almost tripling year-on-year. Our SDL continues to be a critical customer acquisition tool, accounting for nearly 16 percent of new borrowers on Upstart in Q1. As I previewed back in February, in Q1 we moved to a single underwriting model for both of our unsecured products. This means the small-dollar product is benefiting straight away from machine-learning innovations such as embeddings that I described earlier. In Q1 we continued work to modernize and scale our servicing operations. We're rapidly automating routine tasks like processing payment failures and check handling so we can spend human time on more valuable tasks. In Q1, we automated 90% of hardship applications, making the process more seamless for borrowers and more efficient for Upstart. Beyond the technology, the work we've done to prioritize direct collections efforts for borrowers at risk of default have continued to have a meaningful impact. For example, in Q1 we realized a 50% increase in debt settlement acceptances by extending repayment terms for at-risk borrowers. In our auto business, we doubled our recovery rates year-over-year in Q1. We've been improving our data collection and structuring in servicing for quite some time now, and expect to launch our first machine-learning model in this area very soon. We're excited about the potential for ML in loan servicing to increase efficiency and reduce loss rates. This is a necessary step toward launching our servicing and collections as a highly differentiated standalone offering in the market, which we hope to do in the future. I'd like to quickly touch on Upstart's 2025 priorities that I mentioned to you in February. We're making great strides against this list, and I'm grateful for the many Upstarters who are putting their all into making this an incredible year for Upstart. First, 10X our leadership in AI. Already this year we've made great leaps forward both in process and substance that reinforce that, when it comes to AI lending, Upstart is a category of one. Embeddings are a real breakthrough for our AI foundation model, and I'm convinced it will pay dividends across all of our products over time. Our pipeline of modeling wins is beyond robust, so I couldn't be happier about our progress here. Second, prepare our funding supply for rapid growth. We continued to have well over 50% of our loan funding in committed partnership agreements. In early April we signed our first committed capital arrangement with Fortress, which is an industry leader in private credit. Looking forward, we expect to add our newer products to these partnerships which will greatly expand on the value and efficiency they bring to Upstart. Additionally, we added 15 new lending partners to our super prime offering, growing capital 38 percent quarter to quarter for that market segment. Third, return to GAAP net income profitability in the second half of the year. We're on track for this right now and excited to demonstrate the leverage in our business as both our core and newer products expand rapidly through the year. And last but not least, giant leaps toward best rates, best process for all. Earlier this year, I challenged each of our product GMs to have the best rates against major market competitors for each borrower segment they serve by the end of 2025. Specifically, this means that our win rate should be higher than any other digital competitor in each of our products. This of course comes with the prerequisite of on-target or better credit performance as well as solid unit economics. I'm pleased to share that we're running well ahead of this target, particularly in our core personal loan product. You'll hear more about this next week at AI Day. To wrap up my remarks today, I think much of the world has come down with a case of AI fatigue. There's just so much discussion and so many predictions about what AI will do or what it might do to the world, to our lives, and to our children's lives. I admit I roll my eyes at some of the debates and the discussions as well. But in Upstart's case, AI and its unique capabilities are unquestionably aligned with a better future for all when it comes to financial wellness. Improvements to our risk models and expansion of our product line mean we are reducing the price of credit for the world more and more each day. If you're still unclear about the incredible opportunity for AI-enabled lending and Upstart's leadership in this vital category, I hope you'll join us next week for AI Day. I promise you won't be disappointed. Thank you, and I'd now like to turn it over to Sanjay, our Chief Financial Officer, to walk through our Q1 2025 financial results and guidance.

Thanks, Dave. And thanks to all of our participants for sharing some of your time with us today. Financially, the first quarter of 2025 came in slightly ahead of expectations, with outperformance on the top and bottom line owing primarily to higher than anticipated net interest income. The impact of the typically soft tax seasonality in Q1 played out largely as expected, and despite recent turbulence in the financial markets, the effects of the macroenvironment on credit performance has in our estimation remained relatively stable throughout the quarter and roughly consistent with our prior assumptions. Total revenue for Q1 came in at approximately $213 million, up 67% year on year. This overall number included revenue from fees of $185 million, which was up 34% year over year. This amount was in line with guidance, although from a mix perspective we outperformed our expectations in the Super Prime borrower segment, resulting in higher overall origination volumes than anticipated at lower take rates. Additionally, net interest income represented roughly $28 million of overall revenue, exceeding our outlook by $13 million. Approximately half of this amount came in the form of higher net interest spreads from our balance sheet as we passed peak chargeoffs from older vintages, and half came in the form of unrealized fair value gains as the recently declining UMI trend worked its way into our various fair value marks. The volume of loan transactions across our platform was approximately 241,000, up 102% from the prior year but down 2% sequentially and representing 163,000 new borrowers. Average loan size of approximately $8,865 nudged up from $8,580 in the prior quarter as the proportion of loans made to Super Prime borrowers increased. Our Contribution Margin, a non-GAAP metric which we define as revenue from fees, minus variable costs for borrower acquisition, verification and servicing, as a percentage of revenue from fees, came in at 55% in Q1, down 6 percentage points from the prior quarter and 2 points below guidance, largely due to the lower take rates realized in the prime borrower segments where we exceeded expectations. GAAP operating expenses were roughly $218 million in Q1, down 3% sequentially from Q4. Expenses that are considered variable, relating to borrower acquisition, verification and servicing, were up 7% sequentially relative to a 2% decline in transaction volume, which is reflective of the lower contribution margins previously referenced. Fixed expenses were down 8% quarter over quarter, as some of the temporary catchup accruals from Q4 rolled off in the new year. Taken together, Q1 GAAP net loss was $2 million, well ahead of expectation and reflecting the outperformance on net interest income against our tightly managed fixed cost base. Adjusted EBITDA was $43 million, also scaling nicely in accordance with our operating leverage. Adjusted earnings per share was $0.30 based on a diluted weighted average share count of 104 million. We ended Q1 with $726 million of loans held directly on the balance sheet, which is down 21% from the prior year but up sequentially from $703 million in Q4, as our newer R&D products continued to scale. Additionally, we recognized $89 million in loans from the consolidation of a securitization deal in which we retain minimal economic exposure. We ended Q1 with unrestricted cash of approximately $600 million, down from $788 million in the prior quarter, with the delta primarily going towards R&D loan funding for new products, third-party risk capital partnerships, and a reduction in working capital from beginning-of-year corporate bonus payouts. In Q1, we put in place a universal shelf and a $500 million “At the Market” program, which gives us additional balance sheet flexibility. We remain extremely pleased with our network of third-party capital relationships, and are excited to welcome the Fortress Investment Group as a new committed capital provider on our platform. Overall these relationships now comprise well north of 50% of the funding on our platform, and they are demonstrating their intended resilience in the current market climate of uncertainty. As we look to Q2 and the remainder of 2025, much of the discussion has shifted to potential impacts from the macroenvironment. As mentioned, we've seen little discernible impact of the macro on credit performance so far. Uncertainty has increased, and we see the potential for both upside and downside scenarios that are credible in the near to medium term. The main near-term risk in our estimation is reinflation, as any persistent tariffs placed on a significant share of our import economy will make things less affordable for consumers, a clear negative influence on credit. On the other hand, in the context of an already high-default environment with razor-thin savings rates, our continuing stance is that any dynamic which tempers current high levels of consumption back into line with underlying income would represent a positive effect on credit. We remain sanguine about the prospective risks in the labor market, where we observe as many job openings in the economy as there are unemployed workers, and continue to perceive a structural shortage of labor supply that is under continuing pressure from demographic trends. Given this context, our macro assumptions for the duration of this year remain consistent with the prior quarter, namely, we factor in no explicit expectation of any rate cuts and are planning for a steady macroenvironment in which the Upstart Macro Index remains in a range of 1.4 to 1.5. With this as background, for Q2, we are expecting: Total revenues of 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 with a basic weighted average share count of approximately 96 million shares and a diluted weighted average share count of approximately 104 million shares. For the full year of 2025, we now expect 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%. And we expect GAAP net income to be positive in the second half of the year and positive for the full calendar year. Beyond the numbers, I would just like to reiterate our gratitude to all of the hard-working teams at Upstart who make these results achievable. And with that, operator, over to you for Q&A.

Thank you. And our first question comes from Dan Dolev with Mizuho. Please go ahead.

Hey, guys. Really nice results here, congrats. I have one question and one follow-up. I was really excited to see the Walmart partnership. Can you talk a little bit more about that? And then I have a follow-up as well. Thank you.

Hi, Dan. This is Dave. Thanks for the question. Yes, I can't say much we can really say there, but we did sign a one-year agreement with Walmart's majority-owned fintech called OnePay to basically make our products available to Walmart customers. And that's actually already been launched, which is kind of how it got out into the public sphere. But I will just say, generally, I think with our move to have the best rates and best process for everybody, which I know you keep hearing from us. Walmart is the kind of partner that we're really excited about because they've been really focused on delivering value for American consumers for a very long time, like more than 60 years. So it's exactly the kind of partnership we like where we can deliver the best value when it comes to a credit product. And hopefully, this will be a great win for both companies over time.

Got it. Thank you. And just as a quick follow-up, and I apologize if this has been addressed. Can you maybe give us a little bit of a sense of trends in April and maybe early May, if there's anything you can provide, that would be great.

Hi, Dan. How are you doing? It's Sanjay here. I think anything we can say with respect to this quarter is probably captured in our guidance. I think that's about as much color that we can give.

Okay. Fair enough. Really appreciate it. Congrats again.

Thanks, Dan.

And our next question comes from Ramsey Assal with Barclays.

Hi. This is John Coffey on for Ramsey. Thanks for taking my question. I just had two short questions. I was wondering, now that you've been updating your models, and it seems like that's been a process that has been ongoing. Is there a good way to think about your conversion rates for the remainder of the year or the next two quarters? We expect that those rates could start to touch that 20% level? So that's the first question I had. And also, I noticed that it used to be your MI had a slide kind of like I think last quarter is maybe around Page 10, and there were quite a few data points attached to it. When I look at this quarter, your kind of push back to the back of the deck on Slide 20, and I don't see any numbers really tied to. Is there any reason for that? Are you deemphasizing this as something you're reporting to the Street?

Hey, John. Just quickly on conversion rates, I mean, the conversion rates, which really are a very principal driver of growth. They did grow nicely from I think, 14% a year ago to 19% in the most recent quarter. And all else being equal, we would expect to drive them up with better models and improved automation, et cetera. And things like lower Fed rates, those are things that can also be helpful. So there's a bunch of things that go into conversion. Generally, we would like to drive it up and some of that is macro dependent and some of it is just technology that we could deliver. But we are definitely. We kind of showed it in our investor deck a little bit new way to look at the conversion rate in terms of how many unfulfilled requests there were there. And we just think there's a lot of ways that we can begin to fill in those bar graphs and convert more people.

Hey, John, it's Sanjay. Just quickly touching on your question about the macro index. First of all, I think it's moved back in the deck, hopefully, because we put some more stuff in the front for you. So it wasn't meant to be personal with respect to the index. And look, some of the numbers we had on there previously. It was all Fed-reported data. It was things like the personal savings rate, some inflation indicators and some unemployment indicators. I think it was causing a bit of confusion because I think people thought that we were deriving our index from those numbers when in fact, we just view those to be correlative. And so we just cleaned up the page a little bit. I think if those Fed data points are useful, we can certainly point you to them. They're publicly printed.

All right. Thank you.

Our next question comes from Simon Clinch with Redburn Atlantic.

Hi, guys. Thanks for taking my question. I was wondering if you could just touch on the contribution margin and the mix impacts we've had on that? And just how to think about that through the year, ultimately, what's embedded in your guidance is my first question.

Hi, Simon. I'm in the contribution margin. I guess I would point out a couple of dynamics in our sort of core personal loan product. I think in our sort of historic choice of the borrowing base, we have a relatively consistent margin. I would point to two dynamics. One, we are increasingly adding to our mix, maybe on the primary side of the borrower segment. It's obviously a more competed market. And so I think the margins in that segment would not sort of touch the level that we have in some of the more historic segments that we play in. And so that will sort of act to decrease the margin numbers as we talked about in some of the prepared remarks. And then, of course, as the newer products scale, whether it's HELOC or auto lending or even some of our small dollar efforts as those scale and gain traction, those because they're earlier in their life cycle, don't have sort of mature margins yet either. And so those two things are going to act to bring down the average number on the P&L and some of what we pointed out with respect to our earlier remarks.

Thank you. As a follow-up, we're hearing from others in the industry about strong demand for personal loans, largely due to the desire to consolidate substantial credit card debt. Can you discuss this demand trend and any fluctuations you might be observing? Thank you.

Hey, Simon, I think credit demand continues to be strong. In fact, I would just say on a seasonal basis, it tends to strengthen at this time of the year as you come out of Q1. So we are definitely kind of experiencing the end of the seasonality, the sort of tax season seasonality and whether there's anything special to this year is a little unclear. But I guess from our perspective, gross demand, sort of the amount of just gross demand for credit out there doesn't vary a ton. It always tends to be quite strong. And for sure, right now, we're seeing a lot of demand out there.

Okay. Great. Thanks.

Our next question comes from Kyle Peterson with Needham & Company.

Great. Thanks. Hey, everyone, it's Sam on for Kyle today. Nice results and thank you for taking the question. It's good to see the agreement with Fortress today. I was wondering if you could discuss how you're approaching funding and the funding mix given the current macroeconomic climate.

Sam, to provide some context, we consider three main sources of funding. First, there are originations from other lenders using our technology, primarily banks and credit unions that are originating for their own balance sheets. We have several large partnerships, including the recent one we announced with Fortress. Lastly, we look at what can be characterized as at-will or the securitization market. We aim for a balance among these sources, as they each play an important role in our ecosystem. However, with the added uncertainty in the current market, the securitization and at-will funding options are a bit less reliable. Our strategy to establish several substantial committed partnerships is proving effective in this environment, and we may be relying more on these agreements, especially since they are tailored for today's market conditions.

Got it. That makes sense. You mentioned some pressure on take rates due to an increase in higher subprime borrowers. Can you explain how you are approaching take rates as you adjust your models for the rest of the year?

Yes. Sam, just to clarify, that sort of take rate, I wouldn't call it pressure, we're sort of increasingly successful in the super prime segment, not the subprime and very prime borrowers have a lot of competitive alternatives and take rates and margins are necessarily lower in that segment. So as we gain share or increase the mix from maybe the prime and the super prime segments of borrowers, you'll see the average take rates come down.

I think it's also important to say that our contribution margin and take rates are well above what they were back in 2021. So we have a lot of room. It's not really our goal to maximize our contribution margin at this point. So diversifying into super prime loans has such value to us that I think taking down our contribution margin back towards where it was in our earlier days is actually a very good thing.

Okay. Got you. Okay, thanks guys.

Our next question comes from Mihir Bhatia with Bank of America.

Hi. Good afternoon. Thank you for taking our questions. The first question I wanted to ask was about just how have funding partners reacted to the volatility? Did you see any pullback from either your forward flow partners or even from, I guess, the third-party partners, the more opportunistic capital in early April from the volatility we saw in the fixed income markets.

Hi, Mihir. I believe our committed partnerships are functioning as intended. We established these partnerships to jointly manage the various phases of the macroeconomic cycle, and the structure of these agreements has helped smooth out those cycles. Everything is proceeding according to our expectations. We are equipped to quickly respond to changes in the credit risk environment for our partners. Many of these partnerships have even generated some extra performance that can be useful in tougher times. Overall, the securitization markets and other opportunistic markets are still operational. While spreads may be a bit higher and advance rates aren't as elevated as before, the strength of our large committed partnerships allows us to be less dependent on these opportunistic markets. Consequently, our funding remains robust, and we have not experienced any pullbacks.

Let me just add to that, Mihir. I mean just for clarity, we've had no pullbacks from our private credit committed capital partners, and we likewise had no pullbacks from banks or credit unions. So I think our credit continues to perform. And I think the confidence they have in Upstart is quite strong.

No, that is helpful. Thank you. I have another question on a similar topic regarding macro volatility. Dave, you mentioned that you will have more tools to respond to it. My question is, how has Upstart responded so far? Have you adjusted any of your underwriting processes or changed your product mix, such as where you allocate more marketing dollars? Have there been any operational changes in response to the macro uncertainty over the past four months? Thank you.

We are a conservative business that carefully manages fixed costs and hiring. This has been our approach for a long time, and we remain very cautious in our business planning. For instance, our guidance does not take into account any reductions in Fed rates this year. Regarding credit, we rely on our models to quickly adapt to macroeconomic changes and include some conservatism to avoid assuming that future conditions will mirror past performance. We believe this combination offers strong market adaptability. Our models are unique in their adaptability and responsiveness to macro changes, which has proven beneficial for us, our lending partners, and our private capital partners.

Thank you for taking my question.

And we'll move to our next question from Pete Christiansen with Citi.

Thank you. Good evening. The trends look positive. Could you provide some insights on the consumer credit side? It appears to be stable, and your partners in the at-will space also seem to be in good shape. I'd like to explore the ABS side further. I know there was a $320 million transaction a couple of weeks ago. I'm curious if you have any insights on the health of the ABS market for consumer loans. Do you see potential for more activity in that area this year? Additionally, could you share your thoughts on risk retention and how you expect it to trend in the upcoming quarters?

We were really pleased with how the latest ABS deal performed. It had a strong demand, with the bonds being oversubscribed. The spreads were slightly wider than earlier in the year, which is expected. Overall, we're happy with the outcome. We take advantage of that market when it’s available but don’t rely on it. Our committed capital departments don’t depend on it. When we can execute deals like this, it’s great, but it isn’t crucial for us. So overall, it’s a positive development. Regarding the future of the ABS markets, we don’t have a strong opinion as they are difficult to predict. However, since they serve as an opportunistic channel for us, their importance is somewhat reduced.

That's helpful. And then I guess on the Fortress plan and also, I guess, you added 15 new partners as well. Just curious if there's any trend changes in risk retention, co-investment and how that's been going?

Not really. I think the structure of these deals is very consistent now. So no trend, particularly in other direction in terms of how they work or how they're structured or what the terms are.

Okay. Thank you. Nice report.

And our next question comes from James Faucette with Morgan Stanley. James, now your line is open.

Yes. Hey, guys. It's Mike on for James. Thanks for taking our question. I just wanted to sort of dig in on how you're thinking about the TAM opportunity today. So if I just think about the overall unsecured personal lending market, like is there any rough segmentation you can provide just on how that TAM opportunity of, call it, $150 billion sort of segment by FICO score. I'm just trying to contextualize your relative penetration with a more traditional Upstart borrower versus a newer prime borrower? Thanks.

We have a general idea about that but do not measure it too precisely. I would estimate that consumers in the U.S. are fairly evenly divided between what we would consider Prime and Super Prime borrowers, with scores of 720 or higher, and those we typically serve, which are low 600s to 720. In my view, the market size from a personal loan standpoint is quite similar for both segments. Therefore, as we start to explore the super prime segment more, we are effectively doubling the total addressable market in personal loans. However, this is still relatively small compared to the combined total addressable market in Home and Auto lending. This is how we approach the situation.

That's helpful. Maybe just on customer acquisition. Anything you would call out just in terms of how your mix is evolving between pure organic traffic to upstart.com, how much is originated via direct mail and what you're sourcing via third-party marketplaces. Thanks.

Yes, Mike. Nothing really to call out in terms of channel trends from last quarter to this. It's been pretty steady.

And we'll move to our next question from James Hecht, Jefferies.

Hi, everyone. This is John Hecht from Jefferies. I hope you’re all doing well. I appreciate you taking my question. Sanjay, could you elaborate a bit on the fluctuations in the take rate? We understand there’s a distinction between core and super prime customers, but how do you see the mix evolving over the quarter and this year? Will prime continue to grow as part of that mix? Additionally, at maturity, what are the take rates for HELOC and auto loans? I realize these are different markets influenced by various factors, but what are the mature take rates compared to the current ones?

John, I apologize for the name slip. We don't have a clear division between super prime and near-prime segments in our guidance. As mentioned earlier, we have performed particularly well in the prime segments, and we anticipate this trend to continue, which makes us optimistic about our growth in this area. We're still in the early stages and aim to grow our presence disproportionately. Regarding the take rates for our newer products, it's still a bit early to make definitive statements. However, generally speaking, both home and auto loans tend to be larger amounts, but we expect the initial take rates to be more modest until our models can achieve the differentiation we see in personal lending. Consequently, we anticipate these larger loans to start with lower take rates, which might yield similar dollar contributions per loan. In particular, with products like auto loans, the contribution will likely be more consistent throughout the loan's life through servicing economics, rather than relying solely on upfront transaction fees as we do in our core personal lending business.

That's very useful. I have a follow-up question. The private credit markets seem to be structuring mutually beneficial deals with us, and there is significant liquidity in that market, making it quite active. How would you describe the banks? In the past, they were quite active but due to economic uncertainties, inflation, and the events of the last few years, they seem to have become less active. How would you characterize their current status? Additionally, what are you hoping for regarding the ability to more aggressively reengage with that group?

Banks tend to prefer secured products over unsecured ones. For personal loans, a significant portion of funding comes from credit unions and increasingly from institutional capital and private credit. We believe we will be competitive in the super prime segment of our business. Currently, banks show a strong preference for our HELOC product, and eventually, we expect this demand to extend to our auto products. It may take us some time to grow these businesses sufficiently to meet that demand. Overall, personal loans are primarily funded through credit unions and institutional sources, while banks show considerable interest in secured products.

Okay. Perfect. Thanks very much for the color.

Thank you.

And our next question comes from Rob Wildhack with Autonomous Research.

Hi, guys. A question on, I guess, both funding and the outlook. The Fortress agreement obviously comes with a big headline number. But the full year guidance kind of up only a little bit. I mean given that you're not seeing any pullback in funding and you've added sort of $1.2 billion in incremental funding from Fortress. I guess I'm just curious why the 2025 outlook isn't up even more.

Hey, Rob. The short answer is that we were never short of per se. So we're not funding gated in 2025, having more funding is good and allows us to handle upside scenarios and have more diversification in the funding really, the gating item really is kind of economic acquisition of the right borrowers. And that's almost always in our history, been what gates our growth. And so it's great to have more funding and we hope to add more partners, but it doesn't translate directly into growth.

Okay. And if I could just ask one more on OnePay. Can you comment at all on the underwriting or credit box there? Is that Upstart’s decision? And then are there like any minimum volume commitments or approval rates embedded in the agreement?

Our models drive us to partner with them in a joint venture structure where we share some of the risk, typical of these co-investment partnerships. However, the originations are entirely based on our technology and models.

Got it. Thank you.

And ladies and gentlemen, that was the end of our question-and-answer session. I'll now turn the conference back to Dave for closing remarks.

Thanks, everybody, for joining. We're actually really pleased with the progress that we've had so far in 2025. And I think the rest of the year might be even more exciting. So we'll see many of you at AI Day next week in New York, and I hope that many others will be joining us via streaming if you can find the time in your day to do that. If you really want to really understand what we're building in Upstart, I think AI Day will be super fun and an informative event. Thanks again for joining us.

This concludes today's call. Thank you for your participation. You may now disconnect. Goodbye.