Conference Transcript - UPST 2026-06-09

Speaker 3

Good afternoon, everyone. I have the pleasure, thank you for joining the Mizuho Tech Conference 2026. I have the pleasure of hosting Andrea Neinkmeyer, Upstart's Chief Financial Officer, for a fireside chat for people coming in. So before we start, I'm gonna read a quick Disclaimer and then we'll start with the Q&A. So thank you Andrea for joining. Thank you for having us Our pleasure So today's discussion may contain may contain forward-looking statement that relate to future results and events Which are based on upstarts information available as of today and are subject to risks and uncertainties actual results made differed Materially from these forward-looking statements these the discussion may also include non-gap financial measures measures which are not a substitute for gap results please refer to the company's filing with the SEC and IR website for additional information including gap to non-gap reconciliations along with other disclosures so with that done welcome everyone so this is actually Andrea's first fire you know fireside chat as CFO so maybe you can give us some background about yourself and introduce yourself

Andrea Blankmeyer, CFO

sure thank you and thank you so much for for hosting upstart here today so Hello everyone, I'm Andrea Blankmeyer, Upstart's relatively new CFO, so I joined about three months ago, coming on three months. My background was in consulting and private equity investing, and then leading risk and finance teams at sort of complex risk-based businesses. So I was the VP of finance at SoFi, CFO of a technology marketplace, of a transportation marketplace business and then most recently CFO of CityBlock Health which is a value-based care health care business that has a balance sheet and a business model it's like an insurance company so very excited to be here today at my first fireside chat as CFO and here with you thank you well you're in a great place so maybe we could talk about specifically about some of the results And can you help us maybe, you know, bridge the, you know, Q1 adjusted EBITDA and the

Speaker 3

full-year guide, which should differ pretty significantly. And I think a lot of people have been raising questions about it. So the difference between 13 and 21, to be very specific.

Andrea Blankmeyer, CFO

It is, yeah. So as you said, so our full-year guidance was 21 percent EBITDA, which represents 294 million of adjusted EBITDA. We did 13 percent, about 40 million of EBITDA in Q1. and so we have you know our you know ahead of us are the profits for the year basically and as we spoken to we believe those profits will be sort of more back half-weighted the main drivers of the performance that we saw in Q1 were really threefold one there's a seasonality dynamic to our business and that seasonality impacts not just kind of demand so we see sort of top line softening but that softening kind of flows through into take rate and contribution margins for our core personal loan business one and then there's seasonality for us on an OPEC side with sort of a structural step up in some of our costs in the first part of the year that we expect to moderate as we move forward the second sort of dynamic that sort of came to bear in our Q1 results is a mixed dynamic and that's the story that's been playing out for us over the last year plus so we've seen really phenomenal growth in our newer are a secured product so we have a home product and an auto product which have grown three and a half and four times year over year from Q125 to Q126 which is great we've also seen growth from a borrower segment perspective so over the course of the last year have seen growth on the personal loan side in our super prime customer base which is different than sort of the core upstart borrow that we built our business on over the course of the last decade plus and so the mix dynamic is important because both of those sort of vectors of growth and mix shift for the business so from a borrower segment perspective in the super prime as well as the growth in our newer secured products both of those had a dampening effect on take rates and contribution margin and are a driver in some of the sort of the trending we've seen particularly from Q2 25 to Q1 of 26 so that's the second dynamic so seasonality mix and then the third is investment that the company made coming into the year to kind of shore up our headcount and our people teams are sort of our sort of people resources to make sure we were set up to achieve in the year so all of those factors came together and Q1 EBITDA margin was 13% now as we look forward we do expect to see EBITDA margin improve significantly as we sort of drive a few things forward So one obviously leaving Q1 seasonality, so we should see some lift on both the demand and the take rate and the contribution margin across the board Second dynamic at play is we intend to and have driven sort of continued focus on our core personal loan segment So that's our sub 720 borrower segment near prime and subprime borrower base Where up starts really up starts historical bread and butter where we have Significant and high contribution margins and you know real pricing power and higher take rates So that's the second thing, so growing in our core personal loan business. And then third is going to be to continue to grow our newer products while improving the unit economics of those. So in Q1, those products had a negative contribution margin. We expect that contribution margin to improve as we move through the year. So those are the three main things as we sort of look through the remainder of the year that will deliver, you know, in combination with growth and sort of a natural operating leverage is we expect fixed expenses to grow more moderately throughout the remainder of the year that sort of deliver in combination you know our revenue guide or EBITDA got in our implied contribution margin and dollar guide great maybe let's shift gears a little bit to a very big topic which is the bank charter and you know maybe you can talk about this is something that always comes up in general for fintechs your former company as well which we cover so what are the benefits for upstart here and just in general for fintechs for a bank charter yes so we are we filed our application for an OCC and FDIC charter and are making our way through the process our expectation would be you know pending regulatory approval to launch in early 2027 the rationale for becoming a bank importantly is not one to like fundamentally change our business model vis-a-vis how we treat our balance sheet and how we think about capital so upstart is you know part of our sort of core element of our business models our capital efficiency and it's selling the vast majority of our loans not having them touch our balance sheet or having to stand our balance sheet for relatively short period of time selling those loans through to third parties we intend to sort of maintain that element of our business model as a bank and so what it is that the bank will deliver for us are a few things so one it's going to sort of streamline our origination process you know today we work through these originating banks that sort of collect a fee and a toll from us along the way as they're doing so two it's meant to streamline kind of the regulatory complexity of our business which is kind of a surprising one to people sometimes because everyone's like well being a bank is very regulatory complex and it is but the reality today is that we have to satisfy the credit committees of the hundreds of banking partners that we work with through them we have to speak through many regulators and we're also regulated in all of the states in which we operate so we're under you know a couple hundred different sort of regulatory frameworks i would say and so streamlining that into a single one we think is going to be efficient for us. And those are the primary sort of direct objectives that both of which should have some positive impact to the P&L. The first one is kind of a reduction of a contra revenue for us. The second one over time is an improvement on sort of our cost base. Obviously, there will be investment for us to become a bank and operate well as a bank. And then sort of secondary benefit that we see would be one sort of a modest cost of capital benefit for us again you know from accessing deposit funding it's real it's just a smaller piece of our business because our intent is to keep that business that balance sheet relatively small and then the the final element I would say is just is a little bit more qualitative but you know we've been sort of the leading voice of AI in underwriting since our inception and I've managed quite a few conversations with regulators and we think that as the AI dialogue continues to involve in credit that we will benefit from having a direct dialogue with federal regulators on that, sort of expedite our ability to move our innovation through.

Speaker 2

Okay.

Speaker 3

Well, that's very exciting. And maybe we can talk a little bit about something that's been very topical, which is the state of the U.S. consumer, which is very, very relevant for Upstart. So maybe do you see any weakness? this, how does the, you know, obviously the, you know, FICO kind of nature of the, you know, the borers on Upstart, you know, how does the K-shape economy play there?

Andrea Blankmeyer, CFO

And then I have, maybe we can touch a little bit on the UMI index, which has been very helpful for us, you know, as analysts, and how does, you know, how do you see, where are we now versus say a few years ago kind of in this on the arc of history when it comes to the borer state the state of the borer yeah very topical question I'd say sort of stepping it back and sort of broadly what we sort of see is that the consumer is we're in the middle of kind of a multi-year normalization cycle for the consumer and so in particular post COVID and post stimulus ending we saw sort of a real uptick in default sort of a degradation in savings rates and sort of an overall pressure on the consumer that is you know significantly above pre-COVID levels you can sort of see that in our UMI index itself so that's the upstart macro index which is a measure kind of the macro related drivers of defaults and prepayment and repayment patterns for a mixed suggested borrower base. And so what we see is, you know, over the last year or so, the UMI has kind of been in the 1.4 to 1.5 range, which means that the way you sort of interpret that is the same borrower today has a 1.4 to 1.5 times higher default rate than that same borrower in the pre-COVID time for the same loan. And that's been sort of, you know, peaked close to 1.7 a couple of years ago and has sort of gradually been coming down over time so we're sort of seeing ourselves broadly when you really sort of step back in a period of normalization for the consumer as they kind of write themselves post sort of COVID and stimulus and then you know away from that I'd say over the course of last year we've seen you know UMI fluctuates from month to month but it's sort of been in that 1.4 to 1.5 range our most recent print of UMI was April and it was 1.46 which is kind of right in the middle of that range up a little bit from March but still too early to tell kind of if that's a sustained trend or it's just part of the normal month-to-month fluctuations and there's been I guess I would imagine scenarios in the past where it goes up and then goes back down again it's very much so yeah I can very easily kind of move in that order of magnitude up or down on a month-to-month basis but it's really kind of been relatively stable with some moderate improvement I'd say over the course of the last year and UMI is a seasonally adjusted measure just for what it's worth and so things like sort of tax season and otherwise are factored in to the repayment risk of the borrower and let's talk about something exciting which are the new products and the trajectory there so home equity auto loans what's the rationale of getting into these products and maybe how's it

Speaker 3

going in those ventures.

Andrea Blankmeyer, CFO

Yeah, I mean, these products are off to a great start, I would say. Auto is really sort of the second product for Upstart after our personal-owned product, and then Home and HELOC have followed. And really, it's part of the progression of Upstart to becoming a multi-credit product company that can serve every customer up and down the economic spectrums would be the go-to place for credit for Americans and so these represent kind of you know bets placed two and three for the company to expand what we sort of built as our core asset as a company around our AI underwriting models one and then sort of reducing friction and automating operating the operating process sort of bringing both of those sort of core assets of the business into different asset classes uh into the secured side um so that's really the rationale they're off to a they're both doing really well as i said before sort of growing three to four times on a year-over-year basis auto is a little bit more mature i would say as a product so i think we have sort of strong product market fit strong credit performance you know good capital markets kind of buyer support there um and sort of at this point we're in the rinse and repeat side when it comes to growing and then also looking to continue to improve the unit economics HELOC is a little bit earlier in the journey so it's a little bit of a newer product for us still growing very well and you know I think we see lots of room ahead of us on both of those products let's talk about the

Speaker 3

most topical thing of all which is private credit is there weakness where Where do you see that throughout the process of securitization? I think a lot of people have that on their mind, so we should definitely address it.

Andrea Blankmeyer, CFO

We can definitely talk about it and address it. It's definitely been a hot topic, I'd say, over the last few months. What I'll say is that we are not seeing the broader turbulence in private credit flow through to our buyers and their appetite for you know upstart loans and to continue to grow with us and so we have you know as of mid-may signed and announced over four billion dollars of committed capital partnerships including a couple of key renewals and extensions you know a couple of those with private credit names that are in the press a lot or have been in the press a lot for challenges as well as kind of landing a couple of new deals and our first deal that extends over a committed 24-month time horizon so we're really seeing is a

Speaker 3

lot of strength from the capital markets perspective a lot of demand to buy loans private credit and in other sort of segments of our capital base which you know ultimately as always reflects kind of the underlying credit quality of the loans that we are originating okay so no reason to get concerned for now no not that we're saying maybe um talk a little bit and then we'll open it up for q a from the audience um but ai so for for us at least like no one is more synonymous with ai than upstart i feel like you guys were doing ai before people knew what ai was so how does the current state of ai change your business Is there anything you can do better, get more efficient? And what is the edge of Upstart today when everyone has access to AI?

Andrea Blankmeyer, CFO

Yeah, yeah, it's a great question. And to your point, Upstart has definitely been an AI-driven business long before. That was sort of a trendy thing to talk about. And sort of the core of that are really, you know, sort of AI is a broad term, but it's like primarily machine learning based models that we have built and developed over the past decade plus to allow us to separate and understand the risk of primarily subprime and near-prime borrowers significantly better than traditional credit models and that's the thing that has powered our growth that's the thing that has allowed us to continue to sustain and improve our pricing power even as we've grown so significantly and to deliver you know and our core personal and product high 50 plus percent contribution margins right and so that's sort of the core asset of the business in today's kind of modern world of AI with like the LLMs what I'd say is that the ways we are using those sort of the core machine learning models are continuing to do what they're doing and that the sorts of models that sort of gen AI can't replicate very easily because they're the sort of machine learning more math sort of number based things the ways that we're using gen AI today are sort of powerful for the business, but I wouldn't say there's sort of a meaningful acceleration of the core, nor does Gen AI allow anyone to sort of come in and replicate what we've done on the core. So the things that we are using Gen AI for are, one, our engineers are using it to code. And so they're sort of expanding and speeding up their process to do everything, which is fantastic. The second place we're finding Gen AI to be very helpful is around automating tasks that have historically required human intervention on. And so, you know, a big part of what we do alongside our core underwriting models is continues to remove friction in the underwriting process for our borrowers and Automate more and more and there's just been a bucket of things that historically have continued to require some degree of human intervention on So it's like if there's like a title document that has like a handwritten something about your home, right? Like we've historically had to have someone look at that And now that's the sort of thing that these gen AI models are very good at doing and automating are these Processes that have historically required a human touch on so we're seeing sort of a real acceleration on that end From an operating process perspective Thank you and if anyone has questions for Andrea Yeah, we're gonna get you a mic.

Speaker 3

Hey Is it open?

Speaker 2

Yeah, hey Okay, about the HELOC business. So it is currently very small, but we think it's very exciting. Can you tell us a little bit about, are there buyers for that yet in the funding markets? And secondly, unlike maybe the auto loans, are these the same borrowers?

Andrea Blankmeyer, CFO

Because usually HELOC borrowers are more prime, they already have a home. so what can you tell us about this new business yeah so the what we are finding on our he lock product as you would expect is that is a more prime customer so it's kind of a 700 average FICO versus like 670 or so on our otter 660 670 on our on our auto product I'm sorry what was the first part of your question oh the funding side yes so we do have our sort of core anchor institutional buyer on the HELOC side and are increasing sort of quarter on quarter the proportion of loans that we're selling through to third parties so we're not really seeing kind of a shortage of capital and sort of supply interest on that product and because it's a little bit more of a prime customer it's a very good customer kind of match into our dozens into the hundreds of sort of credit union and banking partners who are bringing deposit cost of capital onto the Upstart platform and so you're sort of seeing more of those kind of buyers of loans for our HELOC product.

Speaker 3

I want to thank you for your time today. Thank you, Andrea. It was a pleasure having you and yeah.

Andrea Blankmeyer, CFO

Thank you so much. It was great to be here. Thank you.