Earnings Call Transcript - UPST Q2 2021

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Upstart Q2 FY 2021 Earnings Call. Today's conference is being recorded. At this time, for opening remarks, I'd like to turn the conference over to Jason Schmidt. Please go ahead, sir.

Operator, Operator

Good afternoon, and thank you for joining us on today's conference call to discuss Upstart's second quarter 2021 financial results. With us on today's call are Dave Girouard, Upstart's Chief Executive Officer, and Sanjay Datta, our Chief Financial Officer. Before we begin, I want to remind you that shortly after the market closed today, Upstart issued a press release announcing its second quarter 2021 financial results and published an Investor Relations presentation. Both are available on our Investor Relations website ir.Upstart.com. During the call, we will make forward-looking statements, such as guidance for the third quarter and full year 2021 related to our business. These statements are based on our current expectations and information available as of today and are subject to various risks, uncertainties, and assumptions. Actual results may differ materially due to various risk factors described in our filings with the SEC. Therefore, we caution you against placing undue reliance on these forward-looking statements. We have no obligation to update any forward-looking statements based on new information or future events, except as required by law. Additionally, during today's call, unless otherwise noted, references to our results are provided as non-GAAP financial measures and are reconciled to our GAAP results, which can be found in the earnings release and supplemental tables. Later this quarter, Upstart will participate in the Deutsche Bank Technology Conference on September 9, the JMP AI Fintech Conference on September 10, and the Piper Sandler Global Technology Conference on September 13. Now I'd like to turn it over to Dave Girouard, CEO of Upstart.

Dave Girouard, CEO

Good afternoon, everyone. Thank you for joining us on our quarterly earnings call covering our second quarter 2021 results. I'm Dave Girouard, Co-Founder and CEO of Upstart. First, let me once again thank the entire Upstart team for yet another exceptional quarter. The results we announced today don't just happen, they are the product of extraordinary effort by an incredible team. Despite the ongoing challenges the pandemic has brought to you and your families, you continue to deliver. The last 1.5 years have been a challenge for my family as well, and I'm grateful to be on this journey with each of you. Upstart is a leading AI lending platform, and our second quarter results continue to demonstrate why this category can generate enormous value in our economy. They also demonstrate why Upstart has an opportunity to become one of the world's largest and most impactful fintechs in the years to come. Lending is the center beam of revenue and profits in financial services and artificial intelligence may be the most transformational change to come to this industry in its 5,000-year history. It's our view that AI-led disruption targeting dramatic inefficiency in one of the largest segments of our economy is worthy of your attention. Our Q2 revenues grew to $194 million, up 60% compared to the prior quarter. June was our first month with more than 100,000 loans and more than $1 billion in origination volume on our platform. And we achieved this growth while also delivering record profits with adjusted EBITDA of $59.5 million and GAAP net income of $37.3 million. We're also happy to report that more than 97% of our revenue came in the form of fees from banks or loan servicing with zero credit exposure or demands on our balance sheet. In the second quarter, we continued to drive separation between our AI-powered platform and more conventional lending systems. We eliminated a rules-based constraint in our model that handled situations related to the size of loan requested. With more powerful algorithms and growth in training data, our models can now handle that issue natively and with more precision. This led to a boost in approval rates and a more accurate system overall. We also recalibrated our acquisition models to harmonize them with the funnel improvements we experienced earlier in the year. In other words, our models for digital and offline acquisition caught up to the most recent funnel wins that drove our earlier growth and began to target applicants they would have previously ignored or misprioritized. They were also recalibrated to broader bank partner eligibility criteria, enabling us to market to more consumers. In the second quarter, we also experienced a reduction in cost of funding across the platform, which means better rates for consumers and more loans. This cost of funding improvement was a result of more and better bank offers on our platform as well as a reduction in the yield required by the broader capital markets as our platform continues to demonstrate its unique strengths. And finally, we continue to ramp up marketing to our prior borrowers to qualify for repeat loans on the Upstart platform, and this contributed meaningfully to our growth. In fact, the number of repeat loans on our platform more than doubled from the first quarter to the second quarter of 2021. We also experienced an important but more nuanced win in Q2. For the first time, one of our bank partners decided to eliminate any minimum FICO requirement for their borrowers. To us, this demonstrates both a commitment on behalf of this bank to a more inclusive lending program as well as an increasing confidence in Upstart's AI-powered model. While credit scores can be useful, hard cutoffs based on a three-digit number invented 30 years ago leave far too many creditworthy Americans out in the cold. We're hopeful a second bank partner will make a similar decision in the near future. I'm pleased to announce that we finally began to roll out Upstart for Spanish speakers, a first of its kind among digital lending platforms in the U.S. This initiative took longer than I would have liked, as it turns out expanding from one language to two in a heavily regulated industry isn't as easy as we expected, particularly because our platform is itself a fast-moving target. But it's these types of efforts making Upstart more accessible to Spanish speakers and reducing hard cutoffs based on FICO scores that will make Upstart a more inclusive and impactful platform for those that need it the most. The growth of our platform and the performance of Upstart powered loans continue to attract more lenders to Upstart. We now have 25 banks and credit unions on the Upstart platform and have a robust and growing list of lenders in our pipeline for the second half of 2021. The launch of new bank partners as well as expansion of lending programs from existing bank partners improves the quality of offers we can make to consumers on Upstart.com. Another important service we provide to banks and to loan buyers is access to liquidity through the capital markets. We do this by managing regular securitizations of loans originated on our platform, where multiple banks and loan buyers contribute to a single shelf under the UPST brand. Our most recent securitization included more than $0.5 billion in collateral originated by three different bank partners, which saw a net execution of about 107%. This extraordinary result can be attributed to strength in the credit markets as well as broad recognition of Upstart's AI-enabled collection. We now have more than 150 institutions who buy Upstart powered loans or bonds. While our partners don't generally rely on securitization for liquidity, we believe the presence of a well-established market for Upstart powered collateral creates value for our partners and confidence in our platform. We have said in the past that auto lending is Upstart's next great opportunity. It's a market at least six times larger than personal loans and at least as inefficient. We're making rapid progress towards this opportunity in several dimensions. We started in January, offering our auto refinance product in a single state, then expanded to 14 states by the end of Q1 and have now expanded to 47 states, covering more than 95% of the U.S. population. We've also improved our funnel conversion rate about 100% since the beginning of the year despite expanding from states with minimal funnel friction to those with the most. This is critical because funnel efficiency is the primary way we'll scale up auto loan originations, just as we've done historically with personal loans. Upstart powered banks have now originated more than 2,000 auto refinance loans in 40 different states. And these loans are beginning to provide the repayment data that is the fuel to our AI models. And lastly, we now have our first five banks and credit unions signed up for auto lending on our platform. We've also made fast progress on our automotive retail solution today known as Prodigy Software. Since the beginning of the year, we have doubled the number of dealerships, also known as rooftops, using Prodigy. And in Q2, more than $1 billion in vehicles were sold through Prodigy. We expect the first Upstart powered loan to be offered through this platform before the end of 2021. Now a bit about the company itself. In June, we announced that Upstart is moving to a digital-first model, where most Upstarters can live and work anywhere in the U.S. We came to this decision for a few reasons. First, we've shown we can work well remotely as a team. The arguments against remote work tend to be historical rather than backed by real facts or data. Second, the tech world feels like it's on a multiyear transition toward work from anywhere, and we want to be ahead of the curve. Third, we believe the benefits of in-office work can be captured in just a few well-considered days together each month. And fourth, given the scale of our ambitions and the talent we need to aggressively pursue our goals, we need to tap into talent across the entire country. The good news is Digital First has paid immediate dividends to our recruiting efforts. Though we announced this plan just a couple of months ago, over one-third of our job offers in the past few weeks have been to candidates outside our footprint. And we've seen an acceptance rate of 80% to these offers, a dramatic improvement over what we've seen historically. Digital First is not just a reaction to the last 1.5 years; it's a sign that we intend to create one of the largest and most impactful fintechs in the world. We're building a company that will be distributed not just physically, but logically, able to pursue multiple markets and business opportunities at the same time. We need extraordinary talent and the leadership to do this right. Digital First will enable us to find that talent wherever it may be. Digital First may help us recruit talent wherever it resides, but it's our culture and mission that will keep it here. We aim to be the go-to employer for those driven to build the most modern of technologies, artificial intelligence to solve one of the most intractable problems, financial inclusion. To do this, Upstart must be widely recognized as a destination company for those destined to have a real impact on the world while experiencing unparalleled career growth. In this theme, we were recently honored to be included in the Gender Diversity Index by State Street Advisors, recognizing Upstart's role as one of the top companies in the U.S. for women in leadership. The exchange-traded fund, which trades under the ticker SHE, helps demonstrate that diversity and strong performance go hand in hand. History has shown that turbulent times can provide the backdrop where next-generation companies emerge. The past 18 months have been just that for Upstart, and our team has risen to the challenge. We have built a strong and profitable core from which we expect to launch several new products and services in the months and years to come. AI lending will transform financial services in the decade ahead and we aim to make Upstart synonymous with that category. Thank you. And I'd like now to turn it over to Sanjay, our Chief Financial Officer, to walk through our Q2 financial results and guidance.

Sanjay Datta, CFO

Thank you, Dave, and thanks to everyone for joining us today. We'll dive straight into our most recent quarterly results. Revenues in Q2 came in at $194 million, up 60% quarter-over-quarter from Q1 of this year. As a side note, we will omit references to year-over-year growth rates for our P&L this quarter as they are all well above 1,000% due to the lapping of last year's pandemic impact. Of that total revenue, $187 million or 97% of the total came in the form of revenue from fees. The volume of transactions across our platform this quarter was approximately 287,000 loans, up 69% quarter-over-quarter, partially driven by a 240 basis point quarter-over-quarter increase in the conversion rate up to 24.4%. The balance of our growth in transaction volume came from an increase in the number of rate requests we received this quarter as our marketing programs scaled in response to the conversion funnel improvements of prior quarters. Our contribution profit, a non-GAAP metric, which we define as revenue from fees, minus variable costs for borrower acquisition, verification and servicing was $96.7 million in Q2, up 73% quarter-over-quarter and representing a 52% contribution margin, up from a margin of 48% in the prior quarter and 32% one year ago. This level of contribution margin remains quite elevated, partially due to the ongoing improvements to our conversion funnel and in part owing to some one-time gains realized in the fair value of our servicing rights due to the updating of certain underlying assumptions. As we have discussed on past earning calls, we continue to expect this level of contribution margin to moderate downwards over the coming quarters as we accelerate investments in marketing and operations. Q2 operating expenses were $158 million, up 49% quarter-over-quarter or 40% quarter-over-quarter when netting out the impact of stock-based compensation. Investment in engineering and R&D remains our priority, growing 66% quarter-over-quarter to $31 million in Q2. General and administrative spend grew slower than revenue in Q2, increasing 29% quarter-over-quarter to $26 million. The other expense categories of sales and marketing and customer operations were largely driven by variable cost increases supporting revenue growth. We expect to temporarily accelerate expenditures in our fixed expense base over the next 3 to 4 quarters as we contemplate large investments in engineering and in scaling up the go-to-market function of our Prodigy platform for auto commerce. Our Q2 GAAP net income was $37.3 million, up from $10.1 million last quarter and from negative $6.2 million in the same quarter of the prior year. Adjusted EBITDA, which we adjust for stock-based compensation, came in at $59.5 million in Q2, up from $21 million last quarter and negative $3.1 million in Q2 of 2020. Adjusted earnings per share for Q2 was $0.62 based on a diluted weighted average share count of 94.8 million. Turning our attention to the balance sheet. We ended the quarter with $618 million in restricted and unrestricted cash, up from $336 million at the end of last quarter. This balance reflects the proceeds from the follow-on stock offering we completed on April 13, which resulted in an additional $265 million raised net of underwriting discounts, as well as the complete paydown of our corporate term loan and revolving debt facilities. In terms of loan assets, we carried an aggregate balance of loans, notes and residuals of $95.3 million, up from $73.2 million in Q1 and down from $148 million at the end of the same quarter in the prior year. As we have previously highlighted, these loan assets represent the totality of the direct exposure we have to credit risk. We'll now turn to our near-term and full year outlook. While we continue to see our contribution margin is slightly above its expected trend line and do anticipate some mild contraction over the coming quarters, we do now expect elevated margins to be more durable than we predicted at the start of the year. With this in mind, for Q3, we are expecting total revenues of $205 million to $215 million, representing a year-over-year growth rate of 221% at the midpoint, contribution margin of approximately 45%, net income of $18 million to $22 million, adjusted net income of $28 million to $32 million, adjusted EBITDA of $30 million to $34 million and a diluted weighted average share count of approximately 94.9 million shares. For the full year of 2021, we now expect revenues of approximately $750 million, representing a growth rate of 221% year-over-year and up from the $600 million that we indicated last quarter. Contribution margin of approximately 45%, up from 42% indicated last quarter and an adjusted EBITDA margin of approximately 17%, up from 10% indicated last quarter. I'd like to reiterate Dave's gratitude to all of the hard-working teams at Upstart whose efforts are propelling our growth in financial outcomes, which continue to exceed our internal expectations. Thanks, and looking forward to seeing everyone again in another 90 days.

Operator, Operator

We'll take our first question from Ramsey El-Assal with Barclays.

Ramsey El-Assal, Analyst

Another strong quarter for us. I wanted to ask about the elements of guidance. Could you clarify what aspects are influenced by the macro or broader loan market recovery, as well as the anticipated improvement in the conversion rate, compared to the potential contributions from auto? I'm trying to understand the factors driving the full year guidance increase.

Sanjay Datta, CFO

Yes, sure. Ramsey, this is Sanjay. Thanks for your questions. So I think in keeping with tradition over the past few quarters, our assumptions around the macro environment are static. Meaning, we're not really predicting either a deterioration or a rebound in the economy with respect to our numbers, we're sort of predicting the status quo, which I guess importantly for us, means credit card balances remain quite low and savings rates remain quite high in the economy. So we're not necessarily predicting a change in either of those statuses. And with respect to auto, we continue to have no meaningful contribution to the economics in fiscal year 2021. So really, everything you're seeing in our guidance is our evolving view of our core personal loan business, how we're seeing the funnel evolving? And obviously, as the second order effect, how our marketing programs are catching up to the efficiency of the funnel.

Ramsey El-Assal, Analyst

Okay. I wanted to ask about conversion rates. That seems to have been a pretty significant driver of the beat this quarter as well as in the past quarters. Could you talk about the pipeline of improvements that you have maybe and the wings there? What should we expect in the third quarter? And sort of what is baked into guidance in terms of that conversion rate?

Dave Girouard, CEO

Ramsey, this is Dave. As always, we have a significant backlog of projects that we are working on to potentially enhance our funnel conversion. Improving our models and the technology that assists borrowers in navigating our funnel is central to our growth. We are anticipating a substantial number of model upgrades, though we can't precisely determine the impact or scale of these changes. This uncertainty is reflected in our guidance, which includes a continuous pipeline of various projects, some of which may have a larger impact while others are smaller. Some initiatives relate to approvals and consumer rates, while others focus on reducing friction. It’s a bit chaotic right now, and we don’t have specific details to share, but I want to emphasize that the team is diligently working on enhancing our models to improve the consumer product and bolster Upstart's overall success.

Ramsey El-Assal, Analyst

And what about what might be baked into guidance?

Sanjay Datta, CFO

Yes. And maybe as part of that, I can just address the initial assumption, Ramsey, which is we did have good continuing progress in terms of our conversion rates on our funnel, we're sort of pushing up against 25% this quarter. But a lot of the growth actually did also come from scaling up our marketing programs to scale up to the past few quarters of gains that we've had. And if you look at the breakdown of those, we see that actually a majority of the growth this quarter sequentially came from the top of the funnel in fact. And so that sort of plays into how we think about things going forward. There was additional gains this quarter on the funnel. And so the conversion rates and in fact, the contribution margins actually went up even though we scaled our marketing campaigns by more than 50% quarter-over-quarter. But a lot of what we're thinking about next quarter and in the back half of the year also has to do with scaling up the marketing programs to continue to catch up for that funnel efficiency. And our historical sort of breakdown between top of funnel and then conversion rate efficiency tends to be about 50-50. And I think that's a rough ballpark for how we're thinking about the back half of the year. Without getting into specific projects, I think that's the rough breakdown in terms of how we see the rest of the growth happening this year.

Operator, Operator

We'll take our next question from Ron Josey with JMP Securities.

Ron Josey, Analyst

The super strong quarter. Dave, you mentioned in your opening remarks, the goal of launching multiple new products for years to come. So maybe this is a little bit of a bigger picture question. But just talk about Upstart's core AI approach, the data corporates that you have as you think about these newer opportunities and verticals that go through? So obviously, we're in personal lines, we're in autos as well. So maybe talk to us a little bit about verticals, remind us there and/or potentially expanding the borrower profile, which I think you mentioned targeting customers previously ignored maybe going further down funnel, if you will? And I have a follow-up.

Dave Girouard, CEO

Yes, absolutely. We see many opportunities ahead of us. What we are developing is a core technology, and we have chosen to initially implement it in the area of unsecured personal loans, which range from $1,000 to $50,000. This platform addresses various consumer needs. However, there is a much larger market out there. Our efforts in auto lending represent our first attempt to apply this technology to secured loans, which have different characteristics and challenges compared to personal loans. These secured loans benefit significantly from our experience in personal lending, which is highly focused on assessing individual creditworthiness. We aim to identify significant market inefficiencies where we can enhance consumer access to capital or credit. We definitely believe there is plenty of potential left in the unsecured lending market, as personal loans serve multiple valuable purposes. We anticipate expanding our personal lending solutions to tackle more issues. In the auto sector, we are just starting to engage in refinancing and hope to enter the purchase side of auto loans by the end of the year to begin funneling loans through that segment. We see great opportunities ahead. The credit problem is far from solved, as many individuals struggle to obtain rates that accurately reflect their risk levels. Therefore, while we plan to diversify beyond personal loans and auto lending, we are also very much focused on exploring the untapped potential within those two areas. Our immediate efforts will be concentrated there, but we are excited about the possibilities for expansion in the future.

Ron Josey, Analyst

Got it. That's super helpful. And just a quick follow-up on Sanjay, to your last answer. I think you talked about marketing and gains in the funnel this quarter. So can you just talk a little more, or please talk a little bit more, about the expansion of the marketing channels? We've relied quite a bit on Credit Karma in the past, and I would love to hear how that's evolving.

Sanjay Datta, CFO

Sure. I want to highlight that we significantly expanded our marketing programs once again. We increased our marketing spend from around $45 million or $46 million last quarter to over $71 million. This represents a growth of more than 50%, and we achieved this while making our programs more efficient. Consequently, our contribution margins actually improved, which is uncommon. This reflects the ongoing strength of our sales funnel.

Operator, Operator

We'll take our next question from John Hecht with Jefferies.

John Hecht, Analyst

I guess maybe moving a little bit just to the other side of the network, is talk about maybe some of the investors. Obviously, the performance of the asset is very strong. But any changes in terms of kind of composition of investors or geographical presence or how the investors are tying into the platform over the past 2 or 3 months?

Sanjay Datta, CFO

John, you're referring to the loan investors?

John Hecht, Analyst

Correct. Yes.

Sanjay Datta, CFO

I think it's important to mention the ongoing expansion of our investor base. We are seeing a lot of new investors joining us as our product and its history mature, and this has been a consistent trend over the past couple of quarters. In terms of geography, we have recently started engaging with international investors. Additionally, the credit markets are currently in a favorable position. Overall, I would describe this as a continuous evolution of a successful program that is expanding.

John Hecht, Analyst

That's helpful. Dave mentioned that some banks have lifted the FICO requirement because they have more confidence in the score. It may seem recent, but that appears to be a positive development. Have you noticed any changes in the market regarding adoption or volumes from those institutions? Do you expect more banks to follow suit?

Dave Girouard, CEO

Yes. I see this as a positive trend we anticipated, which involves banks setting a minimum FICO score for lending, such as requiring a score above 660 or 680. From our perspective, this serves as a protective measure. The model is designed to assess risk and aid in making informed decisions, and while FICO has historically been a strict cutoff, we don’t dictate how banks should structure their credit models. We're open to accommodating their risk management needs. We’re pleased to see that as banks analyze performance over time, they're beginning to trust the model more. FICO is incorporated into the model, but it doesn't serve as an inflexible requirement for loan eligibility. In hindsight, we believe this shift was inevitable, although it has taken time for the industry to evolve, given the strong reliance on FICO in the past. This evolution is beneficial, allowing banks to lend to a broader range of individuals without compromising performance, which remains as good as, or better than before. Overall, we think this trend is advantageous for consumers and forward-thinking banks.

Operator, Operator

We'll take our next question from Pete Christiansen with Citi.

Pete Christiansen, Analyst

Gentlemen, thanks for the questions, and you iterated pretty impressive results there. I wanted to dig into the average loan size a little bit. I know that you called out there was an AI change, which removed the minimum amount? And I guess you could also make the argument that government disbursements have increased savings and sure those are contributors. But I was just curious if there's been any use case changes or any noticeable changes between debt consolidation and perhaps other uses, I don't know, vacation home improvement, et cetera? I'm just curious, if you've seen any underlying developments there? And then I have a follow-up.

Sanjay Datta, CFO

Thank you for the question. This is Sanjay. I don't believe there have been any significant changes in the use cases. Instead, there are several factors internal to our models. The example that Dave mentioned is one instance of something that will slightly shift the mix towards smaller loans. Additionally, there are other adjustments to our model that will increasingly allow us to compete in a broader market over time. This means we are expanding our capabilities into lower segments of the prime spectrum, which will also impact the mix of loan sizes. Furthermore, we believe there are ongoing macroeconomic effects that are harder to quantify. However, since the onset of COVID, we have observed a clear trend that seems to be moderating but is still evident: loan sizes and demand for loans have decreased over the past 18 months.

Pete Christiansen, Analyst

That's helpful. Looking at your supply side, you've clearly expanded your network with investors. In the recent past, there hasn't been enough demand to meet investor requirements for loans. Could you discuss the current supply and demand balance, whether third-party investors are receiving enough supply, and if there are any other constraints?

Sanjay Datta, CFO

We've definitely seen strong growth on the supply side, particularly with an increase in our banking partnerships and investment dollars coming from the institutional market. However, we are still in a similar position as before, where the main challenge for our growth remains in finding borrowers who are economically viable. This still holds true even with the current higher volume.

Operator, Operator

We'll take our next question from Nat Schindler with Bank of America.

Nat Schindler, Analyst

Yes, I would like to address a small point regarding some of my colleagues in the sell side. These results are quite impressive, and we are seeing another strong quarter, although it seems a bit understated when discussing quadruple-digit growth, which might be unprecedented in my career. What stands out even more is that, as you noted earlier, this occurred despite the fact that if you exclude certain factors, last year's Q2 saw a reduction in revenue. However, when comparing it to Q2 of 2019, we are still witnessing fivefold growth from that year. Furthermore, looking at data from TransUnion and other sources related to the personal loan market, it is clear that this market is still experiencing a decline, particularly as credit card balances have decreased. While you mentioned in your forward guidance that you do not foresee any changes to the current situation, I am curious about what your growth might have looked like in a more typical environment, perhaps during the first half of this year, where the personal loan market could have been more robust with higher credit card balances and the influence of stimulus packages potentially reducing the demand for personal loans.

Dave Girouard, CEO

Nat, this is Dave. It's, of course, very difficult to speculate. But for sure, I think what we would say has happened is a shift in leadership and a shift in market share driven by a significant disruption to the market, i.e., the pandemic. And so a difficult time in the market, whether that's a recession or some other kind of event really begins to show the differences between strength in platform. And I think that's really what happened. That really explains the very, very large growth in market share and etc. that happened during this time. So it's a little hard to exactly say what would have happened if there wasn't this disruption. I think we are on a good trajectory. But I do think the nature of the pandemic and the stresses it put on banks and lenders and consumers for time, etc., just the uncertainty of it all sort of leaned into our strengths and gave us a benefit that we might have just taken much longer to get to the position we got ourselves to. So that's how I interpret it. It's really, of course, almost impossible to guess what would have happened if things have been different last year.

Nat Schindler, Analyst

Yes, but I don't think any of your competitors in the fintech space, who also operate fully online, are experiencing similar growth due to the pandemic. I haven't seen anyone growing at 5 times the rate compared to Q2 2019. Clearly, you’re gaining market share, which indicates you have a competitive advantage. How should we approach the normalization process as we transition to a more typical market where the personal loan market is growing instead of the current contraction?

Dave Girouard, CEO

Yes, it’s a bit challenging. We definitely feel there is a headwind affecting the demand for credit, as Sanjay mentioned earlier. We’re uncertain when this might change and we’re not counting on it; we haven’t incorporated any assumptions about it in our forecasts. However, we have seen resilience and responsiveness in our credit, which our banking partners and investors recognized, allowing us to recover more quickly. Once the economy reaches a state considered normalized by everyone—perhaps when unemployment returns to pre-COVID levels—I believe we will see increased activity in the market from all players, including those outside our partnerships and our fintech competitors. I believe there’s a possibility for a boost in demand as consumers start spending more and using credit like they did before the pandemic. However, we also face increased competition from others who are now fully focused on their growth. The overall impact is somewhat difficult for us to determine, but those are the trends we anticipate in the upcoming quarters.

Operator, Operator

Thanks for your question, Nat. I think we have time for one more question.

Operator, Operator

Our final question is from Mike Ng with Goldman Sachs.

Adam Hotchkiss, Analyst

This is Adam Hotchkiss on for Mike. I believe you mentioned auto loans to date. But could you give us a sense for how many of those were during the quarter and how the margin profile of that product compares to the traditional personal loan product. And then on Prodigy, you mentioned you've doubled dealers since the beginning of the year, which seems like a pretty rapid pace of growth there. Could you talk a little bit just about the enterprise sales strategy that's driving that and the sort of the pacing for Prodigy in the back half of the year relative to the first half?

Sanjay Datta, CFO

This is Sanjay. Welcome. Welcome back to the party. I'll take the first question and defer to Dave on the second. But with respect to auto, look, Dave threw out a couple of numbers in terms of our ramp. It's still very early days. Obviously, we're starting to see results and build repayment history. we're starting to sort of improve the funnel sequentially month-over-month. So we're in a good path there, I think. And with respect to margins, I think it's still very early. We're still in the early stages of engaging with banks and engaging with investors and understanding the effects of fees on the conversion funnel and things like that. But I think our expectation remains that the loans are clearly bigger and so there will be a higher dollar revenue per loan. And we're expecting probably a similar dollar contribution profit per loan as we see in personal loans. So the percentages will be a little bit different because the loan size is bigger, but that's our current going assumption.

Dave Girouard, CEO

Yes. Regarding your second question about the go-to-market strategy for the privacy software, we have doubled the number of rooftops since the beginning of the year. The acquisition occurred earlier this year, and we believe Prodigy is an excellent product, albeit with a small team. This area represents a significant investment for us. We have mentioned before that we plan to overspend to develop our go-to-market strategy. The team is essentially an inside sales team focused on high-volume sales. While there are some revenue streams from the product, our main long-term monetization strategy will be through credit offers. Currently, we are concentrating on rapidly scaling that team in both sales and marketing, as well as investing in research and development, as Prodigy has a strong leadership position and is growing quickly with relatively modest teams. We see it as wise to invest further in this area. We are pursuing aggressive goals for the number of rooftops we sign up each quarter, which we are monitoring closely.

Operator, Operator

This does conclude today's question-and-answer session. I would like to turn the conference back to your speakers for any additional or closing remarks.

Dave Girouard, CEO

This is Dave. Just going to wrap up here. And I just want to reiterate, we're obviously pleased with the results. I think they do illustrate the type of company we are building. We think we have an opportunity to build one of the top handful of fintechs in the world because we are in a very, very large space and because we think AI really is the future, it's the most transformational change that's happened in that space. So that's why we're excited. So thanks to all the Upstart team for delivering the results, and thanks for everybody out there for being with us. We look forward to seeing some of you over the next quarter. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.