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Upstart Announces Second Quarter 2022 Results

·18 min read

SAN MATEO, Calif., August 08, 2022--(BUSINESS WIRE)--Upstart Holdings, Inc. (NASDAQ: UPST), a leading artificial intelligence (AI) lending marketplace, today announced financial results for its second quarter of fiscal year 2022 ended June 30, 2022. Upstart will host a conference call and webcast at 1:30 p.m. Pacific Time today. An earnings presentation and link to the webcast are available at ir.upstart.com.

"This quarter’s results are disappointing and reflect a difficult macroeconomic environment that led to funding constraints in our marketplace," said Dave Girouard, co-founder and CEO of Upstart. "In response we’re taking the necessary actions to build a more resilient and committed funding model over time. We're confident that our AI-based risk model is more accurate than ever, and provides the opportunity for long-term, sustainable growth."

Second Quarter 2022 Financial Highlights

  • Revenue. Total revenue was $228 million, an increase of 18% from the second quarter of 2021. Total fee revenue was $258 million, an increase of 38% year-over-year.

  • Transaction Volume and Conversion Rate. Bank partners originated 321,138 loans, totaling $3.3 billion, across our platform in the second quarter, up 12% from the same quarter of the prior year. Conversion on rate requests was 13% in the second quarter of 2022, down from 24% in the same quarter of the prior year.

  • Income (Loss) from Operations. Loss from operations was $(32.1) million, down from $36.3 million the prior year.

  • Net Income (Loss) and EPS. GAAP net loss was $(29.9) million, down from $37.3 million in the second quarter of 2021. Adjusted net income was $1.0 million, down from $58.5 million in the same quarter of the prior year. Accordingly, GAAP diluted loss per share was $(0.36), and diluted adjusted earnings per share was $0.01 based on the weighted-average common shares outstanding during the period.

  • Contribution Profit. Contribution profit was $120.9 million, up 25% year-over-year in the second quarter of 2022, with a contribution margin of 47% compared to a 52% contribution margin in the same quarter of the prior year.

  • Adjusted EBITDA. Adjusted EBITDA was $5.5 million, down from $59.5 million in the same quarter of the prior year. The second quarter 2022 adjusted EBITDA margin was 2% of total revenue, down from 31% in the second quarter of 2021.

  • Share Repurchases. Upstart repurchased 3.5 million shares of UPST totaling approximately $125 million.

Financial Outlook

For the third quarter of 2022, Upstart expects:

  • Revenue of approximately $170 million

  • Contribution Margin of approximately 59%

  • Net Income of approximately $(42) million

  • Adjusted Net Income of approximately $(9) million

  • Adjusted EBITDA of approximately $0

  • Basic Weighted-Average Share Count of approximately 81.8 million shares

  • Diluted Weighted-Average Share Count of approximately 85.5 million shares

Upstart has not reconciled the forward-looking non-GAAP measures above to comparable forward-looking GAAP measures because of the potential variability and uncertainty of incurring these costs and expenses in the future. Accordingly, a reconciliation is not available without unreasonable effort.

Key Operating Metrics and Non-GAAP Financial Measures

For a description of our key operating measures, please see the section titled "Key Operating Metrics" below.

Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section titled "About Non-GAAP Financial Measures" below.

Conference Call and Webcast

  • Live Conference Call and Webcast at 1:30 p.m. PT on August 8, 2022. To access the call in the U.S. and Canada, dial +1 800-289-0720, conference code 2205299, and outside of the U.S. and Canada, dial +1 313-209-5140, conference code 2205299. A webcast is available at ir.upstart.com.

  • Event Replay. To replay the call in the U.S. and Canada, dial +1 888-203-1112 (code 2205299), and outside of the U.S. and Canada, dial +1 719-457-0820 (code 2205299). A call replay is available through August 15, 2022. The webcast will be archived for one year at ir.upstart.com.

About Upstart

Upstart is a leading AI lending marketplace partnering with banks and credit unions to expand access to affordable credit. By leveraging Upstart’s AI marketplace, Upstart-powered banks and credit unions can have higher approval rates and lower loss rates for every race, ethnicity, age, and gender, while simultaneously delivering the exceptional digital-first lending experience their customers demand. More than two-thirds of Upstart loans are approved instantly and are fully automated. Upstart was founded by ex-Googlers in 2012 and is based in San Mateo, California and Columbus, Ohio.

Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to, statements regarding our outlook for the third quarter of 2022. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate", "estimate", "expect", "project", "plan", "intend", "target", "aim", "believe", "may", "will", "should", "becoming", "look forward", "could", "can have", "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements give our current expectations and projections relating to our financial condition; macroeconomic factors; plans; objectives; product development; growth opportunities; assumptions; risks; future performance; business; and any investments; and results of operations, including revenue, contribution margin, net income (loss), non-GAAP adjusted net income, adjusted EBITDA, adjusted EBITDA margin, basic weighted-average share count and diluted weighted-average share count. Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements included in this press release and on the related teleconference call relate only to events as of the date hereof. Upstart undertakes no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. More information about factors that could affect our results of operations and risks and uncertainties are provided in our public filings with the Securities and Exchange Commission, copies of which may be obtained by visiting our investor relations website at www.upstart.com or the SEC’s website at www.sec.gov. These risks and uncertainties include, but are not limited to, our ability to sustain our growth rates; the effectiveness of our credit decisioning models and risk management efforts; overall economic conditions, including interest rate changes; geopolitical events, such as the Russia-Ukraine conflict; disruptions in the credit markets; our ability to retain existing, and attract new, bank partners and lenders; our ability to access sufficient loan funding; and our ability to operate successfully in a highly-regulated industry.

Key Operating Metrics

We review a number of operating metrics, including transaction volume, dollars; transaction volume, number of loans; and conversion rate to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

We define "transaction volume, dollars" as the total principal of loans transacted on our platform between a borrower and the originating bank during the period presented. We define "transaction volume, number of loans" as the number of loans facilitated on our platform between a borrower and the originating bank during the period presented. We believe these metrics are good proxies for our overall scale and reach as a platform.

We define "conversion rate" as the number of loans transacted in a period divided by the number of rate inquiries received that we estimate to be legitimate, which we record when a borrower requests a loan offer on our platform. We track this metric to understand the impact of improvements to the efficiency of our borrower funnel on our overall growth.

About Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States ("GAAP"), we believe the non-GAAP measures of contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted net income per share are useful in evaluating our operating performance. Certain of these non-GAAP measures exclude stock-based compensation and certain payroll tax expense, warrant expenses, depreciation, amortization, and other non-operating expenses. We exclude stock-based compensation and income and expense on warrants and other non-operating expenses because they are non-cash in nature and excluded in order to facilitate comparisons to other companies’ results.

We believe non-GAAP information is useful in evaluating the operating results, ongoing operations, and for internal planning and forecasting purposes. We also believe that non-GAAP financial measures provide consistency and comparability with past financial performance and assist investors with comparing Upstart to other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results. Non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies.

Key limitations of our non-GAAP financial measures include:

  • Contribution Profit is not a GAAP financial measure of, nor does it imply, profitability. Even if our revenue exceeds variable expenses over time, we may not be able to achieve or maintain profitability, and the relationship of revenue to variable expenses is not necessarily indicative of future performance;

  • Contribution Profit does not reflect all of our variable expenses and involves some judgment and discretion around what costs vary directly with loan volume. Other companies that present contribution profit calculate it differently and, therefore, similarly titled measures presented by other companies may not be directly comparable to ours;

  • Although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

  • Adjusted EBITDA excludes stock-based compensation expense and certain employer payroll taxes on employee stock transactions. Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. The amount of employer payroll tax-related expense on employee stock transactions is dependent on our stock price and other factors that are beyond our control and which may not correlate to the operation of the business;

  • Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us;

  • The expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included below.

UPSTART HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

December 31,

June 30,

2021

2022

Assets

Cash

$

986,608

$

790,431

Restricted cash

204,633

123,990

Loans (at fair value)

252,477

623,763

Property, equipment, and software, net

24,259

36,054

Operating lease right of use assets

96,118

90,352

Non-marketable equity securities

40,000

41,000

Goodwill

67,062

67,062

Intangible assets, net

19,906

17,768

Other assets (includes $26,676 and $39,869 at fair value as of December 31, 2021 and June 30, 2022, respectively)

129,392

126,598

Total assets

$

1,820,455

$

1,917,018

Liabilities and Stockholders’ Equity

Liabilities:

Accounts payable

$

6,563

$

22,030

Payable to investors

107,598

105,712

Borrowings

695,432

856,555

Accrued expenses and other liabilities (includes $13,095 and $11,812 at fair value as of December 31, 2021 and June 30, 2022, respectively)

103,418

75,785

Operating lease liabilities

100,366

99,865

Total liabilities

1,013,377

1,159,947

Stockholders’ equity:

Common stock, $0.0001 par value; 700,000,000 shares authorized; 83,659,665 and 82,188,372, shares issued and outstanding as of December 31, 2021 and June 30, 2022, respectively

8

8

Additional paid-in capital

740,849

688,021

Retained earnings

66,221

69,042

Total stockholders’ equity

807,078

757,071

Total liabilities and stockholders’ equity

$

1,820,455

$

1,917,018

UPSTART HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME (LOSS)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2022

2021

2022

Revenue:

Revenue from fees, net

$

187,297

$

258,345

$

303,467

$

572,327

Interest income and fair value adjustments, net

6,649

(30,183

)

11,824

(34,029

)

Total revenue

193,946

228,162

315,291

538,298

Operating expenses:

Sales and marketing

75,916

105,212

125,292

238,661

Customer operations

24,164

51,072

41,552

99,479

Engineering and product development

31,431

57,045

50,419

107,036

General, administrative, and other

26,141

46,940

46,160

90,396

Total operating expenses

157,652

260,269

263,423

535,572

Income (loss) from operations

36,294

(32,107

)

51,868

2,726

Other income (expense)

2

2,260

(5,249

)

138

Net income (loss) before income taxes

36,296

(29,847

)

46,619

2,864

(Benefit) provision for income taxes

(988

)

24

(767

)

43

Net income (loss)

$

37,284

$

(29,871

)

$

47,386

$

2,821

Net income (loss) per share, basic

$

0.49

$

(0.36

)

$

0.63

$

0.03

Net income (loss) per share, diluted

$

0.39

$

(0.36

)

$

0.51

$

0.03

Weighted-average number of shares outstanding used in computing net income (loss) per share, basic

76,674,129

83,833,963

75,160,037

84,031,109

Weighted-average number of shares outstanding used in computing net income (loss) per share, diluted

94,802,123

83,833,963

93,193,153

94,509,060

UPSTART HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Six Months Ended June 30,

2021

2022

Cash flows from operating activities

Net income

$

47,386

$

2,821

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Change in fair value of financial instruments

(4,167

)

49,103

Stock-based compensation

29,808

55,379

Gain on loan servicing arrangement, net

(2,102

)

(17,732

)

Depreciation and amortization

2,799

6,135

Non-cash interest expense

216

1,537

Net changes in operating assets and liabilities:

Purchase of loans for immediate resale

(3,414,231

)

(4,797,036

)

Proceeds from immediate resale of loans

3,414,231

4,797,036

Purchase of loans held-for-sale

(38,311

)

(1,125,765

)

Principal payments received for loans held-for-sale

3,676

66,790

Proceeds from sale of loans held-for-sale

57,183

634,599

Other assets

(19,651

)

13,196

Operating lease liability and right-of-use asset

448

5,265

Accounts payable

3,380

15,079

Payable to investors

31,446

(1,886

)

Accrued expenses and other liabilities

23,785

(24,959

)

Net cash provided by (used in) operating activities

135,896

(320,438

)

Cash flows from investing activities

Purchase of loans held-for-investment

(42,548

)

(13,876

)

Proceeds from sale of loans held-for-investment

9,718

83

Principal payments received for loans held-for-investment

7,488

18,524

Principal payments received for notes receivable and repayments of residual certificates

6,349

3,912

Purchase of non-marketable equity security

(1,000

)

Purchase of property and equipment

(1,997

)

(5,578

)

Capitalized software costs

(2,148

)

(6,829

)

Acquisition, net of cash acquired

(16,561

)

Net cash used in investing activities

(39,699

)

(4,764

)

Cash flows from financing activities

Repurchases of common stock

(125,042

)

Proceeds from secondary offering, net of underwriting discounts, commissions, and offering costs

263,931

Proceeds from borrowings

5,831

261,199

Repayments of borrowings

(62,455

)

(101,613

)

Taxes paid related to net share settlement of equity awards

(236

)

Proceeds from issuance of common stock under employee stock purchase plan

4,431

Proceeds from exercise of stock options

2,932

9,407

Net cash provided by financing activities

210,003

48,382

Change in cash and restricted cash

306,200

(276,820

)

Cash and restricted cash at beginning of period

311,333

1,191,241

Cash and restricted cash at end of period

$

617,533

$

914,421

​​

UPSTART HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In Thousands, Except Share and Per Share Data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2022

2021

2022

Revenue from fees, net

$

187,297

$

258,345

$

303,467

$

572,327

Income (loss) from operations

36,294

(32,107

)

51,868

2,726

Operating Margin

19

%

(12

) %

17

%

0

%

Sales and marketing, net of borrower acquisition costs(1)

$

4,984

$

11,927

$

8,237

$

21,562

Customer operations, net of borrower verification and servicing costs(2)

4,469

6,941

7,595

13,021

Engineering and product development

31,431

57,045

50,419

107,036

General, administrative, and other

26,141

46,940

46,160

90,396

Interest income and fair value adjustments, net

(6,649

)

30,183

(11,824

)

34,029

Contribution Profit

$

96,670

$

120,929

$

152,455

$

268,770

Contribution Margin

52

%

47

%

50

%

47

%

________________

(1)

Borrower acquisition costs were $70.9 million and $93.3 million for the three months ended June 30, 2021 and 2022, respectively, and were $117.1 million and $217.1 million for the six months ended June 30, 2021 and 2022, respectively. Borrower acquisition costs consist of our sales and marketing expenses adjusted to exclude costs not directly attributable to attracting a new borrower, such as payroll-related expenses for our business development and marketing teams, as well as other operational, brand awareness and marketing activities.

(2)

Borrower verification and servicing costs were $19.7 million and $44.1 million for the three months ended June 30, 2021 and 2022, respectively, and were $34.0 million and $86.5 million for the six months ended June 30, 2021 and 2022, respectively. Borrower verification and servicing costs consist of payroll and other personnel-related expenses for personnel engaged in loan onboarding, verification and servicing, as well as servicing system costs. It excludes payroll and personnel-related expenses and stock-based compensation for certain members of our customer operations team whose work is not directly attributable to onboarding and servicing loans.

UPSTART HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In Thousands, Except Share and Per Share Data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2022

2021

2022

Total revenue

$

193,946

$

228,162

$

315,291

$

538,298

Net income (loss)

37,284

(29,871

)

47,386

2,821

Net Income (loss) Margin

19

%

(13

) %

15

%

1

%

Adjusted to exclude the following:

Stock-based compensation and certain payroll tax expenses(1)

$

21,186

$

30,836

$

29,808

$

56,765

Depreciation and amortization

1,983

3,354

2,799

6,135

Expense on convertible notes

13

1,170

31

2,339

(Benefit) provision for income taxes

(988

)

24

(767

)

43

Acquisition-related costs

17

1,237

Adjusted EBITDA

$

59,495

$

5,513

$

80,494

$

68,103

Adjusted EBITDA Margin

31

%

2

%

26

%

13

%

____________

(1)

Excludes the amount of employer payroll tax-related expense on employee stock transactions, as the amount is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.

UPSTART HOLDINGS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In Thousands, Except Share and Per Share Data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2022

2021

2022

Net income (loss)

$

37,284

$

(29,871

)

$

47,386

$

2,821

Adjusted to exclude the following:

Stock-based compensation and certain payroll tax expenses(1)

21,186

30,836

29,808

56,765

Acquisition-related costs

17

1,237

Adjusted Net Income

$

58,487

$

965

$

78,431

$

59,586

Net income (loss) per share:

Basic

$

0.49

$

(0.36

)

$

0.63

$

0.03

Diluted

$

0.39

$

(0.36

)

$

0.51

$

0.03

Adjusted Net Income per Share:

Basic

$

0.76

$

0.01

$

1.04

$

0.71

Diluted

$

0.62

$

0.01

$

0.84

$

0.63

Weighted-average common shares outstanding:

Basic

76,674,129

83,833,963

75,160,037

84,031,109

Diluted

94,802,123

93,340,659

93,193,153

94,509,060

____________

(1)

Excludes the amount of employer payroll tax-related expense on employee stock transactions, as the amount is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220808005712/en/

Contacts

Press
press@upstart.com

Investors
Jason Schmidt
Vice President, investor Relations
ir@upstart.com