Upstart Holdings, Inc. (UPST) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights several positive factors: strong financial metrics, strategic partnerships, and optimistic guidance for future profitability. The company is focusing on AI leadership and funding supply preparation, which are expected to drive growth. Despite a negative net income guidance for Q2, the optimistic full-year guidance for 2025 suggests a positive long-term outlook. The Q&A session revealed management's strategic approach to competition and funding, which should reassure investors. Given the company's market cap and strategic initiatives, a positive stock price movement of 2% to 8% over the next two weeks is anticipated.
Key Financial Performance
Revenue Total revenue for Q2 came in at approximately $257 million, up 102% year-on-year. This included revenue from fees of approximately $241 million, which was up 84% year-on-year. The increase was largely driven by the influence of Model 22 and transactional revenue more than doubling year-on-year.
Net Interest Income Net interest income represented roughly $17 million of overall revenue, ahead of guidance by $2 million. This reflects the growing volume of new products being incubated on the balance sheet, particularly the Auto book of loans where return on investment has strengthened.
Loan Originations Originations on the Upstart platform in Q2 were $2.8 billion, the highest volume in 3 years. This represents a significant increase driven by model improvements and higher conversion rates from 19% in Q1 to 24% in Q2.
Auto Business Growth The Auto business grew 87% sequentially, driven by improved focus on financing processes and increased dealership adoption.
Home Business Growth The Home business grew 67% sequentially, supported by advancements like instant property verification, which streamlined the loan process.
Small Dollar Loans Small dollar loans grew 40% sequentially, contributing to the overall growth of newer products.
Contribution Margin Contribution margin came in at 58% in Q2, up 3 percentage points from the prior quarter. This improvement reflects a strengthening take rate in the core borrower segment and operational unit cost efficiencies driven by Model 22.
GAAP Net Income Q2 GAAP net income was approximately positive $6 million, marking a return to GAAP profitability for the first time since Q2 2022. This was achieved through strong revenue performance and tightly managed fixed costs.
Adjusted EBITDA Adjusted EBITDA was $53 million, reflecting scaling in accordance with operating leverage.
Loan Transactions The volume of loan transactions across the platform was approximately 373,000, up 159% from the prior year and 55% sequentially. This represented just over 250,000 new borrowers.
Delinquency Rates Year-over-year population-adjusted delinquency rates are down 20%, and raw delinquency rates are down 32%, driven by servicing optimizations and machine learning advancements.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Home and Auto Businesses: Both businesses accelerated growth significantly in Q2, with Auto growing 87% sequentially and Home growing 67% sequentially. Newer products collectively drove almost 20% of new borrowers on the platform.
Small Dollar Loans: Grew 40% sequentially in Q2, crossing $100 million in quarterly originations.
Auto Retail Product: Gained significant traction with increased dealership adoption and a steep climb in loan requests and closed agreements.
HELOC (Home Equity Line of Credit): Launched instant property verification, enabling the entire verification process to be completed in under 1 minute.
Funding Partnerships: Reached a new all-time high for monthly available funding in Q3, surpassing the prior peak from early 2022. Closed a second ABS deal in 2025 with improved execution and increased investor participation.
Market Share Leadership: Focused on achieving market share leadership in Home and Auto product categories, which have expanded Upstart's TAM by more than 10x.
Model 22: Launched in early May, driving conversion rates from 19% in Q1 to 24% in Q2. Increased separation accuracy advantage by 17 percentage points.
Operational Efficiencies: Reduced borrower pricing latency by up to 17 seconds and achieved a 32% reduction in raw delinquency rates year-over-year.
Servicing Improvements: Optimized payment processes, reducing delinquency rates and improving loan loss rates.
AI Leadership: Committed to 10x leadership in AI, with advancements in generative AI tools for internal operations and borrower-facing applications.
Third-Party Funding Transition: Aiming to transition most funding for new products off the balance sheet by the end of 2025.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Funding for New Products: The company is in a transitional period where new products are being incubated on the balance sheet, leading to a temporary expansion of balance sheet usage. There is a risk if third-party funding commitments are not secured in time, which could strain financial resources.
Unit Economics of New Products: The newer Home and Auto products still have immature unit economics, which could impact profitability if not improved as they scale.
Macroeconomic Environment: Although the macro environment has been stable, inflation and unpredictable policy shifts remain near-term risks that could impact credit trends and financial performance.
Operational Efficiency: While the company has made progress in streamlining costs, there is ongoing pressure to maintain operational efficiency as new products scale and require additional resources.
Regulatory Risks: The company operates in a highly regulated industry, and any changes in regulatory requirements could impact operations and financial performance.
Competition in AI Lending: The company faces competitive pressures in the AI lending space, which could impact its ability to maintain market share and achieve strategic objectives.
Servicing and Delinquency Rates: Although improvements have been made, delinquency rates and servicing challenges remain areas of focus, as they directly impact loan loss rates and financial performance.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Projections: For Q3 2025, total revenues are expected to be approximately $280 million, consisting of $275 million from fees and $5 million from net interest income. For the full year 2025, total revenues are projected to be approximately $1.055 billion, with $990 million from fees and $65 million from net interest income.
Profitability Outlook: GAAP net income for Q3 2025 is expected to be approximately $9 million, while adjusted net income is projected at $44 million. For the full year 2025, GAAP net income is expected to be $35 million, with an adjusted EBITDA margin of approximately 20%.
Contribution Margin: Contribution margin for Q3 2025 is expected to remain robust at approximately 58%.
Funding and Capital Plans: The company plans to transition most of the funding for new products off its balance sheet by the end of 2025. Efforts to secure external capital for these initiatives are underway.
Product Growth and Market Share: The company aims for market share leadership in Home and Auto product categories, which have expanded Upstart's total addressable market (TAM) by more than 10x. The Home business is on track to build a best-in-class HELOC experience, and the Auto Retail product has gained significant traction with dealerships.
AI and Model Enhancements: Continued investment in AI and model improvements, including Model 22, is expected to drive higher approval rates, better conversion rates, and improved credit performance. The company plans to 10x its leadership in AI in 2025.
Macroeconomic Assumptions: The company assumes a steady macroeconomic environment with stable interest rates, a resilient labor market, and inflation as a near-term risk.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
The selected topic was not discussed during the call.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you discuss the health of the ABS market and any appetite for equity tranche investments? Also, are you seeing competitive pressure in the near prime and prime loan platform space?
A:Sanjay Datta mentioned that the ABS market has returned to a somewhat regular issuance cadence, with the bond market being constructive. However, the equity tranche market is opportunistic and not as efficient. David Girouard noted that improved funding and capital markets have increased competition in the space, but the company remains focused on having the best offers and growing market share.
Q:What is the timeline for transitioning loans on the balance sheet to external funding, and what pace of decline should we expect?
A:Sanjay Datta stated that the transition to external funding is expected to occur between now and the end of the year. The pace of decline will depend on new originations and deals with third-party capital, with the balance sheet starting to release over the next couple of quarters.
Q:Why did the super prime percentage of loans decline quarter-over-quarter?
A:Sanjay Datta explained that the decline is not due to any specific factor but reflects the growth in both core and super prime segments. The company is building depth in super prime funding to scale while keeping prices competitive.
Q:What drove the improvement in contribution margin versus guidance?
A:Sanjay Datta attributed the improvement to a mix benefit from more core borrower segment loans versus super prime, improved contribution margins within the core segment, and better take rates due to an improved model and cost optimizations.
Q:What macro assumptions are factored into the guidance, and why does Q4 guidance appear unchanged relative to consensus?
A:Sanjay Datta stated that the guidance assumes a status quo macro environment, with no significant changes in UMI, interest rates, or labor market conditions. The Q4 guidance reflects less line of sight into specific projects compared to Q3.
Q:What could make the UMI go up or down throughout the year?
A:Sanjay Datta mentioned that UMI could improve with better savings rates and consumption patterns, while factors like reacceleration in inflation or significant unemployment could increase UMI.
Q:Why is the average loan size and take rate drifting down in the core personal loan product?
A:David Girouard explained that the decline is due to the rapid growth of the small dollar product, which attracts new users and allows for cross-selling to other products. This is part of a strategic shift to diversify the product mix.
Q:How does competition in new products like HELOC and Auto compare to the core personal loan product?
A:David Girouard noted that while underwriting is a key differentiator in unsecured loans, the focus in HELOC and Auto is on creating a differentiated experience and reducing origination costs. These products have lower loss rates and are more process-driven.
Q:What is the funding strategy for newer products like Home and Auto?
A:David Girouard stated that funding will come from a mix of banks, credit unions, and institutional capital. Depository capital will likely play a larger role in these products compared to unsecured loans.
Q:What impact will the new model launched in May have on conversion rates?
A:David Girouard mentioned that while the new model has improved conversion rates, the company often adjusts conversion rates to balance growth and efficiency. No specific forecast for conversion rates was provided.
Q:What is the status of the Walmart partnership?
A:David Girouard stated that the Walmart partnership has been successful but did not provide any new updates.
Q:How are approval and acceptance rates contributing to conversion rates, and what borrower profiles are being approved under the new model?
A:Paul Gu explained that conversion rates are a product of approval and acceptance rates. The new model identifies subtle relationships in data to approve borrowers who are more likely to repay, without focusing on specific borrower profiles.
Q:How should we interpret the slide on co-invested value versus assessed value, and where does outperformance show up in the financials?
A:Sanjay Datta explained that the slide shows the ramping phase of co-investments, with assessed value expected to grow over time. Outperformance will show up in fair value improvements or net interest income.
Q:How does the company compete with deposit-funded competitors like SoFi or LendingClub?
A:David Girouard stated that about 25% of loans are funded by deposits from bank and credit union partners. Non-depository capital is also becoming more competitive, narrowing the gap with deposit-funded competitors.
Q:What impact would interest rate reductions have on the business?
A:Sanjay Datta stated that lower interest rates would reduce borrowing costs for consumers, improve conversion rates, and positively impact the business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the Walmart partnership and did not forecast future conversion rates. Additionally, they did not decompose approval and acceptance rates or provide specific borrower profiles benefiting from the new model.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Day
Division Kyle
Founder CTO
Head Investor
Home Auto
Inc Research
LLC Research
Model
Research Division
Securities
Upstart platform
advantage
application
auto model
business dollar
category AI
class
core underwriting
credit model
dealership
decision
delinquency rate
developer
focus
funding partnership
generalization
model credit
optimization
property verification
team
textbook credit
use network
win product
work cost
UPST Transcript
Upstart Holdings, Inc. (UPST) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A indicate strong financial metrics and optimistic guidance. The company is focusing on AI enhancements and new product growth, which are expected to drive market share leadership. Despite some model conservatism impacting conversion rates, credit performance remains strong. The positive sentiment is bolstered by a robust shareholder return plan and strategic partnerships, suggesting a likely positive stock price movement over the next two weeks.
Upstart Holdings, Inc. (UPST) Presents At Goldman Sachs Communicopia + Technology Conference 2025 Transcript
Neutral9-8
Upstart Holdings, Inc. (UPST) Q2 2025 Earnings Call Transcript
Positive8-5
The earnings call highlights several positive factors: strong financial metrics, strategic partnerships, and optimistic guidance for future profitability. The company is focusing on AI leadership and funding supply preparation, which are expected to drive growth. Despite a negative net income guidance for Q2, the optimistic full-year guidance for 2025 suggests a positive long-term outlook. The Q&A session revealed management's strategic approach to competition and funding, which should reassure investors. Given the company's market cap and strategic initiatives, a positive stock price movement of 2% to 8% over the next two weeks is anticipated.
Upstart Holdings, Inc. (UPST) Bank of America Global Technology Conference (Transcript)
Neutral6-3
UPST Slides
UPST Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
