Upstart Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Upstart operates an AI-based consumer lending marketplace, connecting borrowers with lending partners and institutional investors. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior year-end |
|---|---|---|
| Total revenue | $127.8 million | $102.9 million, up 24% |
| Revenue from fees, net | $138.1 million | $117.1 million, up 18% |
| Operating loss | $67.5 million | $131.8 million loss |
| Net loss | $64.6 million; $0.74 per diluted share | $129.3 million loss; $1.58 per diluted share |
| Adjusted EBITDA (non-GAAP) | $20.3 million loss; 16% negative margin | $31.1 million loss; 30% negative margin |
| Contribution profit and margin (non-GAAP) | $81.1 million; 59% | $67.6 million; 58% |
| Operating cash flow | $52.6 million provided | $75.7 million used |
| Cash and restricted cash | $439.2 million | $467.8 million at Dec. 31, 2023 |
| Total assets / stockholders’ equity | $1,927.7 million / $612.8 million | $2,017.1 million / $635.3 million at Dec. 31, 2023 |
| Borrowings on balance sheet | $1,005.3 million | $1,040.4 million at Dec. 31, 2023 |
Fee revenue growth was led by platform and referral fees, up 34% to $103.9 million. Servicing and other fees fell 13% to $34.2 million, reflecting lower serviced loan principal and lower gains on servicing rights. Net interest income and fair-value adjustments remained negative at $10.3 million, versus negative $14.2 million a year earlier. The 2024 figure included a $14.0 million loss on beneficial interests.
Operating expenses declined 17% to $195.3 million. Engineering and product development expense fell 43%, chiefly because the prior-year quarter included a $39.0 million accelerated stock-compensation charge related to cancellation of performance-based awards. Stock-based compensation was $35.8 million versus $74.1 million. These factors contributed to the narrower GAAP loss; Upstart remained unprofitable.
Operating cash flow improved year over year, but cash and restricted cash declined by $28.6 million during the quarter. Investing activities used $37.5 million and financing activities used $43.7 million. The company reported $300.5 million of unrestricted cash and $5.0 million of certificates of deposit with maturities over three months. Restricted cash was $138.6 million.
Marketplace activity and material changes
- Transaction volume rose 13% to $1.13 billion; loan count increased 42% to 119,380. Conversion rate improved to 14.0% from 8.2%, and fully automated loans rose to 90% from 84%.
- Management attributed higher transaction volume to increased funding availability from committed capital and other arrangements. Of Q1 loan principal, 44% was purchased by institutional investors, 29% retained by lending partners, and 27% held on Upstart’s balance sheet.
- Loans carried on the balance sheet totaled $1.08 billion, including $394.0 million of research-and-development loans, $529.6 million of core personal loans, and $157.3 million in the consolidated securitization.
- Top three lending partners generated 74% of revenue and originated 88% of loan count. Two customers individually represented 39% and 24% of revenue, respectively, increasing customer-concentration exposure.
- At March 31, borrowings included $351.5 million drawn on warehouse facilities and $661.3 million principal amount of 0.25% convertible notes due August 2026. Warehouse debt bears floating rates. The UAWT auto-loan facility received covenant waivers during the quarter, with the waiver extended through June 14, 2024; the filing says it was operating under the waivers.
Outlook, risks, contingencies, and unusual items
- The filing provides no numerical revenue, earnings, or transaction-volume guidance. Management said it believes cash on hand is sufficient for at least the next 12 months, while noting that future capital needs depend on revenue, working capital, loan purchases, and other factors.
- Management reported UMI of approximately 1.60 at March 31, indicating an estimated 60% incremental macroeconomic risk versus its baseline. Higher borrower rates and reduced borrower acceptance remain concerns. Vintages originated in Q1 2021 through Q3 2023 are forecast to underperform original target returns; Q4 2023 and later vintages are forecast to meet target yields.
- Management said revenue declined compared with Q4 2023, but the provided filing text does not state a clear quarter-over-quarter amount. The company also identifies seasonally lower first-quarter loan demand.
- Subsequent to quarter-end, Upstart reduced its workforce by approximately 10%. It estimates about $4 million of charges in Q2 2024 and expects approximately $20 million of annual operating savings. The filing also reports an April 24 amendment increasing the uncommitted portion of the ULT warehouse facility from $75 million to $150 million.
- Committed capital and co-investment arrangements exposed $169.6 million of company capital to credit performance. The estimated value of these arrangements was $156.2 million, with a potential realization range of $0 to $333.1 million; expected cash requirements over the next 12 months were $5.4 million.
- The company disclosed a pending securities class action and related derivative litigation; it cannot estimate reasonably possible losses. It recorded an immaterial legal contingency. The SEC subpoenaed the company in November 2023 for documents and information concerning disclosures, including AI models and loans; Upstart is cooperating and cannot predict the outcome.
- Fair-value estimates for loans and other instruments rely substantially on Level 3 inputs, including credit losses, discount rates, and prepayments. The filing identifies sensitivity to adverse changes in these assumptions. Other key risks include constrained funding, credit performance, reliance on major partners, regulatory scrutiny of AI and bank-partnership lending, and warehouse-facility covenants.
Important facts for investors to verify
- Whether loan funding, partner participation, and balance-sheet loan holdings remain sustainable, and whether Upstart can reduce its reliance on its own capital.
- Subsequent credit performance and fair-value assumptions for loans and beneficial interests, including the underperforming 2021–2023 vintages.
- Status of the UAWT covenant waiver after June 14, 2024, and availability and terms of warehouse funding.
- Progress and realized savings from the post-quarter workforce reduction, alongside its severance costs and operational effects.
- Developments in the SEC inquiry, securities and derivative litigation, and evolving consumer-lending and AI regulation.
- Cash generation and liquidity after restricted cash, loan purchase commitments, co-investment exposure, and the 2026 convertible-note maturity are considered.