Upstart Holdings Inc

Previous wording

We believe that banks and other traditional lenders will continue to be at the forefront of consumer lending in the United States. We believe AI lending will become increasingly critical as this industry continues to undergo a broad digital transformation. Our strategy is to partner with banks and credit unions and provide them with access to an AI lending marketplace that they can configure as they originate consumer loans under their own brand, according to their own business and regulatory requirements.

Current wording

We believe that banks and other traditional lenders will continue to be at the forefront of consumer lending in the United States. We believe AI lending will become increasingly critical as this industry continues to undergo a broad digital transformation. Our strategy is to partner with banks and credit unions and provide them with access to an AI lending marketplace that they can configure as they originate consumer loans, according to their own business and regulatory requirements.

Previous wording

Loans issued through our marketplace are retained by our lending partners, purchased by our network of institutional investors, or funded by Upstart’s balance sheet. Investors may also invest in Upstart-powered loans through our pass-through and securitization programs.

Current wording

Loans issued through our marketplace are retained by our lending partners, purchased by our network of institutional investors, or funded by Upstart’s balance sheet. Investors may also invest in Upstart-powered loans through our pass-through and securitization programs. We believe that institutional investors, often referred to as “private credit,” have played an increasingly large role in financing consumer lending in the United States and we have adapted our strategy to take advantage of this opportunity.

Previous wording

Out of the total principal of loans transacted on our marketplace during the nine months ended September 30, 2024, 67% were purchased by institutional investors, 25% were retained by our lending partners, and 8% were held on our balance sheet. We retain loans on our balance sheet to fill gaps in investor demand, to aid in price discovery, and for research and development purposes (“R&D Loans”), including to test and evaluate our AI models for these loans. R&D Loans are primarily our auto refinance and auto retail loan products, personal loan products issued to new categories of borrowers, and other new loan products, including small dollar loans and HELOCs. R&D Loans are not yet part of our fully-established capital markets programs with institutional investors and we continue our work on developing such programs. The remainder of loans on our balance sheet represent core personal loans, which Upstart would sell to institutional investors.

Current wording

Out of the total principal of loans transacted on our marketplace during the three months ended March 31, 2025, 60% were purchased by institutional investors, 29% were retained by our lending partners, and 11% were held on our balance sheet. We retain loans on our balance sheet to fill gaps in investor demand, to aid in price discovery, and for research and development purposes (“R&D Loans”), including to test and evaluate our AI models for these loans. R&D Loans are primarily our auto refinance and auto retail loan products, personal loan products issued to new categories of borrowers, and other new loan products, including small dollar loans and HELOCs. R&D Loans are not yet part of our fully-established capital markets programs with institutional investors and we continue our work on developing such programs. The remainder of loans on our balance sheet represent core personal loans, which Upstart would sell to institutional investors.

Previous wording

To improve the loan funding capacity for our marketplace across business and macroeconomic cycles, we have secured multiple committed capital and other co-investment arrangements with institutional investors and other third-parties beginning in 2023 which have delivered a significant amount of loan funding to the Upstart marketplace. We continue our work on expanding the loan funding capacity for our marketplace.

Current wording

To improve the loan funding capacity for our marketplace across business and macroeconomic cycles, we have secured multiple committed capital and other co-investment arrangements with institutional investors and lending partners beginning in 2023, which have delivered a significant amount of loan funding to the Upstart marketplace. While these efforts have strengthened the amount and resiliency of our loan funding, we continue to secure additional capital to support the growth of our business and further diversify our sources of capital and institutional investor base to ensure long-term scalability.

Previous wording

Lending is a cyclical industry, and we believe it is important to take a long-term view of credit performance. An equal investment in all vintages of Upstart-powered core personal loans that originated in the first quarter of 2018 through the first quarter of 2024 is currently expected to deliver returns in line with a blended target of 9.5%.

Current wording

Lending is a cyclical industry, and we believe it is important to take a long-term view of credit performance. An equal investment in all vintages of Upstart-powered core personal loans that originated in the first quarter of 2018 through the fourth quarter of 2024 is currently expected to deliver annual returns in line with a blended target of approximately 9.7%, or 9.0% after servicing fees. Looking at more recent performance, an equal investment in all vintages of Upstart-powered core personal loans that originated in the first quarter of 2023 through the fourth quarter of 2024 is currently expected to deliver annual returns in line with a blended target of approximately 13.0%, or 12.2% after servicing fees.

Previous wording

We evaluate the credit performance of core personal loans by comparing the target returns expected at the time of origination to the returns received by our lending partners and institutional investors. The target return, a critical component of our loan pricing, is calculated using estimated cash flows, which are developed based on a number of factors, including credit losses and prepayment rates. While target returns across our lending partners and institutional investors vary depending on their programs’ objectives and risk tolerance, overall performance is calculated based on the variance between the initially expected returns and the actual return on capital invested in Upstart-powered loans.

Current wording

We evaluate the credit performance of core personal loans by comparing the target returns expected at the time of origination to the returns received by our lending partners, institutional investors, or us. The target return, a critical component of our loan pricing, is calculated using estimated cash flows, which are developed based on a number of factors, including credit losses and prepayment rates. While target returns across our lending partners and institutional investors vary depending on their programs’ objectives and risk tolerance, overall performance is calculated based on the variance between the initially expected returns and the actual return on capital invested in Upstart-powered loans.

Previous wording

However, the quarterly vintages of core personal loans that originated in the first quarter 2021 through the fourth quarter 2023 are currently forecasted to underperform relative to their target returns. Even though our underwriting models have over time utilized more variables and data points about borrowers which has improved model performance, they were not designed to predict the severe impact of recent changes to macroeconomic conditions, credit market volatility and interest rate fluctuations that have occurred, all of which were (and still are) beyond our control. The forecasted underperformance for these vintages reflects the impact of a combination of factors that occurred during that period, including the elimination of government stimulus measures and the worsening of the macroeconomic environment, via rising inflation and the resulting sharply higher interest rates.

Current wording

At a more granular level, all quarterly vintages of core personal loans that originated in the first quarter of 2023 through the first quarter of 2024 are currently forecasted to underperform relative to their target returns. Even though our underwriting models have over time utilized more variables and data points about borrowers which has improved model performance, they were not designed to predict the severe impact changing macroeconomic conditions, credit market volatility and interest rate fluctuations that occurred following the COVID-19 pandemic, all of which were (and still are) beyond our control. The forecasted underperformance for these vintages reflects the impact of a combination of factors that occurred during that period, including the elimination of government stimulus measures and the worsening of the macroeconomic environment, via rising inflation and the resulting sharply higher interest rates.

Previous wording

The core personal loans that originated in the first quarter of 2024 or later are currently forecasted to deliver returns in line with target yields. This reversion in performance, relative to the quarterly vintages of core personal loans that originated in the first quarter 2021 through the fourth quarter 2023, was driven by a combination of factors including increased conservatism in underwriting and the relative stabilization of macroeconomic conditions, as reflected in the UMI, which has helped credit perform in line with our models’ predictions as there has been less unexpected volatility in macroeconomic factors impacting loan performance. Our most recent AI models also benefited from more data on borrower repayment patterns from the period of significant macroeconomic changes. This resulted in substantive positive changes in observed and expected borrower repayments even for vintages with limited seasoning. This makes our more recent models more accurate than those used in early 2021. Refer to section “Factors Affecting Our Performance - Impact of Macroeconomic Environment” for additional details.

Current wording

The core personal loans that originated in the second quarter of 2024 or later are currently forecasted to deliver returns in line with target yields. This reversion in performance, relative to the quarterly vintages of core personal loans that originated in the first quarter 2023 through the first quarter 2024, was driven by a combination of factors including increased conservatism in underwriting, the relative stabilization of macroeconomic conditions, and improvements in our more recent models.

Previous wording

In an economic downturn, we believe consumer lending will generally contract. Lending partners and institutional investors will generally require higher rates of return, which in turn increases the interest rates offered to borrowers, leading to lower borrower demand. Macroeconomic factors can also cause fluctuations of available capital in our lending marketplace due to shifts in the risk preferences of our lending partners and institutional investors. We expect these dynamics would generally invert in an economic upswing.

Current wording

In addition to impacting credit performance, the macroeconomic environment has a direct and indirect impact on our business financial condition, and results of operation. In an economic downturn, we believe consumer lending will generally contract. Lending partners and institutional investors will generally require higher rates of return, which in turn increases the interest rates offered to borrowers, leading to lower borrower demand. Macroeconomic factors can also cause fluctuations of available capital in our lending marketplace due to shifts in the risk preferences of our lending partners and institutional investors. We expect these dynamics would generally invert in an economic upswing.

Previous wording

Our credit decisioning process takes into account macroeconomic conditions data, such as unemployment levels and personal savings rates, that we receive from third-party sources. To respond to macroeconomic changes and provide relevant and up-to-date information to our lending partners, we introduced a new metric, UMI, in 2023. UMI is designed to quantify the level of underlying macroeconomic risk, specific to our borrower base, relative to a benign credit environment. A UMI of 1.0 reflects loan losses at this baseline rate. We subsequently launched an update to UMI which removes seasonal patterns to better describe the underlying macroeconomic effects. As of September 30, 2024, UMI was measured at approximately 1.52, meaning that current macroeconomic conditions contributed an incremental risk of approximately 52% to the repayment performance of an Upstart-powered unsecured personal loan, compared to the baseline.

Current wording

To respond to macroeconomic changes and provide relevant and up-to-date information to our lending partners, we introduced a new metric, the Upstart Macro Index (“UMI”), in 2023. Since its peak starting in the fourth quarter of 2023, UMI has been largely improving. As of March 31, 2025, it remains elevated but stable, measured at approximately 1.49, meaning that current macroeconomic conditions contributed an incremental risk of approximately 49% to the repayment performance of an Upstart-powered unsecured personal loan, compared to the baseline measurement of 1.0.

Previous wording

We define Transaction Volume, Dollars as the total principal of loan originations (or committed amounts for HELOCs) facilitated on our marketplace during the periods presented. We define Transaction Volume, Number of Loans as the number of loan originations (or commitments issued for HELOCs) facilitated on our marketplace during the periods presented. Increases in Transaction Volume are dependent on our loan funding programs having sufficient access to capital. Decreases in the availability of funding due to factors such as volatility in the capital markets and macroeconomic conditions will generally cause a decline in Transaction Volume. Transaction Volume is driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction Volume can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. We believe these metrics are good proxies for our overall scale and reach as a marketplace. Transaction Volume, Dollars increased 30% in the three months ended September 30, 2024 compared to the same period of 2023, and increased 13% in thenine months ended September 30, 2024 compared to the same period of 2023. Transaction Volume, Number of Loans increased 64% and 47% in the three and nine months ended September 30, 2024 compared tothe same period of 2023, respectively. These increases were primarily due to model improvements and product initiatives, resulting in an increase in the number of qualified borrowers. The increase in Transaction Volume, Number of Loans was higher than the increase in Transaction Volume, Dollars due to the decrease in average loan size, primarily due to the increase in small dollar loans.

Current wording

We define Transaction Volume, Dollars as the total principal of loan originations (or committed amounts for HELOCs) facilitated on our marketplace during the periods presented. We define Transaction Volume, Number of Loans as the number of loan originations (or commitments issued for HELOCs) facilitated on our marketplace during the periods presented. Increases in Transaction Volume are dependent on our loan funding programs having sufficient access to capital. Decreases in the availability of funding due to factors such as volatility in the capital markets and macroeconomic conditions will generally cause a decline in Transaction Volume. Transaction Volume is driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction Volume can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. We believe these metrics are good proxies for our overall scale and reach as a marketplace. Transaction Volume, Dollars increased 89% in thethree months ended March 31, 2025 compared to the same period of 2024 and Transaction Volume, Number of Loans increased 102% in the three months ended March 31, 2025 compared to thesame period of 2024. These increases were primarily due to model improvements and product initiatives, which resulted in an increase in the number of qualified borrowers and more attractive loan offers. The increase in Transaction Volume, Number of Loans was higher than the increase in Transaction Volume, Dollars due to the decrease in average loan size, primarily due to the increase in small dollar loans.

Previous wording

We define Conversion Rate as the Transaction Volume, Number of Loans 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. Historically, our Conversion Rate has benefited from improvements to our technology, which have made our evaluation of risk more accurate and our verification process more automated, or from the addition of lending partners that have made our offers more competitive. However, our Conversion Rate can be impacted by a variety of internal factors such as changes in the amount of origination fees that we charge or changes in the rate of returns we target for our lending partners and institutional investors. External factors such as shifts in macroeconomic conditions, including interest rate changes, also impact our Conversion Rate. Our ability to continue to improve our Conversion Rate depends in part on our ability to continue to improve our AI models and Percentage of Loans Fully Automated and the mix of marketing channels in any given period. Our Conversion Rate increased to 16.3% and 15.3% in the three and nine months ended September 30, 2024, respectively, from 9.5% and 9.1% in the same periods of 2023, primarily driven by underwriting model improvements and new product initiatives, coupled with continued optimization in our acquisition channels.

Current wording

We define Conversion Rate as the Transaction Volume, Number of Loans 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. Historically, our Conversion Rate has benefited from improvements to our technology, which have made our evaluation of risk more accurate and our verification process more automated, or from the addition of lending partners that have made our offers more competitive. However, our Conversion Rate can be impacted by a variety of internal factors such as changes in the amount of origination fees that we charge or changes in the rate of returns we target for our lending partners and institutional investors. External factors such as shifts in macroeconomic conditions, including interest rate changes, also impact our Conversion Rate. Our ability to continue to improve our Conversion Rate depends in part on our ability to continue to improve our AI models and Percentage of Loans Fully Automated and the mix of marketing channels in any given period. Our Conversion Rate increased to 19.1% in the three months ended March 31, 2025 from 14.0% in the same period of 2024, primarily driven by underwriting model improvements and product and pricing initiatives, coupled with continued optimization in our acquisition channels.

Previous wording

A driver of our Contribution Margin and operating efficiency is the Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period. We have been successful in increasing the level of loan automation on the platform over the past few years while simultaneously holding fraud rates constant and at very low levels. We believe our growth over the last several years has been driven in part by our ability to rapidly streamline and automate the loan application and origination process on our platform. We expect growth of the Percentage of Loans Fully Automated to subside in the near term. However, as we expand our loan offerings, this percentage may fluctuate from period to period depending on the loan offering mix and other external factors. Our Percentage of Loans Fully Automated increased to 91% in both three and nine months ended September 30, 2024, respectively, from 88% and 87% in the same periods of 2023.

Current wording

A driver of our Contribution Margin and operating efficiency is the Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period. We have been successful in increasing the level of loan automation on the platform over the past few years while simultaneously holding fraud rates at very low levels. We believe our growth over the last several years has been driven in part by our ability to rapidly streamline and automate the loan application and origination process on our platform. We expect growth of the Percentage of Loans Fully Automated to subside in the near term. However, as we expand our loan offerings, this percentage may fluctuate from period to period depending on the loan offering mix and other external factors. Our Percentage of Loans Fully Automated increased to 92% in the three months ended March 31, 2025 from 90% in the same period of 2024.

Previous wording

Contribution Profit and Contribution Margin have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Contribution Profit and Contribution Margin are not GAAP financial measures of, nor do they 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 and Contribution Margin do not reflect all of our variable expenses and involve some judgment and discretion around what costs vary directly with loan volume. Other companies that present contribution profit and contribution margin may calculate it differently and, therefore, similarly titled measures presented by other companies may not be directly comparable to ours.

Current wording

Contribution Profit and Contribution Margin have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Contribution Profit and Contribution Margin are not GAAP financial measures of, nor do they 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 and Contribution Margin reflect all expenses that we consider to be variable, which may involve some judgment and discretion around what costs vary directly with loan volume. Other companies that present contribution profit and contribution margin may calculate it differently and, therefore, similarly titled measures presented by other companies may not be directly comparable to ours.

Previous wording

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income from operations to Contribution Profit.

Current wording

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss from operations to Contribution Profit.

Previous wording

We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expenses as well as certain items that are not related to core business and ongoing operations, such as gain on debt extinguishment and reorganization expenses. Adjusted Net Income (Loss) Per Share is calculated by dividing Adjusted Net Income (Loss) Per Share by the weighted-average common shares outstanding. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income (loss) to Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share.

Current wording

We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share are useful measures for investors in evaluating our ability to generate earnings, more readily comparable between past and future periods, and provide comparability of our performance with performance of other companies. We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expenses as well as certain items that are not related to core business and ongoing operations, such as gain on debt extinguishment and reorganization expenses. Adjusted Net Income (Loss) Per Share is calculated by dividing Adjusted Net Income (Loss) Per Share by the weighted-average common shares outstanding. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income (loss) to Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share.

Previous wording

Other income, net primarily consists of dividend income earned by the Company on its unrestricted cash balances in addition to coupon interest expense and amortization of the debt discount on our Notes.

Current wording

Other income, net primarily consists of dividend income earned by the Company on its unrestricted cash and cash equivalents balances in addition to coupon interest expense and amortization of the debt discount on our Notes.

Previous wording

Revenue from fees, net increased $20.8 million, or 14%, in the three months ended September 30, 2024, compared to the same period in 2023, which included an increase of $21.8 million in revenue from platform and referral fees, net, and a decrease of $0.9 million in servicing fees, net. The increase of the platform and referral fees, net was primarily driven by a 30% increase in the Transaction Volume, Dollars from $1,219.3 million in the three months ended September 30, 2023 to $1,582.3 million in the same period in 2024, partially offset by a decrease in prices of our services over the same period. The decrease in servicing fees was primarily due to a decrease in outstanding principal of serviced loans.

Current wording

Revenue from fees, net increased $47.4 million, or 34%, in the three months ended March 31, 2025, compared to the same period in 2024, which included an increase of $47.1 million in revenue from platform and referral fees, net, and an increase of $0.3 million in servicing fees, net. The increase of the platform and referral fees, net was primarily driven by a 89% increase in the Transaction Volume, Dollars from $1,130.8 million in the three months ended March 31, 2024 to $2,133.6 million in the same period in 2025, partially offset by a decrease in prices of our services, including those related to prime borrowers. The increase in servicing fees was primarily due to an increase in outstanding principal of serviced loans.

Previous wording

(1)Consist of balances recognized by entities participating in ongoing operating activities of the Company, excluding entities associated with the UPST 2023-2 consolidated securitization.

Current wording

(1)Consists of balances recognized by entities participating in ongoing operating activities of the Company, excluding entities associated with the UPST 2023-2 consolidated securitization.

Previous wording

Interest income, interest expense, and fair value adjustments, net increased $6.7 million, or 55% in the three months ended September 30, 2024, compared to the same period in 2023. The increase was driven by a $5.0 million decrease in unfavorable fair value adjustments and a $3.2 million increase in interest income, partially offset by a $1.4 million increase in interest expense. The decrease in unfavorable fair value adjustments is primarily attributable to a $6.2 million decrease in fair value loss on beneficial interests, partially offset by a $1.2 million increase in unrealized loss and loan charge-offs during the three months ended September 30, 2024 compared to the same period in 2023. The increase in interest income resulted from a $6.5 million increase in interest income recognized by operating entities, partially offset by a $3.3 million decrease in interest income recognized by consolidated securitization entities, consistent with an increase in the average outstanding principal of loans held on the condensed consolidated balance sheet by operating entities during the period and a decrease in the outstanding principal of loans held in the consolidated securitization during the period. The increase in interest income and decrease in unfavorable fair value adjustments was partially offset by an increase in interest expense due to the decrease in the fair value of our interest rate caps, and a $1.5 million decrease in interest expense recognized by consolidated securitization entities due to lower payable to securitization noteholders in the period.

Current wording

Interest income, interest expense, and fair value adjustments, net increased $38.2 million, or 372% in the three months ended March 31, 2025, compared to the same period in 2024. The increase was driven by a $45.1 million decrease in unfavorable fair value adjustments and a $3.7 million decrease in interest expense, partially offset by a $10.6 million decrease in interest income. The decrease in unfavorable fair value adjustments is attributable to a $31.7 million decrease in fair value loss on beneficial interests, a $8.3 million decrease in unrealized loss and loan charge-offs, and a $5.1 million decrease in realized loss on loan sales during the three months ended March 31, 2025 compared to the same period in 2024. The decrease in interest expense resulted from the decrease in fair value of interest rate caps and a $0.9 million decrease in interest expense recognized by consolidated securitization entities due to lower payable to securitization note holders in the period. The decrease in unfavorable fair value adjustments and decrease in interest expense was partially offset by a decrease in interest income due to a $7.1 million decrease in interest income recognized by operating entities and a $3.5 million decrease in interest income recognized by consolidated securitization entities, consistent with a decrease in the average outstanding principal balance of loans held on the condensed consolidated balance sheets by operating entities during the period and a decrease in the outstanding principal balance of loans held in the consolidated securitization during the period.

Previous wording

Sales and marketing expenses increased by $10.2 million, or 31%, in the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to a $9.2 million increase in advertising and other traffic acquisition cost and a $0.8 million increase in payroll and other personnel-related expenses. As a percentage of total revenue, sales and marketing expenses increased from 25% to 27%.

Current wording

Sales and marketing expenses increased by $23.8 million, or 68%, in the three months ended March 31, 2025 compared to the same period in 2024, which was driven primarily by a $23.7 million increase in advertising and borrower acquisition costs. As a percentage of total revenue, sales and marketing expenses remained flat at 28%.

Previous wording

Customer operations expenses increased by $2.4 million, or 6%, in the three months ended September 30, 2024, compared to the same period in 2023. The increase was primarily due to a $3.3 million increase in servicing expenses, $0.8 million increase in information verification expenses, and $0.6 million increase in systems expenses. The increase was partially offset by a $2.2 million decrease in payroll and other personnel-related expenses due to a decrease in headcount. As a percentage of total revenue, customer operations expenses decreased from 27% to 24%.

Current wording

Customer operations expenses increased by $1.1 million, or 3%, in the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to a $3.2 million increase in information verification expenses and a $1.7 million increase in servicing expenses. The increase was partially offset by a $3.7 million decrease in payroll and other personnel-related expenses due to a decrease in headcount and a $0.2 million decrease in refunds due to overpayment. As a percentage of total revenue, customer operations expenses decreased from 31% to 19%.

Previous wording

Engineering and product development expenses increased by $9.9 million, or 18%, for the three months ended September 30, 2024, compared to the same period in 2023. The increase was primarily due to a $8.7 million increase in payroll and other personnel-related expenses and a $1.2 million increase in other engineering operating expenses. As a percentage of total revenue, engineering and product development expenses decreased from 41% to 40%.

Current wording

Engineering and product development expenses decreased by $5.3 million, or 8%, for the three months ended March 31, 2025, compared to the same period in 2024. The decrease was primarily due to a $8.0 million decrease in payroll and other personnel-related expenses from capitalization of internal-use software development costs, offset by a $2.7 million increase in other engineering operating expenses. As a percentage of total revenue, engineering and product development expenses decreased from 49% to 27%.

Previous wording

General, administrative, and other expenses increased by $6.4 million, or 12%, in the three months ended September 30, 2024, compared to the same period in 2023. The increase was primarily due to an increase of $4.5 million in payroll and other personnel-related expenses and an increase of $2.2 million in legal and compliance expenses, partially offset by a decrease of $0.7 million in office rent and other facility expenses. As a percentage of total revenue, general, administrative, and other expenses decreased from 40% to 37%.

Current wording

General, administrative, and other expenses increased by $2.9 million, or 5%, in the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to a $3.1 million increase in payroll and other personnel-related expenses, $1.7 million increase in professional expenses, and $0.8 million increase in depreciation expenses, partially offset by a $2.7 million decrease in legal and compliance expenses. As a percentage of total revenue, general, administrative, and other expenses decreased from 45% to 28%.

Previous wording

In the three months ended September 30, 2024, other income, net increased by $1.5 million, or 43%, compared to the same period in 2023, due to a $2.7 million increase in miscellaneous other income, net, partially offset by a $1.0 million decrease in dividend income.

Current wording

In the three months ended March 31, 2025, other income, net decreased by $0.8 million, or 28%, compared to the same period in 2024, due to a $3.8 million increase in interest expense related to our Notes as a result of issuances of 2029 and 2030 Notes and a $0.1 million decrease in miscellaneous other income, net, partially offset by a $3.1 million increase in dividend income.

Previous wording

To supplement our condensed consolidated financial statements prepared and presented in accordance with GAAP, we use the non-GAAP financial measures of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share to provide investors with additional information about our financial performance and to enhance the overall understanding of our past performance and future prospects. We are presenting these non-GAAP financial measures because we believe they provide an additional tool for investors to use in comparing our core financial performance over multiple years with the performance of other companies.

Current wording

To supplement our condensed consolidated financial statements prepared and presented in accordance with GAAP, we use the non-GAAP financial measures of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) Per Share to provide investors with additional information about our financial performance and to enhance the overall understanding of our past performance and future prospects. We are presenting these non-GAAP financial measures because we believe they provide an additional tool for investors to use in comparing our core financial performance over multiple years with the performance of other companies.

Previous wording

To address these limitations, we provide a reconciliation of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share to income (loss) from operations and net income (loss), respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) Per Share in conjunction with their respective related GAAP financial measures.

Current wording

To address these limitations, we provide a reconciliation of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) Per Share to income (loss) from operations and net income (loss), respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), and Adjusted Net Income (Loss) Per Share in conjunction with their respective related GAAP financial measures.

Previous wording

(1)Borrower acquisition costs were $23.6 million and$32.7 million for the three months ended September 30, 2023 and 2024, respectively, and were $62.4 million, and$80.8 million for the nine months ended September 30, 2023 and 2024, 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. These costs do not include reorganization expenses.

Current wording

(1)Borrower acquisition costs were $24.8 million and $48.6 million for the three months ended March 31, 2024 and 2025, 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. These costs do not include reorganization expenses.

Previous wording

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. These costs do not include reorganization expenses.

Current wording

(2)Borrower verification and servicing costs were $32.1 million, and $34.5 million for the three months ended March 31, 2024 and 2025, 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. These costs do not include reorganization expenses.

Previous wording

Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP. The following table provides a reconciliation of net loss and Net Loss Margin to Adjusted EBITDA Margin. We define Net Loss Margin as net loss divided by total revenue.

Current wording

The following table provides a reconciliation of net loss and Net Loss Margin to Adjusted EBITDA and Adjusted EBITDA Margin. We define Net Loss Margin as net loss divided by total revenue.

Previous wording

Sources and Uses of Cash

Current wording

Sources and Uses of Cash and Cash Equivalents

Previous wording

As of September 30, 2024, our primary source of liquidity was unrestricted cash of $445.3 million. We also held $5.0 million of investments in certificates of deposit with maturities greater than three months as of September 30, 2024. Changes in the balance of cash are generally a result of working capital fluctuations and the timing of purchases and sales of loans facilitated through our marketplace. To finance purchases of certain loans facilitated through our lending marketplace, we rely on our warehouse credit facilities through the special-purpose trusts and corporate cash.

Current wording

As of March 31, 2025, our primary source of liquidity was cash and cash equivalents of $599.8 million. We also held $5.0 million of investments in certificates of deposit with maturities greater than three months as of March 31, 2025. Changes in the balance of cash and cash equivalents are generally a result of working capital fluctuations and the timing of purchases and sales of loans facilitated through our marketplace. To finance purchases of certain loans facilitated through our lending marketplace, we rely on our warehouse credit facilities through the special-purpose trusts and corporate cash.

Previous wording

Our convertible senior notes have an aggregate principal balance of $730.4 million and bear interest at a rate of 0.25% per year, in the case of the 2026 Notes, and 2.00% per year, in the case of the 2029 Notes, in each case payable semiannually. The 2026 Notes mature on August 15, 2026 and the 2029 Notes mature on October 1, 2029, in each case unless earlier converted, redeemed, or repurchased in accordance with their terms. Refer to “Note 9. Borrowings” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our Notes.

Current wording

Our convertible senior notes have an aggregate principal balance of $1,230.4 million and bear interest at a rate of 0.25% per year in the case of the 2026 Notes, 2.00% per year in the case of the 2029 Notes, and 1.00% per year in the case of the 2030 Notes, in each case payable semiannually. The 2026 Notes mature on August 15, 2026, the 2029 Notes mature on October 1, 2029, and the 2030 Notes mature on November 15, 2030, in each case unless earlier converted, redeemed, or repurchased in accordance with their terms. Refer to “Note 8. Borrowings” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our Notes.

Previous wording

Our warehouse credit facilities, which mature between December 2025 and June 2028, allow us to borrow up to an aggregate of $325.0 million to purchase unsecured personal loans, $100.0 million to purchase small dollar loans, and up to $50.0 million to purchase auto loans. As of June 14, 2024, the revolving period ended for Upstart Auto Warehouse Trust, and we may no longer draw from the facility. The Upstart Auto Warehouse Trust facility matures in December 2025, by which time all outstanding amounts owed must be repaid. As of September 30, 2024, we have drawn an aggregate of $170.1 million on our warehouse credit facilities. Refer to “Note 9. Borrowings” in Part I, Item 1 of this Form 10-Q for further details on our warehouse credit facilities.

Current wording

Our warehouse credit facilities, which mature between December 2025 and June 2028, allow us to borrow up to an aggregate of $475.0 million to purchase unsecured personal loans, $100.0 million to purchase small dollar loans, and up to $50.0 million to purchase auto loans. As of June 14, 2024, the revolving period ended for Upstart Auto Warehouse Trust, and we may no longer draw from the facility. The Upstart Auto Warehouse Trust facility matures in December 2025, by which time all outstanding amounts owed must be repaid. As of March 31, 2025, we have drawn an aggregate of $127.0 million on our warehouse credit facilities. Refer to “Note 8. Borrowings” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our warehouse credit facilities.

Previous wording

We lease office facilities under operating lease agreements which expire between 2027 and 2029. Our cash requirements related to these lease agreements are $59.6 million, of which $15.3 million is expected to be paid within the next 12 months. Refer to “Note 11. Leases” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our operating lease obligations.

Current wording

We lease office facilities under operating lease agreements which expire between 2027 and 2029. Our cash requirements related to these lease agreements are $52.0 million, of which $15.5 million is expected to be paid within the next 12 months. Refer to “Note 10. Leases” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our operating lease obligations.

Previous wording

We have committed to purchase loans from certain lending partners at the conclusion of the required holding period, which is generally equal to three business days. As of September 30, 2024, the total loan purchase commitment was $66.8 million. We have also extended a line of credit to a third-party in connection with one of our committed capital and other co-investment arrangements. As of September 30, 2024, the Company had unfunded commitments related to the line of credit of $8.0 million. The Company also has commitments to fund future advances on HELOCs. As of September 30, 2024, these commitments were $2.8 million, however since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. See “Note 12. Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our commitments.

Current wording

We have committed to purchase loans from certain lending partners at the conclusion of the required holding period, which is generally equal to three business days. As of March 31, 2025, the total loan purchase commitment was $89.3 million. We have also extended a line of credit to a third-party in connection with one of our committed capital and other co-investment arrangements. As of March 31, 2025, the Company had unfunded commitments related to the line of credit of $7.8 million. The Company also has commitments to fund future advances on HELOCs. As of March 31, 2025, these commitments were $11.2 million, however since we can limit these commitments under certain conditions or these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. See “Note 11. Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our commitments.

Previous wording

In connection with our committed capital and other co-investment arrangements, we are obligated to put a certain amount of our assets at risk in relation to the credit performance of the underlying loans. The risk in these arrangements is subject to a dollar cap, which represents the Company’s maximum exposure to losses in a particular arrangement. As of September 30, 2024, the Company’s aggregate maximum exposure to losses was $357.9 million. Refer to “Note 5. Beneficial Interests” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our committed capital and co-investment arrangements. Our cash requirements for the next 12 months related to investments in these existing arrangements is estimated to be up to $222.0 million.

Current wording

In connection with our committed capital and other co-investment arrangements, we are obligated to put a certain amount of our assets at risk in relation to the credit performance of the underlying loans. The risk in these arrangements is subject to a dollar cap, which represents the Company’s maximum exposure to losses in a particular arrangement under severe, hypothetical circumstances, for which the Company believes the possibility is remote. As of March 31, 2025, the Company’s aggregate maximum exposure to losses was $553.6 million. Refer to “Note 4. Beneficial Interests” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our committed capital and co-investment arrangements. Our cash requirements for the next 12 months related to investments in these existing arrangements is estimated to be up to $154.0 million.

Previous wording

While we believe that our cash on hand will be sufficient to meet our liquidity needs for at least the next 12 months, our future capital requirements will depend on multiple factors, including our revenue growth, working capital requirements, volume of loan purchases for product development purposes or during market downturns, and our capital expenditures. We may decide to raise additional capital through the sale of equity, equity-linked or debt securities or other debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. Further, if we are unable to raise additional capital when our cash balances and cash generated by operations are insufficient to satisfy liquidity needs, our results of operations and financial condition would be materially and adversely impacted.

Current wording

While we believe that our cash and cash equivalents on hand will be sufficient to meet our liquidity needs for at least the next 12 months, our future capital requirements will depend on multiple factors, including our revenue growth, working capital requirements, volume of loan purchases for product development purposes or during market downturns, and our capital expenditures. We may decide to raise additional capital through the sale of equity, equity-linked or debt securities or other debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. Further, if we are unable to raise additional capital when our cash and cash equivalents balances and cash generated by operations are insufficient to satisfy liquidity needs, our results of operations and financial condition would be materially and adversely impacted.

Previous wording

Net cash provided by operating activities was $297.3 million for the nine months ended September 30, 2024, which consisted of adjustments for non-cash items of $230.5 million, $192.6 million in net changes in operating assets and liabilities, and net loss of $125.8 million. The increase in non-cash adjustments was primarily related to $167.5 million of changes in fair value of loans held on the Company’s balance sheet and $103.6 million of stock-based compensation, partially offset by $35.8 million of changes in fair value of beneficial interest assets and $33.4 million of gain on debt extinguishment. The increase in net changes in operating assets and liabilities was primarily related to $157.0 million in principal payments received for loans held-for-sale and $36.5 million in principal payments received for loans held in consolidated securitization.

Current wording

Net cash used in operating activities was $13.5 million for the three months ended March 31, 2025, which consisted of adjustments for non-cash items of $17.4 million, $28.5 million in net changes in operating assets and liabilities, and net loss of $2.4 million. The increase in non-cash adjustments was primarily related to $29.8 million of stock-based compensation, $7.1 million of changes in fair value of loans, $6.4 million of depreciation and amortization, and $4.1 million of changes in fair value of servicing assets, partially offset by $17.6 million of changes in fair value of beneficial interest assets, $8.4 million of loan premium amortization, and a $4.9 million gain on loan servicing rights. The decrease in net changes in operating assets and liabilities was primarily related to a $48.8 million decrease in accrued expenses and other liabilities, $28.6 million of net payments from purchase and sale of loans held-for-sale, and $6.0 million of settlements of beneficial interest liabilities, partially offset by $38.3 million in principal payments received for loans held-for-sale, $10.3 million in principal payments received for loans held in consolidated securitization, and $6.4 million of changes in other assets.

Previous wording

Net cash used in investing activities was $159.8 million for the nine months ended September 30, 2024 as a result of $196.6 million purchases and originations of loans held-for-investment and $63.2 million acquisition of beneficial interest assets, partially offset by $99.8 million in principal payments received for loans held-for-investment.

Current wording

Net cash used in investing activities was $78.6 million for the three months ended March 31, 2025 as a result of $149.9 million purchases and originations of loans held-for-investment and $6.2 million of capitalized software costs, partially offset by $57.4 million principal payments received for loans held-for-investment, $16.4 million proceeds from beneficial interest assets, and $2.7 million of principal payments received for notes receivable and repayments of residual certificates.