Upstart Q4 & FY2022 – Earnings Report and CEO Transcript


Feb. 14, 2023

Editor’s note: Upstart Co-Founder and CEO Dave Girouard shared thoughts on fourth quarter and full year 2022 results during the company’s quarterly earnings call. To read more about Upstart’s Q4 and FY2022 earnings, visit here

Good afternoon, everyone. Thank you for joining us on our earnings call, covering our fourth quarter and full-year 2022 results. I’m Dave Girouard, co-founder and CEO of Upstart. 

Obviously 2022 was a challenging year for Upstart, and we’re not happy with the results we’re sharing today. In many ways, last year was the perfect storm for our business model: the withdrawal of federal stimulus disproportionately harmed our borrowers – akin to a simulated recession where millions of mainstream Americans suddenly lost (what had become) their primary source of income. The Fed’s interest rate hikes – the fastest in several decades –  left both lenders and capital markets cautious and concerned about what might come next in our economy. Out of an abundance of caution with respect to the economy, many lenders cut back or paused their originations, despite the fact that their Upstart-powered loan portfolios have met or exceeded expectations since the program began in 2018.

Having said that, we’re not into excuses – the best companies take advantage of the opportunities presented in the most difficult times. 2022 was in some ways a gift because it laid bare some parts of our business that we needed to improve. We’ve made great progress in many of these areas and I’ll share a few of them with you shortly.

But first I want to make it clear that we’re committed to running an operationally and fiscally tight ship – and always have been. We’ve been profitable for most of the time that we’ve been public and it’s our intention to return to profitability as soon as possible. Given the reduction in lending volume, two weeks ago we took the unfortunate but necessary step of reducing the size of our workforce by 365 team members, representing about 20 percent of our staff. I’m deeply grateful for the immeasurable contributions these Upstarters made to our mission over the years and I’m profoundly sorry that their time at Upstart came to such an abrupt end. 

With this reduction in staffing, we also decided to pause development of our small business lending product. This was a necessary step to ensure we can adequately resource the rest of our roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.

Yet we haven’t just focused on reducing expenses. We grabbed the opportunity that 2022 presented to make important improvements across Upstart, in ways that have made us a stronger company for the future. Let me share a few examples:

First, we have traditionally viewed our business model in the simplest terms as a marketplace for loans, based on price discovery and at-will participation for consumers and lenders. And while this is true, it’s also useful to think of the funding on our platform as a strategic supply chain that needs to be scaled and strengthened continually. In our earnings call in August, I told you that we would begin to investigate partnerships that could provide more reliable and persistent funding to the Upstart platform. I’m happy to report that we’re in late stage discussions with multiple potential partners in support of this goal.

Second, we also took advantage of the volatile economy to significantly upgrade our model’s ability to understand and react to macroeconomic conditions. Last quarter, I announced our plan to productize the Upstart Macro Index – or UMI. This new metric measures how changing economic conditions like inflation and unemployment are impacting credit performance. 

We continue to make breakthroughs in our methodology for calculating UMI, and we expect to launch this monthly metric to the public later this quarter. This is an exciting development from our machine learning team: In an industry first, Upstart will provide lenders with near real-time insight into the financial health of the American consumer, allowing them to adjust their lending programs accordingly. This is a big step toward providing banks and credit unions with lending infrastructure that autonomously, continuously, and rapidly adapts to changes in the economy. You’ll be hearing more about this soon.

Third, 2022 confirmed that we have both strong unit economics and considerable pricing power even in the most challenging environment. Despite the fact that our lending volume in 2022 was  down 14% versus the prior year, our contribution profit was actually up 13% year-on-year. Optimizing our pricing represents a large surface area of opportunity which we’ve only just begun to explore.

In addition to these major improvements, we’ve also continued to innovate across our platform in support of future growth. In fact, I believe we made more progress with our technology in 2022 than in any year in our history. And as capital markets and the overall economy normalizes, I expect this will become obvious to all of you. Some important areas of progress from last year include: 

Model accuracy – Our AI models continue to separate risk significantly better than a traditional FICO-based model and we continue to increase our pace of model development. The increase in our model accuracy in the last seven months is more than what we delivered in the prior two and a half years.

Automation – In the fourth quarter we saw a record 82% of personal loans fully automated. By automated, I mean there was no human intervention anywhere in the process of originating the loan. This boost came primarily from eliminating or automating processes that our loan operations team has traditionally done manually.

Auto Retail – We finished the year with 778 total dealerships under contract, a 90% increase from a year ago. As automobile inventories are replenished and prices normalize, our ability to modernize the car-buying experience for our dealer partners will only become more important. We’re piloting our AI-powered auto loan in 27 of our dealerships, helping them approve more applicants with less friction. As of now, when borrowers are presented with an Upstart-powered loan in these dealerships, they choose us 42% of the time. Also, in Q4, about one in every three Upstart-powered auto retail loans were fully automated, an increase of 25% from  the prior quarter.

Small dollar loans – We launched this innovative product in June 2022. Today our small dollar product includes loans from $200 to $2500 with tenors from from 3 months to 18 months. To date we’ve originated more than 24,000 small dollar loans to individuals who otherwise would not have been approved for our personal loans. More than 12,000 of these loans were originated in Q4 alone. This expansion of borrower coverage means we are dramatically increasing the pace at which our machine learning models are improving. And just as importantly, in Q4, 88 percent of small-dollar loans were fully automated.

Lending partners – In our earnings call a year ago, I told you we had 42 lenders on the Upstart platform. Today that number is 92, representing growth of 130%. Despite the hostile 2022 environment, banks and credit unions recognize and appreciate a fundamental secular change in technology when they see it. These partners are starting cautiously with us. But they represent a significant expansion of potential lending capacity on the Upstart platform once there is a bit more clarity on the direction of the economy.

Now I would like to turn your attention to 2023 and our priorities for this year.

Our first priority is to continue to assure proper model calibration and model accuracy for all our products, regardless of which way the economy turns. This is the foundation on which all other success is based. This implies, as much as anything, taking a conservative position relative to the UMI trends we observe today.

From there, our next stop is to return to profitability as soon as possible. While we can’t make promises given the unknowns in the economy, we are intensely focused on generating operating cash and positive GAAP net income once again. 

And with some modest cooperation from the economy, we expect to return to our pattern of quarter on quarter growth this year. While the expansion of both bank and capital market funding are foundational to this effort, growth is also gated by the approval rates and interest rates that the prevailing risk in the world dictates. This risk is conveniently captured on a monthly basis by UMI.

This year, it’s also a priority of ours to reduce the volatility in transaction volume on our platform in the future. This is the primary motive of the committed capital initiative I mentioned earlier. It also means improving our ability to serve primer borrowers more competitively, which is in the interest of Upstart as well as our bank and credit union partners. And lastly, we can reduce future volatility by continuing our expansion into secured products such as auto loans and home loans, which are generally preferred by lenders in times of uncertainty. 

Through all of this, we’re focused on using our balance sheet efficiently and wisely. We’ve been a model of capital efficiency since our earliest days, and expect to continue on this path in 2023 and beyond.

Before I turn it over to Sanjay, I want to share why I’m as optimistic as ever about Upstart’s future. 

The core thesis of our business – that AI can unlock smarter credit decisions than a 30-year old credit score can – is now obvious. The recent launches of products powered by generative AI has opened our eyes to the unlimited potential of artificial intelligence and machine learning. A couple of weeks ago, a Wharton School MBA professor admitted that chatGPT had successfully passed his final exam. So it’s no giant leap to believe that AI can lead to  more accurate credit decisions. Indeed, we are proving this every day.

It’s clear that Upstart is an established market leader in the application of AI to lending. Despite the economic challenges of 2022, we are a much better company than we were a year ago, with more advanced technology, accelerated model development, and dramatically more training data. And our founder-led leadership team is stronger than ever.

As I’ve said before, the price of credit is the price of the American dream. We chose this path – of reinventing credit so that it works for everyone – not because it’s easy but because it’s important. We chose it because no one else was doing it and it needed to be done. I can think of no better journey to improve the financial health of mainstream Americans than the one we’re on. And we most certainly won’t let a little economic turbulence get in our way.

Forward-Looking Statements

This transcript contains forward-looking statements, including but not limited to, statements regarding economic uncertainty, our long-term success, and our future growth. 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; investments; and results of operations, including revenue, contribution margin, net income (loss), non-GAAP adjusted net income (loss), 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 transcript 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 or the SEC’s website at These risks and uncertainties include, but are not limited to, our ability to sustain our growth rates from recent years; our ability to manage the adverse effects of macroeconomic conditions and disruptions in the credit markets, including inflation and related monetary policy changes, such as increasing interest rates; our ability to access sufficient loan funding, including in the securitization and whole loan sale markets; the effectiveness of our credit decisioning models and risk management efforts; 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; and our ability to operate successfully in a highly-regulated industry.