## Upstart Q1 2023—Earnings Report and CEO Transcript

- May 9, 2023
- 9 minute read

Good afternoon, everyone. Thank you for joining us on our earnings call, covering our first quarter 2023 results. I’m Dave Girouard, co-founder and CEO of Upstart.

Despite the headwinds facing our industry in early 2023, I’m pleased with the progress we made against the objectives that I set out for you previously. I’m hopeful that, as we move through the year, you will come to see Q1 as a transitional quarter for Upstart. While the economic environment remains turbulent, there are many reasons to be optimistic about our future. I assure you we aren’t waiting around for the economy to improve.

First, our development teams made giant leaps forward in each of our main product areas. Innovation in AI is the primary source of Upstart’s competitive advantage, and we continue to break new ground in this area. I’ll share more about these wins shortly.

Second, we accomplished this while taking significant fixed costs out of our business. Last quarter, I told you that I’m committed to running an operationally and fiscally tight ship. Given our concerted efforts in Q1 to reduce both payroll and operational expenses, I’m confident that Upstart is now a more streamlined and efficient company, setting us up to return to profitable growth soon. I’ll share more about our cost reduction efforts later.

And finally, I’m pleased to tell you that we secured multiple long-term funding agreements, together expected to deliver more than $2 billion to the Upstart platform over the next 12 months. This is a critical first step toward building resiliency and predictability into our business.

Together, I believe these efforts put us in a stronger position regardless of which direction the economy turns. Our own analysis—which we launched publicly in March in the form of the [Upstart Macro Index](https://www.upstart.com/umi/) (or UMI)—suggests that the financial health of the mainstream American consumer deteriorated rapidly through the first nine or so months of 2022 but has since stabilized if not improved for the last several months. The personal savings rate, which may be the most relevant predictor of UMI, bottomed out mid last year at 2.7% and has increased to 5.1% since then.

Since late 2022, loans on our platform have been priced conservatively relative to UMI, so our bank and credit union partners can feel confident that recent vintages are today performing at or above expectations. And while banks are certainly treading carefully in the current environment, many lenders and institutional investors appreciate the combination of high yield and short duration that Upstart-powered loans offer.

Irrespective of the environment, I push our team very hard to make sure Upstart improves constantly in four critical dimensions:

1. We founded Upstart to improve access to credit, so delivering the best rates possible to all consumers will always be our true north. 
2. Better rates are unlocked first and foremost by a more accurate and predictive credit model—one that excels at separating good risk from bad—and AI is the key to this. 
3. We need a diversity of bank and credit union partners, each with different priorities and balance sheet issues to solve.
4. Every quarter, we aim to make our platform more efficient for consumers and bank partners.

In the first quarter, we achieved a record level of automation, with 84% of Upstart-powered loans fully automated. This instant and automated process, which by the way, 70% of consumers access via a mobile phone, creates an unparalleled “wow” moment for the borrower.

After all we’ve experienced in the last year, I’m keenly aware that we need to build more resilience into Upstart’s business. Lending is inherently cyclical, but we aim to build a platform that largely mitigates that cyclicality, ensuring that credit continues to be available and flowing when it’s needed.

The last important lever on resiliency is our product offering itself, which I’ll speak to now.

Moving beyond our core personal loan product is critically important to reaching our potential as a business. Offering a wider range of solutions makes us more relevant to more consumers and also more valuable to our bank and credit union partners.

We continue to make progress in our second big bet—the auto lending market. Since our last earnings call, we announced that both Acura and Mercedes-Benz approved Upstart as a digital retail provider. We also expect to launch a home equity product later this year.

Lastly, I have to mention the incredible progress made by our small-dollar loan team. We believe it has the potential to eradicate more than 70% of payday loans in the next five years.

To wrap things up, I want to acknowledge that the financial industry is not out of the woods yet. But even in this challenging economy, I believe Upstart is in position to grow reasonably. Upstart’s success will continue to be built on excellence and leadership in AI.