Graphic slide of Upstart Earnings presentation, Q2 2022

Upstart earnings disappoint

San Meteo, California-based AI lending company Upstart announced Q2 earnings after the market closed on Monday, disappointing investors.

The company lost $32.1 million overall, on total revenue of $228 million.

CEO and co-founder Dave Girouard said the results were disappointing, but he is confident in the AI-based risk model.

“This quarter’s results are disappointing and reflect a difficult macroeconomic environment that led to funding constraints in our marketplace,” Girouard said. “In response, we’re taking the necessary actions to build a more resilient and committed funding model over time. We’re confident that our AI-based risk model is more accurate than ever and provides long-term sustainable growth opportunities.”

Upstart CEO and Co-founder Dave Girouard speaking
Upstart CEO and Co-founder Dave Girouard

Though revenue rose 18% from the same quarter last year, the net negative income is down from a profit of $36 million in Q2 2021. After earnings, the stock price dropped 15%.

Q2 ’22 financial highlights

The firm reported that bank partners originated 321,138 loans through the marketplace, with a total value of $3.3 billion—bank originations through Upstart rose 12% from the same quarter of the prior year. The conversion on rate requests was reportedly 13% in Q2, down from 24% in the same quarter of the previous year.

“Today, we reported a decline in revenues, which is disappointing and unacceptable,” Girouard said on the earnings call. “It may be natural to question whether Upstart’s AI-powered risk models are working as designed, but we’re confident this isn’t the case, that our models continue to improve for accuracy and risk separation.”

The contribution profit was $120.9 million, up 25% year-over-year, with a contribution margin of 47% compared to a 52% contribution margin in the same quarter of the prior year.

The EBITDA, a favorite metric, was $5.5 million, down from $59.5 million in the same quarter of the prior year. The second quarter of 2022 adjusted EBITDA margin was 2% of total revenue, down from 31% in the second quarter of 2021.

CFO Sanja Datta said on the call that though things are down, this can be an opportunity for lucrative returns.

“There are always opportunities, whether buying back the stock and reducing the dilution; we think can have a very lucrative return right now,” Sanjay Datta said. “We’re monitoring that on an ongoing basis, and we’re certainly interested in making efficient use of our cash balance on behalf of the shareholders.”

Upstart repurchased 3.5 million shares of UPST, totaling approximately $125 million.

Updated financial outlook

Upstart slashed earnings expectations for 2022 in May, and shares plummeted 50%. In a forward-looking statement for the third quarter of 2022, Upstart said it expects:

  • Revenue of approximately $170 million
  • Contribution Margin of roughly 59%
  • Net income of roughly $42 million
  • Adjusted Net Income of about $9 million
  • Adjusted EBITDA of around $0
  • Basic Weighted-Average Share Count of roughly 81.8 million shares
  • Diluted Weighted-Average Share Count of approximately 85.5 million shares

In a release, Upstart said it is an AI lending marketplace that partners with banks and credit unions to expand access to affordable credit.

The firm said banks use Upstarts AI Marketplace to get higher approval rates and lower loss rates for every demographic and borrower income level.

Accordingly, over two-thirds of Upstart loans are approved instantly and fully automated.

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