Upstart Holdings, Inc. (UPST) Q4 2025 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Upstart Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the call over to Chelsea Williams Investor Relations. Chelsea, please go ahead.

Thank you. Welcome to the Upstart earnings call for the fourth quarter and full year 2025. With me on today's call are Dave Girouard, our Co-Founder and CEO; Paul Gu, our Co-Founder and CTO; and Sanjay Datta, our CFO. During today's call, we will make forward-looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and beliefs as of today, which are subject to a variety of risks uncertainties and assumptions and should not be viewed as a guarantee of future performance. Actual results may differ materially as a result of various risk factors that have been described in our SEC filings. We assume no obligation to update any forward-looking statements as a result of new information or future events, except as required by law. Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. Before I turn the call over to Dave, please note that concurrent with today's earnings release, we also issued a press release regarding our leadership evolution. Management will address these plans during today's conference call. With that, Dave, over to you.

Thanks, Chelsea. Good afternoon, everyone. Thank you for joining us. I want to start today with what most of you have heard by now. I'm super excited to announce that on May 1, my cofounder, Paul, will become Upstart's next CEO. While I'll continue on to my role as Upstart's Executive Chairman. Why now? Well, in a few weeks, as hard as it is for me to believe, I'll celebrate my 60th birthday. And for more than 5 years, we've talked about this milestone as the right time frame for Paul to step into the CEO role at Upstart. I can't imagine a succession plan more thoroughly considered or executed with any finer level of detail than what we've done at Upstart in the last few years to prepare Paul and the company for this day. As I said in the press announcement, Paul and I have been building Upstart together, side by side, for the last 14 years, and I expect we'll continue to build it together for the next 14 or even longer. When we cofounded the company, Paul was barely old enough to drink, and I was older than his parents. So this transition is an incredibly rare opportunity to have a founder-led company for decades to come. To be clear, I'm not going anywhere and expect to be quite involved with Upstart. Beyond my role as Upstart's Executive Chairman, I'll continue to help shape the company's strategic direction and important initiatives. I want to thank all of you for this opportunity. Building and leading upstart has been the experience of a lifetime, second only to the life I've built with my amazing, my Tiffany and our 2 incredible children, Jackson and Tristan. In particular, I want to thank Upstart employees past and present. It's been an honor to work alongside you through ups and downs, whether a good day or otherwise, it's been an experience I will always cherish. I couldn't be more optimistic or excited about the next phase of Upstart. Some time ago, Paul said to me that most of the trillions of dollars in interest paid by borrowers in this world is unnecessary in the age of AI. So our mission is a glorious one, and it's one requiring determination and perseverance not just for years, but for decades. I'm confident that in due time, under Paul's leadership, we'll look back with nostalgia at our first 14 years as the early days at Upstart. Now to move on to our regularly scheduled update. I'm proud of all the Upstart team accomplished in 2025. We grew originations by 86% and revenues by 64% and while growing head count just 18%, a ratio of any business would die for, and we reestablished Upstart as a strongly profitable business. This growth in profitability was driven first and foremost by a significant market share gain in our personal loan product where Upstart grew originations 75% year-on-year. But just as importantly, our newer products had an incredible year with originations for auto and home, both growing 5x year-on-year and originations for both actually accelerated in the fourth quarter. Even with this Epic growth across all 3 product categories, we reduced loans on our balance sheet by 20% in Q4 and expect this trend to continue. With 70% of funding for auto and home loans originated in Q4 coming from 11 different partners and an additional 13 signed up for the coming year, we've officially begun a new era as the everything store for credit. Looking forward to 2026, I feel like Upstart has emerged from a multiyear rebuild and begins the new year from a position of unprecedented strength. In addition to radically improving our AI in the last 3 years, we've also entirely rebuilt our capital supply for resiliency and competitiveness. And as we wrapped up 2025 powered by excellent credit performance and rapidly improving conversion rates in the last few years, we finally took the last steps to launch our home, auto and small dollar credit products into the funding markets. Upstart is the leader in providing the best rates and the best process across products and to consumers across the credit spectrum. In 2026, we'll be about increasing our lead in establishing our brand in these dimensions. All of this sets us up for building incredible franchises in each of these product areas for years to come. In the coming quarters, I expect AI-powered lending led by upstart to rapidly gain market share across these enormous unsecured home and auto segments as well as additional lending categories in the near future. We've been building the teams, the skills and the technologies to deploy AI in lending for more than a dozen years, and I believe we are peerless in this regard. With this strong foundation and expansive TAM in place, I want to share today that we project Upstart to achieve a compound annual growth rate of 35% for the next 3 years. In addition to sharing longer-term guidance, we're also refreshing how we share near-term financial information with the markets. Starting today, we've begun to publish the monthly transaction volume on our platform at the beginning of each subsequent month, providing a fresher look at how originations are trending. Beyond that, we'll also focus on providing annual guidance, which we expect to update as we report each quarterly earnings. The opportunity to radically transform access to credit with AI is unimaginably large, and we want to offer the world a court-sized seat as this future unfolds. With these upgrades to our disclosures and guidance, investors can better understand both the near-term dynamics and the long-term potential of Upstart. With all that said, I want to say welcome to the new era of upstart. With that, I'll turn things over to Paul Gu, my Co-Founder and upstarts next Chief Executive Officer. Paul?

Thanks, Dave, and good afternoon, everyone. I've had the chance to get to know many of you over the last year, and I'm excited to spend some time today sharing how I see the business as we head into the next chapter. I'm incredibly grateful to have had the opportunity to learn from Dave these past 14 years. I got to work alongside Dave finding our very first customers, onboarding the first outside capital for loans evolving from one office to multiple to digital first, taking the company public, weathering the boom and bust of the COVID stimulus era and doing virtually everything else needed to build the Upstart of today. Through that long journey, we built what I consider the very best team and technology and credit. Today, I have the great fortune to take the baton from that enviable starting point. I am also extremely excited to welcome Sanjay, Grant and Andrea to their new roles. Sanjay will serve as President and Chief Capital Officer; Andrea is joining us as CFO; and Grant is returning to upstart as CTO. Sanjay and Grant have long been key leaders in Upstart's history, and Andrea is an incredibly talented finance leader with a background in complex novel business models. I look forward to partnering with them to show the world the potential of AI-powered credit. As Dave said, Upstart is a far stronger company today than it was 1 year ago or for that matter at any point in our history. We always judge ourselves by the trifecta of growth profits and credit performance and 2025 saw tremendous progress on all 3. Looking specifically at the Q4 results, we grew total loan origination dollars 52% year-over-year. That is function of finding strong product market fit in our new products, but it's also a testament to the persistent and large opportunity for us to grow with and win share in our personal loan business, where origination dollars grew 41% year-on-year in its 12th year of operation. Because of our strong unit economics and operating leverage, that growth in revenue flipped our net income from negative $2.8 million in Q4 last year to positive $19 million this past quarter. We expect revenue growth to continue outpacing expense growth and make 2026 an even more profitable year. I want to pause and touch on our contribution margins. You'll notice that these have declined over the past year. This is expected and intentional due to 2 dynamics, both of which we're actually excited about. First, we have grown rapidly in secured products and prime borrowers, segments which come with lower take rates but dramatically larger market sizes. Second, we increasingly have the financial ability to consider the long-term value of acquiring a customer and the reputation value of saving them more money than anyone else. Together, these are putting us on a path to become the best and most trusted place for every American to fulfill all of their credit needs. Setting aside a couple of transitional and accounting factors specific to Q4, we expect to be able to accomplish this while still growing absolute contribution profits nicely with the business, albeit with a modest lag to revenue. The growth in 2025 also came alongside another year of exceptional credit performance. The average return of our last 12 quarterly vintages of loans exceeds that of U.S. treasuries by 608 basis points with every individual vintage exceeding treasuries by at least 270 basis points. This combination of scale, consistency and returns is only made possible by our use of AI lending, and we believe will be a growing draw for capital partners, banks and credit unions. We achieved this combination of record revenue and consistent credit performance with the Upstart Macro Index in the 1.4 for most of the past year and quarter. By comparison, during our prior peak revenue year of 2021, UMI averaged around 0.8, meaning that statistically identical loans were 43% less likely to default back then as they are today, that our 2025 results surpassed 2021, in spite of that UMI backdrop, is a strong testament to the power of our AI first strategy. Improving separation and automation quarter after quarter is a recipe for delivering results over a multiyear window, regardless of how macro moves the short run. Now I want to quickly highlight a few of those technology advances from Q4. First, we launched 2 major model updates, Model 24 and Model 25. Model 25 added a significant number of consumers who never took loans from the upstart ecosystem to our training data set by joining past applicant data to similar loans taken outside upstart. This adds a rich diversity to our training data set and better positions our model to understand consumers whom we historically did not approve or win. These models increased our measured separation accuracy advantage over our benchmark textbook model by about 1 percentage point to 172.2% on previously observed upstart loans, but had an accuracy boost more than 100x as large on those loans we did not previously win. Second, we redesigned our partnership models and integrated new data sources into our partner APIs together driving 24% more channel originations quarter-on-quarter, while lowering latency by 34%. Finally, we launched a brand-new architecture of our verification models that lowers default rates by 0.8% and launched our first voice LLM for when manual verification calls are required. 2025 was also a year our new products found product market fit. In our auto business, we doubled the number of live lending rooftops for the third quarter in a row and began applying AI for the first time to our auto secured personal loan product. In our dealerships, we launched the ability for car buyers to sign their loan contracts remotely and begin automating document verification processes with LLM, thereby reducing funding times by 12%. As a result, our combined auto originations in Q4 were up 56% sequentially and 340% year-on-year. In our home business, we tripled the percentage of HELOCs using automated underwriting and rapidly scaled our campaigns to cross-sell the product to homeowners in our existing member base by integrating property data. As a result, home originations in Q4 were up 70% sequentially, totaling 350% year-on-year. You may have noticed that I called out technology wins in nearly every area of the business I discussed. This isn't because I'm partial to technology by background, though I am, but rather because technology is the story of how we're building a differentiated business for the long term at Upstart. In Q4, the scale of our training data crossed 100 million borrower repayment events for the first time, 14 years after we started the company. The next $100 million repayment events will come dramatically faster. And include data on almost every major category of consumer credit. We believe that proprietary training data, when combined with the ever better learning algorithms our team develops drives a long-run growth trend that persists independent of any ups and downs of the macroeconomy or competitive environment. We have executed against the strategy and observed its results for more than a decade. And in looking at our technology road map now have every reason to expect that compounding to continue for many years to come. With that, I'll turn things over to Sanjay. Sanjay?

Thanks, Paul, and good afternoon to all for listening in with us unless you are [ a Sox fan ]. Looking back on what we believed and messaged almost exactly 1 year ago today, I am proud to say that Upstart called its shot in 2025. Last February, we guided to $920 million of fee revenue and $1 billion in total revenue on the year. We finished the year with $950 million in fee revenue and $1.04 billion in total revenue. We are aiming for positive net income, an 18% adjusted EBITDA margin. We ended at positive $54 million in net income and a 22% adjusted EBITDA margin. Notwithstanding some of the inevitable twists and turns over the course of the year, 2025 landed right on schedule. Overall for the year, we grew our total revenue by 64%, and we held our fixed expense base to a mere 5% growth, a nice flex of our operating leverage, which allowed us to more than 20x our adjusted EBITDA from $11 million to $230 million, despite concurrently investing in the scale up of multiple new early-stage products. We took meaningful steps to reduce balance sheet exposure in Q4, while simultaneously graduating 3 new product categories from their R&D phase and almost quadrupling their volume year-on-year. We added new funding sources for our growing product portfolio in Q4 and converted several of our existing funding partnerships into multiproduct relationships. Notably, for auto lending across both refinance and retail, the most mature of our new bets. 92% of our Q4 originations were funded via third parties, supported by the continued expansion of our institutional and lender funding relationships. In home lending, we have similarly signed our initial institutional and lender partnerships who have collectively taken a majority of our Q4 HELOC production and expect to attain third-party funding levels similar to that in our auto segment in the near future. Taken together, these developments have allowed us to accelerate new product growth rates in Q4 while simultaneously reducing our balance sheet holdings by 20% quarter-over-quarter. All in all, we are entering 2026 feeling enthusiastic about the momentum of our financial performance as well as the strength of our capital supply. With this as context, here are some of the financial highlights from Q4 of 2025. Total revenue for Q4 came in at roughly $296 million, up 35% year-on-year and 7% sequentially. This overall number included revenue from fees of approximately $265 million which was up 33% year-on-year and above quarterly guidance, reflecting the impact of recent underwriting model launches. Within fee revenues, our servicing revenue stream continued its steady growth clip at 28% year-over-year, driven by higher origination volumes and improving servicing fair value marks. Net interest income of approximately $31 million, ahead of guidance by $5 million, resulted from continuing strong return performance on a loan balance that remained elevated during part of the quarter. As discussed, we made progress reducing balance sheet exposure by quarter end and would expect the contribution of net interest income to moderate as those efforts continue. The volume of loan transactions across our platform is approximately $456,000, up 86% from the prior year and 6% sequentially, representing approximately 307,000 new borrowers. Transaction growth was driven by continued model improvements and continued growth across our new products. Average loan size of approximately $7,000 was 5% higher than the prior quarter, reflecting an increasing mix of nonpersonal loan products, which generally carry larger loan sizes. Our contribution margin, a non-GAAP metric, which we define as revenue from fees, minus variable costs for borrower acquisition, verification and servicing as a percentage of revenue from fees came in at 53% in Q4, down 4 percentage points from the prior quarter and in line with guidance. The sequential decline primarily reflects the increased weighting of lifetime value in our pricing calculations, which results in lower take rates but higher future profits. In total, GAAP operating expenses were around $277 million in Q4, up 9% sequentially from Q3. Expenses that are considered variable relating to borrower acquisition verification and servicing, were up 11% sequentially relative to the 12% increase in the volume of loan transactions. Fixed expenses were up 7% quarter-on-quarter, reflecting continued investment to support the growth of the business. Q4 net income was approximately positive $19 million, ahead of expectations and reflecting outperformance on the top line, alongside continued discipline across our cost structure. This result builds on our return to GAAP profitability in the second quarter of 2025 and reflects continued progress in the current credit environment. GAAP earnings per share was $0.17 and based on a diluted weighted average share count of 112 million. Adjusted EBITDA was roughly $64 million, in line with expectations. We completed the full year with total revenue above $1 billion, up 64% from 2024, a contribution margin of 56% and positive adjusted EBITDA of $230 million, representing a 22% adjusted EBITDA margin versus a margin of 2% a year earlier. We ended Q4 with approximately $985 million of loans held directly on our balance sheet, down from $1.2 billion in Q3. The sequential reduction reflects loan transaction activity during the quarter alongside continued progress transitioning funding for new products over third-party capital. As we set up for the year ahead, we are evolving our approach to financial guidance by emphasizing the annual outlook and by focusing on the longer-term trends of the business. To supplement this, as David has mentioned, you will also be able to view more frequent updates on origination volumes that will be published each month at upstart.com/volume. This year, we expect to continue growing our core personal loan business at a healthy clip via consistent model improvements and growth wins. As we increasingly weigh the future benefits of customer lifetime value in our loan pricing, we expect that take rates will moderate reducing current contribution margins in return for higher borrower volumes and lifetime profits. Notwithstanding this dynamic, we expect absolute contribution dollars from our platform to grow at a robust rate which we are aiming to maintain to within at least 5 percentage points of corresponding fee revenue growth. We also expect to continue the rapid scale-up of our new secured product categories in auto and home which taken together, we expect will contribute over $100 million in fee revenue in 2026. As they reach mature scale and sell-through, we anticipate this category will attain average upfront take rates of around 4% and in addition to average servicing rates of around 2% of outstanding balance on average loan sizes of approximately $30,000. Within those averages, home lending will tend towards higher upfront take rates, while auto loans will exhibit a higher proportion of ratable servicing revenues over the lifetime of the loans. Across both unsecured and secured lending, we aim to continue streamlining our balance sheet. And building new committed multiproduct relationships with lenders and investors alike. And finally, we expect to continue maintaining tight fixed cost discipline and improving operating leverage as we further grow our profit base. On the macro environment, as per our tradition, we assume a constant default risk environment with the UMI holding study at its current value of around 1.4 to 1.5 and a static interest rate environment as well. More specifically, for 2026 in the aforementioned scenario, we are anticipating total revenues of approximately $1.4 billion, revenue from fees of approximately $1.3 billion, and an adjusted EBITDA margin of approximately 21%. Looking even further out, our ambition will be to maintain a relatively steady growth clip over the coming several years, paired with improving margins and operating leverage. For the 3-year period spending 2025 to 2028, in particular, we are targeting to maintain a 35% compound annual growth rate in a macro-neutral environment, with a terminal adjusted EBITDA margin of around 25% in 2028. We 2025 was a year of tremendous effort and perseverance across the company, and I want to thank the teams at Upstart for their continued dedication to the cause. On a personal note, I'm excited and grateful for the opportunity to be a part of this leadership transition and to contribute to the next phase of Upstart's journey. I'm also very excited to welcome Andrea to the finance chair starting next month, where she will unquestionably be raising the bar. And on that note, I would like to now pass things back to the operator to kick off the Q&A. Operator?

[Operator Instructions] We'll pause for a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Dan Dolev with Mizuho Securities.

Outstanding quarter like really, really strong congrats. I have a quick question and then a quick follow-up. So growth was really, really strong. in autos and HELOCs in Q4. So how did you manage to reduce the balance sheet loans? And then I have a quick follow-up on that one.

Dan, this is Dave. Yes, thank you. Yes, we were happy. We've been telling the market for a while that the balance sheet loans for the purpose of incubating these newer products and making sure the models were right and beginning to line up partners. And we lined up quite a few of them. I think we said 70% of these products were funded by third parties and off our balance sheet. So we've kind of achieved lift off on that now. And when you sort of put all the numbers together, that meant not only really fast growth in both of those product areas. But at the same time, the amount of loans on the balance sheet dropped and we expect that trend to continue. So it's just a matter of doing what we've told the market we were doing. And even that acceleration we saw in the fourth quarter in both HELOC and in auto, despite that, we were still able to actually reduce the loans in the balance sheet. So I think that's a good signal that we're doing what we said. These products are now mature in the market. We have another dozen or so investors or lenders that are going to participate in those parts of our business in 2026. So we're in a great position with them right now.

That's amazing. And then a quick follow-up on the UMI guys. Like how much conservatism is built into your UMI guidance? Like can you maybe give us like a rule of thumb, your might gets better than your underwriting should improve dramatically. Something like that, I think, would be helpful.

Yes. Great question. This is Paul speaking. Our guidance always assumes a constant UMI. So we wouldn't necessarily say it's either conservative or aggressive. It's just really our very best estimate of what the UMI is And the UMI itself is as a reminder to everyone. It is our measure of the background consumer risk when you hold constant, all of the variation in loans, all of the variation in consumers. And it gives us what we think is the fastest and most precise read on the background level of consumer risk in the economy.

We'll go next to Kyle Peterson with Needham.

Great. I want to start out on the guide. I noticed you guys guided for -- it looks like EBITDA margins to be down a bit in '26. So I want to see, is this a function of like mix as the balance sheet has been run off a little bit, which is obviously like a positive trade-off? Or are there any like notable investments or something you guys are making in the upcoming year? Just any color there on the EBITDA margins would be very helpful.

Yes. Thanks for the question, Kyle. Yes. So on the topic of the margins that we guided to, we guided to a contribution -- or sorry, to an adjusted EBITDA margin, but of course, baked in there is an implicit set of assumptions about how contribution margin will move. And in my earlier remarks, I described some changes that we've been expecting and planning for on contribution margins. That's a result of a few different factors, all of those intentional and all of those, we think, actually long term, very healthy for the business. There's basically 2 different things in there. One is a changing mix where we're expanding into the largest markets for consumer credit. These are some of the secured products and these products the loans are much bigger. The profile of the product is different and you tend to have lower take rates in these products, but the TAM that you get access to are just enormous many, many times larger than in just pure unsecured or pure personal loans. So a very good thing for us to have great winning products in those categories. And the second is that, frankly, I think relative to just the last couple of years, we've gained the ability to be able to take a longer-term view of our customer, the value of acquiring customers, the value of building up our brand and our reputation for being the very best place for consumers to shop for credit. And we want to lean into that. We want to press our advantages that we've got in the market in terms of having best rates and best process and really just sort of cement our reputation for having that best credit product for customers, and we think that is going to ultimately be winning in the long term. Now in the short term, that both of those things, the change in mix and taking those longer-term considerations into the mix does, of course, have some impact on the margin. But we think ultimately, that's going to be a very good thing for the business.

Got it. That's really helpful color. So I appreciate that. I guess as a follow-up, I wanted to touch a little bit on private credit and some of the capital partnerships. In the last few months, there's been some spookier headlines about the health of some of these providers, whether it's due to credit exposure on either the consumer side or software exposure or something like that. But I want to see -- it seems like the pipeline in -- for funding is -- remains really strong there. So I guess is I guess that correct? Is there any change in health or appetite for the consumer credit in the paper that you guys are underwriting? Just any color on how those conversations are going would be great.

Kyle, it's Sanjay here. A couple of thoughts. So first of all, I would say we're very deliberate about who we engage with in the private credit world and I think that we can probably limit our observations to the ones we work directly with. But for those partners that we're working with, I would say that these are counterparties that do deep diligence on both the credit and on us. I think they do their job really well, and I think they take the credit as seriously as we do. And I think our best reflection of how all of that credit is performing is in how we are assessing our own co-investments in those relationships and as you could see in the earnings materials, they are performing better and better. And so I think that's probably just a reflection of the kinds of partnerships we've made and the kinds of co-investments we've made together, but everything is, I think, in very good shape with respect to the direct partnerships we have.

Next, we'll go to Simon Clinch with Rothschild & Company Redburn.

I'm kind of curious just your thoughts around the general environment for the consumer, particularly as it potentially of what your models are seeing. In the third quarter last year, you talked about how there are some sort of slightly sort of uncertain signals that sort of materialize in the model and the model reacted. There's been a lot of volatility in the fourth quarter. There's been some sort of some news that maybe there's been some constraints put by some of your peers perhaps? And I was just wondering if your model saw anything if you react in any way or any sort of signals that are work sort of notify.

Yes, thanks. The health of the consumer is good. We in the UMI values return to what I call post-COVID normalization, which is sort of a long-term multiyear stable to down trend that has been really playing out since the consumer really took a hit back in 2022. And it is true back in Q3, we had detected a real ultimately temporary increase in the background level of consumer risk. We think back in Q3, our models responded to that appropriately, but that has since faded. And I think we're back to the broader trend that we've been in for the last couple of years, which is which is a bit of normalization to where consumer health was before COVID and kind of stimulus to consumers to an unusual place. But in short, I think there is always a lot of noise out there about macro and volatility, but if it was showing up in any way in borrower behavior, we picked that up first in UMI. The really good news is that UMI has been showing really good and solid patterns for the consumer lately.

That's great. And just as a follow-up, with the -- particularly with the likes of auto and now moving into home, when we think about the long-term market share opportunity in businesses like this, where it's much larger loan sizes, much larger TAM. I know Dave, you talked about, I think, in the past, aspiring to be like double-digit share in auto. And I was just wondering, has anything changed in the environment that means that those kinds of targets are perhaps not achievable or are they very much in your size?

I think they're very much in sight. I mean 5x growth in a year, certainly auto and HELOC as categories grew a tiny, tiny fraction of that, meaning we gained rapid market share in 2025. I would say generally that look, our view is that AI-enabled lending as a specialty is going to be the dominant market share in all of these categories, probably a decade from now. And so maybe the question is, if you're an investor or analyst trying to understand this, is everybody just going to develop this? Or are there going to be real leaders in developing sufficiently different AI models that they become giants. And that's what we intend to do. We're -- we don't think there's anybody else building the sophistication of models that we are. And we think the economics make it inevitable that an AI-centric platform will be used to originate the majority of loans in these categories over time. So for us, it's not a question of whether AI will dominate in these categories, it certainly will. The question for us, and for everybody, of course, is what fraction of that will belong to Upstart in our platform, and we're, of course, quite bullish on that.

We'll next go to Peter Christiansen with Citi.

First congrats to Paul. Great to see you transition here. Also congrats to Dave and Sanjay and the team and looking forward to meeting Andrea. And certainly, I want to applaud the added transparency with the monthly disclosure should go a long way towards reducing some volatility in the stock. My question is your perspective generally on the personal loan market. I -- there's some who opine that maybe there was a bit of saturation, a lot of growth last year. Just curious where -- how you see that perhaps accelerating or normalizing in '26? And what do you think that means for Upstart and their selectivity? And then I have a quick follow-up.

Thanks, Pete. Good to hear from you too. On personal loans and the sort of competitive market there, I think I would say I don't think we necessarily build our business around any assumptions about how the whole market is growing or not growing. But I do think personal loans are extremely useful product. They've generally grown nicely. But for us, it's all about winning market share. We think we're growing very nicely on our market share. Our product is competing extremely well better than ever on both the basis of rates and process. And we increasingly -- when we do market intelligence, it suggests that, that level of competitiveness is getting better and better over time. And we're really just in a position, I think, to press and cement that advantage, and that comes from the differentiated technology that we've built. We're going to keep investing in that, widen that lead. And ultimately, that's going to translate into an even bigger lead on best rates and best process for the consumer, and we think that's going to transfer to a bigger and bigger market share in a category that is really useful and important for a lot of people.

That's helpful. And then as you think about the first half of this year, it's not a Big Beautiful Bill, tax refund, no tax on tips, those sorts of things. Likely benefit the consumer shorter term and likely improves credit performance, at least the seasonality aspect of it, do you think that potentially may put a crimp in demand for term demand for personal loans?

Yes. Good question. Generally, borrowers and therefore, we will benefit from looser economic policy that helps consumers. While you're right that when people have more money, there may be marginally lower demand for credit, the much bigger factor in our business, the reason we ultimately end up really aligned with our consumers on their level of financial well-being is that the dominant factor in our business is our ability to approve people for competitive affordable rates. And that is much easier when people are in a healthy financial spot. So whether it's through interest rate cuts or tax bill changes or other policy changes that make life more affordable for the Media American, and those tend to flow through and be really beneficial to our volumes and business.

And we'll next go to Mihir Bhatia with Bank of America.

Good afternoon. On a second, the congratulations to the team, especially, Paul, also taking the comments on added monthly disclosure. I think the market will appreciate those. Now in terms of my question, the first question I had was I just wanted to double click in on a statement you made about -- I think you mentioned an increased weighting in lifetime value, which drives lower take rates. Can you just expand on that? Is really what's happening there are you considering repeat loans there? Or is that more of a product mix comment? Just trying to understand that and what that means as we think about 2026 and into the medium-term guide.

Yes. Thanks, Mihir. Yes. So that comment, I think, both Sanjay and I made reference to that. And it really was referencing the decline in contribution margins over the past year. And the really like -- the important thing to take away is that, that decline is expected, it's intentional, and it is the result of a few different things. One of those is a changing mix into these much larger product categories, but another one is the one you flag, which is the increased consideration of longer-term value coming from both customers and our business. And really, you can just think of that as it's a little bit like, we think Costco is like a much more valuable and bigger business than Whole Foods. I think we could certainly charge like Whole Foods because we just have such differentiated products to offer the consumer. But we don't want to take all of that surplus even when we can. Now obviously, if we need to, I think we could like in some years past, but we think we can ultimately build a much bigger business, getting more of the value to the customer and just winning a much bigger share of the market being the very best product, saving people and amount of money that's really share worthy. And so we're starting to do that.

Got it. And then as my follow-up, I wanted to ask about the partners you're signing up for some of the newer secured products. firstly, kudos of getting the balance sheet smaller, I think that's a good sign. But like just maybe just expand on the partners you're signing up for the secured products. Are they different? Are they -- is this more banks? Are they less yield, I guess, focused or is it like pretty similar partners as you have on the personal loan side?

Mihir, this is Sanjay. Yes. I would -- I guess the short answer is it's all of the above. In all of these markets, there's a traditional super prime segment, and there is relative to the existing markets, riskier segments. We've got depository institutions like credit unions and banks that are now working with us. And in the institutional world, we have a mix of existing partners who expanded their scope with us. And then some new partners as well who are maybe more specialized or focused in these specific secured segments. So as usual, we are building a very broad resilient supply chain that's designed to be essentially the broadest risk aperture in the segment.

And we'll next go to John Hecht with Jefferies.

Congratulations to the team for the executive evolution. First is just a quick modeling question. I mean, I assume the tax rate now, you've been profitable for a few quarters. What -- is there anything you could tell us about your expectations for the tax rate next year?

John, I would expect that our operating loss carryforwards will continue to be in force for 2026.

Okay. And then you guys talked about ABS markets and forward flow. And I think some of the bank and credit unions have been consistent buyers over time, too. But maybe can you give us an update on that channel? And any kind of expectations for changes there?

John, are you referring specifically to the ABS market or the bank channel?

Well, I'm interested in any changes to the bank and saving -- excuse me, and credit union channels and their appetite for purchasing loans.

I see. I think that the existing set of partners we work with in study buyers, and I would say, a sort of steadily increased appetite. As we scale up in these newer secured categories, I think they attract the interest of maybe a larger size institution. Certainly, the bigger size of bank than has been interested in unsecured lending. And so we're starting to develop those relationships in a very interesting way.

All right. And then you had pretty good growth in the core product both in the -- well, you had a good growth in the core product and the super prime product. Any -- and I know you talked about the average loan size, but anything you could talk about in terms of duration or other characteristics that we should be thinking about?

Let's see, duration in our core business has been pretty steady. A mix of 5- and 3-year terms. Obviously, the secured products have a slightly longer duration. So as they become a larger fraction of the mix, they will pull the duration up a little bit. But I think that they're still at a scale for such that their effect is not particularly meaningful.

And we'll go next to Reggie Smith with JPMorgan.

And Paul congrats on the promotion. And Dave, I had no idea you were 60. You're like Benjamin Buttons, aging backwards. But congrats on the move up as well. My question, I guess, you guys have approved like more than 2 million loans over the last 2 years. And I'm curious like how you guys would rate or think about your engagement with those borrowers during the repayment period, specifically with an eye towards selling additional loans and products. And I ask because I look at your app, and it seems like there are probably some low-hanging fruit from a feature perspective that could probably increase engagement. But I don't want to, I guess, kind of mistake that. So I'm curious how you guys feel about that. And you also mentioned LTV during your prepared remarks, is there any stats you can share around recent trends there because I'm curious what the repeat usage is or what's giving you confidence that the LTV is kind of bending and the right direction?

Well, Reggie, you've got a good eye and we do have a lot of job openings if you're looking. So I mean you're absolutely right. There is a lot of low-hanging fruit there. We are relatively early in our journey to really building on the engagement of our customers once they've taken out their first loan. We do have a lot of people that take out second loans in the same product or second loans in another product. But it's really a relatively nascent program that we've built and we don't even have it fully rolled out. We have more limited mobile cross-sell capabilities today. So there is a lot of low-hanging fruit, and we actually think this is going to be a very significant source of upside in the next few years is really getting that whole ecosystem working. We are starting to invest in it very seriously, both on the tech side, but also as we talked about in the contribution margin discussion on how we just think about the value of acquiring a new first-time customer. We don't have any metrics on this to share yet. But certainly, as this becomes more important, that's something that we'll consider.

Got it. Okay. No, that makes sense. If I could add one more. I guess I'm looking at the mix of loans this last year. And obviously, you've grown your mix of super prime. I see R&D auto HELOC all increasing in ratio, but they haven't increased a whole lot and the platform referral fee take rate has come down a lot this year. And so I'm trying to think about -- it sounds like these are going to be bigger pieces of the book, trying to get a sense for where this take rate can kind of go because it would seem like it's not really in the run rate just yet, but my numbers could be. Any color you can provide there would be great.

Yes, Reggie, there's a few dynamics going on. First of all, the newer businesses grew really quickly from a small basis. But the core business -- the core personal loan business growing very quickly itself. So the percentages there didn't like move as much as one would imagine when you get that kind of growth. But again, it's somewhat of a rich problem to have that all the products are growing really quickly. I would say, generally, in the personal loan product, also the super prime segment, you can think of that as 720-plus is the fastest-growing part of that. And when you put that all together, the percentage take rate would expect to be trending down. But at the same time, both super prime personal loans as well as these new categories tend to have larger loan sizes. The dollars that you're -- that we're getting from each aren't necessarily small, in fact, may be larger. So that's kind of the way to think about it. The percent take rate in some ways, may become less useful as a metric because these other products can be much, much larger, particularly HELOC, for example, and have a smaller take rate, but actually, the dollar margin on them is quite large. So anyway, that's -- it's sort of a bunch of things moving at the same time.

Got it. If I could sneak one more in real quick. Does your guidance, 3-year guidance contemplate any new products? And I'm thinking something like a smaller duration high-velocity loan, like I see some of your peers doing these kind of payday loans, but I guess duration 6-week loans. Are there any other products that aren't out yet that we should be thinking about as feeding this guidance?

Yes, Reggie, I mean, I think we've got a lot of exciting ideas. But with respect to financial guidance, I think you can assume that, that will be largely earned off the back of our existing portfolio, including the new growing products.

Next, we'll go to James Faucette with Morgan Stanley.

I wanted to dig in a little bit on kind of the -- some of the profitability or how we think about contribution, et cetera. And when we -- particularly as you push more into auto and home and when you think about sales and marketing, how should we be anticipating things like target unit economics and borrow acquisition costs for those loans and products versus your traditional personal loans?

James, let's see. In terms of acquisition costs, a bit of a, I think, a unique story to each product. Auto, in particular, as you know, is not a D2C product outside of refinance. It's one where we have enterprise software being embedded at the point of sale in the dealership. And so there's a go-to-market cost there, but once you're working with the dealership then per loan acquisition costs can look very low. And HELOC as well as a market where there's a big fraction of the market that is direct-to-consumer. And I think we would target a similar acquisition sort of margins per loan as we do in personal loans. Obviously, those loans are a lot bigger. So of course, a bit more dollar cost per loan. And then there's a large fraction of the market that is done again through maybe B2B type points of sale, either through contractors or in branch at existing institutions. And so there is a bit of a mix there in terms of what is D2C and what is sort of B2B, if you will.

Got it. Got it. And before I forget, and as I suppose my second question, congrats to everybody a lot of exciting moves for everybody personally, it sounds like. But on my second question, turning back to HELOC. Just curious are bars, are you getting any cross-sell from the existing funnel or from -- or is that from distinct acquisition channels? And then how do we think about the opportunity to cross-sell and how that may be built into your medium-term outlook and profitability targets?

Yes. We are absolutely doing cross-sell for HELOC. It's one of the most important strategies for acquiring HELOC today. And it's because a lot of people that naturally show up in our personal loans marketing have homes, and HELOC is just an incredibly efficient way to refinance other debt they have or get financing for a project they want to do. And historically, the reason more people didn't want to do HELOC as the process was so arduous. And as we increasingly automate that and make that our application to close process faster and faster. Today, we're at about 6 days versus an industry average of that process gets a lot closer to a personal loan like process and with the much better rates. I mean it's just an incredibly attractive product for many overlapping customers. So absolutely, we do a lot of cross sell.

Our next question comes from David Scharf with Citizens Capital Markets.

Reggie stole my Benjamin Button's observation, but congrats as well. to Dave and Paul and the whole crew. I wanted to take a step back and maybe just ask you for a little more color or the thought process on the guide? And specifically, maybe 2 questions. First is, as you noted that there was a kind of pretty substantial 20% reduction sequentially in the on-balance sheet exposure. As you look out 3 years, it's $2.5 billion of revenue, roughly, quite a bit of scale. Do you have a particular target in mind or how much balance sheet exposure you'd like to see when the business is at that level?

Yes, it's a good question. I don't think we sort of target a level of exposure. I think we think of it more as appropriately using our balance sheet as a tool to propel the business forward. And that, as we have said in the past, it primarily means incubating new product areas and proving out new parts of the model that we need to do kind of internally. And a little hard to project it would sort of depend on what new products were in the market with at those times. But just to be clear, we don't aim to be a predominant balance sheet lender of any sort. We don't aim to have NIM, net interest margin, as anything dominant in our financials. So we are using it as a tool. Again, our expectation, and if you look at our guidance for 2026, you can see it's almost entirely dominated by fee-based revenues, and that's how we see our business going forward. But we don't try to make specific predictions on it. We don't view a $0 balance sheet or 0 loans on the balance sheet as an ideal future state, it might, in fact, indicate we're not doing enough R&D or we're not innovating fast enough. So we always intend to use the balance sheet in that way.

And maybe just to add on to what was saying, David, maybe better said, our strategy, I would articulate on the capital side as being we want to build the largest and most resilient supply chain of third-party capital to power these businesses as we can. And as you know, our personal loan business, which is very mature, has historically been well into the 90% plus range in terms of our ability to fund it with third-party capital, and we want to get these new businesses to the same place.

And I just want to say, I mean, one of the outcomes of incubating and doing it properly with our own capital is we have 100% retention of private capital partners. So they're depending on us to deliver a quality product that performs as it's supposed to. Part of that is, again, eating our own dog food, if you will, for a period of time. And that has resulted in, as I said, 100% retention and I think a long list of other private capital or private credit partners that we can potentially work with in the future.

Got it. Understood. No, that's very helpful. And maybe just kind of one more follow-up. As we -- you think about the margin guidance for 2028, it's a notable roughly 400 basis point expansion from the 2026 level. Just trying to get a sense for how to think about -- I hate to use the word mature, you're not going to want anybody to use the word mature. But nevertheless, somewhat mature advanced margins if there's a ceiling. I know the company had a few quarters above 30% back in the 2021 late 2020 [ date ]. Do you view 25% is an informal kind of steady state level of profitability at scale? Or should we just think of that as nothing more than a 3-year medium-term piece of guidance?

Yes, it's a great question. The short answer to all the questions is just operating leverage. We expect to grow fixed costs by a fair bit less than we're growing the top line and also a fair bit less than we're growing contribution profits. Now we've answered a few questions about changes in the margin profile on the contribution side because of mix and getting into secured loans and lifetime value and all these things. And so that change within that 400 basis point move to that 25% EBITDA margin is really a whole bunch of different things that are happening. But ultimately, it's like -- we are building a much bigger business at the top of the funnel. That business is being built in categories that have slightly lower take rates and therefore, a lower contribution margins. But that will still significantly outgrow our increase in fixed expenses. That's partially just because naturally, we don't need we don't need to linearly grow all the fixed functions as we grow the business. There's just natural operating leverage in the business. But it's also frankly because we're pretty bullish about just how much productivity lift. We're already getting and will continue to get from adoption of AI internally and that we expect to continue to happen and give even more give us even more operating leverage. So I definitely don't expect 25% to be some kind of terminal state. I think if you were to break those numbers apart, there's a lot of room for to keep going higher. And at the limit, I think it can be approaching what contribution margins look like. And -- but just keep in mind that those won't be quite as high as they were, say, back in 2021, where the only thing we were really optimizing for was really like honing in on those profit levels as we're facing that macro pressure and top of funnel volumes were declining.

We'll take our next question from Kyle Joseph with Stephens.

Good afternoon, and yes, echo congrats to everyone. Most of my questions have been answered, but just kind of want to get your take, obviously, AI, at least in the last few weeks has been really disruptive to the market, whether it was software originally or data services or wealth management today. But just kind of want to get your updated take on the competitive environment and how you see the proliferation of AI impacting things? Obviously, I consider you guys to have an advantage there. But any updated thoughts.

Yes. Thanks for the question. We've been doing AI and lending long before really AI was even a term or people were talking about this in other contexts and categories. So I think we'd be really happy to see more players come into the AI lending world. I think it's still pretty thin ranks over here. And I think it's just good for the industry, it's good for the consumer, and we'd certainly welcome it. I think ultimately, if and when that happens, it's going to be a technology velocity question, and that's the kind of competition we like to be in, which is one where we think we've got a 12-year head start across data, across algorithms across infrastructure. But we're really still very, very early in the application of AI to this business and the industry. And so we expect our technology to get much better at a rapid pace. We talked a little about the amount of data that we have collected and how fast that's growing. We just cleared 100 million training data points over really the first 14 years of the company's life, but the next page is going to come that much faster. That unlocks all of these proprietary algorithms that we've been building for all these years and lets us build more complex models that just can't run on smaller amount data. And then wrapped around that is this infrastructure layer where as you get these more powerful models with much larger amounts of data, you just need the ability to deal with more memory problems, more latency problems, more cost problems, and you have to build a bunch of engineering infrastructure around that. And so it's definitely the sort of problem with a natural technology flywheel in there. And we think we've got both the best starting position and the fastest velocity. And -- so I think it's -- as more people get into this, we think that's going to be good for the consumer, and we think we're going to still be in a very good position to compete.

We'll go next to Rob Wildhack with Autonomous Research.

And congrats on all the new roles. On 2026 and the outlook there. You're exiting '25 at like a $300 million quarterly revenue run rate. You've got 1Q that's kind of a seasonal low say that's another $300 million. That would mean you have to average like $370 million in quarterly revenue for the rest of the year. And the high watermark for the company ever was, I think, $310 million back in '22 per quarter. So I'm just curious how you see this all coming together in like the revenue and I suppose volumes to ramping and accelerating throughout the year.

Rob, it's Sanjay here. I think of your back of the envelope math is roughly right. I've checked it specifically, but yes, I think you can assume that Q1 will be one with a bit of seasonal headwind and then from there, we'll continue our growth clip. And our growth story, hopefully, is familiar by now, but I think we've got a pipeline of exciting model wins and growth wins lined up to continue improving our funnels and allowing us to grow our campaign sizes at constant CAC, which will power our core business, allow us to continue taking share. And then, of course, we've got these new products that, as Dave said, have been sort of released into the wild now we -- I think we made in hindsight fortunate decision to continue investing in them. And now you're seeing the fruits of that labor. And I think they'll really begin to contribute in 2026 as well. So I think the combination of all of those things has us and our internal model is feeling pretty good about that.

Okay. And then a similar question on '28. Can you connect the 35% revenue CAGR to volume growth? I know you're not going to give like a '28 volume estimate, but just contextually, like how much of the 35% revenue growth do you see coming from maybe personal loans versus growth in the other products like home and auto?

Well, yes, we're obviously not sharing a more specific mix breakdown nor frankly do I think we could honestly tell you the exact mix in 2028. Now obviously, our new products are growing very fast. They're growing off smaller bases, but they are growing much faster than personal loans. So they're going to be a much larger share than they are today just because they're huge, they're huge markets. And ultimately, and I can't tell you if ultimately it's going to be in '28 or a few years after that. But I do think, ultimately, those products are going to be bigger for us in personal loans just because the addressable markets are that much bigger. And so it's sort of a question of getting there from here. And I think we're going to keep growing very fast all the years between now and then. And I think it's going to be a race between all of the categories, HELOC auto and unsecured and we're going to be doing cool stuff in all 3. The tech is going to get better in all 3. And the product is going to be just very, very competitive for the user on both best rate and best process. So I think it's anyone's race to win.

And for our last question, we'll go to [ Arvind Ramani ] with Truist.

I did want to follow up on the question on AI. And we've talked about this before. upstart has been working on AI for a very long time now. But the question I had is, with some of the broader advancements in AI, there is Upstart like sort of like able to sort of leapfrog what -- what are some of the advancements -- broader tech advancements have enabled you to kind of leapfrog some of the kind of AI kind of programs you all had internally And are there any segments where you are feeling a little bit more exposed just because like something that was special that you've developed is not more broadly available?

Thanks for the question. We're really big fans of all the progress in AI. It's a huge benefit for our business in a few different ways. We don't feel threatened remotely by it. We actually feel extremely grateful for it and I'll kind of explain why. So I would say just from the perspective of do we feel threatened by it. I mean the simple answer is just that a lot of the advances in AI are really good for work that humans are naturally good at. And I think that's what makes it really exciting. So what makes it really useful for so many different kinds of applications. But unfortunately, humans have never really been very good at precisely underwriting loans and figuring out the cash flows they're going to produce for the next 5 years. And that's something that has always been solved as a big math problem, better solve this big math problem. And so it's not something that you can just do because you have a language model that replicates human behavior, well, again, not something that humans are naturally good at. In order to solve this problem well, you need to have some pretty specific kinds of data that connect lots of information about people at the time they want loans historically with what happens later in the lives of those loans. And then you need very specific kinds of algorithms to connect those two things in a way that is going to maximize your signal extraction and that's what we've been working on for 12 years. And now turning to like why we're so grateful for all the progress. Well, one reason is actually that a lot of the advances in basic infrastructure or some of the basic types of algorithms that we then innovate and build on actually coming from all of this progress in AI. When you read about how many billions of dollars are going into funding all the R&D there, some of what comes out of there are just better kind of base algorithms or better kinds of infrastructure that then we get to use. Of course, you think about chips and compute and memory and all of the progress there, like we benefit from all of that. But then at the actual application layer like the types of models you actually need are just totally different. The types of data you need is totally different. So we sort of get the benefits, but we aren't really aren't really threatened. Now we do also get to use -- directly benefit from and use a lot of the AI technology that's now coming out we get to use that in new ways, ways that are different than what I thought -- think of as these big math problems that traditionally, we were really good at solving. We now get to do things like if you think about something like HELOC, and how you automate more and more of HELOC, will naturally because so much of the process of securing and perfecting a lean, checking like the property records like a lot of that stuff is mess in a human way and traditionally comes with very high operations cost because you have a lot of people that are checking to make sure things are right. Those are actually perfect problem to throw sort of LLM style AI against. And so we're doing a lot of work like that now. And that's actually going to help us get the rates of automation much higher in the business than would have been possible, say, 5 years ago. And we absolutely are excited to be at sort of forefront of applying AI in those ways. Of course, also, that's relevant to how we operate and how we make ourselves productive as a team. really relevant to the question of ultimately how much operating leverage the business gets. I think in all those places, we're super, super optimistic about AI. But ultimately back to the question of like how much does it threat. And what we've built over the last 12 years, I would say it's a huge boost, not at all a threat.

Great. And just -- that's really helpful. Just last quick follow-up on that. In terms of like kind of the AI apps and tools, right, I mean, you'll kind of use open eye, anthropic, lovable cursor, like who are your big I partners?

I mean we are happy to use we use all these models from all of the foundation model providers in the different kinds of uses that I described. But when it comes to the models that we use in our core lending business, those are all proprietary to us. They're ones that we've been building for the last dozen years or so. And those are not things that -- they're not directly built on top of anybody else's technology. And that's really because when I say that we benefit from some of the base algorithm innovations. It's like there are -- there will be a paper about a new kind of neural network, and we'll certainly ingest that we'll try out that new type of network. But actually to make it work as well as our models do on loans, you have to make a whole bunch of modifications to it to make it care about the right kinds of things naturally like you don't want it to be naturally interested, for example, in getting something right only in a 1 or 0, which a lot of these models are naturally set up to do. You wanted to really care about the whole series of cash flows, the timing of cash flows, like exactly how many dollars in sense. And -- so you have to change a lot of the internal math of these things to make them really optimal for our problem. And so those are all proprietary algorithms that we've built over many years.

Okay. And so that means the message I can take away is that you all have -- your tech stack is kind of so unique to you all that even if there's some advancements out there, no one can just like kind of just strip together the solution. This needs to be stitched together by hand. Like this is not like easy to replicate.

100%. Again, it's really important to just remember that the LLM models coming from Anthropic or OpenAI or any of the others, Gemini. They are really good at solving problems that humans are good at solving and they can do it at scale. They can work 24/7. You can spin up 100 of them in parallel and have them work. But no matter how many humans you have, you don't want that army of humans underwriting loans for you.

I'd now like to turn the call back over to Dave Girouard for any final or closing remarks.

All right. As we wrap up, I just want to thank each of you for your time and attention over the past few years. As I said earlier, my time as the CEO of upstart is something that I will always cherish. I couldn't be more bullish about the company's future under Paul's leadership. We are really just getting started and now more than ever, those who stay will be champions. Thank you for joining us today.

This does conclude today's call. We thank you for your participation. You may now disconnect.