Upstart Holdings, Inc. (UPST) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Upstart Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. Sonya, please go ahead.

Thank you. Welcome to the Upstart Earnings Call for the Third Quarter of 2026. Joining me today are Paul Gu, our Co-Founder and CEO; and Andrea Blankmeyer, our CFO. During today's discussion, 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. With that, Paul, over to you.

Thanks, Sonya. Thank you, everyone, for joining us today. I'd like to use the expression that the growth of our business is equal to alpha plus beta times macro. The idea behind this classic formula is relevant to every business, but especially important for understanding our results and outlook today. Since laying out our 2026 focus areas earlier this year, I couldn't have asked for better execution. The team has delivered durable compounding growth from technology and marketing advances at an exceptional rate. At the same time, our business is sensitive to macro conditions, particularly borrower health and interest rates. Those became a sizable headwind in Q3 and have gotten worse to start Q4. Looking back over the past few months, I've landed on 3 conclusions I want to share with you today. First, I'm proud of the team and our delivery in Q3. Our results were strong by just about any measure and exceptional when accounting for macro. Second, we expect a mixed finish to the full year relative to our original guidance. We see fee revenue and contribution profit finishing higher, but total revenue and adjusted EBITDA finishing lower. That's because macro has an outsized impact on revenue derived from our balance sheet. Third, I am more confident than ever in Upstart's long-term trajectory. That's not just obligatory CEO optimism. Macro comes and goes, but alpha compounds, and our results are proving we can deliver it. Let's talk about each conclusion, starting with Q3 results. Contribution profit, our best single measure of profitable growth in new originations, reached $218 million in Q3. That's up 48% year-over-year, a new record, breaking the one we set just last quarter. This result is strong, but it understates the underlying progress in the business. That's because our Q3 numbers, starting with origination volumes and cascading down the P&L, were held back by a sizable macroeconomic headwind. The Upstart Macro Index, or UMI, is our estimate of how macroeconomic conditions affect defaults on our personal loans. It averaged 1.5 in Q3, up from 1.41 in Q2, and we underwrote proportionately more conservatively. The explanation is likely pretty simple. Annual inflation reaccelerated to 3.7% with prices rising twice as fast as wages over the past quarter. Not surprisingly, consumer delinquencies have risen across a range of third-party measures. The share of all Americans at least 30 days late on any credit obligation jumped to over 19% in September, the highest level in years. Without that 9-point increase in UMI, we estimate Q3 originations would have been at least $370 million higher. In that scenario, year-on-year origination growth would have been 57% and contribution profit growth 61%. We earned that alpha in 2 places. In core personal loans, we improved the models, user experience and borrower ecosystem. In secured, we improved automation, conversion and monetization in pursuit of profitability. In Q3, we added over 140 new features to our core underwriting model, including numerous proprietary signals of how consumers engage with our platform before they take a loan. Combined with improvements to our algorithms and training process, our model's accuracy lead over a traditional credit scoring benchmark widened again. Our model is now 2.77x as accurate, and 87.27% of the inaccuracy gap is still ahead of us. That's our runway. We also use better models to reach more people. Our marketing programs and user experiences drove more than 1 million people to apply for an Upstart loan for the first time this quarter, bringing the cumulative number of unique Americans who have applied for an Upstart loan to more than 25 million, all while lowering our cost of customer acquisition. More than 555,000 unique Americans took out loans in Q3, a new record. And they are more likely than ever to come back. Over 250,000 of them were returning customers who had already borrowed with us before. Now to Secured products. We told you we wanted to be contribution margin positive by the end of the year. The team went all in and got it done in Q3. Secured contribution margin was a positive 17%, an improvement of more than 50 percentage points sequentially. I'll give a few examples of how we got there. First, we sold more of our secured loans to third-party capital partners and at better terms. Second, we increased the level of automation across our secured products. In home, nearly 40% of funded loans were fully automated with no human intervention by Upstart, up from less than 5% a year ago. In auto-secured personal loans, we significantly increased the fully automated rate over the last year from 4% to 21%. Third, in Auto Retail, we began optimizing dealer compensation around where we create the most differentiated value, and we rebuilt our credit application, increasing end-to-end conversion by 31%. These are young products in enormous markets. After locking in our margin gains this year, we'll gradually shift our focus back to growth in 2027. As we do that, we intend to hold secured contribution margin consistently positive between breakeven and 25% quarter-to-quarter as we refine our approach to growth in each category. Longer term, we expect those margins to resume their march upward as we create increasing differentiation and value for our customers, just as they did historically in core personal loans. Our other major focus this year has been capital efficiency. Loans held directly on our balance sheet declined to 4.8% of total loans outstanding in Q3. More than 95% of all Upstart-powered loans outstanding are now third-party funded with the bulk coming from committed partnerships. In exchange for commitments of up to 2 years, we co-invest in sharing the performance of those loan cohorts. Those partnerships are designed to make our funding base resilient through market cycles. Our priority now is reducing the share of equity capital our loan funding requires from us. Over the past year, we grew outstanding loans across the platform by 38% while increasing equity used only 7%. That's a good start, and we intend to keep going. Another project relevant to our capital efficiency is Upstart Bank. We are on track to open Upstart Bank in early 2027, subject to the remaining regulatory approvals. When that happens, we plan for most of the loans on Upstart's balance sheet today to move to the bank and become deposit funded, which will unlock net cash rather than consume it. As such, we expect capitalizing the bank will require no incremental equity capital. Once open, Upstart Bank will provide the many benefits we've previously shared, expanding our market reach, reducing operational complexity and providing more efficient financing for certain loans. As we've said before, it will not change our strategy of funding the vast majority of loans via third-party capital. Now let's turn to our outlook for the full year. In February, we guided to total revenue of $1.4 billion and adjusted EBITDA of $294 million. This assumed UMI went no higher than 1.5 and interest rates were flat or down. Since then, UMI has climbed 14 points from 1.39 to 1.53, while the 2-year Treasury yield has jumped by more than 115 basis points as of the end of October, with around half of that increase happening in September alone. Those are large moves, and I want to put them into context. We have previously shared our estimate that a 5-point increase in UMI, for example, from 1.4 to 1.45 reduces our daily originations by roughly 5% to 10%. Higher funding costs have a similar effect. Put simply, for each 1 point increase in UMI or 10 basis point increase in funding costs, we'd expect daily originations to fall by roughly 1% to 2%. This heuristic applies to our primary business model of earning fee revenue from new originations. But there is an additional way that macro impacts our P&L, and that is via the loans and co-investments on our balance sheet. Because these positions were accumulated over many quarters, they are relatively large. As a result, an increase in UMI causes a significant reduction in fair values and net interest income. The impact to total revenue and profit from this is actually larger than the impact from reducing new originations. Higher interest rates also lower fair values, albeit to a much lesser extent. Combined, these effects have created a substantial macro headwind for us. Without that pressure, we believe the full year will be trending well ahead of our original guidance on every line. As it stands, we've outrun the macro on the metrics tied to new originations and now expect full-year fee revenue and contribution profit to modestly exceed our original guidance. However, income from the balance sheet is tracking well below our initial outlook. In addition to being more sensitive from macro, as I just explained, this line item, unlike fee revenue, does not benefit from most of our advances in technology and marketing. As a result, we now expect full year total revenue of approximately $1.35 billion and adjusted EBITDA of approximately $260 million. This updated outlook assumes UMI does not exceed 1.55 through year-end and no material change to 2-year Treasury yields from current levels. Finally, I said I'm more optimistic than ever about the long term. It may sound like an odd conclusion to draw when macro is worsening and we're missing on profit, but it's the truth. I'll say it again, growth equals alpha plus beta times macro. Mathematically, alpha is the difference between actual results and the results you'd expect from macro alone. Our nominal contribution profit accelerated to 48% year-over-year in Q3, well above what is implied in our multiyear guide. Without the increase in UMI, we estimate it would have been at least 61%. On a full year basis, it is remarkable, frankly, that despite the 14-point increase in UMI and over 115 basis point increase in interest rates, we still expect to generate more fee revenue and profits from new originations than we expected at the start of this year. Beta. Beta is the sensitivity of our balance sheet-derived income to macroeconomic conditions, and it is high today. Fortunately, we're already bringing it down as we reduced the ratio of Upstart equity dollars required to total loans funded. We expect that will continue. Macro bounces around. Sometimes it's a plus, sometimes it's a minus. UMI has gone down in exactly 15 of the last 30 quarters. Same for interest rates. My own view on macro reminds me a little of Warren Buffett's New York Times piece in 2008 called "Buy American. I Am." American borrowers are hurting this year because inflation flipped real wage growth negative. But this is the United States. People get back on their feet, real wages rise over time. The macro will take care of itself. Most importantly, we're proving the Upstart engine. Execution against our years-deep technology and marketing road map delivers alpha at an exceptional rate. Keep compounding that, and I believe no matter what, Upstart becomes an extremely large and profitable company. With that, I'll turn the call over to Andrea.

Thanks, Paul, and good morning, everyone. In Q3, our focus on core personal loans, improving secured unit economics drove record contribution profit. Combined with expense discipline, we delivered higher GAAP net income and improved capital efficiency against a harder macro backdrop. I'll walk through the quarter, then discuss our revised full year outlook. Total originations were $4.1 billion, up 44% year-over-year. Within that, Unsecured originations were $3.5 billion, up 33% versus last year, including Core at approximately $2.45 billion. Secured originations were $587 million, up 194%, with auto loan volume roughly tripling and Home roughly doubling relative to Q3 of last year. Total revenue was approximately $371 million, up 34% year-over-year. Revenue from fees was a record $364 million, up 41% year-over-year. Unsecured lending contributed $330 million in revenue from fees, up 30% year-over-year. Secured products contributed $34 million, up 538% year-over-year. Take rate, which we define as revenue from fees as a percentage of total originations, was 8.8%, up about 60 basis points from 8.2% in Q2, with both product categories improving sequentially. Net interest income and fair value adjustments totaled approximately $6 million, down $12 million or 65% year-over-year. Two main things drive this line, the average balance of loans we hold and the expected credit performance of those loans and the loans underlying our beneficial interest. Sequentially, this line declined about $10 million. Roughly half of that decline was fair value write-downs and charge-offs as average UMI increased from 1.41 in Q2 to 1.5 in Q3. The other half reflected the debt sale in Q2 that did not repeat. Rising benchmark rates had a minimal impact on our fair value position in Q3. Next, Contribution Profit, which is our non-GAAP metric defined as revenue from fees minus variable costs for borrower acquisition, verification and servicing. Contribution profit reached a record $218 million in Q3, up 48% year-over-year. Contribution margin was 60% versus 57% in Q3 2025 and 55% in Q2 2026. The 5 percentage point sequential increase was driven by margin improvements in both our unsecured and secured categories. Unsecured contribution margin was 64%, up 2 percentage points from 62% in Q2, reflecting a higher take rate, along with lower borrower acquisition cost as a percentage of originations. Secured contribution margin was a positive 17% compared with a negative 35% in Q2 and roughly 200 percentage points better than Q3 of last year. A higher take rate and lower borrower acquisition costs helped us reach a positive contribution margin a quarter ahead of our target. As Paul mentioned, we expect more quarter-to-quarter variability in this margin than in unsecured as we scale these businesses, and we intend to hold it to a band of breakeven to 25%. GAAP operating expenses were approximately $335 million in Q3, up 32% year-over-year and down 4% sequentially. Within that, variable expenses -- borrower acquisition, verification and servicing costs -- declined 6% sequentially with borrower acquisition costs alone down 11% to $91 million. Fixed expenses, defined as total operating expenses minus borrower acquisition, verification and servicing costs declined 3% sequentially to approximately $188 million, better than the low single-digit growth we guided to in August. Within that, stock-based compensation was $41 million, down from $46 million in Q2, reflecting seasonality in how we recognize this expense. Excluding stock-based compensation, fixed expenses were roughly flat sequentially. Net income was approximately $37 million, up 15% year-over-year with a 10% margin. Diluted EPS was $0.33 based on a weighted average diluted share count of 125 million and reflects the assumed conversion of dilutive convertible senior notes, consistent with GAAP requirements. Adjusted EBITDA was approximately $89 million, up 26% year-over-year with a 24% margin. Turning to funding and capital efficiency. As Paul discussed, we're focused on supporting platform growth with proportionately less equity capital, bringing down the beta in his equation. To measure our overall equity capital use, we combined the equity supporting: one, the loans on our balance sheet; two, our co-investment exposure alongside committed capital partners; and three, our retained interest in securitizations, all net of related financing. Taken together, the overall equity efficiency of our platform has been improving. Total equity capital used represented 9% of our total platform loan balance outstanding in Q3, down from 11.6% a year ago. That improvement reflects the declining share of loans held directly on our balance sheet, even as we increased our co-investments alongside committed capital partners. Capital ultimately flows to the assets with the best risk-adjusted returns. We've been able to grow our capital partnerships on better terms over time because of our strong credit performance. The average return of our last 12 quarterly loan vintages exceeds U.S. Treasuries by approximately 660 basis points. Next, Upstart Bank. I'll explain how we expect to fund this launch and transition loans from the parent company, subject to the remaining approvals. First, we'll capitalize the bank with approximately $404.1 million in cash and servicing assets. Second, Upstart Bank will raise brokered deposits through deposit partners. We have agreements with 2 major partners, giving us the ability to raise ample deposits shortly after the bank launches. Using deposit funding, Upstart Bank will buy most of the existing loan book and begin funding new originations on our network. Third, the equity funding underlying the existing loan book will be released as cash and we'll take orderly steps to pay down the related warehouse facilities. We expect our co-investments in committed capital partnerships will remain outside of the bank. The net effect of these transactions is expected to be an increase in our consolidated cash balance. We expect these transactions to take place over several weeks following the initial bank capitalization. Illustratively, using our actual Q3 balance sheet, these transactions would result in pro forma consolidated unrestricted cash of over $1 billion, and the bank would have a Tier 1 leverage ratio and a total risk-based capital ratio well in excess of our required minimums. Turning to October and our full year outlook. October originations were approximately $1.25 billion, with daily volume down 9% versus September and up 26% year-over-year. The sequential decline reflects 2 macro headwinds, UMI rising over the course of the month and benchmark-driven increases in funding costs in September flowing through to borrowers and pricing in October. Those pressures weighed on volume even as our models continue to improve. October is a useful starting point for our outlook as benchmark-driven increases in funding costs are already reflected in October's pricing and volume. For the full year, we now expect approximately revenue from fees of $1.32 billion and total revenue of $1.35 billion, contribution profit of $750 million, up roughly 41% year-over-year. Adjusted EBITDA of $260 million, representing a 19% margin. Relative to our original outlook, we now expect higher fee revenue and contribution profit, but lower total revenue and adjusted EBITDA. Our execution has more than offset macro pressure on the metrics tied to new originations. The reduction in our outlook reflects lower net interest income and fair value adjustments, primarily driven by higher UMIs. Our latest UMI reading is 1.53, above the average we saw in October. Our updated guidance assumes UMI remains at or below 1.55 through year-end and no material change in 2-year Treasury yields. With October originations known and only 2 months remaining, we have greater visibility into full year fee revenue. Fair value adjustments remain more sensitive to changes in macroeconomic conditions across our existing loan portfolio. To close, we entered the final months of the year with record contribution profit, positive secured contribution margin and improved capital efficiency. Our focus remains on building on that product while maintaining expense discipline. With that, operator, we're ready for Q&A.

[Operator Instructions] We'll go first to Dan Dolev with Mizuho.

Nice results. Can we ask you a little bit about the growth in home loans? We thought this was like a really nice thing. There is a lot of strength in the home loan growth. How do you feel about selling those versus some of the other loans? And how you feel about this market overall?

Dan, thanks for the question. Yes, we're really excited about our home loans business as we are really about, at this point, every product that we're in, every business line that we've got is one we have a lot of conviction in. So we're really, really focused as a company. And in this quarter, we were so -- we were hyper-focused on getting the secured products to profitability. What we shared over the last couple of quarters is that, that was our real #1 priority for the secured product teams. And I'm really proud of what those teams pulled off is they did a really hard pivot to just focus on margin, getting above breakeven. And you can see in this quarter, we did it a whole quarter early before the end of the year. We're at -- did a 17% secured contribution margin. And yes, we absolutely expect a lot more growth out of these products. But to me, the sort of first order of business was getting to profitable. We have a little bit more work to finish up some of the efforts there that will really be what we do this year. And then as I said, in 2027, our attention is going to turn back to growth, and we certainly expect this to be a really big part of our future.

We will go next to Kyle Peterson with Needham.

I guess I wanted to start out on interest rates and kind of the moving pieces kind of impact on the model. So, Paul, heard your comment that, obviously, I think there's a bit of kind of volume and approval choke-off with the higher rates. But I guess, is that the full impact that you guys expect? Or are there any kind of knock-on impacts from funding partners? I'm assuming their cost of capital probably ticked up a little bit in October as well. So I just want to see if there are any other kind of second derivative impacts we should be mindful of with regards to rates.

Thanks for the question, Kyle. Yes, for everything we sort of know as of today, the impact of rate increase that we saw in September and where rates were in October is fully reflected in the pricing on our platform in October. So our October originations are reflective of the pass-through of that cost of capital to our platform and our pricing. Just kind of stepping back maybe to say a little bit more about how rates kind of show up on our platform and in our funding costs. At a high level, you can think about most of our institutional capital as kind of being most levered to 2-year Treasuries on average, and our depository and bank capital kind of being benchmarked to Fed funds. So that's kind of the mix of benchmarks kind of on average underlying our platform. And as a marketplace, what we're typically doing is updating pricing on the marketplace on about a monthly lag. So to the extent that we see rising rates in the month of September, as we did, for the most part, that is flowing through into pricing on our platform and funding costs in the month of October. The final thing I'll just maybe comment on is that while we've seen Treasuries up 120 basis points over the course of this year, that hasn't necessarily been the effective funding cost passed through to our platform. Over the course of this year, we have seen across our cost of capital improved spreads and improved cost of funding that has partially though not fully offset that increase in rates.

Okay. That's helpful. And then I guess just as a follow-up, I really appreciate all the color you just gave on Upstart Bank. I thought that was great. But I wanted to see if you guys could provide any color on where take rates should go for loans originated by the bank once it's up and running. I guess I would assume it's directionally better if you can originate directly. But any color there on kind of what the unit economics would look like for a loan originated through the bank versus through a conduit bank would be very helpful.

Yes, that's a great question. And so one of the benefits of the bank charter will be improved economics for Upstart in that we will no longer need to pay the fees and accrued interest to our bank partners that are originating loans today. So we will retain those economics. And so in expectation, we would expect to see modest improvement in take rates as we transition to Upstart Bank as we will be retaining fees that we currently pay to our originating partners today as well as a modest improvement in net interest income as some of the economics to those parties are flowing through interest income line.

We'll go next to Peter Christiansen with Citi.

Paul, I guess, how should we think about UMI staying around these kind of levels, 1.55, 1.53-ish throughout next year? And I'm curious how do you think about Upstart still growing fee revenue, contribution profit at attractive rates? Or does the longer-term framework require some improvement in consumer credit conditions from here?

Yes, Pete. Well, first of all, I think the thing I always say is we don't claim to predict future changes to macro conditions. We don't have any special view on what's going on in Iran or the war, oil prices. I mean I think everyone's just got to have their own models for that and where interest rates and inflation are going. But we do pride ourselves on being the fastest and most precise to respond to that, at least as it relates to consumer credit, and that's what we do with the UMI. I would say in terms of our longer-term outlook, I think the results today, what we basically said was, hey, in the near term, the macro has a pretty large impact on our results, particularly via the sort of balance sheet component of our business. But actually, on a longer-term basis, we're feeling really optimistic about the state of the company. And that basically comes from this framework around how much of the performance we've seen is alpha, how much of it is really just the macro. And in the kind of medium term, I think if the macro kind of takes care of itself, that will mostly just means it kind of stays around where it is, then we're really optimistic that the rate at which we are delivering alpha, the rate at which we're generating growth that is tied to our advances in technology and marketing is going to be plenty to sort of sustain the kind of multiyear growth that we've talked about and that we've guided to. So we actually don't think that we need a tailwind from macro, but certainly, a headwind is going to subtract against whatever efforts we're putting in. But right now, we're feeling really optimistic that the rate of progress we're generating is going to be very good in a flat -- or in a flat environment.

That's helpful. And then I do want to ask about the secured contribution margin. Great to see that now positive 17%, quite a flip in 1 quarter. Just trying to get a sense of how sustainable that is. Is the improvement coming from, I guess, more structural operational improvements or scale versus just favorable loan sale execution and funding market conditions?

Yes, it's all of the above. As I said, we put a real focus on getting these secured products to profitable and really every team touching those products. What they had in their mind was how do I improve the margins of this product. And so certainly, loan sales is a part of it. There's sort of both a mechanical and accounting part of it. There's a real part, which is about getting the deal terms right so that we're earning the right take rates on those products, the right fee revenues. There's sort of real improvements in automation, which I talked about. That's true in both the home and auto products. Just more automation is both better for conversion and better for cost. And then there's some wins in monetization and figuring out where we generate the most value and capturing that in an intelligent way using models there. And so all across the board, I would say really everything got worked on. And I said that we need to lock in some of these gains the rest of this year, and that's just because we did so much in such a short period of time that we want to really make sure everything is ready to scale before we go back to focusing on growth.

We'll move next to Patrick Moley with Piper Sandler.

So I wanted to ask on expenses. Year-over-year, engineering and product was up about 45%. Total OpEx was up around 32% in the quarter and 38% year-to-date. So with the implied 4Q EBITDA margin in the high teens, I was wondering how you're thinking about fixed cost growth into next year. Is the plan to let margins keep or compress and keep investing in the models? Or should we expect headcount growth to slow from here? And then how does that square maybe with the 25% longer-term margin target for 2028?

Yes. Thanks for the question. So implied in our guide, what we expect from Q4 is that expenses -- fixed expenses will be about flat from Q3 to Q4 after a modest sequential decline here in Q3. Stepping back as we look at the sort of total arc and trajectory of 2026, this has been a bit of an investment year for the business as we've invested forward in laying the groundwork for our newer secured products, which have just slipped to contribution margin positive this quarter as well as making forward investments in the bank. And so as we look ahead to 2027 and beyond and certainly as implied in our 25% guide in 2028, our expectation is that we'll see improved operating leverage in 2027 and 2028 than we saw here in 2026 as the fruits and the products of those investments start to come forward.

We'll go next to Simon Clinch with Rothschild & Company.

I wanted to go back to the prior question around how to think about growth when the UMI stays around this kind of level, the 1.53 to 1.55 level. I was wondering if you could talk about the -- I guess, the ability for the company to calibrate to a high level of UMI and what kind of structural growth can therefore be delivered and how long that might take for you to calibrate to those levels?

Yes. We think it bakes in pretty fast. We don't, as a company, count on macro getting better. We're not hoping for a macro tailwind to really push the business forward. And this really comes back to this idea that there's an alpha component to growth and there's a beta component to growth. And I think there are some truly cyclical businesses out there that are just sort of hoping that the macro gets better, and that's what powers their growth. And that's not us in any way, none of our numbers, none of our forecasts, none of our guidance is built on the idea that we're waiting for interest rates to come down or waiting for UMI to come down. Really, the growth driver in our business is kind of this Upstart road map around technology and marketing. And we think there's a multiyear long road map where we can keep delivering alpha at an extremely high pace like we've been coming back to this idea that in Q3, in spite of this 9-point average increase in UMI, we did 48% year-over-year contribution profit growth. And if you took that 9 points of UMI increase out of the equation, it would have been like 61% in contribution profit growth. That's what we think about as sort of the rate at which we're delivering alpha, the sort of secular rate of growth when you sort of denoise the graph and take out the macro part of it. And so obviously, if the macro is just flat, even if it's flat at a high number, and we keep delivering a significant rate of sort of alpha-driven growth, then I think the business is going to do really, really well. And so that's kind of how we make our forecast, how we build our business plan. And because of that, we're extremely optimistic about the long term here.

Great. And just a follow-up as well. Paul, you mentioned the -- I think it was 250,000-plus repeat customers. I was wondering if you could just give some color around the characteristics of those? How many products are they buying? How much of that kind of repeat penetration opportunity there is with each -- just within those repeat customers alone?

Yes. That is a combined metric. It is a metric that covers both people who are taking out repeat using the same product as well as people switching to a different product. And obviously, this is a pretty new dynamic in our business and one we're really excited about. We used to just have essentially one product, personal loans, and there wasn't a lot else for people to do. And now we have this whole suite of products around home and small dollar and Cash Line and we have the HELOC product. We have the auto secured personal loans. So there's a lot of different products that a consumer could engage with. And I think as we complete building out the consumer product suite, we expect this to be a more and more important dynamic. And that's why we started sharing some of these metrics around there are 25 million unique Americans that have applied for credit with Upstart. I mean that is a huge number. And I don't think there are a lot of other platforms that have that kind of reach. And as we keep growing that number, I think it's going to become increasingly important for us to just sort of do marketing within the sort of ecosystem of people who already know about Upstart, who already have data shared with Upstart, who already have a kind of relationship and trust in Upstart. And I think as we just have more products, each of those products becomes better and people get to know and trust us. I think that's going to be a really powerful customer ecosystem.

We'll go next to John Hecht with Jefferies.

Andrea, you sounded like the take rate was up in the quarter as you passed on some fee increases through the channels. I'm wondering, was that across all products? Was there any of the products that had a steeper increase in take rate? And are there -- is there any ceiling like from a competitive factor on your ability to increase your fee structures?

Thanks, John. Yes. So we did see our take rate improve from Q2 to Q3 by about 60 basis points, and that was driven by improved take rate across both unsecured and secured. So I wouldn't necessarily characterize the main driver as kind of increasing fees through to the borrower. So on the unsecured side, the main driver of the increase in take was modest mix shift towards core personal loans, which inherently has a higher take rate versus prime. And on the secured side, we saw a very meaningful improvement in take rate really driven by: one, increased sell-through of loans to third parties; two, improved execution on those deals; and three, some degree of the monetization that you're referring to. So continuing to optimize how we think about origination and other fees charged across those newer products. So those are really the sort of 2 drivers. There's a mix dynamic and then the sort of the broad improvement we saw in secured as we're selling more loans through at improved deal terms.

I was just going to jump in and just to remind everyone that the take rate number really isn't a number that we manage the business to. It's just -- it's kind of like an output of the system, but we aren't every day thinking about, hey, what's the right take rate for us. Really, we think about contribution profit, and that's sort of the North Star for us.

Okay. That's helpful. And then turning to funding. I mean, I think a majority of your loans are invested in the forward flow type contracts. As we get into next year, what -- do you think that mix will change? Or will you still have a focus on that, particularly given your desire to kind of optimize or minimize the capital requirements? How do we think about your goals for funding next year?

Overall, I'd say that we are -- so one, sort of growing the committed capital partners as a proportion of our funding has been an important strategic objective for us to help improve the resilience of our platform through the cycle. And what I'd say is that we sort of like the level that it's at today. So as of Q3, about 68% of our platform was funded from committed capital partnerships. That's about the right level from our perspective on a go forward. And so our expectation is that, obviously, with some plus or minuses over time, we would expect that level to stay about constant over the next few quarters. And that translates and helps translate through to as we think about improving the equity usage of our overall platform. And so as we look to improve the equity usage of the overall platform, one level will be sort of that line item stabilizing versus continuing to grow. Two, we expect that the committed capital partnerships will increasingly start to cash flow out to us. There's some lag to cash flow there, which will reduce equity usage associated with prior vintages. And third, we continue to expect that as we renew our committed capital partnerships, as we've seen in the past, we'll drive better deal terms against those, including on the amount of capital co-invested. So overall, sort of stepping back across the platform, very important to have a proportion that is in these committed capital partnerships for overall stability and resilience of our platform. And we think the level that we're at today is about right. And so holding that level constant along with the 2 other drivers, we do expect that to contribute to reduced equity capital usage on the platform on average over the next multi-quarter period.

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

I wanted to ask -- I wanted to start with UMI and just go back to the impact on the business. I think you've quantified the impact on originations. But what about on the balance sheet? I think like to put a finer point on it, you've assumed UMI stays at or below 1.55. But if it moves to 1.6, can you just help us quantify the incremental balance sheet impact -- like how much of the credit deterioration is already reflected in fair value and how much could potentially come in more as UMI moves?

Yes, it's a great question. And you can sort of see in our P&L and our balance sheet that even over the last couple of quarters in Q2 and Q3, we've been reflecting negative fair value write-downs associated with our risk capital position, so the beneficial interest. And so that line item moved from a positive $13 million in Q1 to negative $7 million, $8 million in each of Q2 and Q3, respectively, which is reflective of sort of credit and default pressure on those populations largely driven by the increase in UMI that we are seeing broadly. And so as we've guided toward an expectation in Q4, as UMI has risen to 1.53 over the course of October, our expectation is that in hitting that $260 million of adjusted EBITDA, UMI at 1.55 or below would allow us to kind of deliver that. We are sort of looking ahead, allowing for some degree of variability in the fair value mark as of the end of Q4. The flow-through from UMI to fair value is not necessarily a direct one, though, of course, it is highly correlated as UMI is a measure of the macro-driven default risk of the population. And so it has a real impact on the fair values and hard to quantify that exact amount specifically. And what we will say again is that in that $260 million of adjusted EBITDA for the full year, assuming UMI of 1.55 or below should be able to deliver that.

Got it. Okay. And then maybe just turning to credit and credit performance. I think you highlighted 660 basis point premium to Treasuries over the last 12 vintages. But maybe talk about the most recent vintages against your loss expectations as UMI has moved higher. Are they all currently running above expectations?

Thanks for the question on credit, Mihir. There's some variability in the credit performance vintage to vintage. And so we don't have like vintage-specific disclosures that we release. But you are generally right that all else equal, when UMI is shifting up, it means that our -- what we are observing is that the same borrower is more likely to be delinquent or default compared to an environment where UMI is lower. And so mechanically, that does tend to mean that loans that were underwritten in a lower UMI environment are going to have more delinquency or more default in a higher UMI environment, just sort of, I think, kind of mathematically how that mechanic works. But having said that, I think there's a couple of important things to keep in mind. One is that we really think about the accuracy of our models as being relative to UMI. And that's because, ultimately, again, we don't control or predict what's going on in the background macro conditions. What we can do is be the fastest and most precise in responding to macro, whereas kind of traditional credit metrics give you a bit of a lagged or a compounded view of what's going on in true macro as opposed to maybe what our underlying mix effects or timing effects or cohort effects. The UMI system is really good at giving us a clear read of what is really attributable to macro. And so we can get that faster and more precise response that means newer vintages can get underwritten correctly on a much faster time line. And then we can really judge how our models performed relative to what's gone on in the UMI. So yes, if UMI stays elevated at 1.53 or 1.55 for the rest of the life of these loans, and they're going to have higher delinquencies than if it had been at 1.5 or 1.4 for sure. But we think separation accuracy, the thing that really our models are best-in-class, that's something that matters in any kind of macro environment. And then the second thing I would say is we talk about returns relative to Treasuries as a benchmark because really, it's that spread, that's the number that investors are really earning. That's really the sort of thing you get by partnering with Upstart and buying our loans. And really, by any measure, I think those spreads are really healthy, really good. And as you can see ultimately that investors and capital partners are still really excited to partner with us and buy our loans, and we're still continuing to grow and improve those programs, and that's the ultimate testament that we're delivering good risk-adjusted returns.

We'll go next to Arvind Ramnani with Truist.

I just wanted to ask like as these AI models are getting bigger and kind of more complex, how should we think about kind of compute cost per loan? Does it really kind of scale with your originations? Or does it really come down with volume?

Yes. It's actually a great question. And it's interesting that you asked because I think typically in lending businesses, compute costs are not a real thing to worry about because mostly if you're using kind of a traditional credit model, it's just not going to be that expensive to compute and do inference. In our case, inference is a real cost, training is a real cost. And these are things we think about, and these are things that have shown up in some of our financials in 2026, and it's something that we actively put a lot of effort into optimizing. And so that's -- there's a bunch of efforts on the training side. There's a bunch of efforts on the inference side. Some of that is really kind of like low-level stuff in making the actual computations more efficient, and we just -- we do a lot of computation. So it ends up getting pretty expensive. I think we actually did make a lot of progress on this over the course of the year. It's been a real focus area for us. And I think that's one of the things that when Andrea talks about us getting more operating leverage relative to sort of the OpEx growth that we expect to see. This is one of the things that is getting better and we feel better about. So it's actually, I think, going to be increasingly an area of competitive advantage for us. It's something we've invested in that I think most others in the lending world just haven't had too much reason to think about yet.

Yes. No, that's great. And I guess as far as the investment, do you own some of the infrastructure here? Or are you kind of using outside vendors, particularly on the compute side?

We use cloud vendors. Yes, we don't have our own on-prem servers.

We will go next to Reggie Smith with Loop Capital.

Really good numbers on the fee take rate. I know you don't drive the business that way, Paul. But just curious, thinking about kind of recent origination trends. And I'm curious about the duration of the loans and whether or not you've seen a lengthening of duration because I believe that, that can impact kind of upfront economics for you guys. And also curious about thinking about like where, I guess, your weighted average coupon is for some of these core loans today and how much headroom you have to raise rates if treasury yields continue to rise and being mindful of kind of APR caps and things like that. So anything you could tell us about the duration mix of new originations and the weighted average capital coupon rather would be helpful. And then I have one UMI follow-up.

Thanks, Reggie. Yes, on the overall duration, it's been relatively consistent. So our personal loans have about a 1.8-year weighted average life, auto, about 2, home about 3 years. So maybe a little bit of modest mix shift to secured has extended the duration very modestly, but it's not particularly visible on an aggregate basis. And then your question on -- can you remind me the second part of your question?

Weighted average -- real quick, sorry -- just on duration, I'm really focused on the core loan product. And so I'm curious whether that duration in terms of new originations has lengthened at all as you've seen better fee revenue.

No, no, that's been relatively consistent. And then on the weighted average coupon front, you are right that we are originating given the borrower that we are often focused on in the core at higher APRs that often approach a 36% interest rate cap. And so kind of the sensitivity to our origination volume related to that is all embedded in the UMI and funding cost heuristic that Paul provided. So about a 10 basis point change in funding cost that flows through the platform or about a 1 point change in UMI would be expected to drive a 1% to 2% change in originations. And that sort of sensitivity and relationship includes several things, but also includes the impact of where we sit from an APR perspective relative to the cap.

Okay. That makes sense. And if I could sneak one last one in on the UMI. And just thinking about unemployment levels, they're still fairly low from a historic perspective and UMI is already at kind of 1.53. How should we think about that sensitivity if you were to see an increase in unemployment, like how might that impact UMI?

Yes, it's a great question. Whenever we talk about macro, I think there's always some confusion around what macro is for us and which parts of macro really matter. People always say things like, oh, well, the American consumer seems to be really healthy. People are still spending lots of money and buying lots of stuff. And I'm always like, well, we don't like it when people are buying lots of stuff. That's actually not the macro that is good for us. And I would say recessions and employment, sort of the typical measures that people talk about are probably somewhere in between. They certainly do matter to us. But they by themselves probably aren't the whole story or the most important story. What we really have been very focused on are things like real wages, how much money is coming in versus how much is going out. Interest rates obviously matter. We talked about that today. And so I think typically, in a recession, if you see unemployment go up a couple of percent, that's certainly all else equal, a bad thing, but then you'll typically also see inflation lower, you'll see interest rates lower, and those things will be a real positive. And depending on the magnitude of those things, it could end up being sort of positive or negative to the overall business. And that's just because if unemployment affects narrowly only, say, you get -- if you get unemployment going from 4% to 6%, for example, that's 2 percentage points of the population that are negatively affected. But then the other 98% are getting the benefit of maybe lower inflation and lower interest rates, you could easily see how the math could go either way on that. And so we don't tend to be hyper focused on that as a metric. We do spend a lot of time thinking about things like real wages, the sort of personal savings rate, interest rates. And I think those things have been historically a much bigger driver of what kind of macro matters to us.

We'll go next to James Faucette with Morgan Stanley.

It's Michael Infante on for James. Just circling back on the fair value marks again, I think when I look at the underlying discount rate disclosure in terms of the loans that are actually held in consolidated securitizations, I think it's closer to 11.75%, still roughly, call it, 200 basis points below the late '23 peak. So how should we be thinking about the incremental earnings pressure from further discount rate increases, particularly as we think about constructing our models out to '27? And then secondly, just on the beneficial interest dynamics, like can you just comment on how your cash contribution or maximum loss -- maximum loss exposure per dollar has sort of changed when we look at this gradual increase in beneficial assets as a percentage of associated loan balances?

Yes, absolutely. I'll take that one. So on the fair value sensitivity to discount rates, a good place to look is in our Q, we sort of share the sensitivity to about 100 basis point move in discount rates. In aggregate across both our whole loan book and the beneficial interest, that is about $16 million or so. So in the scheme of things, relatively smaller impact to our fair value are changes in discount rates and a relatively larger impact comes obviously from changes in expectations around credit performance. But you can kind of look to that heuristic as helpful to help you kind of size potential impacts on a go forward. In terms of the cash contribution as a percent of originations, so that number, if you look at on a year-to-date basis, so through the first 3 quarters of the year, it's been about 3% on the total origination volume. So we've acquired about $400 million in beneficial interest assets about just south of that against just south of $12 billion or so of origination volume. And so you can sort of see that marginal use is lower than the overall aggregate platform equity use and expect to -- especially as the older deals start to cash flow more to contribute to the reduction in equity capital used on average across the total platform.

That's really helpful. And then, Paul, just a quick follow-up on the conversion rate. I saw that you guys intend to discontinue that conversion rate disclosure. Can you just elaborate on why? Because I just -- I'm curious, just given it seems to at least reinforce like the selectivity of your model and the available growth that is still out there as you drive incremental separation. So I'm curious if you could elaborate on that specifically.

Yes, sure. I think the conversion rate was really a good metric back when we were kind of like a single product, single-use company. And really like what we did was we acquired new people for personal loans. And really, they were kind of personal loans in one segment, the segment we now call core. And I think it was a pretty useful metric back then. Increasingly, as we've had new products enter the mix, new segments of borrowers enter the mix, both on the prime and the less prime end of products that just have really like different conversion dynamics. And then we have this -- as we talked about today, we've got 250,000 people in the quarter that came back for a loan that was their second or third or fourth or nth loan. And those dynamics really kind of start confusing what this conversion rate thing really measures. And it no longer kind of obviously is like up is better or down is better. It just sort of became a metric that unless you controlled for all of these different factors was not going to tell you a clear story. And so that's why we're kind of focusing the shifting to some of these different metrics, especially metrics that tell you about this kind of repeat borrower ecosystem, how many people are -- how many new people are coming, how many returning people are coming and then, of course, sort of ultimately, you'll see the kind of product-specific growth metrics.

We will go next to Kyle Joseph with Stephens.

Appreciate all the color you guys provided on the bank, and I know it's too early, but from a high level, how are you guys thinking about the potential margin expansion possible there once that deal is done and how quickly that will ramp? And then a follow-up there is, obviously, really looks like it strengthens the balance sheet and your liquidity. Any sort of updates on capital allocation?

Great. Thanks for that question. Yes, I think without sharing -- we're not sharing anything specific about the exact impact to margins, but -- and we are very excited about the opportunity -- strategic opportunity that the bank presents to us to kind of improve our position across a number of dimensions. So one, we expect the bank to improve the overall TAM for our business that we can underwrite all products in every state at the same rate where we're limited today in some places in how we do that. Two, as we alluded to before, we do expect to see modest uptick in take rates and improvement in net interest income driven by the fact that we'll be capturing economics that today we're currently paying out to the banks that are originating partners for us. Third, we do expect to see lower cost of capital with deposit funding versus warehouse funding. And then overall, we expect to see a reduction in sort of overall complexity, as we operate under a single regulatory regime versus via the dozens to hundreds of banking partners that we're operating with today. So all of that in aggregate are the benefit that we expect to see from the bank. Some of that will come in relatively quickly. So as we alluded to, we do expect that very shortly after the launch of the bank, Upstart Bank will start originating substantially all of the loan volume on our platform. And so that component will be realized more quickly. And then some of these other components will be realized over a longer period of time as we access that greater TAM and drive the operational efficiencies that come with operating as a bank. In aggregate, our 3-year guide contemplates us getting the bank charter, and that's incorporated in. And fundamentally, our core business model with respect to acting as a marketplace and selling the majority of our loans through to third parties, that also is not intended to change as we become a bank.

We'll go next to Giuliano Bologna with Compass Point.

One thing I'd be curious about, as a quick question, it seems like the revenue from fees on the secured side jumped close to 50% quarter-over-quarter. It seems like there's maybe some timing impacts of loan sales. But just putting that over volume comes out to, I believe, 5.8%. Is there a rough way to think about how that should trend? And then how long it should take before it kind of comes back to the older kind of rough outlook that you guys have put out between the upfront fees and then the servicing strip?

Yes. I would say, we've been really focused on getting the secured loans to profitable, and that move is a very real move. But there definitely are some -- there are some sort of like timing elements to it, and we've alluded to needing to spend a little more time kind of locking in all the margin gains here because some of them are a function of things that haven't been totally systematized. That's some stuff on the loan sales side, some stuff on the monetization side. And so there's still work to do, but the sort of -- the gains are very much real. We do think that these products have reached contribution profitable in a sort of sustainable way, and we expect that to continue through the rest of this year and into 2027. We will expect to see a little bit of sort of movement around that margin. We're not so focused on maximizing that margin today. So I said in my remarks earlier, anywhere between like 0% and 25% to us is contribution positive. It's a good number. It's where we think these products should be at this stage in their life cycle. And what we'll want to see them do starting in 2027 is increasingly return their focus to growing the volumes at a profitable margin.

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

I saw that auto volumes were down quarter-over-quarter. The product had been scaling really quickly prior to that. I would not really think of the third quarter as being a seasonal trough for auto. So just wondering if there's anything that you would call out or anything to read in there?

80% of this answer is like we told everyone just focused on profitability. And I said that last quarter, that's just the one thing we're going to focus all of our energy on. And that's what the team did, and I'm really proud of how they executed on that. So we have no complaints about where that landed. Maybe there's a 20% part of the answer, which is that we talked a lot about macro and people tend to think about that in the context of our core business, but it's certainly relevant across all of the loan categories. Interest rates are a factor and sort of borrower health is a factor. And so those have an effect, too. But I think in a category like this, that's pretty young for us, sort of the most important thing is going to be where our focus is and our focus has been on profitability. And as we get into '27, we'll start turning it back the other way.

Okay. And then just one more on that earlier dialogue between the UMI and fair value. If I just look at the fourth quarter, the guidance implies a pretty healthy negative number for fair value. But if I heard you correctly, you're saying the UMI is only going to be up maybe a couple of hundredths of a point, right, max 1.55. So it just seems like a much more dramatic swing in fair value for the fourth quarter versus a much smaller increase in the UMI. I'm wondering if there's any more color you can give on the sensitivity and the mechanics there. And then is the bigger driver of like realized charge-offs for on-balance sheet loans or fair value markdowns?

Yes, it's a great question, Rob. And so the fair value that we're implying for Q4 reflects both an expectation of UMI about 1.55 and allows -- we're allowing for some variability around that because there are -- when it comes to the fair value line, there's inherently a little more variability around it than our ability to predict kind of fee revenue and contribution profit. Ultimately, the rising UMI environment that we are seeing here in Q4, but also the higher UMI environment we've seen over the course of most of 2026 is contributing to kind of building pressure with macro-driven defaults on our borrower population. And so the fair value marks start to reflect that pressure as we see delinquencies and charge-offs realized in our overall portfolio. And so that's kind of the, I would say, the indirect mechanism by which UMI flows through into our visibility and understanding of the default risk of our population, which then is the direct flow-through to the fair value marks. As we look at the composition of the fair value -- NII and fair value number that we are implying for Q4, most of that is related to fair value write-downs on the beneficial interest assets, so the loans underlying those assets, that would be the primary expected driver as of right now.

With no other questions from the phone lines, I'd like to turn the call back to Sonya Banerjee.

Thank you. Just as we did last quarter, we invited retail investors to submit questions through X. We received a number of thoughtful submissions, and we've selected a few to answer today. A number of those questions were also addressed during the analyst Q&A portion. But certainly, we welcome follow-ups if people are curious. I'll start with Andrea. As earlier co-investment vintages begin returning cash, is the net new capital required to support forward flow commitments declining? And when do you expect those returns to fund a majority of new co-investments?

Yes, it's a great question. Just kind of going back to a few things that we touched on during this call. Over a multi-quarter time horizon, with obviously some variability quarter-on-quarter, we do expect the overall equity usage to support the platform to decline. And one of the key drivers of that will be related to our co-investment positions in committed capital relationships. And so the 3 drivers that we see to reduce the equity required or used from those positions are sort of, one, holding the funding mix about constant. So we don't expect to materially increase the proportion of our platform that is funded from committed capital from where it is today. Two, as the question alludes to, continue to expect that sort of earlier vintages of co-invests as they release cash will help reduce the equity usage. And three, over time, would expect to continue to improve the deal terms as we renew our committed capital partnerships. So all of those things in combination are expected to be key drivers of bringing both the co-invest percent of the overall platform down, but importantly, the overall equities required to support the platform down.

Paul, as consumers start comparing and applying for loans through AI assistants like ChatGPT and Claude, does Upstart plan to let these external AI agents directly access your pricing and underwriting services? Will you build your own AI agents to proactively grow the business and integrate with other companies?

Yes. I love this category of question because I think there's just so many companies right now that are kind of like looking at what people are doing with AI, with personal agents and trying to build sort of these walled gardens and say like, "Oh, man, like if people could just freely shop for the best product, they might stop being loyal to us." And I think that just says something terrible about companies that think that way is they're not confident in the real value add that their product gives to their customers. And I think one thing that will always be really, really centrally important to us is we just want to build the best product. We think we have the best product in a lot of cases. We want to make it even better. We want to build the best product in a lot of our emerging categories. And so we want to just have no fear around like how the customer ultimately finds our product, whether it's on our surface or whether it's via a Muse or a Grok or whatever sort of they're using out there, we want our product to be everywhere, and we want to compete and win on having the objectively best product. And so we think that the era of personal agents and personal AI is going to usher in a world where people just have much more ability to shop for the very best product, and we think that's going to help whoever has the best product to offer the customer, and we think we're going to win in that world.

And then the final question is the market still values Upstart like a cyclical lender rather than an AI platform. What milestones over the next 2 to 3 years do you think will force investors to change that view?

There's so many things I'm excited about if we're talking a multiyear time frame, 2 to 3 years. There's all these things we've talked about, refocusing on the core and the sort of the strength that's already driving in our contribution profits, but I think that's really going to prove out how much alpha there is in this business, prove out the technology differentiation because that's really where we shine. There's this whole piece we've talked about today about lowering the equity usage in the business, lowering the sensitivity of the balance sheet P&L lines. I think that's really going to help investors. I think there's this whole kind of change in the company going on right now to go from just really a one-product company to having multiple products that are now contributing profits. There's this customer ecosystem and sort of the growing importance of how many people already have a relationship with Upstart. I mean there are so many pieces of it that I think investors will start to appreciate over a couple of years and kind of see how rich the story around this company is. But actually, I could say all that, but I actually just don't think altogether, it's that complicated the answer to this question because in some sense, businesses are just ultimately valued on their expectations for future profits. And I think especially in lending, lending is arguably the main profit center of financial services. And someone just today, I think, looking at us would say, you've been around for 14 years, and you haven't really made any meaningful profits yet. Like what's the point of all this fancy AI if it doesn't make money. And so today, I just think -- I don't think we get to complain about how investors are valuing us yet. And so even though I think investors are -- to be clear, I think investors are wrong about the stock. I think they're undervaluing the stock, but I kind of think they have every right to do that because they can't tell if and when we're finally going to make some real money. And ultimately, it's our job to change that.

Thanks, Paul. Operator, we can now conclude the call.

Ladies and gentlemen, that does conclude today's call. We thank you for your participation. You may disconnect at this time.