Upstart Holdings, Inc.

Good day, everyone, and welcome to the Upstart fourth quarter fiscal year 2020 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Jason Smith, VP of Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's conference call to discuss Upstart's fourth quarter and 2020 financial results. With us on today's call are Dave Girard, Upstart's Chief Executive Officer, and Sanjay Dutta, the company's Chief Financial Officer. Before we begin, I would like to remind you that shortly after the market closed today, Upstart issued a press release announcing its fourth quarter and 2020 financial results and published an investor relations presentation. Both are available on our investor relations website, ir.upstart.com. Today's discussion includes forward-looking statements. Please refer to our form 8K, dated March 17, 2021, filed with the Securities and Exchange Commission for a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Upstart's performance. you can find the reconciliation of those measures to the nearest comparable gap measure in the press release. To ensure that we address as many analyst questions as possible during the call, we request that you please limit yourself to one initial question and one follow-up. Now, I'd like to turn it over to Dave Girard, CEO of Upstart.

Good afternoon, everyone. Thank you for joining us on Upstart's inaugural earnings call covering our fourth quarter and full year 2020 results. I'm Dave Girard, co-founder and CEO of Upstart. Last quarter was monumental for us as we took the company public in the midst of a historically complex and challenging time for the U.S. and for the world. We began trading on December 16th on the NASDAQ under the ticker symbol UPST. I'm excited to present our quarterly and full year results for the first time as a public company. Upstart has a unique combination of scale, rapid growth, and profits driven by our underlying AI technology. Despite the COVID-19 pandemic and the elevated economic risk resulting from it, Upstart grew revenues 42% in 2020 compared to 2019 and was GAAP profitable as well. Our Q4 2020 revenues were up 39% year on year. Upstart is a fee-based business. We don't make loans, and we aren't exposed to material balance sheet risk. But despite this, we care a lot about how Upstart loans perform. So we're happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year. We're also excited to announce that we've entered into an agreement to acquire Prodigy Software, a leader in cloud-based automotive commerce. Toward the end of last year, we originated the first AI-enabled auto loan on our platform. In this initial phase, Upstart is enabling consumers to refinance expensive and mispriced car loans, saving them on average $72 per month. With the acquisition of Prodigy, we aim to accelerate Upstart's presence and one of the largest buy now, pay later opportunities. Prodigy is bridging the gap between how dealerships operate and the new way that people shop for cars. More than $2 billion in vehicle sales have been powered by Prodigy at franchise dealers from top brands such as Toyota, Honda, and Ford. This acquisition is our first and signals our excitement about the long-term potential of our auto lending initiatives. To step back for a moment, Paul, Anna, and I founded Upstart nine years ago with the idea that modern technology and data science could improve access to affordable credit. Each of us came from extremely modest backgrounds where access to credit was essential to our every step. Credit, both for consumers and businesses, is not just important personally. It's a cornerstone of our economy and essential to the growth and prosperity that Americans expect. There's broad consensus that the credit economy is highly inefficient, if not broken. Models for quantifying risk and pricing loans are not far from a roll of the dice. Millions of consumers don't have access to credit, pay too much for it, or take on credit that they can't ultimately afford. On the other hand, banks in 2021 are swimming in deposits and are looking for more sophisticated tools to lend them out in a responsible and profitable manner. There's far less consensus that modern data science, namely artificial intelligence, can remedy the situation. But Upstart is validating this thesis every day. In a 2018 study, Upstart demonstrated to several large U.S. banks that our AI-based lending platform could almost triple their approval rates while holding losses constant compared to their current risk models. And that was in 2018. Upstart's AI models have improved constantly and dramatically since then. This is an important point. One way to grasp the potential for AI lending and how different it is from traditional approaches is that we look back at our own models from just a few years ago and shake our heads at how simplistic and rudimentary they were compared to our current capabilities. As a public company, our financial results will ultimately speak to how unique and differentiated our AI models are. But it's worth a quick refresher on how the underlying technology actually works. Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data. While most lenders consider only a handful of variables as part of a lending decision, Upstart's model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events. These are like the rows in a spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI models that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more. But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen. The advantages Upstart's AI model offers our bank partners is obvious. Higher approval rates, lower loss rates, and a highly automated digital experience. Upstart enables lending programs that are more predictable, more profitable, and more inclusive. For consumers, the advantages of AI-based lending are equally compelling. Higher approval rates, lower APRs, and fully automated approval, with more than 70% of upstart loans approved in near real time, with zero documentation or phone calls required. In fact, 58% of the loans on our platform in 2020 happened on a mobile device. Consumer expectations for a seamless digital experience have never been higher. And Upstart helps our bank partners meet and beat that expectation. It's also important to say that AI lending can be and should be inclusive, fair, and unbiased. In fact, more so than traditional systems. As a company dedicated to improving access to credit, fairness and inclusion are central to our mission. We test every single loan application on our platform for fairness and share the results of these tests quarterly with the Consumer Financial Protection Bureau. It's also worth noting that we do this rigorous testing on behalf of each of our bank partners. This level of rigor and transparency and fairness testing is quite unique in the personal lending industry. The results of these tests say it all. Upstart's platform offers significantly higher approval rates and lower interest rates to every demographic group tested. That is an outcome we believe every bank should strive for in its lending programs. While better AI models are the primary lever we use to create a more inclusive platform, it's not the only lever. Very soon we'll release a Spanish language version of our product that we believe is the first of its kind among digital lending platforms in the US. While restaurants and retailers routinely offer a Spanish language alternative, online lenders unfortunately do not. Taking out a loan is a big decision and it comes with important obligations. So it's clearly better for the consumer if the entire experience, including disclosures, the loan agreement, and customer support are available in their preferred language. In closing, I want to say that while we're in the first stages of adoption of AI lending, we're confident that this transformation will play out for years and decades to come. Virtually all lending will be AI enabled in the future because the economics are so compelling to all participants. We aim to be the category leader in AI lending and a partner to banks who share our vision. Thank you, and now I'd like to turn it over to Sanjay, our Chief Financial Officer, to walk through our financial results and guidance. Sanjay?