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spk10: Good afternoon, and thank you for joining us on today's conference call to discuss Upstart's second quarter 2021 financial results.
spk05: With us on today's call are Dave Girard, Upstart's Chief Executive Officer, and Sanjay Datta, our Chief Financial Officer. Before we begin, I wanted to remind you that shortly after the market closed today, Upstart issued a press release announcing its second quarter 2021 financial results and published an investor relations presentation. Both are available on our investor relations website, ir.upstart.com. During the call, we will make forward-looking statements, such as guidance for the third quarter and full year 2021 related to our business. These statements are based on our current expectations and information available as of today, and are subject to a variety of risks, uncertainties, and assumptions. Actual results may differ materially as a result of various risk factors that have been described in our filings with the SEC. As a result, we caution you against placing undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information or future events, except as required by law. In addition, during today's call, unless otherwise provided, references to our results are provided as non-GAAP financial measures and are reconciled to our GAAP results, which can be found in the earnings release and supplemental tables. To ensure that we address as many analysts' questions as possible during the call, we request that you limit yourself to one initial question and one follow-up question. Later this quarter, Upstart will be participating in the Deutsche Bank Technology Conference on September 9th, the JMP AI FinTech Conference on September 10th, and the Piper Sandler Global Technology Conference on September 13th. Now I'd like to turn it over to Dave Girard, CEO of Upstart.
spk03: Good afternoon, everyone. Thank you for joining us on our quarterly earnings call covering our second quarter 2021 results. I'm Dave Girard, co-founder and CEO of Upstart. First, let me once again thank the entire Upstart team for yet another exceptional quarter. The results we announced today don't just happen. They are the product of extraordinary effort by an incredible team. Despite the ongoing challenges the pandemic has brought to you and your families, you continue to deliver. The last year and a half have been a challenge for my family as well, and I'm grateful to be on this journey with each of you. Upstart is a leading AI lending platform, and our second quarter results continue to demonstrate why this category can generate enormous value in our economy. They also demonstrate why Upstart has an opportunity to become one of the world's largest and most impactful fintechs in the years to come. Lending is the center beam of revenue and profits in financial services, and artificial intelligence may be the most transformational change to come to this industry in its 5,000-year history. It's our view that AI-led disruption targeting dramatic inefficiency in one of the largest segments of our economy is worthy of your attention. Our Q2 revenues grew to $194 million, up 60% compared to the prior quarter. June was our first month with more than 100,000 loans and more than a billion dollars in origination volume on our platform. And we achieved this growth while also delivering record profits, with adjusted EBITDA of $59.5 million and GAAP net income of $37.3 million. We're also happy to report that more than 97% of our revenue came in the form of fees from banks or loan servicing, with zero credit exposure or demands on our balance sheet. In the second quarter, we continued to drive separation between our AI-powered platform and more conventional lending systems. We eliminated a rules-based constraint in our model that handled situations related to the size of loan requested. With more powerful algorithms and growth in training data, our models can now handle that issue natively and with more precision. This led to a boost in approval rates and a more accurate system overall. We also recalibrated our acquisition models to harmonize them with the funnel improvements we experienced earlier in the year. In other words, our models for digital and offline acquisition caught up to the most recent funnel wins that drove our earlier growth and began to target applicants they would have previously ignored or misprioritized. They were also recalibrated to broader bank partner eligibility criteria, enabling us to market to more consumers. In the second quarter, We also experienced a reduction in cost of funding across the platform, which means better rates for consumers and more loans. This cost of funding improvement was a result of more and better bank offers on our platform, as well as a reduction in the yield required by the broader capital markets as our platform continues to demonstrate its unique strengths. And finally, we continue to ramp up marketing to our prior borrowers who qualify for repeat loans on the Upstart platform. and this contributed meaningfully to our growth. In fact, the number of repeat loans on our platform more than doubled from the first quarter to the second quarter of 2021. We also experienced an important but more nuanced win in Q2. For the first time, one of our bank partners decided to eliminate any minimum FICO requirement for their borrowers. To us, this demonstrates both a commitment on behalf of this bank to a more inclusive lending program as well as increasing confidence in Upstart's AI-powered model. While credit scores can be useful, hard cutoffs based on a three-digit number invented 30 years ago leaves far too many creditworthy Americans out in the cold. We're hopeful a second bank partner will make a similar decision in the near future. I'm pleased to announce that we finally began to roll out Upstart for Spanish speakers, a first of its kind among digital lending platforms in the U.S. This initiative took longer than I would have liked. As it turns out, expanding from one language to two in a heavily regulated industry isn't as easy as we expected, particularly because our platform is itself a fast-moving target. But it's these types of efforts, making Upstart more accessible to Spanish speakers and reducing hard cutoffs based on FICO scores, that will make Upstart a more inclusive and impactful platform for those that need it the most. The growth of our platform and the performance of Upstart-powered loans continues to attract more lenders to Upstart. We now have 25 banks and credit unions on the Upstart platform and have a robust and growing list of lenders in our pipeline for the second half of 2021. The launch of new bank partners, as well as expansion of lending programs from existing bank partners, improves the quality of offers we can make to consumers on Upstart.com. Another important service we provide to banks and to loan buyers is access to liquidity through the capital markets. We do this by managing regular securitizations of loans originated on our platform, where multiple banks and loan buyers contribute to a single shelf under the UPST brand. Our most recent securitization included more than a half a billion dollars in collateral, originated by three different bank partners, which saw net execution of about $107 billion. This extraordinary result can be attributed to strength in the credit markets as well as broad recognition of Upstart's AI-enabled collateral. We now have more than 150 institutions who buy Upstart-powered loans or bonds. While our partners don't generally rely on securizations for liquidity, we believe the presence of a well-established market for Upstart-powered collateral creates value for our partners and confidence in our platform. We've said in the past that auto lending is Upstart's next great opportunity. It's a market at least six times larger than personal loans and at least as inefficient. We're making rapid progress toward this opportunity in several dimensions. We started in January offering our auto refinance product in a single state, then expanded to 14 states by the end of Q1, and have now expanded to 47 states, covering more than 95% of the U.S. population. We've also improved our funnel conversion rate about 100% since the beginning of the year, despite expanding from states with minimal funnel friction to those with the most. This is critical because funnel efficiency is the primary way we'll scale up auto loan originations, just as we've done historically with personal loans. Upstart Powered Banks have now originated more than 2,000 auto refinance loans in 40 different states. And these loans are beginning to provide the repayment data that is the fuel to our AI models. And lastly, we now have our first five banks and credit unions signed up for auto lending on our platform. We've also made fast progress on our automotive retail solution, today known as Prodigy Software. Since the beginning of the year, we've doubled the number of dealerships, aka rooftops, using Prodigy. And in Q2, more than a billion dollars in vehicles were sold through Prodigy. We expect the first Upstart-powered loan to be offered through this platform before the end of 2021. Now a bit about the company itself. In June, we announced that Upstart is moving to a digital-first model, where most Upstarters can live and work anywhere in the U.S., We came to this decision for a few reasons. First, we've shown we can work well remotely as a team. The arguments against remote work tend to be historical rather than backed by real facts or data. Second, the tech world feels like it's on a multi-year transition toward work from anywhere, and we want to be ahead of the curve. Third, we believe the benefits of in-office work can be captured in just a few well-considered days together each month. And fourth, given the scale of our ambitions and the talent we need to aggressively pursue our goals, we need to tap into talent across the entire country. The good news is Digital First has paid immediate dividends to our recruiting efforts. Though we announced this plan just a couple months ago, over a third of our job offers in the past few weeks have been to candidates outside our footprint. And we've seen an acceptance rate of 80% to these offers, a dramatic improvement over what we've seen historically. Digital First is not just a reaction to the last year and a half. It's a sign that we intend to create one of the largest and most impactful fintechs in the world. We're building a company that will be distributed not just physically, but logically, able to pursue multiple markets and business opportunities at the same time. We need extraordinary talent and the leadership to do this right. Digital First will enable us to find that talent wherever it may be. Digital First may help us recruit talent wherever it resides, but it's our culture and mission that will keep it here. We aim to be the go-to employer for those driven to build the most modern of technologies, artificial intelligence, to solve one of the most intractable problems, financial inclusion. To do this, Upstart must be widely recognized as a destination company for those destined to have real impact on the world while experiencing unparalleled career growth. In this vein, we were recently honored to be included in the Gender Diversity Index by State Street Advisors, recognizing Upstart's role as one of the top companies in the U.S. for women in leadership. The Exchange Traded Fund, which trades under the ticker SHE, helps demonstrate that diversity and strong performance go hand in hand. History has shown that turbulent times can provide the backdrop where next-generation companies emerge. The past 18 months have been just that for Upstart, and our team has risen to the challenge. We have built a strong and profitable core from which we expect to launch several new products and services in months and years to come. AI lending will transform financial services in the decade ahead, and we aim to make Upstart synonymous with that category. Thank you. And I'd like now to turn it over to Sanjay, our Chief Financial Officer, to walk through our Q2 financial results and guidance.
spk06: Sanjay? Thank you, Dave, and thanks to everyone for joining us today. We'll dive straight into our most recently quarterly results. Revenues in Q2 came in at $194 million, up 60% quarter over quarter from Q1 of this year. As a side note, we will omit references to year-over-year growth rates for our P&L this quarter as they are all well above 1,000% due to the lapping of last year's pandemic impact. Of that total revenue, $187 million, or 97% of the total, came in the form of revenue from fees. The volume of transactions across our platform this quarter was approximately 287,000 loans, up 69% quarter-over-quarter, partially driven by a 240 basis point quarter-over-quarter increase in the conversion rate up to 24.4%. The balance of our growth in transaction volume came from an increase in the number of rate requests we received this quarter as our marketing programs scaled in response to the conversion funnel improvements of prior quarters. Our contribution profit, a non-GAAP metric which we define as revenue from fees minus variable costs for borrower acquisition, verification, and servicing, was $96.7 million in Q2, up 73% quarter over quarter and representing a 52% contribution margin, up from a margin of 48% in the prior quarter and 32% one year ago. This level of contribution margin remains quite elevated, partially due to the ongoing improvements to our conversion funnel and in part owing to some one-time gains realized in the fair value of our servicing rights due to the updating of certain underlying assumptions. As we have discussed on past earning calls, we continue to expect this level of contribution margin to moderate downwards over the coming quarters as we accelerate investments in marketing and operations. Q2 operating expenses were $158 million, up 49% quarter-over-quarter or 40% quarter-over-quarter when netting out the impact of stock-based compensation. Investment in engineering and R&D remains our priority, growing 66% quarter over quarter to $31 million in Q2. General and administrative spend grew slower than revenue in Q2, increasing 29% quarter over quarter to $26 million. The other expense categories of sales and marketing and customer operations were largely driven by variable cost increases supporting revenue growth. We expect to temporarily accelerate expenditures in our fixed expense base over the next three to four quarters as we contemplate large investments in engineering and in scaling up the go-to-market function of our Prodigy platform for auto commerce. Our Q2 gap net income was $37.3 million, up from $10.1 million last quarter and from negative $6.2 million in the same quarter of the prior year. Adjusted EBITDA, which we adjust for stop stock-based compensation came in at $59.5 million in Q2, up from $21 million last quarter and negative $3.1 million in Q2 of 2020. Adjusted earnings per share for Q2 was 62 cents based on a diluted weighted average share count of 94.8 million. Turning our attention to the balance sheet, we ended the quarter with $618 million in restricted and unrestricted cash, up from $336 million at the end of last quarter. This balance reflects the proceeds from the follow-on stock offering we completed on April 13th, which resulted in an additional $265 million raised net of underwriting discounts, as well as the complete pay down of our corporate term loan and revolving debt facilities. In terms of loan assets, we carried an aggregate balance of loans, notes, and residuals of $95.3 million, up from $73.2 million in Q1 and down from $148 million at the end of the same quarter in the prior year. As we have previously highlighted, these loan assets represent the totality of the direct exposure we have to credit risk. We'll now turn to our near-term and full-year outlook. While we continue to see our contribution margin as slightly above its expected trend line and do anticipate some mild contraction over the coming quarters, We do now expect elevated margins to be more durable than we predicted at the start of the year. With this in mind, for Q3, we are expecting total revenues of $205 million to $215 million, representing a year-over-year growth rate of 221% at the midpoint, contribution margin of approximately 45%, net income of $18 to $22 million, adjusted net income of $28 to $32 million, adjusted EBITDA of $30 to $34 million, and a diluted weighted average share count of approximately 94.9 million shares. For the full year of 2021, we now expect revenues of approximately $750 million, representing a growth rate of 221% year-over-year, and up from the $600 million that we indicated last quarter. Contribution margin of approximately 45%, up from 42% indicated last quarter, and an adjusted EBITDA margin of approximately 17%, up from 10% indicated last quarter. I'd like to reiterate Dave's gratitude to all of the hardworking teams at Upstart whose efforts are propelling our growth and financial outcomes, which continue to exceed our own internal expectations. Thanks, and looking forward to seeing everyone again in another 90 days. With that, Dave and I are now happy to open the call to any questions. Operator?
spk10: Thank you. Ladies and gentlemen, if you'd like to ask a question, you may signal by pressing star 1 on your telephone keypad. Using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk07: We'll take our first question from Ramsey Elassil with Barclays.
spk10: Please go ahead.
spk09: Hi, guys. Thanks for taking my question this evening. Another super strong quarter here. I wanted to ask about the components of guidance, if you can kind of help parse out for us what is macro or loan market rebounding more broadly versus improvement in the conversion rate you might be anticipating? which, you know, or versus maybe auto contributing. I'm just trying to get an idea from where the, you know, where, you know, where the drivers are for, for the, for your guidance increase.
spk06: Yeah, sure. Hey Ramsey, this is Sanjay. Thanks for your question. So I think in keeping with tradition of the past few quarters, our assumptions around the macro environment are static, meaning we're not really predicting either a deterioration or a rebound in the economy with respect to our numbers. We're sort of predicting the status quo, which I guess importantly for us means credit balances remain quite low and savings rates remain quite high in the economy. So we're not necessarily predicting a change in either of those statuses. And with respect to auto, we continue to have no meaningful contribution to the economics in fiscal year 2021. So really everything you're seeing in our guidance is our evolving view of our core personal-owned business, how we're seeing the funnel evolving, and obviously the second-order effect, how our marketing programs are catching up to the efficiency of the funnel.
spk09: Okay. I wanted to ask about conversion rates. That seems to have been a pretty significant driver of the beat this quarter as well as in past quarters. Could you talk about the pipeline of improvements that you have maybe in the wings there? What should we expect in the third quarter? And sort of what is baked into guidance in terms of that conversion rate? Hey, Ramzi.
spk03: This is Dave. Like always, we kind of have a significant backlog of projects that we're working through that potentially improve the funnel conversion. I mean, it's kind of the core way we grow is improvements to our models or some of the technology that helps borrowers get through our funnel. And we continue to have a significant number of model upgrades that we expect and such. We don't always know exactly what the impact will be or the scale of it. So I think that's unbalanced, reflected in the guidance, which is a continued pipeline, some smaller things, some that have potential to be larger impact. Some are related to approvals and rates offered to consumers. Others are related to friction and reducing friction. So, you know, it's a little bit of a mass, and we don't have anything particular to point to other than to say, you know, the team's working really hard to get, you know, upgrades and improvements into the model that are going to make the consumer product better, and it's going to make, you know, make Upstart's business more successful.
spk07: And what about what might be baked into guidance? I mean...
spk06: Yeah, maybe as part of that, I can just address the initial assumption, Ramsey, which is we did have good continuing progress in terms of our conversion rates on our funnel. We're sort of pushing up against 25% this quarter. But a lot of the growth actually did also come from scaling up our marketing programs to scale up to the past few quarters of gains that we've had. And if you look at the breakdown of those, You'll see that actually a majority of the growth this quarter sequentially came from the top of the funnel in fact. And so that sort of plays into how we think about things going forward. There was additional gains this quarter on the funnel and so the conversion rates and in fact the contribution margins actually went up even though we scaled our marketing campaigns by more than 50% quarter over quarter. But a lot of what we're thinking about next quarter and in the back half of the year also has to do with scaling up the marketing programs to continue to catch up to that funnel efficiency. And our historical sort of breakdown between top of funnel and then, you know, conversion rate efficiency tends to be about 50-50. And I think that's a rough ballpark for how we're thinking about the back half of the year, you know, without getting into specific projects. I think that's the rough breakdown in terms of how we see the rest of the growth happening this year.
spk09: Okay, terrific. Thanks for your response. I appreciate it.
spk05: Thanks, Ramsey. Next question.
spk10: We'll take our next question from Ron Josie with JMP Securities. Please go ahead.
spk08: Great. Thanks for taking the question. Another super strong quarter. Dave, you mentioned in your opening remarks the goal of launching multiple new products for years to come. So maybe this is a little bit of a bigger picture question, but just talk about Upstart's core AI approach, the data corpus that you have as you think about these newer opportunities and verticals to go through. So obviously we're in personal lines. We're in autos as well. So maybe talk to us a little bit about verticals, remind us there and or potentially expanding the borrower profile, which I think you mentioned targeting customers previously ignored, maybe going further down funnel, if you will. And I have a follow up. Thank you.
spk03: Yeah, sure. You know, there's just a lot of opportunities that we have always considered what we're building is kind of a core technology and have chosen the first place to deploy it, which is unsecured personal loans of a certain nature. You know meeting loans that are you know thousand to $50,000 that's the range in our platform today serving a bunch of kind of use cases for consumers, but there's obviously a much bigger world out there auto. And our efforts and auto were really the first time to expand this technology into a secured loan, which you know behaves differently and has very different attributes to it has a bunch of different problems to solve. But, you know, benefits enormously from all the history in the personal lending world, which is very focused on, you know, underwriting an individual. So I would just say, look, you know, we look for inefficiencies in the market that are very large where the opportunity to improve the life or the access to capital or credit for the consumer is vast. And we think there's a lot more in the unsecured lending space for sure, you know, personal loans. are a very, very useful tool in so many ways. And, um, so we expect to do a lot more just within personal lending to solve more problems with that tool. Um, uh, you know, auto being the secured loan, we're just getting into refinance now. And, and, you know, as you've heard, we'll be into the purchase side of auto, uh, uh, hopefully by the end of the year, we'll start having loans flowing through that. Um, and you know, we just see a lot of opportunity out there. We don't think credit is a solved problem almost anywhere. in terms of people getting rates that make sense for them based on their true risk. So you will definitely see us move beyond personal and zonato, but frankly, we have so much uncharted territory, even in those two categories, that we're not in a particular rush to do so. We are excited to move beyond those two categories. I think in the months and years to come, you'll see us go beyond them. But there's so much to be done in these two categories, and most of our near-term effort is right there.
spk08: Got it. That's super helpful. And just a quick follow-up, Sanjit, to your last answer. I think you talked about marketing and gains in the funnel this quarter. So can you just talk a little more or please talk a little bit more of just the expansion of the marketing channels? We've relied quite a bit on Credit Karma in the past, and so we'd love to hear how that's evolving. Thank you.
spk06: Sure. I mean, I guess I'll say that we did a significant expansion once again of our marketing programs. We grew significantly. our marketing spend from about $46 million last quarter to $71 million plus. So we grew our programs by more than 50% and yet they got more efficient. So our contribution margins actually went up, which is rare. It's just kind of underlying that is just the continuing strength of the funnel. And then in terms of channels, we are definitely seeing a lot of our strongest growth in channels that are more sort of direct to the consumer and to the borrower. So, you know, concentrations in marketing channel distribution are definitely declining across the board.
spk07: That's great. Thank you, guys. Thanks, Ron. Next question?
spk10: We'll take our next question from John Hecht with Jefferies. Please go ahead.
spk04: Afternoon, Dave and Sanjay. Thanks for taking my questions. I guess maybe moving a little bit just to the other side of the network is talk about maybe some of the investors. Obviously, the performance of the assets is very strong, but any changes in terms of kind of the composition of investors or geographical presence or how the investors are tying into the platform over the past two or three months?
spk06: John, you're referring to the loan investors?
spk07: Correct, yes.
spk06: Sure, yeah. I mean, I think the only things to call out really is just an ongoing expansion of the overall universe of investors. We continue to get a lot of new folks who are working with us as the product matures, as the histories and the curves mature, and that's been an ongoing sort of evolution for a couple of quarters now. With respect to geography, I mean, we've got some engagement with international investors now, which is, let's say, more recent. And, of course, the credit markets themselves as a macro statement are pretty constructive right now. But, yeah, overall, I would just characterize it as a continuing evolution of a program that's working really well and expanding.
spk04: Okay. That's helpful. And then? I think Dave mentioned that there's a couple banks that kind of, in a sense, dropped the FICO requirements because they have a greater faith in the score. I know it sounds maybe that's recent, but that seems like a pretty positive development. And have you seen a market change in terms of maybe adoption or volumes coming out of those institutions? And do you think there are more to come?
spk03: Yeah, I think, you know... I would see it as a trend that we would have hoped for, which is, you know, FICO, a FICO minimum, meaning a bank saying, you know, we only lend above 660 FICO or 680 FICO or what have you is from our perspective, you know, a bit of a guardrail, you know, the model itself, of course, should, should convey risk and help you make the right decision. And FICO is a bit of an artifact of history in terms of it being, you know, a hard cutoff. So but of course we're not here to tell banks what their credit model should look like. So, so we, we, you know, gladly put the constraints on that makes sense for their risk committees, but we're just happy to see as these banks see performance over time in this particular case, and we're hopeful this will be a trend as they start to trust the model, the model actually, it does include FICO. FICO is part of the model. It's just not a hard constraint on who can get a loan and who can't. And I think that trend, to us is, you know, in retrospect, it's fairly obvious this should happen, but I think it's really, um, taken some time and probably will take some time to flush through, uh, because there's so much history with, with FICO that, um, naturally, uh, banks have relied on it and feel comfortable with it. So, uh, but it's a good thing. It means they can borrow, they can lend to people they couldn't lend to before. Um, the performance is as good or better than it was. It doesn't have any impact there. So generally, we view it as a good thing for consumers and good things for forward-looking banks.
spk07: Thank you very much, guys. Thanks, John. Next question, please.
spk10: We'll take our next question from Pete Christensen with Citi. Please go ahead.
spk02: Good afternoon, gentlemen. Thanks for the questions and the questions. to iterate pretty impressive results there. I wanted to dig into the average loan size a little bit. I know that you called out there was an AI change which removed the minimum amount, and I guess you could also make the argument that government disbursements have increased savings, and I'm sure those are contributors, but I was just curious if if there's been any use case changes or any noticeable changes between debt consolidation and perhaps other uses, I don't know, vacation, home improvement, et cetera. I'm just curious if you've seen any underlying developments there, and then I have a follow-up.
spk06: Sure, yeah. Thanks for the question. This is Sanjay. I don't think any... very stark changes in use case. I think there's a combination of things that are internal to our models. The example that Dave mentioned is one example of something that will, at the margin, change the mix to lower-sized loans. There are other changes to our model that increasingly will compete to an expanded universe over time. And what that means is we're expanding downwards on the primeness spectrum in terms of our capabilities. And of course, that will have an effect on loan size mix as well. And then we think that there's probably some macro effects continuing in the economy. And those are a little bit harder to measure. But we have seen since certainly the onset of COVID, a pretty clear trend that I think is moderating, but it's still visible, which is that loan sizes and demand for loans in terms of what's being requested has moderated downwards in the last 18 months.
spk02: Thanks. That's helpful. And then, and then looking at your, on the, on the supply side, um, again, um, you've obviously expanded your network with investors and I know that, you know, in recent past, um, there, there hasn't been enough demand to satisfy your investor demand, I guess, uh, for loans. Just wondering if you could talk about the supply demand balance now, um, whether or not third-party investors are getting enough supply and if there's any other constraints there. Thanks.
spk06: Sure, yeah. I mean, we've had definitely robust increases on the supply side, both with our number of banking partnerships, which has increased nicely, as well as the investment dollars that flow through to the institutional world. But I think we're in very much the same position of equilibrium that we've been in the past, which is finding the borrowers economically and profitably tends to be the limiting factor in our growth, and I think that's probably still the case even at this new level of volume.
spk07: That's helpful. Thanks, gentlemen. Thank you. Thanks, Pete. Next question, please.
spk10: We'll take our next question from Nat Schindler with Bank of America. Please go ahead.
spk01: Yes. Hi. Thank you, guys. And just before the question, I want to do a quick quibble with some of my colleagues here on the sell side. Pretty impressive results and another strong quarter seem a bit understated when you're talking about quadruple-digit growth, which might be a first in my career. What's more impressive is as you mentioned early on, this was on the back of, and even if you take that out, that Q2 of last year was you turned off revenue. So, but if you compare it to Q2 of 19, you're still looking at five fold growth on that year. And if you look at the TransUnion data and other data on the personal loan market, obviously the personal loan market is still down as credit card balances have fallen. I know you mentioned that in your forward guidance, you're not predicting any change to what has happened. But as we think about what do you think your growth would have been on a more normal, maybe in the first half of this year, in a more normalized market for personal loans where credit card balances are higher and they're on stimulus packages pushing down the need for personal loans?
spk03: Hey Matt, this is Dave. It's of course very difficult to speculate, but for sure I think what we would say has happened is a shift in leadership and a shift in market share driven by a significant disruption to the market, i.e. the pandemic. And so a difficult time in the market, whether that's a recession or some other kind of event, really begins to show the differences between strength and platform. And I think that's really what happened. That really explains the very, very large growth in market share and et cetera that happened during this time. So it's a little hard to exactly say, you know, what would have happened if there wasn't this disruption? I think we're on a good trajectory, but I do think the nature of the pandemic and the stresses it put on banks and lenders and consumers for time, et cetera, just the uncertainty of it all sort of leaned into our strengths and gave us a benefit that we might have just taken much longer to get to the position we got ourselves to. So that's how I interpret it. It's really, of course, almost impossible to guess what would have happened if things had been different last year.
spk01: Yeah, but I'm guessing that I'm not aware of any of your other competitors in the fintech world, which I would imagine have the same sort of strengths in being fully online businesses and the like that the pandemic helped. I don't think they're growing at 5x over Q2 2019. I haven't heard of anyone in the space growing at that kind of rate. Obviously, you're taking share that says something to the better mousetrap, but how should we start thinking about how this starts normalizing out as we move to a normal market where the personal loan market is actually growing instead of shrinking as it is right now?
spk03: Yeah, I'll just say, you know, it's a little, a little difficult. I mean, we certainly feel this is happening with a bit of a headwind, uh, meaning the demand side for credit is still down as Sanjay referenced earlier. And, um, when that will change, you know, we don't know, we don't bank on it. We don't included anything, any sort of assumptions about that in our guidance. But, um, but you know, there's, we benefited also because our credit was resilient and responsive and our bank partners saw that investors saw that, and that allowed us to come back quicker. You know, when the economy is considered normalized by everybody, whatever that means, maybe unemployment gets all the way back to, you know, pre COVID levels. I think, you know, you're going to see a lot more activity in the market by everybody, by other banks who don't work with us, by fintech competitors. So, you know, I would just say I think there's a chance and we're hopeful there'll be a boost in demand by people spending more, you know, tapping credit again as they might have pre-pandemic. But there's also more, I think, competition out there who's now back in the game and fully focused on themselves growing. So how that nets out is a little hard for us to judge, but those are the dynamics that we would expect to see in the coming quarters.
spk01: Well, great. Thank you, guys.
spk03: Thanks, Nat.
spk05: Thanks for your question, Nat. I think we have time for one more question.
spk10: Yes, our final question is from with Goldman Sachs. Please go ahead.
spk11: This is Adam for Mike. Thanks for taking the question. I believe you mentioned auto loans to date, but could you give us a sense for how many of those are during the quarter and how the margin profile of that product compares to the traditional personal loan product? And then on Prodigy, you mentioned you've doubled dealers since the beginning of the year, which seems like a pretty rapid pace of growth there. Could you talk a little bit just about the enterprise sales strategy that's driving that and sort of the pacing for Prodigy in the back half of the year relative to the first half? Thanks.
spk06: Very good. Yeah. Hi, Adam. This is Sanjay. Welcome back to the party. I'll take the first question and defer to Dave on the second. But with respect to auto, Dave threw out a couple of numbers in terms of our ramp. It's still very early days. Obviously, we're starting to see results and build repayment history. We're starting to sort of improve the funnel sequentially month over month. So we're in a good path there, I think. And with respect to margins, I think it's still very early. We're still in the early stages of engaging with banks and engaging with investors and understanding the effects of fees on the conversion funnel and things like that. But I think our expectation remains that the loans are clearly bigger. And so there will be a higher dollar revenue per loan. And we're expecting probably a similar dollar of contribution profit per loan as we see in in-person loans. So the percentages will be a little bit different because the loan size is bigger, but that's our current going assumptions.
spk07: Yeah, and Adam, thanks.
spk03: The second question you asked about sort of the go-to market for the Prodigy software and how that looks. Yeah, as I said earlier, we've doubled the number of rooftops since the beginning of the year. The acquisition happened earlier this year and, you know, Prodigy in our view is a very good product in a very small team. So it is a huge area of investment for us. In fact, I think we've, we've said a couple of times, this is an area where we're going to overspend to build our go to market. And that team is, you know, largely what you would think of as an inside sales team, very focused on, on fast, you know, volume sales. And we are, We care most, I mean, there is actually some bits of revenue that come from the use of that product that's not really the long-term plan for monetization. It's, of course, through the offers of credit through it. But today we're focused on ramping that team very quickly, both really in the sales and marketing function, and as well, by the way, on the R&D side, because Prodigy has a great leadership position, is growing very quickly, and has done that with very, very modest-sized teams, and we definitely believe it makes a lot of sense for us to invest more in that. So that's happening right now, and we're tracking very aggressive goals for a number of rooftops that are signed up every quarter, and that's something we're watching very carefully.
spk11: Thanks, Dave.
spk07: Thanks, Sanjay. Really helpful. Thanks, Adam. Thanks, Adam. This does conclude today's question and answer session.
spk10: I would like to turn the conference back to your speakers for any additional or closing remarks.
spk03: Hey, this is Dave. Just going to wrap up here. And, you know, I just want to reiterate, we're obviously pleased with the results. I think they do illustrate the type of company we are building. We think we have an opportunity to build, you know, one of the top handful of fintechs in the world because we are in a very, very large space and because we think AI is really is the future. It's the most transformational change that's happened in that space. So that's why we're excited. So thanks to all the Upstart team for delivering the results, and thanks for everybody out there for being with us. We look forward to seeing some of you over the next quarter. Thank you.
spk10: Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.
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