Upstart Holdings, Inc.

Good afternoon, and thank you for joining us on today's conference call to discuss Upstart's second quarter 2021 financial results.

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.

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.