Subject: Q1.2023 Forecast
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Confession: I did not use astrology to do my Q1.2023 forecast (below) for Upstart.
However, it's probably worth as much as if I did. So swallow what follows with a bucket
of salt. Comments and questions are always welcome.
Note that "Guidance" below comes from Upstart's Jan 31st and Feb 14th press releases.
Note also that this forecast comes with a couple of riddles. First, it appears that
Stock Based Compensation will be about $75M for Q1 which is more than twice as high
as Q4 and 60% of all of 2022. Second, there's a doughnut hole of around -$12M that has
no explanation.
Ears <long Upstart>
INCOME STATEMENT
Actual Estimate
Q4.2022 Q1.2023
--------- ---------
Revenue from fees 155,597 110,000 Guidance
Interest Income and Adjustments -8,684 -10,000 Guidance
Total revenue 146,913 100,000 Guidance
Direct Expenses 71,809 49,500 Note 1
Fixed Expenses 133,602 174,500 Note 2
------- --------
Total operating expenses 205,411 224,000
Other income (expense) 2,771 3,000 Note 3
Restructuring charges 0 -15,000 Guidance
Stock based compensation reversal 0 3,000 Guidance
Unknown charges 0 -12,000 Note 4
Provision for taxes -464 0 Note 5
------- --------
Total non-operating expenses & taxes 2,307 21,000
Net income -55,263 -145,000 Guidance
Net income per share diluted -0.67 -1.77
Weighted-average shares diluted 82,771 81,900 Guidance
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EFFECT ON CASH
Actual Estimate
Q4.2022 Q1.2023
--------- ---------
Net income -55,263 -145,000 Guidance
Add back fair value adjustments 43,455 45,000 Note 6
Add back stock based compensation 33,910 75,000 Note 7
Add back depreciation & amortization 3,654 3,868 Note 8
Reverse non-cash SBC reversal 0 -3,000 Note 9
------- --------
Change in Cash 25,756 -24,132
--------------------------------------------------------------------------
NOTES
1: Direct Expenses for Upstart are the costs of acquiring, onboarding,
and servicing a borrower. They can be calculated by multiplying the
complement of Contribution Margin by Revenue from Fees. Upstart's
guidance for Q1 is 55% for Contribution Margin and $110M for
Revenue from Fees. Thus, the calculation is (1-55%) * $110M = $49.5M.
2: Fixed Expenses in Q4.2022 were $133M. I used this as a base. Because
Direct Expenses are forecast to be lower in Q1 than Q4, I subtracted
the change in Direct Expense from Q4 to Q1 of -$22M from the base to
get $111M. Because Stock Based Compensation Expense is forecast to be
higher in Q1 than Q4, I added the change in Stock Based Compensation
of +$41M to the $111M to get $224M for Fixed Expenses.
3: Other Income (Expense) includes dividends received on their cash
balance minus interest paid on their convertible notes. I estimated
this at $3M net for Q1, up from $2.8M in Q4.
4: When I subtract all estimated expenses from their guided revenue,
there is still a "gap" of -$12M to get to their $145M projected loss.
5: Taxes have been immaterial for Upstart since going public. They are
likely to range somewhere between +$1M and -$1M for Q1. To keep it
simple, I'm just leaving them at zero.
6: Fair value adjustments reflect the change in value of the loans on
the balance sheet and other financial instruments. These accounting
entries are non-cash, so we add the amount back to Net Income.
7: Stock Based Compensation is also a non-cash entry, so we add back.
8: Depreciation & Amortization is also a non-cash entry, so we add back.
9: Upstart guided for a one time reversal of Stock Based Compensation
of $3M in Q1.2023. This is non-cash, so we add back. Because this is
is a reversal, it is subtracted.