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Earnings report press release: https://finance.yahoo.com/news/upstart-announces-f...

Earnings Call Transcript: https://www.fool.com/earnings/call-transcripts/202...

10-Q SEC filing of quarterly report:
https://ir.upstart.com/node/8681/html

The big news that jolted the stock market is that Upstart secured $2 billion in long term funding for their lending platform, so this will allow them to ramp up the volume of deals.

Other good news mentioned in the transcript:
-Auto retail product approved by Mercedes-Benz and Acura.
-84% of Upstart loans fully automated, 70% on mobile phone.
-Auto retail and refinance AI models are both considered to be calibrated and performing on target.
-First external funding agreement in place for retail auto loans.
-Planning to launch a home equity loan product later this year.

I'm still reading the transcript and haven't read the 10-Q at all yet. As expected Upstart reported big losses and massive contraction in their business this past quarter, though they apparently 'beat expectations' for whatever that's worth.

I'm still hanging onto my shares, and while I don't feel great about the amount of money flowing to management, I still believe the company has huge upside. Of the recently announced news, their securing funding for their platform is extremely important both short and long term, but I'm most excited that they're moving into the home equity line of credit market, which is a good match, and big market.

From the transcript, CEO speaking,
"
I'm also pleased to let you know that we expect to launch a home equity product later this year. This is a great fit for Upstart for a few reasons. First, 95% of HELOCs are financed by banks and credit unions, so it's an asset our lending partners know and value. Kick in [? probably should be 'second' -B], HELOCs naturally serve a very prime consumer, namely homeowners.

We expect Upstart's HELOCs to have annual loss rates less than 1%. And third home equity products tend to be countercyclical to refinance products. We know this because in Q4 2022, HELOC volumes from 32% year on year even while mortgage refinances plummeted. Importantly, there's a lot of opportunity to improve the process of originating HELOCs.

The average HELOC today takes 36 days to fund, while we are aiming for online approval in 10 minutes and funding within five days.
"

That's a pretty radical improvement in funding time, which consumers should love.

Powerpoint of the presentation for this earnings report:
https://ir.upstart.com/static-files/8d29df4b-e299-...

Lot's of optimistic stuff on the early slides ... and I still believe there is powerful business here, but when it comes to the actual numbers reported for the quarter, it's brutal. Mostly expected, but brutal nonetheless ... as earslookin highlighted on the board previously, there was a truly massive amount of stock-based compensation this past quarter: $74m on the cash flow statement ... which is hard to swallow for a company reporting revenue from fees of $117m and a net reported loss of $129m.

Total revenue reported was only $103m, with $45m in interest income more than offset by $7m in interest expense and a big $52m adjustment in fair value of loans held on the books due to rising interest rates, triggered in part by an impending sale of a bundle of loans which will reflect the worsening interest rate environment during the quarter.

Number of diluted shares is down to 81.9m from 95.5m reported for last year's Q1.

They expect revenue to bounce back up to $135m next Q, as deal volume picks up and they expect a net gain from interest of $5m to go with revenue from fees of $130m.

'Contribution margin' was at a record high 58% and expected to hit 60% next Q, following cost cutting and increasing automation. From the transcript:

"Our contribution margin, a non-GAAP metric, which we define as revenue from fees minus variable costs for borrower acquisition, verification, and servicing as a percentage of revenue from fees came in at 58% in Q1, up from 47% last year and 3 percentage points above our guided expectation for the quarter. "

Part of it increasing was also a result of the company intentionally working the levers to improve loan profitability, as opposed to loan volume, since they were volume constrained anyway by lack of funds to lend.

there was a truly massive amount of stock-based compensation this past quarter:
$74m on the cash flow statement ...

If there's any good news in this, the bulk of the $74M -- around $40M -- was a
one-time write-off of the cancellation of Paul Gu's performance based stock units.
He is now back on salary. Of course, he now is eligible for the bonus and stock-award
incentives that the other executives get. I did my part by voting against the pay plan
at the annual meeting. :)

Remember we were speculating about a large write-off of some sort. Throwing it into
an already bad quarter. Looks like this was it. I guess the other good news is that
it was non-cash.

Ears <long Upstart>

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