Upstart's stock price has nearly tripled in the last two months. You'd think that would
indicate Upstart's short interest -- which has been headline-grabbing enormous -- had
finally come back to earth. Short squeeze and all that. NOT SO! Upstart's short interest
has stubbornly remained at a whopping 36% of float. And that's well after Castlelake agreed
to purchase up to $4 billion in Upstart generated loans.

The chart linked below illustrates how Upstart's short interest has trended in the last
two years. It shows that short sellers are still quite confident that Upstart is in the
hearse headed to the cemetery.

https://public.flourish.studio/visualisation/12944...

Given that close to ONE BILLION DOLLARS is currently bet on Upstart's demise, how can I
possibly justify my forecast for Q2 that says, hey, things are looking up. I'll get to that
at the end. First, let's look at how my forecast did against actuals for Q1.

My estimate for Q1 vs what actually happened

My estimate for Q1 was reasonably close to what actually happened. This shouldn't be a
surprise because Upstart gave us most of the numbers in their guidance. Where I screwed
up was separating out the restructuring charges from operations. Upstart included these
numbers in the operations section. All this gives me a (false?) sense of confidence that
we can reasonably forecast Upstart's quarterly numbers for the next quarter.

               UPSTART'S Q1.2023 INCOME STATEMENT

                                     My Q1.2023     Q1.2023
                                      Estimate       Actual
                                      --------     --------
Revenue from fees                      110,000      117,141
Interest Income and Adjustments        -10,000      -14,214
Total revenue                          100,000      102,927

Direct Expenses                        -49,500      -49,518
Fixed Expenses                        -174,500     -185,244
                                      --------     --------
Total operating expenses              -224,000     -234,762

Other income (expense)                   3,000        2,597
Restructuring charges                  -15,000    in Oper Exp above
Stock based compensation reversal        3,000    in Oper Exp above
Other unknown charges                  -12,000            0
                                      --------      -------
Total non-operating expenses           -21,000        2,597

Provision for taxes                          0           16

Net income                            -145,000     -129,254

Net income per share diluted             -1.77        -1.58
Weighted-average shares diluted         81,900       81,911

Although the Q1 Income Statement won't win any prizes, cash burn from operations was
fairly minimal. Using my version of the Cash Flow Statement, they burned through $15M
in cash for core operations. That almost exactly equals the one-time restructuring charge.
However, they continued to use cash to retain loans. Which we all would like to see go
away. Let's see if the $4B in committed funding they secured will change that in Q2.

              UPSTART'S Q1.2023 CASH FLOW STATEMENT

                                     Upstart's
                                      Version      My Version
                                     ---------     ----------
Cash at beginning of period            532,467        532,467

Cash used by operations                -75,727        -15,063 <= Minus cash used to retain loans
Cash used to retain loans                             -60,664 <= Broken out from cash used by operations
Cash used for investments              -25,852        -25,852
Cash from financing                     20,971         20,971
                                      --------       --------
Change in cash                         -80,608        -80,608

Cash at end of period                  451,859        451,859

My estimate for Q2

They still will have a GAAP loss, but in Q2 I'm forecasting the cash burn from operations
will be zero. Or possibly positive, given the non-core business. The real question is how
much cash will they use to retain loans on the balance sheet. That has by far been the
biggest burner of cash in the last six months.

                      UPSTART'S Q2.2023 INCOME STATEMENT (Forecast)

                                      Q1.2023      Q2.2023
                                       Actual      Estimate
                                      --------     --------
Revenue from fees                      117,141      130,000 <= from guidance
Interest Income and Adjustments        -14,214        5,000 <= from guidance
Total revenue                          102,927      135,000 <= from guidance

Direct Expenses                         49,518       52,000 <= calculated from guidance
Fixed Expenses                         185,244      125,780 <= calculated from guidance
                                      --------     --------
Total operating expenses               234,762      177,780 <= calculated from guidance

Other income (expense)                   2,597        2,800 <= based on history
Restructuring charges              in Oper Exp            0
Stock based compensation reversal  in Oper Exp            0
Other unknown charges                        0            0
                                      --------     --------
Total non-operating expenses             2,597        2,800

Provision for taxes                         16           20 <= based on history

Net income (Loss)                     -129,254      -40,000 <= from guidance

Net income per share diluted             -1.58        -0.48 <= calculated from guidance
Weighted-average shares diluted         81,911       83,100 <= from guidance


Contribution Margin                        58%          60% <= from guidance
Contribution Profit                     67,623       78,000 <= calculated from guidance

Adjusted Net income (Loss)             -38,692       -7,000 <= from guidance
Stock Based Compensation                75,026       33,000 <= calculated from guidance


                      EFFECT ON CASH (Forecast)

                                      Q1.2023      Q2.2023
                                       Actual      Estimate
                                      --------     --------
Net income (Loss)                     -129,254      -40,000
Add back stock based compensation       74,109       33,000
Add back depreciation & amortization     6,441        7,000
                                      --------     --------
                                       -48,704            0

Closing thoughts

Things I'll be watching for in the Q2 results...

** The effect on revenue from the Castlelake agreements.

** The effect on the balance sheet from the Castlelake agreements.

** Do they continue to burn cash to retain loans?

One other thing I'll be watching for. In Q1 they've made a big push to ramp up their auto
loan business. They hired a VP of Sales for Auto and have been staffing for sales reps and
support people for the auto loan business. They must believe they've got a good market
going. From my view, auto is a much better market than personal loans because you've got
collateral. That makes it easier to recruit lenders.

So, you short sellers...I'm not smarter than you. But I'm not seeing what you're seeing.
If anything, things look mildly optimistic. They've reduced their fixed expenses, cash burn
will hopefully be confined to core operations, and they've got some opportunities to boost
the top line with the Castlelake agreement and auto loan ramp up. Looking forward to the Q2
call.

Ears <long Upstart>

Upstart Holdings FAQ

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