Upstart Holdings, Inc. [UPST] Filings

10-Q 1 upst-20240630.htm 10-Q upst-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________to ________

Commission File Number: 001-39797

Upstart Holdings, Inc.

(Exact name of registrant as specified in its charter)

_________________________


Delaware (State or other jurisdiction of incorporation or organization)						46-4332431 (I.R.S. Employer Identification No.)

Upstart Holdings, Inc.

2950 S. Delaware Street, Suite 410

San Mateo, California 94403

(Address of principal executive offices, including zip code)

(833) 212-2461

(Registrant’s telephone number, including area code)

_________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, par value $0.0001 per share	UPST	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of July 30, 2024 there were 89,513,590 shares of the registrant’s common stock outstanding.

Upstart Holdings, Inc.

FORM 10-Q

TABLE OF CONTENTS


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		4

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	7
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Operations and Comprehensive Loss	9
	Condensed Consolidated Statements of Stockholders’ Equity	10
	Condensed Consolidated Statements of Cash Flows	12
	Notes to the Condensed Consolidated Financial Statements	14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	84

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	86
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	153
Item 3.	Defaults Upon Senior Securities	153
Item 4.	Mine Safety Disclosures	153
Item 5.	Other Information	154
Item 6.	Exhibits	155
Signatures		156

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws about us and our industry, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “seek,” “could,” “intend,” “target,” “aim,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include statements about:

•our future financial performance, including our expectations regarding our revenue, our operating expenses, our ability to determine reserves and our ability to achieve and maintain profitability;

•our ability to improve the effectiveness and predictiveness of our AI models and our expectations that improvements in our AI models can lead to higher approval rates and lower interest rates;

•our ability to increase the volume of loans facilitated through our AI lending marketplace;

•our ability to successfully maintain a diversified and resilient loan funding strategy, including lending partnerships, whole loan sales, committed capital and other co-investment arrangements and securitization transactions;

•our capital allocation plans, including expectations regarding funding loans through our balance sheet and allocations of cash and timing for any share repurchases and other investments;

•our ability to maintain competitive interest rates offered to borrowers on our platform, while enabling our lending partners and institutional investors to achieve an adequate return over their cost of funding;

•our ability to successfully build our brand and protect our reputation from negative publicity;

•our ability to increase the effectiveness of our marketing strategies, including our direct consumer marketing initiatives;

•our expectations regarding macroeconomic events, including rising interest and inflation rates and monetary policy changes;

•our expectations regarding the credit performance of Upstart-powered loans;

•the impact of bank failures in 2023, including disruption in the banking industry, and any associated effects on our business and industry;

•our expectations and management of future growth, including expanding the number of potential borrowers;

•our ability to successfully adjust our proprietary AI models, products and services, and provide up-to-date information to our lending partners, in a timely manner in response to changing macroeconomic conditions and fluctuations in the credit market;

•our compliance with applicable local, state and federal laws;

•our ability to comply with and successfully adapt to complex and evolving regulatory environments, including regulation of artificial intelligence and machine learning technology;

•our expectations regarding regulatory support of our approach to AI-based lending;

•our expectations regarding the success of our strategic investments and acquisitions, including the integration of acquired operations, products, technology, internal controls and personnel;

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•our expectations regarding new and evolving markets and our ability to enter into new markets and introduce new products and services;

•our expectations concerning relationships with third parties;

•our ability to protect against increasingly sophisticated fraudulent borrowing and online theft;

•our ability to service our loans and pursue collection of delinquent and defaulted loans;

•our ability to successfully compete with companies that are currently in, or may in the future enter, the markets in which we operate;

•our ability to effectively secure and maintain the confidentiality of the information received, accessed, stored, provided and used across our systems;

•our ability to successfully obtain and maintain corporate funding and liquidity to support continued growth and for general corporate purposes;

•our ability to attract, integrate and retain qualified employees;

•our ability to maintain an effective system of disclosure controls and internal control over financial reporting and operations;

•our ability to effectively manage and expand the capabilities of our operations teams, outsourcing relationships and other business operations;

•our ability to maintain, protect and enhance our intellectual property;

•our expectations regarding outstanding litigation and regulatory investigations; and

•our ability to manage the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.

Forward-looking statements should not be relied upon as predictions of future events. We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this report. Readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the Securities and Exchange Commission that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. Undue reliance should not be placed on our forward-looking statements as we may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Upstart Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated.

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Upstart Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	December 31,		June 30,
	2023		2024
Assets
Cash	$	368,405	$	374,791
Restricted cash	99,382		185,827
Loans (at fair value)(1)	1,156,413		820,628

Property, equipment, and software, net	42,655		39,728
Operating lease right of use assets	54,694		49,144
Beneficial interest assets (at fair value)	41,012		97,804
Non-marketable equity securities	41,250		41,250
Goodwill	67,062		67,062

Other assets (includes $48,897 and $50,860 at fair value as of December 31, 2023 and June 30, 2024, respectively)	146,227		143,990
Total assets(2)	$	2,017,100	$	1,820,224
Liabilities and Stockholders’ Equity
Liabilities:

Payable to investors	$	53,580	$	65,502
Borrowings	1,040,424		912,727

Payable to securitization note holders (at fair value)	141,416		113,652
Accrued expenses and other liabilities (includes $10,510 and $16,663 at fair value as of December 31, 2023 and June 30, 2024, respectively)	84,051		77,259
Operating lease liabilities	62,324		56,374
Total liabilities(2)	1,381,795		1,225,514


Stockholders’ equity:
Common stock, $0.0001 par value; 700,000,000 shares authorized; 86,330,303 and 89,084,180 shares issued and outstanding as of December 31, 2023 and June 30, 2024, respectively	9		9
Additional paid-in capital	917,872		996,345
Accumulated deficit	(282,576)		(401,644)


Total stockholders’ equity	635,305		594,710
Total liabilities and stockholders’ equity	$	2,017,100	$	1,820,224

____________

(1)Includes $179.1 million and $135.1 million of loans, at fair value, contributed as collateral for the consolidated securitization as of December 31, 2023 and June 30, 2024, respectively. Refer to “Note 6. Fair Value Measurement” for details.

(2)The following table presents information on assets and liabilities related to variable interest entities (“VIEs”) that are consolidated by Upstart Holdings, Inc. at December 31, 2023 and June 30, 2024. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. The liabilities in the table below include liabilities for which creditors do not have recourse to the general credit of Upstart Holdings, Inc. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.

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Upstart Holdings, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands, except share data)

(Unaudited)


	December 31,		June 30,
	2023		2024
Assets
Cash	$	1,603	$	524
Restricted cash	23,450		61,084
Loans (at fair value)	1,147,423		803,111


Other assets (includes $5,958 and $5,123 at fair value as of December 31, 2023 and June 30, 2024, respectively)	22,917		18,136
Total assets	$	1,195,393	$	882,855

Liabilities

Payable to investors	$	121	$	14
Borrowings	387,440		258,203

Payable to securitization note holders (at fair value)	141,416		113,652
Accrued expenses and other liabilities	1,975		3,036
Total liabilities	530,952		374,905
Total net assets	$	664,441	$	507,950

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Upstart Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
Revenue:
Revenue from fees, net	$	143,689	$	130,532	$	260,830	$	268,600
Interest income, interest expense, and fair value adjustments, net:
Interest income(1)	33,916		52,883		79,231		104,054
Interest expense(1)	(4,282)		(11,470)		(11,414)		(22,184)
Fair value and other adjustments(1)	(37,557)		(44,315)		(89,954)		(95,046)
Total interest income, interest expense, and fair value adjustments, net	(7,923)		(2,902)		(22,137)		(13,176)
Total revenue	135,766		127,630		238,693		255,424
Operating expenses:
Sales and marketing	23,891		32,958		55,329		68,108
Customer operations	36,797		38,684		77,387		78,092
Engineering and product development	57,974		58,453		168,045		121,544
General, administrative, and other	50,448		53,021		103,111		110,634
Total operating expenses	169,110		183,116		403,872		378,378
Loss from operations	(33,344)		(55,486)		(165,179)		(122,954)
Other income, net	5,197		1,031		7,794		3,915

Net loss before income taxes	(28,147)		(54,455)		(157,385)		(119,039)
Provision for income taxes	18		15		34		29
Net loss	$	(28,165)	$	(54,470)	$	(157,419)	$	(119,068)



Net loss per share, basic	$	(0.34)	$	(0.62)	$	(1.91)	$	(1.36)
Net loss per share, diluted	$	(0.34)	$	(0.62)	$	(1.91)	$	(1.36)
Weighted-average number of shares outstanding used in computing net loss per share, basic	83,130,638		88,435,893		82,524,403		87,733,294
Weighted-average number of shares outstanding used in computing net loss per share, diluted	83,130,638		88,435,893		82,524,403		87,733,294

____________

(1)Balances for three and six months ended June 30, 2024 include amounts related to the consolidated securitization. Refer to “Note 2. Revenue” for details.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Upstart Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)


		Three Months Ended June 30, 2023
	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
		Shares			Amount
Balance as of March 31, 2023		82,600,748	$	8		$	798,898	$	(171,698)		$	627,208
Issuance of common stock upon exercise of stock options		439,600	—			5,135		—			5,135
Issuance of common stock upon settlement of restricted stock units		771,183	—			—		—			—

Shares withheld related to net share settlement of restricted stock units		(47)	—			(1)		—			(1)




Stock-based compensation expense		—	—			33,968		—			33,968

Net loss		—	—			—		(28,165)			(28,165)
Balance as of June 30, 2023		83,811,484	$	8		$	838,000	$	(199,863)		$	638,145


		Six Months Ended June 30, 2023
	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2022		81,259,676	$	8		$	714,871	$	(42,444)		$	672,435
Issuance of common stock upon exercise of stock options		770,693	—			6,672		—			6,672
Issuance of common stock upon settlement of restricted stock units		1,469,356	—			—		—			—
Shares withheld related to net share settlement of restricted stock units		(375)	—			(6)		—			(6)
Stock-based compensation expense		—	—			110,735		—			110,735




Issuance of common stock under employee stock purchase plan		312,134	—			5,728		—			5,728
Net loss		—	—			—		(157,419)			(157,419)
Balance as of June 30, 2023		83,811,484	$	8		$	838,000	$	(199,863)		$	638,145


		Three Months Ended June 30, 2024
	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
		Shares			Amount
Balance as of March 31, 2024		87,805,393	$	9		$	959,963	$	(347,174)		$	612,798
Issuance of common stock upon exercise of stock options		269,134	—			1,015		—			1,015
Issuance of common stock upon settlement of restricted stock units		1,009,681	—			—		—			—
Shares withheld related to net share settlement of restricted stock units		(28)	—			(1)		—			(1)

Stock-based compensation expense		—	—			35,368		—			35,368






Net loss		—	—			—		(54,470)			(54,470)
Balance as of June 30, 2024		89,084,180	$	9		$	996,345	$	(401,644)		$	594,710

Upstart Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)


		Six Months Ended June 30, 2024
	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2023		86,330,303	$	9		$	917,872	$	(282,576)		$	635,305
Issuance of common stock upon exercise of stock options		621,102	—			2,219		—			2,219
Issuance of common stock upon settlement of restricted stock units		1,934,708	—			—		—			—
Shares withheld related to net share settlement of restricted stock units		(66)	—			(2)		—			(2)

Stock-based compensation expense		—	—			71,691		—			71,691


Issuance of common stock under employee stock purchase plan		198,133	—			4,565		—			4,565



Net loss		—	—			—		(119,068)			(119,068)
Balance as of June 30, 2024		89,084,180	$	9		$	996,345	$	(401,644)		$	594,710

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Upstart Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2024
Cash flows from operating activities
Net loss	$	(157,419)	$	(119,068)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in fair value of loans	90,341		103,778
Change in fair value of servicing assets	10,165		8,201
Change in fair value of servicing liabilities	(1,468)		(817)
Change in fair value of beneficial interest assets	1,956		(1,067)
Change in fair value of beneficial interest liabilities	(85)		9,344
Change in fair value of other financial instruments	(2,271)		(4,316)
Stock-based compensation	106,705		69,986
Gain on loan servicing rights, net	(6,960)		(5,897)
Depreciation and amortization	10,866		10,460

Non-cash interest expense	1,533		1,541
Other	(1,917)		(6,084)
Net changes in operating assets and liabilities:


Purchases of loans held-for-sale	(1,250,346)		(1,570,013)
Proceeds from sale of loans held-for-sale	1,266,604		1,491,994
Principal payments received for loans held-for-sale	101,829		115,335
Principal payments received for loans held by consolidated securitization	—		24,714
Payments on beneficial interest liabilities	—		(2,367)
Other assets	(3,826)		5,722
Operating lease liability and right-of-use asset	1,438		(400)

Payable to investors for beneficial interest assets(1)	4,108		—
Accrued expenses and other liabilities	(29,657)		(13,129)
Net cash provided by operating activities	141,596		117,917

Cash flows from investing activities

Purchases and originations of loans held-for-investment	(83,868)		(110,941)

Principal payments received for loans held-for-investment	50,427		60,207
Principal payments received for notes receivable and repayments of residual certificates	2,996		2,681

Purchases of property and equipment	(1,150)		(721)
Capitalized software costs	(6,324)		(3,356)
Acquisition of beneficial interest assets	(26,427)		(63,246)





Proceeds from beneficial interest assets	—		1,729


Net cash used in investing activities	(64,346)		(113,647)

Cash flows from financing activities

Proceeds from borrowings	340,370		247,510
Repayments of borrowings	(397,644)		(154,999)
Principal payments made on securitization notes	—		(28,446)

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Upstart Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2024
Payable to investors(1)	(54,944)		17,714










Proceeds from issuance of common stock under employee stock purchase plan	5,728		4,565
Proceeds from exercise of stock options	6,672		2,219
Taxes paid related to net share settlement of equity awards	(6)		(2)

Net cash provided by (used in) financing activities	(99,824)		88,561
Change in cash and restricted cash	(22,574)		92,831
Cash and restricted cash
Cash and restricted cash at beginning of period	532,467		467,787
Cash and restricted cash at end of period	$	509,893	$	560,618

Supplemental disclosures of cash flow information
Cash paid for interest	$	12,240	$	24,510
Cash (received) paid for income taxes, net	(989)		213




Supplemental disclosures of non-cash investing and financing activities


Beneficial interests obtained in connection with loan sale	$	—	$	13,555
Beneficial interest assets included in payable to investors	4,108		—
Settlement of borrowings in connection with loan sale	—		221,749
Issuance of line of credit receivable	—		(8,261)
Capitalized stock-based compensation expense	4,030		1,705

____________

(1) During the second quarter of 2024, the Company elected to change the presentation of changes in the payable to investors balance on the condensed consolidated statement of cash flows, refer to “Note 1. Description of Business and Significant Accounting Policies” for further details.

The following presents cash and restricted cash by category within the unaudited condensed consolidated balance sheets:


	December 31,		June 30,
	2023		2024
Cash	$	368,405	$	374,791
Restricted cash	99,382		185,827
Total cash and restricted cash	$	467,787	$	560,618

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

1. Description of Business and Significant Accounting Policies

Description of Business

Upstart Holdings, Inc. and its subsidiaries (together “Upstart”, the “Company”, “we”, or “our”) apply artificial intelligence models and cloud applications to the process of originating consumer credit. The Company helps originate credit by providing lending partners with access to a proprietary, cloud-based, artificial intelligence lending marketplace. As the Company’s technology continues to improve and additional lending partners adopt the Upstart platform, consumers benefit from improved access to affordable and frictionless credit. The Company currently operates in the United States and is headquartered in San Mateo, California and Columbus, Ohio. The Company’s fiscal year ends on December 31.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements included in our Annual Report on Form 10-K. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of operations to be anticipated of any future annual or interim periods.

Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Reclassifications

During the second quarter of 2024, the Company elected to change its presentation of changes in the payable to investors balance on the condensed consolidated statement of cash flows. Payable to investors balance consists of a) liabilities associated with fiduciary cash that is temporarily held by the Company on behalf of our institutional investors and is presented within restricted cash on the condensed consolidated balance sheets; and b) cash payable to investors for acquisitions or settlements of beneficial interests. Under the new presentation, the portion of the payable to investors balance related to fiduciary cash is reclassified from operating to financing activities within the condensed consolidated statement of cash flows. There is no change in the presentation for the change in the payable to investors balance related to acquisition and settlements of beneficial interests. Comparative amounts have been reclassified to conform to the current period presentation. The following table present the effects of the changes in presentation within the condensed consolidated statements of cash flows:

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)


	Six Months Ended June 30, 2023
	As Previously Reported		Adjustment		As Adjusted

Cash flows from operating activities
Payable to investors	$	(50,836)	$	50,836	$	—
Payable to investors for beneficial interest assets	—		4,108		4,108
Net cash provided by operating activities	86,652		54,944		141,596

Cash flows from financing activities
Payable to investors(1)	—		(54,944)		(54,944)
Net cash used in financing activities	$	(44,880)	$	(54,944)	$	(99,824)

____________

(1) Related to liabilities associated with fiduciary cash that is temporarily held by the Company on behalf of our institutional investors.

The reclassification had no impact on the condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss or condensed consolidated statements of shareholders’ equity.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Significant estimates and assumptions made in the accompanying condensed consolidated financial statements, which Management believes are critical in understanding and evaluating the Company’s reported financial results include: (i) fair value determinations; (ii) stock-based compensation; (iii) consolidation of VIEs; and (iv) the evaluation for impairment of goodwill. The Company bases its estimates on various factors it believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.

Fair Value Measurement

During the six months ended June 30, 2024, the Company elected the fair value option on the line of credit receivable issued to a third-party, and classified as a Level 3 investment within the fair value hierarchy. Refer to “Note 6. Fair Value Measurement” for further information.

Recently Adopted Accounting Pronouncements

The Company did not adopt any new accounting standards during the six months ended June 30, 2024.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Specifically, the new guidance requires disclosure, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker, and an amount for other segment items by reportable segment, with a description of its composition. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and provide new segment disclosure requirements for entities with a single reportable segment. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the amendments to its condensed consolidated financial statements or related disclosures and plans to include any additional required disclosures relating to its segments beginning in the 2024 Annual Report on Form 10-K.

In December 2023, the FASB issued ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in this update require entities that hold certain crypto assets to subsequently measure them at fair value, with changes in fair value recorded in net income. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. This ASU is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements or related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update require entities to disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling items where the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income/loss by the applicable statutory income tax rate. In addition, entities are required to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by jurisdictions. This ASU is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of these amendments to its condensed consolidated financial statements or related disclosures and plans to include the additional required disclosures relating to income taxes beginning in the 2025 Annual Report on Form 10-K.

2. Revenue

Revenue from Fees, Net

The Company disaggregates revenue from fees by type of service for the periods presented as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
Revenue from fees, net:
Platform and referral fees, net	$	105,765	$	98,595	$	183,422	$	202,454
Servicing and other fees, net	37,924		31,937		77,408		66,146
Total revenue from fees, net	$	143,689	$	130,532	$	260,830	$	268,600

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

Platform and Referral Fees, Net

Lending Partners. The Company enters into contracts with lending partners to provide access to a cloud-based artificial intelligence lending marketplace developed by the Company (the “Upstart platform”) to enable lending partners to originate unsecured personal and secured auto loans. The Upstart platform includes a cloud-based application (through Upstart.com or a lending partner-branded program) for submitting loan applications, verifying information provided within submitted applications, risk underwriting (through a series of proprietary technology solutions), delivery of electronic loan offers, and if the offer is accepted by the borrower, electronic loan documentation signed by the borrower. Lending partners can specify certain parameters of loans they are willing to originate. Under these contracts, lending partners can choose to use Upstart’s referral services, which allow them to access new borrowers through Upstart’s marketing channels.

After origination, Upstart-powered loans are either retained by lending partners, purchased by the Company for immediate resale to institutional investors under loan sale agreements, or purchased and held by the Company. For loans not retained by the lending partners, the Company pays the lending partners a one-time loan premium fee upon completion of the minimum contractual holding period and a monthly loan trailing fee based on the amount and timing of principal and interest payments made by the borrowers of the underlying loans. Both the loan premium fees and loan trailing fees are consideration payable to customers, which are our lending partners, and are recorded as a reduction to platform and referral fees, net, which is part of revenue from fees, net, in the condensed consolidated statements of operations and comprehensive loss. The Company recognized $2.0 million and $3.4 million of loan premium fees and loan trailing fees as contra-revenue within platform and referral fees, net during the three and six months ended June 30, 2023, respectively and $2.2 million and $4.4 million during the three and six months ended June 30, 2024, respectively.

As of December 31, 2023 and June 30, 2024, the Company recognized $4.3 million and $4.2 million of loan trailing fee liabilities, respectively, which is recorded at fair value and included within accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets. Refer to “Note 6. Fair Value Measurement” for additional information on changes in fair value associated with trailing fee liabilities.

The Company’s arrangements for platform and referral services typically consist of an obligation to provide one or both of these services to customers, on a when and if needed basis (a stand-ready obligation), and revenue is recognized as such services are performed. Additionally, the services have the same pattern and period of transfer, and when provided individually or together, are accounted for as a single combined performance obligation representing a series of distinct services.

Platform and referral services are typically provided under a fixed or variable price per unit based on a percentage of the value of loans originated each period with certain lending partners subject to minimum fees; however, pricing for these services may also be based on usage fees, calculated as a percentage of each loan originated. The nature of the Company’s promise is to stand-ready and provide continuous access to and process transactions through the platform. Platform and referral fees represent variable consideration as loan origination volume is not known at contract inception. These fees are determined each time a loan is originated. Fees for platform and referral services are typically billed and paid on a monthly basis. As such, the Company’s contracts with customers do not include a significant financing component.

Auto Dealerships. The Company enters into subscription agreements with auto dealerships to access Upstart Auto Retail software, a cloud-based solution that facilitates dealership operations and enables them to provide consumers with access to Upstart-powered auto loans. Subscription agreements generally have a contractual term of one to six months with evergreen monthly renewals. The Company bills customers on a monthly basis. Subscription fees are recognized over the contract term as the performance obligation is satisfied, and is included within platform and referral fees, net in the condensed consolidated statements of operations and comprehensive loss. The Company recognized immaterial amounts of subscription fee revenue for the three and six months ended

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

June 30, 2023 and an immaterial amount and $2.7 million of subscription fee revenue for the three and six months ended June 30, 2024, respectively.

The Company had $19.5 million and $18.1 million of accounts receivable that are included in other assets on the condensed consolidated balance sheets related to contracts with customers as of December 31, 2023 and June 30, 2024, respectively. The standard payment terms on accounts receivable are 30 days. The Company’s allowance for bad debt and bad debt expense were immaterial for the periods presented.

The Company capitalizes incremental costs of obtaining a contract with a customer, which are certain sales commissions paid to employees in connection with the acquisition of lending partners. Capitalized costs are amortized over the expected period of benefit, which we have determined, based on an analysis, to be three years. The Company applies the practical expedient to expense costs to obtain contracts with customers if the amortization period is one year or less. As of December 31, 2023 and June 30, 2024, the Company had $2.7 million and $2.6 million of contract costs, respectively, capitalized within other assets on the condensed consolidated balance sheets. The Company amortized immaterial amounts of capitalized contracts costs to sales and marketing in the condensed consolidated statements of operations and comprehensive loss for the periods presented.

Customers accounting for greater than 10% of total revenue were as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2024	2023	2024
Customer A	27%	35%	28%	37%
Customer B	33%	25%	31%	25%
Customer C	11%	10%	11%	10%

Customers accounting for greater than 10% of accounts receivable were as follows:


	December 31,	June 30,
	2023	2024
Customer D	*	13%
Customer B	11%	11%
Customer C	15%	*

* Less than 10%

Servicing and Other Fees, Net

The Company also enters into contracts with lending partners and institutional investors to provide loan servicing for the life of Upstart-powered loans. These services commence upon origination of these loans by lending partners and include collection, processing and reconciliations of payments received, institutional investor reporting and borrower customer support as well as distribution of funds to the holders of the loans. The Company charges the loan holder a monthly servicing fee calculated based on a predetermined percentage of the outstanding principal balance. Servicing fees also include certain ancillary fees charged on a per transaction basis for processing late payments and payments declined due to insufficient funds. Servicing fees are recognized in the period the services are provided. Loan servicing fees are not within the scope of ASC 606, Revenue from Contracts with Customers, and are accounted for under ASC 860, Transfers and Servicing.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

The Company charges lending partners and institutional investors for collection agency fees related to their outstanding loan portfolio. The Company either performs borrower collection activities in-house, or outsources to third-party collection agencies particularly for loans that are more than 30 days past due or charged off. The Company has discretion in hiring the collection agencies and determining the scope of their work. As the principal in the arrangement, the Company recognizes gross revenue from collection agency fees in the period that the services are provided. Upstart also receives certain ancillary borrower fees inclusive of late payment fees and ACH fail fees. The total fees charged by collection agencies are recognized in the period incurred and reported as part of customer operations expenses.

Servicing and other fees, net also includes gains and losses on assets and liabilities recognized under loan servicing arrangements for loans retained by lending partners or loans sold to institutional investors. Such gains or losses are recognized based on whether the benefits of servicing are expected to be more or less than adequate compensation for servicing obligations performed by the Company. Servicing fees also include changes in fair value of loan servicing assets and liabilities. Refer to “Note 6. Fair Value Measurement” for additional information on changes in fair value associated with servicing assets and liabilities.

The following table presents the components of servicing and other fees, net as part of revenue from fees, net in the Company’s condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
Servicing fees	$	27,970	$	21,951	$	56,498	$	45,193
Borrower fees	6,904		6,356		14,641		13,515
Collection agency fees	3,752		4,117		7,668		8,713
Other fees	45		115		338		213
Net loss on servicing rights and fair value adjustments	(747)		(602)		(1,737)		(1,488)
Total servicing and other fees, net	$	37,924	$	31,937	$	77,408	$	66,146

Interest Income, Interest Expense, and Fair Value Adjustments, Net

Interest income, interest expense, and fair value adjustments, net is comprised of interest income, interest expense and net changes in the fair value of financial instruments, held in the Company’s normal course of business at fair value, including loans, derivatives, beneficial interests, notes receivable and residual certificates, trailing fee liabilities, payable to securitization note holders, and line of credit receivable.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

The following table presents components of the interest income, interest expense, and fair value adjustments, net presented in the Company’s condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024

Interest income(1)	$	33,916	$	52,883	$	79,231	$	104,054
Interest expense(1)	(4,282)		(11,470)		(11,414)		(22,184)
Fair value and other adjustments, net:
Unrealized loss on loans, loan charge-offs, and other fair value adjustments, net(1)	(24,154)		(31,949)		(68,698)		(61,542)
Realized loss on sale of loans, net	(11,447)		(4,511)		(19,300)		(11,615)
Fair value adjustments and realized losses on beneficial interests, net	(1,956)		(7,855)		(1,956)		(21,889)
Total fair value and other adjustments, net	(37,557)		(44,315)		(89,954)		(95,046)

Total interest income, interest expense, and fair value adjustments, net	$	(7,923)	$	(2,902)	$	(22,137)	$	(13,176)

__________

(1) Includes interest income, interest expense and unrealized loss on loans, loan charge-offs, and other fair value adjustments, net related to the consolidated securitization as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
Interest income, interest expense, and fair value adjustments, net related to consolidated securitization:
Interest income	$	—	$	7,714	$	—	$	16,338
Interest expense	—		(2,514)		—		(5,274)

Unrealized loss on loans, loan charge-offs, and other fair value adjustments, net	—		(9,266)		—		(19,917)



Total interest income, interest expense, and fair value adjustments, net	$	—	$	(4,066)	$	—	$	(8,853)

Interest Income

Interest income is recognized based on the terms of the underlying agreements with borrowers for loans and line of credit receivable held on the Company’s condensed consolidated balance sheets and is earned over the life of a loan or a line of credit receivable.

Interest income also includes accrued interest earned on outstanding loans and line of credit receivable but not collected. Loans and line of credit receivable that have reached a delinquency of over 120 days are classified as non-accrual status and any accrued interest recorded in relation to these loans is reversed in the respective period. The Company does not record an allowance for credit losses on accrued interest receivable. As of December 31, 2023 and June 30, 2024, the Company has recorded $14.2 million and $9.1 million of accrued interest income in loans on the condensed consolidated balance sheets, respectively. Accrued interest income on the line of credit receivable was immaterial as of June 30, 2024.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

Interest Expense

Interest expense is primarily related to interest recorded on the Company’s borrowings on warehouse credit facilities and interest expense related to the consolidated securitization. Interest expense includes accrued interest incurred but not paid. Accrued interest expenses were immaterial as of December 31, 2023 and June 30, 2024. Interest expense also includes changes in fair value of the interest rate caps. Refer to “Note 4. Derivative Financial Instruments” for additional information.

Fair Value and Other Adjustments, Net

Fair value and other adjustments, net include changes in fair value of financial instruments, other than loan servicing assets and liabilities and interest rate caps. These adjustments are recorded in the Company’s condensed consolidated statements of operations and comprehensive loss and include both realized and unrealized changes to the value of related assets and liabilities. Refer to “Note 6. Fair Value Measurement” for additional information.

Fair value and other adjustments, net also includes amounts received from borrowers for previously charged-off loans held on the Company’s condensed consolidated balance sheets. These amounts are recognized in the period when amounts are received. Amounts received from borrowers for previously charged-off loans were immaterial for the three and six months ended June 30, 2023, and $3.8 million and $7.1 million for the three and six months ended June 30, 2024, respectively.

3. Variable Interest Entities

Consolidated VIEs

The Company consolidates VIEs in which the Company has a variable interest and is determined to be the primary beneficiary. This determination is based on whether the Company has a variable interest (or combination of variable interests) that provides the Company with both (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. The Company continually reassesses whether it is the primary beneficiary of a VIE throughout the entire period the Company is involved with the VIE.

The Company also determines whether decision-maker or service-provider fees are variable interests. Decision-maker or service-provider fees are not considered variable interests when the arrangement does not expose the Company to risks of loss that a potential VIE was designed to pass on to its variable interest holders, the fees are commensurate, the arrangement is at market, and the Company does not have any other interests (including direct interests and certain indirect interests held through related parties) that absorb more than an insignificant amount of a VIE’s potential variability. This determination can have a significant impact on the Company’s consolidation analysis, as it could affect whether a legal entity is a VIE and whether the Company is the primary beneficiary of a VIE. When the Company’s decision-maker or service-provider fee is not a variable interest, the Company is viewed as acting as a fiduciary for the potential VIE.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

The following tables present a summary of financial assets and liabilities from the Company’s involvement with consolidated VIEs:


	December 31, 2023
	Assets		Liabilities		Net Assets
Consolidated securitization	$	187,258	$	141,420	$	45,838
Consolidated warehouse entities	645,455		388,681		256,774

Other consolidated VIEs	362,680		851		361,829
Total consolidated VIEs	$	1,195,393	$	530,952	$	664,441


	June 30, 2024
	Assets		Liabilities		Net Assets
Consolidated securitization	$	142,540	$	113,656	$	28,884
Consolidated warehouse entities	513,755		260,065		253,690

Other consolidated VIEs	226,560		1,184		225,376
Total consolidated VIEs	$	882,855	$	374,905	$	507,950

Consolidated Securitization

On July 6, 2023, the Company completed a private securitization securities offering (“UPST 2023-2”). As a retaining sponsor of the transaction, under risk retention requirements in Title 17 U.S. Code of Federal Regulations Part 246, Credit Risk Retention, promulgated by the Securities and Exchange Commission, the Company is required to retain at least 5% of the economic risk in UPST 2023-2. The Company elected to satisfy the risk retention requirements by holding eligible vertical retained interests in the form of a combination of securitization notes and residual certificates. The Company has also retained the remainder of the residual certificates issued as part of the transaction. The Company was the sole contributor of the collateral, which included $204.7 million outstanding principal balance of Upstart-powered loans held by the Company. The weighted-average coupon of the securitization notes issued was approximately 9.2%, and their sale generated approximately $165.3 million in gross cash proceeds. These proceeds and payments made on securitization notes are classified as financing activities in the condensed consolidated statement of cash flows.

Upon closing of UPST 2023-2, the Company determined that servicing fees represent a variable interest due to the retained interests held by the Company. The retained interests held by the Company were deemed to potentially absorb more than an insignificant amount of expected losses or expected returns at the inception of the securitization transaction. The Company, as servicer, also has the power to direct the activities that most significantly impact the economics of the entities associated with the UPST 2023-2 securitization, and as such, the Company determined it was the primary beneficiary and consolidated the entities associated with UPST 2023-2.

The loans held in the consolidated securitization trust are classified as held-for-sale and included in loans, at fair value, and the notes sold to third-party investors are recorded at fair value as payable to securitization note holders on the condensed consolidated balance sheets. Refer to “Note 6. Fair Value Measurement” for additional information on determination of fair value of these assets and liabilities. The value of the residual certificates issued as part of the securitization and retained by the Company was eliminated as part of the consolidation.

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

Warehouse Entities

The Company established various entities deemed to be VIEs to enter into warehouse credit facilities for the purpose of purchasing Upstart-powered loans. Refer to “Note 9. Borrowings” for additional information. These entities are Delaware statutory trusts that are structured to be bankruptcy-remote, with third-party banks operating as trustees.

Other Consolidated VIE

The Company has formed a number of VIEs for the purpose of holding Upstart-powered loans that are not pledged or eligible to be pledged to the Company’s warehouse credit facilities.

Unconsolidated VIEs

The Company’s transactions with unconsolidated VIEs include securitizations of unsecured personal whole loans and sales of whole loans to VIEs, including loan sales under its committed capital and other co-investment arrangements. Refer to “Note 5. Beneficial Interests” for additional information on unconsolidated VIEs related to committed capital and other co-investment arrangements.

Securitizations

While the Company continues to be involved with the unconsolidated VIEs in its role as the sponsor and the servicer of securitization transactions, the Company does not hold a significant economic interest in these entities and has determined that it is not the primary beneficiary of these entities. The Company’s unconsolidated VIEs include entities established as the issuers and grantor trusts for various securitization transactions.

In cases where the VIEs are not consolidated and the transfer of the loans from the Company to the securitization trust meets sale accounting criteria, the Company recognizes a gain or loss on sales of loans. The net proceeds of the sale represent the fair value of any assets obtained or liabilities incurred as part of the transaction. The assets are transferred into a trust such that the assets are legally isolated from the creditors of the Company and are not available to satisfy obligations of the Company. These assets can only be used to settle obligations of the underlying securitization trusts.

During the six months ended June 30, 2024, the Company exercised clean up calls related to two historical unconsolidated securitizations and subsequently liquidated the associated entities. As part of the clean up call, the Company, as servicer, repurchased the remaining collateral and received the cash reserve amounts held by the related entities. The clean up calls had no material impact on the condensed consolidated financial statements of the Company.

The following tables summarize the aggregate value of assets and liabilities of unconsolidated VIEs associated with securitizations in which the Company holds a variable interest but is not the primary beneficiary:


	December 31, 2023
	Assets		Liabilities		Net Assets		Maximum Exposure to Losses
Securitizations	$	445,929	$	319,357	$	126,572	$	20,885

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)


	June 30, 2024
	Assets		Liabilities		Net Assets		Maximum Exposure to Losses
Securitizations	$	340,186	$	246,303	$	93,883	$	15,296

The Company’s maximum exposure to loss from its involvement with unconsolidated VIEs represents the estimated loss that would be incurred under severe, hypothetical circumstances, for which the Company believes the possibility is remote. The carrying value of assets that relate to variable interests in unconsolidated VIEs consists of $14.8 million and $11.6 million of securitization notes and residual certificates that are carried at fair value and included in other assets on the condensed consolidated balance sheets as of December 31, 2023 and June 30, 2024, respectively. The Company also had $6.0 million and $3.7 million of cash deposits held as reserve accounts for related securitizations, included in other assets on the condensed consolidated balance sheets as of December 31, 2023 and June 30, 2024.

For securitization transactions where the Company is not the risk retaining sponsor, and servicing is the only form of continuing involvement, the Company would only experience a loss if it were required to repurchase such a loan due to a breach in representations and warranties and is not able to collect all repayments, refer to “Note 12. Commitments and Contingencies” for further information.

The investors and the securitization trusts have no direct recourse to the Company’s assets, and holders of the securities issued by the securitization trusts can look only to the assets of the securitization trusts that issued their securities for payment. The interests held by the Company and its affiliates are subject principally to the credit and prepayment risk stemming from the underlying unsecured personal whole loans.

4. Derivative Financial Instruments

In February 2023 and June 2023, Upstart Auto Warehouse Trust and Upstart Loan Trust entered into interest rate cap agreements with a strike rate of 3.0% and 3.25%, respectively. The agreements were entered into in relation to the warehouse credit facilities which bear floating interest rates, refer to “Note 9. Borrowings” for further information. The interest rate caps provide protection to the credit facilities against exposure to changes in cash flows to the extent the underlying interest rate on the facility exceeds the strike rate. The Upstart Auto Warehouse Trust interest rate cap matures in April 2029 and the Upstart Loan Trust interest rate cap matures in June 2025. The interest rate cap agreements meet the definition of a derivative and are reported at fair value. Refer to “Note 6. Fair Value Measurement” for additional information.

The following table presents the notional amount as well as the fair value of interest rate caps, which is reported as part of other assets on the condensed consolidated balance sheets.


	December 31, 2023				June 30, 2024
	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate caps	$	299,578	$	5,958	$	268,802	$	5,123

The Company recognizes changes in fair value of these instruments in earnings and reports them as part of the interest expense on the condensed consolidated statements of operations and comprehensive loss. The Company recognized an immaterial amount of fair value gains and losses, net on interest rate caps during the three and six months ended June 30, 2023 and 2024.

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

5. Beneficial Interests

The Company’s beneficial interests are associated with committed capital and other co-investment arrangements with a number of third-party institutional investors and lending partners, in which the Company puts certain amounts of assets at risk. The risk is subject to a dollar cap which represents the Company’s maximum exposure to losses in each particular arrangement. The Company is obligated to make payments to these third-parties or is entitled to receive payments from them if credit performance of the loans sold under the arrangements deviates from initial expectations set at the time of loan sale or origination. The maximum exposure to losses is determined by contractual terms and includes restricted cash held on the Company’s condensed consolidated balance sheets for certain arrangements. As of December 31, 2023 and June 30, 2024, the Company’s aggregate maximum exposure to losses under the committed capital and other co-investment arrangements was approximately $99 million and $260 million, of which $12.1 million and $66.6 million was in a form of restricted cash, respectively. Beneficial interests represent the value of the future cash flows as part of these arrangements, discounted to the present value based on expected performance.

The Company’s beneficial interests are associated with entities that meet the definition of a VIE or are evaluated under the voting interest model. The Company has variable interests in certain entities established in relation to its committed capital and co-investment arrangements, including purchaser trusts, which are unconsolidated VIEs. While the Company holds variable interests in these unconsolidated VIEs through committed capital and co-investment arrangements and as the servicer of the loans sold, the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance and has determined that it is not the primary beneficiary.

The Company’s beneficial interests either meet the definition of a derivative or meet the criteria of a debt security. The following table presents the aggregate outstanding principal balance of the underlying loan portfolios as well as the fair value of beneficial interest assets, which are presented as a separate asset line item on the condensed consolidated balance sheets and beneficial interest liabilities which are presented in other liabilities on the condensed consolidated balance sheets.


	December 31, 2023				June 30, 2024
	Outstanding Principal Balance		Fair Value		Outstanding Principal Balance		Fair Value

Beneficial interest assets	$	958,870	$	41,012	$	2,117,435	$	97,804
Beneficial interest liabilities	$	769,102	$	4,221	$	1,010,089	$	11,198

The Company recognizes beneficial interests at fair value with changes reported as part of the fair value and other adjustments on the condensed consolidated statements of operations and comprehensive loss. The table below presents losses recognized on beneficial interests during the following periods:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2024		2023		2024
Fair value adjustments and realized losses on beneficial interests, net	$	(1,956)	$	(8,176)	$	(1,956)	$	(22,210)

Refer to “Note 6. Fair Value Measurement” for additional information.

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Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

6. Fair Value Measurement

The following table presents assets and liabilities measured at fair value and categorized in accordance with the fair value hierarchy:


		December 31,		June 30,
	Level	2023		2024
Assets
Loans	3	$	1,156,413	$	820,628
Beneficial interest assets	3	41,012		97,804
Loan servicing assets	3	28,092		25,790
Notes receivable and residual certificates	3	14,847		11,642
Line of credit receivable	3	—		8,305
Interest rate caps(1)	2	5,958		5,123
Total assets		$	1,246,322	$	969,292
Liabilities
Payable to securitization note holders	3	$	141,416	$	113,652
Beneficial interest liabilities	3	4,221		11,198
Trailing fee liabilities	3	4,251		4,242
Loan servicing liabilities	3	2,038		1,223
Total liabilities		$	151,926	$	130,315

__________

(1) The fair value of interest rate caps is determined based on the present value of the estimated future cash flows over the contract term using observable market-based inputs as of the valuation date, including implied interest rates.

Financial instruments are categorized in the fair value hierarchy based on the significance of unobservable inputs and assumptions in the overall fair value measurement. Financial instruments classified as Level 3 within the fair value hierarchy do not trade in an active market with readily observable prices. The Company uses significant unobservable inputs to measure the fair value of these assets and liabilities. There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the periods presented.

Loans

Loans included in the Company’s condensed consolidated balance sheets are classified as either held-for-sale or held-for-investment based on the Company’s intent and ability to sell the loans prior to maturity. From time to time, the Company transfers loans between the classification categories based on changes in the Company’s intent and ability. Loans held in the consolidated securitization include loans contributed as collateral to and held in the consolidated securitization (UPST 2023-2) and are classified as held-for-sale.

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

The following table presents the fair value of classes of loans included in the Company’s condensed consolidated balance sheets as of December 31, 2023 and June 30, 2024:


	December 31,		June 30,
	2023		2024
Loans held-for-sale	$	830,574	$	497,922
Loans held-for-investment	146,768		187,586
Loans held in consolidated securitization	179,071		135,120
Total	$	1,156,413	$	820,628

Valuation Methodology

Loans held-for-sale and held-for-investment are measured at estimated fair value using a discounted cash flow model. The fair valuation methodology considers projected prepayments and historical defaults, losses and recoveries to project future losses and net cash flows on loans. Net cash flows are discounted using an estimate of market rates of return. The fair value of these loans also includes accrued interest.

The Company elected the measurement alternative under Topic 810, Consolidation, and maximizes the use of observable inputs to estimate the fair value of the financial assets and liabilities of UPST 2023-2. Under the measurement alternative, the Company determined that inputs used to determine the value of UPST 2023-2 liabilities, which consist of securitization notes and residual certificates issued as part of this securitization, are more observable than those used to measure fair value of UPST 2023-2 financial assets, which consist of held-for-sale loans contributed as collateral. Thus, the loans are measured based on the sum of the fair value of the UPST 2023-2 securitization notes and residual certificates, with changes in fair value included in the condensed consolidated statements of operations and comprehensive loss.

Significant Inputs and Assumptions

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loans held-for-investment and held-for-sale:


	December 31, 2023						June 30, 2024
	Minimum		Maximum		Weighted-Average (1)		Minimum		Maximum		Weighted-Average (1)
Discount rate	9.63	%	23.22	%	12.06	%	10.20	%	23.22	%	12.44	%
Credit risk rate	0.01	%	93.10	%	17.66	%	0.01	%	93.11	%	17.54	%
Prepayment rate	0.13	%	95.80	%	36.52	%	0.31	%	93.79	%	34.74	%

_________

(1) Unobservable inputs were weighted by relative fair value.

Table of Contents

Upstart Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

(Unaudited)

The following table presents quantitative information about the significant unobservable inputs implied for the Company’s Level 3 fair value measurements for loans held in consolidated securitization, which is determined by the sum of the fair value of the related securitization notes and residual certificates:


	December 31, 2023			June 30, 2024
	Minimum	Maximum	Weighted-Average (1)	Minimum		Maximum		Weighted-Average (1)
Discount rate	6.85%	16.00%	9.99%	6.84	%	15.25	%	9.72	%
Credit risk rate	0.61%	37.70%	15.51%	0.66	%	37.70	%	15.54	%
Prepayment rate	6.66%	89.84%	42.73%	6.73	%	89.84	%	42.16	%

_________

(1) Unobservable inputs were weighted by relative fair value.

Discount rates–The discount rates are rates of return used to discount future expected cash flows to arrive at a present value, which represents the fair value. The discount rates used for the projected net cash flows are the Company’s estimates of the rates of return that market participants would require when investing in these financial instruments with cash flows dependent on credit quality of the related loan. A risk premium component is implicitly included in the discount rates to reflect the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.

Credit risk rates–The credit risk rates are an estimate of the net cumulative principal payments that will not be repaid over the entire life of a financial instrument. The credit risk rates are expressed as a percentage of the original principal amount of the instrument. The estimated net cumulative loss represents the sum of the net losses estimated to occur each month of the life of the instrument, net of the average recovery expected to be received.

Prepayment rates–Prepayment rates are an estimate of the cumulative principal prepayments that will occur over the entire life of a loan as a percentage of the original principal amount of the loan. The assumption regarding cumulative prepayments impacts the projected balances and expected terms of the loans.

Significant Recurring Level 3 Fair Value Input Sensitivity

Upstart Holdings, Inc. [UPST] Filings
10-Q	[2024-08-07]
10-Q	[2024-05-08]
10-K	[2024-02-15]
10-Q	[2023-11-08]
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-02-16]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-02-18]
10-Q	[2021-11-12]
10-Q	[2021-08-13]
10-Q	[2021-05-14]
S-1	[2021-04-06]
10-K	[2021-03-18]
S-1	[2020-11-05]