UPST Q3 2021 - My Notes From Call

UPST Q3, 2021 Analyst Q/A and Earnings Call Remarks Not in Prepared Remarks
11/09/2021, 3:30 PM Central Time

CEO, Dave Girard
CFO, Sanjay Datta

Q After raising revenue guidance last qtr from up $150M to up $60M in Q4, what’s up with this?
A Yes guidance is conservative, they attribute this to their business growing at a phenomenal rate, and CEO views this as a positive.

Q RE: auto business, home buying, etc. How should we look at this in terms of unit economics and financial metrics, etc.
A Generally, we move towards markets where we make a reasonable margin, so the unit economics are that they look for unit economics where there’s a win for UPST, banks and consumers. Sanjay said that auto refinance unit economics are similar to those with personal loans. This is driven by their conversion factor or percentage. Auto retail lending economics are expected to look better, because you’re at the point of sale and they view this as a higher margin product for UPST than auto refinance.

Q How should we look at contributions for auto for 2022 and 2023.
A It will be meaningful, but too early to say at this point.

Q Guidance: 4th qtr came in more well than q3 beat, but are you building strength for the future.
A What’s driving improvements in profitability is conversion factor, fraud avoidance, etc. and you’ll see this playing out in the future.

Q Fraud in the future?
A We deal w/ fraud significantly. Saw a pretty organized effort in fraudulent activity. UPST mitigated this and it will not have a material impact or loss. CEO feels very good about their fraud rates.

Q Small dollar loan product and how it fits into the strategy. Does it help you gain market share? Also talk about loan sizes and going into q4.
A See this as a win across the board. Not an area that is well-served. UPST can do this better and under the envelope of the 36% rate in which banks operate and that is fair to consumers. Secondly, banks have a lot of pressure to serve low and moderate income consumers. Bank partners have told UPST that they want/need a product that serves their customers with this product. It helps UPST’s AI models learn more quickly.
Sanjay re: loan size, there are 2 main things going on, optical vs. real. More and more banks are emiminating their FICO guardrails, and this allows them to decrease the average loan sizes. Loan sizes have been coming down since last spring aka suppressed loan demand. Although they don’t have a crystal ball, Sanjay sees macro forces with respect to savings rates, this should stabilize loan amounts and eventually increased loan sizes.

Q Funnels, channels and sources and recurring loans.
A Had very fast growth across all their channels. Partner traffic has been great, lifecycle marketing, direct mail is very productive. As their funnel gets better, it typically goes across channel with improvements.

Q Increased demand and customer demand…what’s this look like into the future.
A Liquid environment w/ rapidly growing demand and interest from banks. Got a bank partner on in 50 days this past quarter. Returns to the banks has increased (profits) to the banks and so Dave feels strongly that they will continue to onboard new bands quickly in the future. There’s a lot of capital chasing yield right now. It’s increasing now and CFO believes this will normalize. See an increasing acceptance on the loan side. UPST continues to have a lot of credibility with banks and in the market with respect to demand.

Q Longer term how you can use your product with other loan types. When you mention homes and mortgages sold entirely into GSE, where Fannie Mae decides who gets loans?
A Qualified vs. unqualified loans and the GSE’s can change over time. If people do not have access to a loan at this point, CEO feels very confident that they can better underwrite a very large market of people who are underserved.

sjo here: Wow, yet another amazing quarter! In my opinion, the company is rocking it and is growing revenue and earnings at a phenomenal pace. I was surprised that none of the analysts asked about Wells Fargo as a partner, which would have clarified Cramer’s claim and later retraction to this end on his national show. It was unusual that the call lasted only 47 minutes rather than the typical earnings call that lasts an entire hour.

I hope this is helpful information.