UPST 10-K & 10-Q changes, risk factors and insider trading
Upstart Holdings, Inc. · Nasdaq · Finance Services · CIK 1647639 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our loan funding and financing arrangements with lending partners, institutional investors, securitization programs, and warehouse credit and risk retention financing facilities expose us to certain risks, and if we fail to successfully manage such risks, our supply of capital may decrease or we may be required to seek more costly or less efficient capital for our marketplace.”
New heading “If we are unable to manage the risks associated with the Upstart Macro Index (UMI), our credibility, reputation, business, financial condition and results of operations could be adversely affected.”
New heading “Our reputation and brand are important to our success, and failure to maintain, protect and promote our brand may harm our business.”
New heading “A significant portion of our business has historically depended on a single loan product, and shifts in product demand or mix could adversely affect our business.”
New heading “We are continuing to introduce and develop new loan products and service offerings, and if these products are not successful or we are unable to manage the related risks, our growth prospects, business, financial condition and results of operations could be adversely affected.”
New heading “We may pursue acquisitions or investments in other businesses or technologies, which could disrupt our business and may not achieve anticipated benefits.”
New heading “Our financial reporting relies on significant estimates, judgments, key operating metrics and effective internal controls, and inaccuracies or control failures could adversely affect our business.”
New heading “We maintain cash deposits in excess of federally insured limits, and adverse developments affecting financial institutions could adversely affect our liquidity and financial performance.”
New heading “Any significant disruption of, or failure in, our technology systems, including our AI lending platform, could adversely affect our business, financial condition and results of operations.”
New heading “The use of generative or agentic AI technologies by our employees or contractors could expose us to unexpected liability.”
New heading “We rely on third-party vendors, and if such vendors do not perform adequately or terminate their relationships with us, or if regulatory scrutiny of vendor relationships increases, our business could be adversely affected.”
New heading “RISKS RELATED TO REGULATION AND LITIGATION”
New heading “Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and other adverse consequences.”
New heading “The CFPB and other consumer protection regulators have broad authority over our business, and increased supervision or enforcement could adversely affect our business.”
New heading “If loans originated by our lending partners were found to violate state law, loans facilitated through our marketplace may be unenforceable or otherwise impaired, we or our lending partners, institutional investors or warehouse lenders may face fines and penalties, and our commercial relationships may suffer, each of which would adversely affect our business and results of operations.”
New heading “If we are deemed to be an investment company, investment adviser or broker-dealer, or if our securities-related activities fail to comply with applicable laws, our business could be materially adversely affected.”
New heading “Anti-money laundering, sanctions and anti-corruption laws could adversely affect our business.”
Removed heading “If our AI models do not accurately reflect the impact of economic conditions on borrowers’ credit risk in a timely manner, the performance of Upstart-powered loans may be worse than anticipated and our AI models may be perceived as ineffective.”
Removed heading “If our existing lending partners cease or limit their participation in our marketplace or if we are unable to attract new lending partners to our marketplace, our business, financial condition and results of operations will be adversely affected.”
Removed heading “We have a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and makes it difficult to evaluate our future prospects.”
Removed heading “If we are unable to manage the risks associated with the Upstart Macro Index (UMI), which we introduced in 2023 and which does not have a long history or proven track record, our credibility, reputation, business, financial condition and results of operations could be adversely affected.”
Removed heading “Our revenue growth rate and financial performance in the past may not be indicative of future performance.”
Removed heading “Our loan funding arrangements with institutional investors, securitizations and warehouse credit facilities expose us to certain risks, and if we fail to successfully manage such risks, it may result in the reduced supply of loan funding capital or require us to seek more costly or less efficient financing for our marketplace.”
Removed heading “Our top three lending partners account for a significant portion of loan originations on our marketplace and our revenue.”
Removed heading “Our reputation and brand are important to our success, and if we are unable to continue developing our reputation and brand, our ability to retain existing and attract new lending partners, our ability to attract borrowers to our marketplace, our ability to maintain diverse and resilient loan funding and our ability to maintain and improve our relationship with regulators of our industry could be adversely affected.”
Removed heading “Substantially all of our revenue is derived from a single loan product, and we are thus particularly susceptible to fluctuations in the unsecured personal loan market.”
Removed heading “The sales and onboarding process of new lending partners could take longer than expected, leading to fluctuations or variability in expected revenues and results of operations.”
Removed heading “We are continuing to introduce and develop new loan products and services offerings, and if these products are not successful or we are unable to manage the related risks, our growth prospects, business, financial condition and results of operations could be adversely affected.”
Removed heading “Misconduct and errors by our employees, former employees, vendors, or service providers could harm our reputation and subject us to significant legal liability.”
Removed heading “Our business is heavily concentrated in U.S. consumer credit, and therefore our results are more susceptible to fluctuations in that market than a more diversified company.”
Removed heading “If we fail to effectively manage the fluctuations in our business, our business, financial condition and results of operations could be adversely affected.”
Removed heading “In connection with asset-backed securitizations, pass-through certificate transactions, warehouse credit facilities and whole loan sales, we make representations and warranties concerning the loans transferred, and if such representations and warranties are not accurate when made, we could be required to repurchase the applicable loans.”
Removed heading “Our marketing efforts and brand promotion activities may not be effective.”
Removed heading “See the risk factor titled “—If loans facilitated through our marketplace for one or more lending partners were subject to successful challenge that the lending partner was not the “true lender,” such loans may be unenforceable, subject to rescission or otherwise impaired, we or other program participants may be subject to penalties, and/or our commercial relationships may suffer, each which would adversely affect our business and results of operations” for more information.”
Removed heading “See also the risk factors titled “—If loans originated by our lending partners were found to violate the laws of one or more states, whether at origination or after sale by the lending partner, loans facilitated through our marketplace may be unenforceable or otherwise impaired, we or other program participants may be subject to, among other things, fines and penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business and results of operations” and “—We have been in the past and may in the future be subject to federal and state regulatory inquiries regarding our business” for more information.”
Removed heading “We may evaluate and potentially consummate acquisitions or investments in complementary business and technologies, which could require significant management attention, consume our financial resources, disrupt our business and adversely affect our results of operations, and we may fail to realize the anticipated benefits of these acquisitions or investments.”
Removed heading “If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected.”
Removed heading “If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.”
Removed heading “Some of our estimates, including our key metrics in this report, are subject to inherent challenges in measurement, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.”
Removed heading “We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.”
Removed heading “Any significant disruption in our AI lending platform could prevent us from processing loan applicants and servicing loans, reduce the effectiveness of our AI models and result in a loss of lending partners, institutional investors, applicants or borrowers.”
Removed heading “The use of generative AI technologies by our employees or contractors could expose us to unexpected liability.”
Removed heading “We rely on third-party vendors and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.”
Removed heading “Failure by our third-party vendors or our failure to comply with legal or regulatory requirements or other contractual requirements could have an adverse effect on our business.”
Removed heading “If loans originated by our lending partners were found to violate the laws of one or more states, whether at origination or after sale by the lending partner, loans facilitated through our marketplace may be unenforceable or otherwise impaired, we or our lending partners or institutional investors may be subject to, among other things, fines and penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business and results of operations.”
Removed heading “If loans facilitated through our marketplace for one or more lending partners were subject to successful challenge that the lending partner was not the “true lender,” such loans may be unenforceable, subject to rescission or otherwise impaired, we or other program participants may be subject to penalties, and/or our commercial relationships may suffer, each which would adversely affect our business and results of operations.”
Removed heading “RISKS RELATED TO OUR REGULATORY ENVIRONMENT”
Removed heading “Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses.”
Removed heading “We are subject to or facilitate compliance with a variety of federal, state, and local laws, including those related to consumer protection and lending requirements.”
Removed heading “Internet-based loan origination processes may give rise to greater risks than paper-based processes and may not always be allowed under state law.”
Removed heading “If we are found to be operating without having obtained necessary state or local licenses, our business, financial condition and results of operations could be adversely affected.”
Removed heading “The CFPB has sometimes taken expansive views of its authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other agency could impact our business.”
Removed heading “The collection, processing, storage, use and disclosure of personal information could give rise to liabilities as a result of existing or new governmental regulation, conflicting legal requirements or differing views of personal privacy rights.”
Removed heading “As the regulatory framework for AI and machine learning technology evolves, our business, financial condition and results of operations may be adversely affected.”
Removed heading “If we are required to register under the Investment Company Act, our ability to conduct business could be materially adversely affected.”
Removed heading “If we are required to register under the Investment Advisers Act, our ability to conduct business could be materially adversely affected.”
Removed heading “If we are required to register with the SEC or under state securities laws as a broker-dealer, our ability to conduct business could be materially adversely affected.”
Removed heading “Anti-money laundering, anti-terrorism financing, anti-corruption and economic sanctions laws could have adverse consequences for us.”
Removed heading “Our common stock does not provide any rights directly related to the loans we hold.”
Removed heading “To the extent a large number of shares of our common stock are sold in connection with any “sell to cover” transactions upon vesting of restricted stock units (RSUs) issued to our employees, our stock price may fluctuate.”
Removed heading “The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.”
Largest changes
“If we were subject to such litigation or enforcement, then any unfavorable results of pending or future legal proceedings may result in contractual damages, usury related claims, fines, penalties, injunctions, the unenforceability, rescission or other impairment of loans originated through our marketplace or other censure that could have an adverse effect on our business, results of operations and financial condition. …”see in full comparison
“If we were subject to such litigation or enforcement, then any unfavorable results of pending or future legal proceedings may result in contractual damages, fines, penalties, injunctions, the unenforceability, rescission or other impairment of loans originated through our marketplace or other censure that could have an adverse effect on our business, results of operations and financial condition. …”see in full comparison
“Any negative publicity or public perception of Upstart-powered loans or other similar consumer loans or the consumer lending services we provide may also result in us being subject to more restrictive laws and regulations and potential investigations and enforcement actions. For example, some unfair or deceptive practices by vehicle dealerships can be attributed to us as a purchaser of retail installment contracts under the FTC Holder Rule, which allows a vehicle purchaser to bring any claim it has against the dealership against the current holder of the retail installment contract. …”see in full comparison
“We are, and may in the future become, subject to lawsuits by governmental agencies or private parties , other claims, examinations, investigations, enforcement actions, legal and administrative cases and proceedings, whether civil or criminal, all of which may affect our results of operations. …”see in full comparison
“Adverse macroeconomic conditions and resulting uncertainty and volatility have had, and may have in the future, a material adverse effect on our business and results of operations. Such conditions can reduce borrower demand, approval and acceptance rates, loan origination volume and loan funding from lending partners and institutional investors, reduce liquidity in the capital markets, increase funding costs, and increase our reliance on our balance sheet. …”see in full comparison
“New laws and regulations and changes to existing laws and regulations continue to be adopted, implemented and interpreted in response to our industry and the emergence of AI and related technologies. Recent financial, political and other events, including disruptions in the banking sector, may increase the level of regulatory scrutiny on financial technology companies. As we expand our business into new markets, introduce new financial products and services, and as we continue to improve and evolve our AI models, additional regulatory requirements will apply. …”see in full comparison
Full comparison: every changed paragraph (559)
•Our loan funding and financing arrangements with lending partners, institutional investors, securitization programs, and warehouse credit and risk retention financing facilities expose us to certain risks, and if we fail to successfully manage such risks, our supply of capital may decrease or we may be required to seek more costly or less efficient capital for our marketplace.
•If we are unable to continue to improve our artificial intelligence (“AI”) models or if our AI models containare errorsineffective, including by failing to accurately or aretimely otherwisereflect ineffective,changes in economic conditions on borrowers’ credit risk, our growth prospects, business, financial condition and results of operations would be adversely affected.
•If our AI models do not accurately reflect the impact of economic conditions on borrowers’ credit risk in a timely manner, the performance of Upstart-powered loans may be worse than anticipated and our AI models may be perceived as ineffective.
•A limited number of lending partners account for a significant portion of loan originations and revenue on our marketplace, and our business depends on our ability to retain existing lending partners and attract new ones.
•If our existing lending partners cease or limit their participation in our marketplace or if we are unable to attract new lending partners to our marketplace, our business, financial condition and results of operations will be adversely affected.
•We have a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and makes it difficult to evaluate our future prospects.
•If we are unable to manage the risks associated with the Upstart Macro Index (UMI), which we introduced in 2023 and which does not have a long history or proven track record, our credibility, reputation, business, financial condition and results of operations could be adversely affected.
•We have incurred net losses,losses in the past, and we may not be able to sustain or achieve profitability in the future.
•Our revenue growth rate and financial performance in the past may not be indicative of future performance.
•Our quarterly results are likely tomay fluctuate andsignificantly, aswhich a result maycould adversely affect our business and the trading price of our common stock.
•If we are unable to manage the risks associated with the Upstart Macro Index (UMI), our credibility, reputation, business, financial condition and results of operations could be adversely affected.
•Our reputation and brand are important to our success, and failure to maintain, protect and promote our brand may harm our business.
•A significant portion of our business has historically depended on a single loan product, and shifts in product demand or mix could adversely affect our business.
•We are continuing to introduce and develop new loan products and service offerings, and if these products are not successful or we are unable to manage the related risks, our growth prospects, business, financial condition and results of operations could be adversely affected.
•Security breaches, improper access to our or borrowers’ data, or other security incidents may harm our reputation, adversely affect our results of operations and expose us to liability.
•Any significant disruption of, or failure in, our technology systems, including our AI lending platform, could adversely affect our business, financial condition and results of operations.
•Our loan funding arrangements with institutional investors, securitization programs and warehouse credit facilities expose us to certain risks, and if we fail to successfully manage such risks, it may result in the reduced supply of loan funding capital or require us to seek more costly or less efficient financing for our marketplace.
•Our top three lending partners account for a significant portion of loan originations on our marketplace and our revenue.
•Our reputation and brand are important to our success, and if we are unable to continue developing our reputation and brand, our ability to retain existing and attract new lending partners, our ability to attract borrowers to our marketplace, our ability to maintain diverse and resilient loan funding and our ability to maintain and improve our relationship with regulators of our industry could be adversely affected.
•Substantially all of our revenue is derived from a single loan product, and we are thus particularly susceptible to fluctuations in the unsecured personal loan market.
•The sales and onboarding process of new lending partners could take longer than expected, leading to fluctuations or variability in expected revenues and results of operations.
•We are continuing to introduce and develop new loan products and services, and if these products and services are not successful or we are unable to manage the related risks, our growth prospects, business, financial, condition and results of operations could be adversely affected.
Uncertainty, volatility and negative trends in general economic conditions historically have created a difficult operating environment for our industry. Many factors, including factors that are beyond our control, have impacted and will continue to impact our business, financial condition and results of operations by affecting the supply of capital to our marketplace from our lending partners and institutional investors, the demand by borrowers for Upstart-powered loans, and borrowers’ ability and willingness to repay their loans. These factors include, but are not limited to, interest rates, inflation, personal savings rates, U.S. politics (including state and federal elections, changes in presidential and gubernatorial administrations and related impact to policy), fiscal and monetary policies, unemployment levels, disruptions in the banking sector, lower consumer confidence, reduced consumer discretionary spending, conditions in the housing market, immigration policies, gas prices, energy costs, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, geopolitical conflicts, terrorism, catastrophes and pandemics. If any of these factors negatively affect borrowers, lending partners or institutional investors, or if we are unable to mitigate the risks associated with them, our business, financial condition and results of operations could be adversely affected.
Adverse macroeconomic conditions and resulting uncertainty and volatility have had, and may have in the future, a material adverse effect on our business and results of operations. Such conditions can reduce borrower demand, approval and acceptance rates, loan origination volume and loan funding from lending partners and institutional investors, reduce liquidity in the capital markets, increase funding costs, and increase our reliance on our balance sheet. Many borrowers that access our marketplace have poor, limited or no credit history and may be disproportionately affected by inflation, higher interest rates, unemployment or recessionary conditions, which can reduce their ability or willingness to borrow or repay loans. During economic downturns, borrowers may prioritize secured obligations over unsecured personal loans, and higher interest rates may further increase payment burdens, leading to higher delinquencies, defaults, charge-offs and lower recoveries. Because our operations are concentrated in U.S. consumer credit, adverse developments affecting the U.S. economy or consumer credit markets could have a disproportionate impact on our business. In addition, changes in fiscal, monetary or regulatory policy priorities across presidential administrations may contribute to economic volatility and uncertainty. Any sustained decline in borrower approvability, loan acceptance or origination volume, or any increase in delinquencies or defaults beyond our expectations, could materially adversely affect our business, financial condition and results of operations.
In recent years, the United States experienced historically high levels of inflation. In response, the government implemented policy interventions. The U.S. Federal Reserve raised interest rates eleven times in 2022 and 2023. While the goal was to curb inflation, these interventions may have had, and could continue to have, broad macroeconomic implications, including contributing to an economic downturn, higher unemployment rates or disruptions to the banking sector. While the U.S. Federal Reserve lowered interest rates in the second half of 2024 in response to indications of lower inflation levels, the timing of additional interest rate cuts, if any, is uncertain.
The current macroeconomic environment and resulting uncertainty and volatility have had, and could continue to have, several effects on our business and results of operations, including, among other things:
•a decrease in loan origination volume;
•a reduction in loan funding from lending partners and institutional investors;
•a reduction in liquidity in the capital markets;
•lower approval rates for, and acceptance of loan offers by, applicants;
•increased utilization of our balance sheet to purchase Upstart-powered loans;
•delays in the adoption of our AI lending marketplace by new lending partners;
•increased delinquencies and default rates for Upstart-powered loans; and
•reductions in workforce.
The current macroeconomic environment has had, and may continue to have, a material adverse effect on our business by affecting the supply of capital to our marketplace from institutional investors and lending partners. For more information, see the risk factors titled “—If we are unable to maintain diverse and resilient loan funding to our marketplace from institutional investors, our growth prospects, business, financial condition and results of operations could be adversely affected” and “—If our existing lending partners cease or limit their participation in our marketplace or if we are unable to attract new lending partners to our marketplace, our business, financial condition and results of operations will be adversely affected”.
We offer consumer loans on our marketplace, and many consumers that come to our marketplace have poor, limited or no credit history. Such consumers have historically been, and may in the future be, disproportionately affected by adverse macroeconomic conditions. Inflation, higher interest rates, availability of government assistance programs, unemployment, bankruptcy, government interventions, such as stimulus measures, major medical expenses, divorce or death may affect borrowers’ ability or willingness to borrow or make payments on loans. Macroeconomic changes have in the past and may in the future negatively impact borrowers’ ability and willingness to borrow and make repayments. For more information, see the risk factors titled “—If we are unable to approve significant number of borrowers for loans through our marketplace, our growth prospects, business, financial condition and results of operations would be adversely affected.”
During an economic down cycle, there is a greater risk that borrowers will not make payments on loans. Also, borrowers may not prioritize repayment of unsecured personal loans over loans that are secured by necessities, for example, mortgages, home equity loans or auto loans. Higher interest rates often lead to higher payment obligations, which may reduce the ability of borrowers to remain current on their obligations. These factors may lead to increased delinquencies, defaults and bankruptcies declared by borrowers, resulting in more charge-offs and fewer recoveries, all of which have had, and could continue to have, a material adverse effect on the credit performance of loans facilitated on our marketplace and our business. For example, the vintages of core personal loans that originated in the first quarter of 2021 through the first quarter of 2024 are forecasted to underperform relative to the target returns set at the time of loan origination. When a borrower defaults on a loan, it increases our costs to service the loan. Because default rates have been higher than expected, it has negatively impacted, and may continue to negatively impact, demand by our lending partners to originate loans, and institutional investors to fund loans, facilitated through our marketplace. Any sustained decline in applicant approvability or acceptance of loan offers or loan origination volume, or any increase in delinquencies or defaults by borrowers beyond our expectation, would harm our business, financial condition and results of operations.
Our business depends on sourcing and maintaining diverse and resilient loansources fundingof capital from institutional investors to our marketplace.marketplace, Theincluding institutionalthrough investorsthe providepurchase loan funding to our marketplace by purchasingof whole loans,loans and interests in loans through pass-through certificates and asset-backed securities. OutA significant portion of theloans total principal of loan originations facilitatedtransacted on our marketplace during the year ended December 31, 2024, 65% wereare purchased by institutional investors. The availability and capacity of loan fundingcapital from institutional investors dependdepends on many factors that are outside of our control, such as economic and market conditions, interest rates, liquidity in the capital markets and regulatory requirements or restrictions, which are subject to change. While we have experienced funding constraints since 2022 due to the macroeconomic environment, we believe the market sentiment from institutional investors has started to improve and we have since increased loan funding capacity. We cannot be sure that the existing fundingcapital sources will continue to be available, or any new fundingcapital sourcesources will become available, on commercially reasonable terms or at all. Decreased fundingcapital from institutional investors has negatively impacted our business in the past, and may negatively impact us in the future. Any sustained decline in investor demand for Upstart-powered loans or securities secured by such loans for any reason, including due to adverse economic conditions or due to any increase in delinquencies, defaults or losses beyond our expectation, may adversely affect our financial results.
A significant portion of our loan funding from institutional investors comes from committed capital and other co-investment arrangements, which may include downside credit risk protection, subject to certain limits and conditions. Under these arrangements, we may be required to compensate investors if loan credit performance deviates from expectations. We may also be required to compensate investors if committed loan sale volumes are not achieved. If loans do not perform as expected for any reason, including due to changes in borrower behavior or ability to pay, borrower demand declines, or our credit performance expectations are inaccurate, our financial results could be adversely affected, including through unfavorable fair value adjustments. We may also experience declines in revenue and transaction volume if existing arrangements do not provide funding on agreed terms or if we are unable to secure additional arrangements on commercially reasonable terms or at all.
Capital arrangements entered into during periods of higher interest rates may become more costly if interest rates decline and the terms of such arrangements remain in place. Despite our efforts, marketplace capital constraints may persist, and we may be required to rely more heavily on our balance sheet, incur higher funding costs or agree to less favorable terms to maintain loan origination volume, which could adversely affect our business, financial condition and results of operations.
Our loan funding and financing arrangements with lending partners, institutional investors, securitization programs, and warehouse credit and risk retention financing facilities expose us to certain risks, and if we fail to successfully manage such risks, our supply of capital may decrease or we may be required to seek more costly or less efficient capital for our marketplace.
We have facilitated securitizations, and may in the future facilitate additional securitizations, of Upstart-powered loans to allow institutional investors, certain lending partners, and/or us to liquidate or finance such loans through the asset-backed securities markets or other capital markets products. In securitization transactions, we sell and convey pools of loans to special purpose entities (“SPEs”), which issue notes or certificates pursuant to indentures and trust agreements. We also finance certain loans on our balance sheet through warehouse credit facilities, including by selling loans to warehouse trust SPEs and borrowing under associated credit facilities. Securities issued by securitization SPEs and borrowings under warehouse facilities are secured by the loan pools owned by the applicable SPEs, and we, our lending partners and/or institutional investors may contribute loans to such SPEs in exchange for cash and/or debt or equity interests.
When we act as sole sponsor of securitizations, we are required under Regulation RR to retain a portion of the credit risk of the underlying loans for a specified period of time. We may finance some or all of these retained interests through risk retention financing facilities. If retained interests decline in value, or if we are unable to finance or refinance retained risk positions on acceptable terms, our liquidity, funding costs and results of operations could be adversely affected. We may also retain subordinated or residual interests beyond minimum risk retention requirements, which are exposed to greater credit risk and may lose value, including becoming worthless. Regulatory requirements applicable to securitizations, including under the Dodd-Frank Act, the Investment Company Act of 1940, and the “Volcker Rule,” as well as changes in state licensing requirements, may limit the type or structure of securitizations we are able to complete, and failure to comply with applicable securitization laws or regulations could restrict our ability to access securitization markets or require us to restructure or discontinue certain financing arrangements.
Servicing fees generated by our loan servicing activities for loans sold to institutional investors or contributed to asset-based securitizations and pass-through certificate transactions also represent a material portion of our earnings, and investor demand for Upstart-powered loans and related securities may fluctuate based on loan performance, pricing and servicing economics, macroeconomic conditions, investor risk appetite, regulatory or accounting considerations and the availability of funding and liquidity in the capital markets.
In connection with our asset-backed securitizations, pass-through certificate transactions, warehouse credit facilities and whole loan sale arrangements, we make representations and warranties concerning the loans transferred. If such representations and warranties are inaccurate and are not timely cured, we may be required to repurchase loans, make payments or provide indemnification to financing parties. Failure to satisfy these obligations could constitute a default or termination event under the applicable agreements and could require us to fund repurchases or make other payments at a time when liquidity may be constrained. If repurchase or payment obligations were to increase, or if we are unable to fund such obligations when required, our liquidity, financial condition and results of operations could be adversely affected, and a high volume of repurchases or payments could harm our reputation as a loan seller and servicer. If securitizations, warehouse facilities or risk retention financing are not available or economical, we may need to seek alternative financing, rely more heavily on our balance sheet or reduce loan originations, which could adversely affect our business, financial condition and liquidity.
We are also subject to counterparty risk arising from derivative instruments, beneficial interests, warehouse facilities and custodial arrangements, and a counterparty’s failure to perform could result in losses and adversely affect our business, financial condition and results of operations.
A significant portion of our loan funding from institutional investors comes from committed capital and other co-investment arrangements. These arrangements may include terms that provide downside risk protection, subject to certain limits and conditions. In particular, we have agreed to compensate certain investors, subject to a limit, if credit performance on the loans under these arrangements deviates from our initial expectations and, subject to certain conditions, if we are unable to sell the minimum required volume of loans to our committed capital providers. As such, if the loans do not perform as expected due to unexpected shifts in borrower behaviors, ability to pay or otherwise, if we have a decrease in borrower demand for Upstart-powered loans, or if our models’ expectation for credit performance is inaccurate for any reason, our financial results could be adversely impacted. As of December 31, 2024, our maximum exposure to losses under these committed capital and other co-investment arrangements was approximately $459.3 million. This amount has grown from $98.5 million as of December 31, 2023, as we have entered into more committed capital and other co-investment arrangements. As the amount of our maximum exposure to losses under these arrangements grows and may continue to grow in the future, risks associated with committed capital and other co-investment arrangements could have a greater impact on our business, financial condition and results of operations. Committed capital and other co-investment arrangements have negatively impacted our financial results through unfavorable fair value adjustments and may continue to do so in the future. We may also experience declines in revenue and transaction volume if existing committed capital or other capital arrangements do not provide funding on the agreed upon terms or we fail to secure additional committed capital or other capital arrangements in the future on commercially reasonable terms or at all. Moreover, the capital arrangements that we have recently entered into during a high interest rate environment, such as the committed capital and other co-investment arrangements, may become more costly if interest rates continue to fall and the terms of such arrangements remain in place. Despite our efforts, we may continue to experience funding constraints and cannot be certain if any measures we have taken, such as committed capital or other co-investment arrangements, or will take to address or mitigate the effects of funding constraints, will be sufficient or successful. In the event of funding constraints, we may not be able to maintain our current loan origination volume without incurring substantially higher funding costs, agreeing to terms that are not favorable to us or relying on our balance sheet to support funding, each of which could adversely affect our business, financial condition and results of operations.
We cannot be certain about the level of investor demand for securitizations. Events of default or breaches of financial, performance or other covenants, or worse than expected performance of certain pools of loans underpinning our asset-backed securitizations, debt facilities or other structured and unstructured transactions, have limited in the past and could limit our access to funding from institutional investors. For example, the loans originated in 2021 through 2023 that were included in our asset-backed securitizations have underperformed relative to their expected target returns at the time of origination, resulting in negative rating agency actions in several of our asset-based securitizations.
If we are unable to continue to improve our AI models or if our AI models containare errorsineffective, including by failing to accurately or aretimely otherwisereflect ineffective,changes in economic conditions on borrowers’ credit risk, our growth prospects, business, financial condition and results of operations would be adversely affected.
Our ability to attract borrowers and facilitate loan originations on our marketplace depends in large part on the effectiveness of our AI models in evaluating borrower creditworthiness and pricing loans appropriately. Our overall operating efficiency and margins further depend in part on our ability to maintain a high degree of automation in our application process and achieve incremental improvements in the degree of automation. If our AI models contain errors, rely on inaccurate assumptions or data, or otherwise fail to perform as expected, loans may be sub-optimally priced or incorrectly decisioned, which could result in losses that are higher than expected, reduced borrower demand, and decreased loan originations. For example, as of December 31, 2025, the quarterly vintages of core personal loans that originated in the fourth quarter of 2023 and the first quarter of 2024 were forecasted to underperform relative to their target returns set at the time of loan origination. Our AI models and related decisioning processes also depend on the availability, accuracy and timeliness of data and other inputs, including information provided by applicants and third-party sources. If the data or inputs used to train, operate, calibrate or monitor our AI models are inaccurate, incomplete, biased or otherwise unreliable, or if our access to key data sources is terminated or interrupted, our models may not perform as expected and our ability to evaluate credit risk or price loans may be adversely affected.
In addition, we may make errors in the development, validation, testing, governance, or implementation of our AI models or related tools and processes, and such errors may not be detected prior to deployment. Or, our AI models may not be able to accurately predict borrower behavior or loan performance under all circumstances, particularly during periods of economic uncertainty or rapid changes in macroeconomic conditions.
Underperformance of Upstart-powered loans relative to expectations may also reduce demand from lending partners and institutional investors, constrain capital and negatively affect our financial results. If our AI models do not accurately or timely reflect changes in economic conditions affecting borrowers’ credit risk, the performance of Upstart-powered loans may be worse than anticipated, which could harm our reputation, erode trust with lending partners and institutional investors, and adversely affect our business, financial condition and results of operations. If model performance deteriorates, our lending partners and investors may change or tighten their underwriting or pricing requirements, reduce demand for Upstart-powered loans, require additional credit enhancement or other structural protections, or impose less favorable terms across our loan funding arrangements, any of which could adversely affect our business.
If we are unable to manage the risks associated with the Upstart Macro Index (UMI), our credibility, reputation, business, financial condition and results of operations could be adversely affected.
UMI is our effort to quantify the level of macroeconomic risk, in terms of the losses or defaults, within Upstart-powered unsecured personal loan portfolios, excluding small dollar loans. As we continue to refine UMI, we have revised previously published values and may further revise current or historical values in the future. Significant changes or revisions to UMI could harm our credibility and reputation with lending partners and institutional investors, which could adversely affect our business. Furthermore, the correlation between UMI and actual macroeconomic risk, including loan losses or defaults, may not be as meaningful or reliable as we expect. If UMI fails to accurately or adequately reflect macroeconomic risk, or is perceived as misaligned or misleading, lending partners and institutional investors may distrust or disregard UMI, which could negatively affect their willingness to use our marketplace or fund loans.
UMI is based on our analysis of the losses within Upstart-powered unsecured personal loan portfolios, excluding small dollar loans, and is specific to our borrower base, which changes over time. UMI may not be an appropriate indicator of risk for specific loan products, borrower segments or non-Upstart loan portfolios, and it is not intended to measure or predict broader economic conditions, future loan performance, our results of operations or our stock price. Investors, lending partners or analysts may misunderstand, misinterpret or misuse UMI for unintended purposes, which could harm our reputation, reduce confidence in our disclosures and impair our ability to attract and retain lending partners and institutional investors. Any failure to manage these risks could adversely affect our ability to maintain diverse and resilient loan funding and harm our business, financial condition and results of operations.
Our ability to attract potential borrowers, and thus increase loan originations on our marketplace, depends in large part on our ability to effectively evaluate the creditworthiness of borrowers and likelihood of default and, based on that evaluation, offer competitively priced loans. Our overall operating efficiency and margins further depend in part on our ability to maintain a high degree of automation in our application process and achieve incremental improvements in the degree of automation. If our AI models fail to adequately predict the creditworthiness of borrowers and the likelihood of default due to the design of our models or programming or any other errors or inaccuracies, and our AI models do not detect or account for such errors or inaccuracies, or any of the other components of our credit decisioning process fails, there could be higher than forecasted losses on Upstart-powered loans. Any of the foregoing could result in sub-optimally priced loans or incorrect approvals or denials of loans, any of which may lead to lower demand by borrowers and reduce loan originations and our revenue. Moreover, in addition to reduced borrower demand, higher than expected losses on Upstart-powered loans could further harm our ability to attract lending partners and/or capital to our marketplace. Our lending partners and institutional investors may decide to limit their funding or reduce the number of loans or types of loans they originate or fund if they experience higher than expected losses due to underperformance of the loans. The underperformance of Upstart-powered loans as compared to the expectations set by our AI models can have a negative impact on our financial results, as while subject to certain limits, we are obligated in certain arrangements to provide downside risk protection to our capital partners and compensate them for any deviation in expected credit performance of the loans sold in connection with the committed capital and other co-investment arrangements. It may also hinder our ability to increase the size of, or enter into new, debt facilities or other financing arrangements.
Our AI models also target, optimize or predict other aspects of the lending process, such as borrower acquisition, fraud detection, default timing, loan stacking and prepayment timing. Our continued improvements to such models have allowed us to facilitate loans inexpensively and virtually instantly, with a high degree of consumer satisfaction while maintaining loan performance. However, such applications of our AI models may prove to be less predictive than we expect, or than they have been in the past, for a variety of reasons, including inaccurate assumptions or other errors made in constructing such models, incorrect interpretations of the results of such models and failure to update model assumptions and parameters in a timely manner. It is also possible that the instant approval process on our marketplace makes us a target for certain borrowers who intend to accumulate as much debt as quickly as possible without regard for the viability of repayment. Additionally, such models may not be able to effectively account for matters that are inherently difficult to predict and beyond our control, such as macroeconomic conditions, credit market volatility and interest rate fluctuations, which often involve complex interactions between a number of dependent and independent variables and factors. Material errors or inaccuracies in such AI models could lead us to make inaccurate or sub-optimal operational or strategic decisions, which could adversely affect our business, financial condition and results of operations.
If our AI models do not accurately reflect the impact of economic conditions on borrowers’ credit risk in a timely manner, the performance of Upstart-powered loans may be worse than anticipated and our AI models may be perceived as ineffective.
The performance of loans facilitated through our marketplace is significantly dependent on the effectiveness of our proprietary AI models used to evaluate a borrower’s credit profile and likelihood of default. Our AI models have not been extensively tested during different types of economic downturns or recessions. Even if credit decisions take into account macroeconomic conditions, there is no assurance that our AI models can accurately predict loan performance during periods of adverse economic conditions or quickly respond to changing economic conditions. If our AI models are unable to accurately reflect the credit risk of loans under such economic conditions, we, our lending partners and our institutional investors would experience greater than expected losses on such loans, which would harm our reputation and erode the trust we have built with our lending partners and institutional investors. We have experienced and may continue to experience high delinquency rates and underperformance of loans originated using our AI models in recent periods. For example, the quarterly vintages of core personal loans that originated in the first quarter of 2021 through the first quarter of 2024 are forecasted to underperform relative to the target returns set at the time of loan origination. The fair value of the loans on our balance sheet has declined and may continue to decline. Our business, financial condition and results of operations can continue to be adversely affected if our AI models are not able to accurately and timely assess the impact of macroeconomic conditions on the performance and default rates of loans facilitated through our marketplace.
The vast majority of our revenue comes from platform and referral fees and servicing fees on loans facilitated through our marketplace. Growing our revenue from fees depends in significant part on our ability toTo increase the transaction volumenumber of consumer loans onfacilitated our marketplace. To serve more consumer demand for credit and increase transaction volume onthrough our marketplace, we must have an adequate supply of capital from lending partners and institutional investors, we must drive sufficient demand from potential borrowers seeking loans, and the borrowers must satisfy the requirements for approval established by our models and our lending partners.
Management's Discussion & Analysis (MD&A)
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see in full comparisonWe define Transaction Volume, Dollars as the total principal of loan originations (or committed amounts for HELOCs) facilitated on our marketplace during the years presented. We define Transaction Volume, Number of Loans as the number of loan originations (or commitments issued for HELOCs) facilitated on our marketplace during the years presented. Increases in Transaction Volume are dependent on our loan funding programs having sufficient access to capital. Decreases in the availability of funding due to factors such as volatility in the capital markets and macroeconomic conditions will generally cause a decline in Transaction Volume. Transaction Volume is driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction Volume can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. We believe these metrics are good proxies for our overall scale and reach as a marketplace.Transaction Volume, Dollars increased28%86% in the year ended December 31,20242025 compared to the prior year and Transaction Volume, Number of Loans increased59%115% in the year ended December 31,20242025 compared to the prior year. These increases were primarily due to model improvements and product initiatives, which resulted in an increase in the number of qualified borrowers and more attractive loan offers. The increase in Transaction Volume, Number of Loans was higher than the increase in Transaction Volume, Dollars due to the decrease in average loan size, primarilydueastounderwritingthemodelincreaseimprovements drove higher approval rates insmallsmaller dollar categories of loans.
“The evolving macroeconomic conditions during that period led to more borrowers not making payments on their personal loans than anticipated at the time of underwriting. For example, borrowers likely prioritized repayment of loans that are secured by necessities, such as mortgages or auto loans, over unsecured personal loans. Higher interest rates also likely led to higher payment obligations, which reduced the ability of borrowers to remain current on their obligations. …”see in full comparison
“Upstart applies artificial intelligence (“AI”) models and cloud applications to the process of underwriting consumer credit. Our AI marketplace connects consumers with our lending partners. Consumers can access Upstart-powered loans via Upstart.com, through a lender-branded product on our lending partners’ own websites, and through auto dealerships that use our Upstart Auto Retail software. We enable our lending partners to provide an exceptional digital-first experience to consumers and originate valuable credit products. …”see in full comparison
“Much of our historical growth has been driven by improvements to our AI models. These models benefit over time from a flywheel effect that is characteristic of machine learning systems: accumulation of repayment data leads to improved accuracy of risk and fraud predictions, which generally results in higher approval rates and lower interest rates, leading to increased volume, and consequently greater accumulation of repayment data. This virtuous cycle describes an important mechanism by which our business grows simply through model learning and recalibration. …”see in full comparison
“Upstart is the leading artificial intelligence (“AI”) lending marketplace. We aim to radically reduce the cost and complexity of borrowing for all Americans by using our proprietary AI models to remake the entire lending process. Today, Upstart’s marketplace supports personal loans, including small dollar “relief” loans, auto loans, including retail, refinance, and auto secured personal loans, and home loans in the form of home equity lines of credit (“HELOCs”). …”see in full comparison
Full comparison: every changed paragraph (108)
Upstart is the leading artificial intelligence (“AI”) lending marketplace. We aim to radically reduce the cost and complexity of borrowing for all Americans by using our proprietary AI models to remake the entire lending process. Today, Upstart’s marketplace supports personal loans, including small dollar “relief” loans, auto loans, including retail, refinance, and auto secured personal loans, and home loans in the form of home equity lines of credit (“HELOCs”). Long-term, our vision is to become the always-on, everything-store for credit, where we can automatically approve borrowers at the right prices – instantly and effortlessly.
Our platform applies AI to more accurately quantify the true risk of a loan, a capability we refer to as “risk separation.” This differentiated approach to underwriting has generally led to higher approvals and lower interest rates relative to traditional lending practices, with more predictable returns to our capital partners including banks and credit unions (collectively our “lending partners”) and institutional investors. With this as the foundation, we’ve added layers of automation, macroeconomic calibration, and personalization that can support increasing scale and greater business resilience over time.
Beyond core underwriting, we apply our proprietary AI models to other areas of our business, such as income and identity verification, fraud detection, and identifying loan stacking behavior among others. The result is an exceptional digital-first experience with significant levels of automation. For example, during the year ended December 31, 2025, 91% of loans on our platform were fully automated, with no human intervention by Upstart. Consumer acquisition is another area where we apply our AI, making these activities increasingly efficient. Consumers primarily access Upstart-powered loans through Upstart.com and, for automotive retail in particular, through auto dealerships that use Upstart’s Auto Finance software.
Our dynamic marketplace allows us to serve borrowers across the credit spectrum. Loans issued through our marketplace are purchased by our network of institutional investors, retained or purchased by our lending partners, or in certain instances, held on our balance sheet. Out of the total principal of loans transacted on our marketplace during the year ended December 31, 2025, 64% were purchased by institutional investors, 26% were retained or purchased by our lending partners, and 10% were held on our balance sheet. Investors may also invest in securities collateralized by Upstart-powered loans through our pass-through and securitization programs.
Institutional investors play an important role in our lending marketplace by providing capital for higher risk loans that may not be economically feasible for traditional banks and credit unions to hold. Today, more than 50% of the loan funding on our platform is through committed capital and other co-investment arrangements with institutional investors and lending partners, which provide valuable stability and resilience on the funding side of our platform.
We retain certain loans on our balance sheet for research and development purposes (“R&D Loans”), including to test and evaluate our AI models for newer products, to fill gaps in investor demand, and to aid in price discovery. As of December 31, 2025, 66% of loans held on our balance sheet were for R&D purposes, primarily related to our auto refinance and auto retail loan products, small dollar loans and HELOCs.
Upstart applies artificial intelligence (“AI”) models and cloud applications to the process of underwriting consumer credit. Our AI marketplace connects consumers with our lending partners. Consumers can access Upstart-powered loans via Upstart.com, through a lender-branded product on our lending partners’ own websites, and through auto dealerships that use our Upstart Auto Retail software. We enable our lending partners to provide an exceptional digital-first experience to consumers and originate valuable credit products. As our technology continues to improve and additional lending partners adopt our platform, consumers benefit from improved access to affordable and frictionless credit.
We believe that banks and other traditional lenders will continue to be at the forefront of consumer lending in the United States. We believe AI lending will become increasingly critical as this industry continues to undergo a broad digital transformation. Our strategy is to partner with banks and credit unions and provide them with access to an AI lending marketplace that they can configure as they originate consumer loans, according to their own business and regulatory requirements.
Loans issued through our marketplace are retained by our lending partners, purchased by our network of institutional investors, or funded by Upstart’s balance sheet. Investors may also invest in Upstart-powered loans through our pass-through and securitization programs. We believe that institutional investors, often referred to as “private credit,” have played an increasingly large role in financing consumer lending in the United States and we have adapted our strategy to take advantage of this opportunity.
Out of the total principal of loans transacted on our marketplace during the year ended December 31, 2024, 65% were purchased by institutional investors, 25% were retained by our lending partners, and 10% were held on our balance sheet. We retain loans on our balance sheet to fill gaps in investor demand, to aid in price discovery, and for research and development purposes (“R&D Loans”), including to test and evaluate our AI models for these loans. R&D Loans are primarily our auto refinance and auto retail loan products, personal loan products issued to new categories of borrowers, and other new loan products, including small dollar loans and HELOCs. R&D Loans are not yet part of our fully-established capital markets programs with institutional investors and we continue our work on developing such programs. The remainder of loans on our balance sheet represent core personal loans, which Upstart would sell to institutional investors.
To improve the loan funding capacity for our marketplace across business and macroeconomic cycles, we have secured multiple committed capital and other co-investment arrangements with institutional investors and lending partners beginning in 2023, which have delivered a significant amount of loan funding to the Upstart marketplace. While these efforts have strengthened the amount and resiliency of our loan funding, we continue to secure additional capital to support the growth of our business and further diversify our sources of capital and institutional investor base to ensure long-term scalability.
Our Economic Model
Upstart’s revenues are primarily earned in exchange for the use of our platform and for borrower referral services provided to our lending partners through our lending marketplace. Fees for these services can be either fixed or based on a variable price per unit, depending on the contractual arrangement. Platform services result in loan originations by our lending partners using our platform and referral services result in a referral of a borrower obtaining a loan from our lending partners. These fees are combined for accounting purposes as they represent a single performance obligation. We do not charge borrowers on our platform any referral, platform, or other similar fees for loans originated by our lending partners.
We also charge the holder of the loan (either a lending partner or institutional investor) a servicing fee based on the outstanding principal over the lifetime of the loan for ongoing servicing of the loan. In addition, we receive certain ancillary borrower fees inclusive of late payment fees and ACH fail fees as part of loan servicing. Further, we earn a portion of our revenue from interest income for loans held on our balance sheet.
Loans on our platform today are predominantly sourced from Upstart.com. For these loans, we incur variable costs in the form of borrower acquisition costs and borrower verification and servicing costs. Borrower acquisition, verification and servicing costs are highly correlated with Transaction Volume (as defined below), which fluctuates on a quarter by quarter basis. We continue to focus on improvements to our level of automation and Conversion Rate (as defined below) through our increasingly sophisticated risk models and our evolving channel mix which have contributed to improving our loan unit economics over time.
We evaluate the credit performance of core personal loans by comparing the target returns expected at the time of origination to the returns received by our lending partners andpartners, institutional investors.investors, or us. The target return, a critical component of our loan pricing, is calculated using estimated cash flows, which are developed based on a number of factors, including credit losses and prepayment rates. While target returns across our lending partners and institutional investors vary depending on their programs’ objectives and risk tolerance, overall performance is calculated based on the variance between the initially expected returns and the actual return on capital invested in Upstart-powered loans.
Lending is a cyclical industry, and we believe it is important to take a long-term view of credit performance. An equal investment in all vintages of Upstart-powered core personal loans that originated in the first quarter of 2018 through the third quarter of 2024 is currently expected to deliver returns in line with a blended target of 9.6%.
At a more granular level, all quarterly vintages of core personal loans that originated in 2018 through the fourth quarter of 2020 are currently forecasted to meet or exceed the target returns set at the time of loan origination.
However,An equal investment in all vintages of Upstart-powered core personal loans originated in the fourth quarter of 2023 through the third quarter of 2025 is currently expected to deliver annual returns in line with a blended target of approximately 11.3% after servicing fees. At a more granular level, all quarterly vintages of core personal loans that originated in the firstfourth quarter of 20212023 throughand the first quarter of 2024 are currently forecasted to underperform relative to their target returns. Even though our underwriting models have over time utilized more variables and data points about borrowersborrowers, which has improved model performance, they were not designed to predict the severe impact of recent changes tochanging macroeconomic conditions, credit market volatility and interest rate fluctuations that haveoccurred occurred,following the COVID-19 pandemic, all of which were (and still are) beyond our control. The forecasted underperformance for these vintages reflects the impact of a combination of factors that occurred during that period, including the elimination of government stimulus measures and the worsening of the macroeconomic environment, via rising inflation and the resulting sharply higher interest rates.
The core personal loans originated in the second quarter of 2024 or later are currently forecasted to deliver returns in line with target yields. This reversion in performance reflects a combination of factors including increased conservatism in underwriting, the relative stabilization of macroeconomic conditions, and improvements in our more recent models.
The evolving macroeconomic conditions during that period led to more borrowers not making payments on their personal loans than anticipated at the time of underwriting. For example, borrowers likely prioritized repayment of loans that are secured by necessities, such as mortgages or auto loans, over unsecured personal loans. Higher interest rates also likely led to higher payment obligations, which reduced the ability of borrowers to remain current on their obligations. These factors led to increased delinquencies, defaults and bankruptcies declared by borrowers, resulting in more charge-offs and fewer recoveries, all of which had an adverse effect on the credit performance of loans facilitated on our marketplace during that time period.
To respond to macroeconomic changes more rapidly, we introduced the Upstart Macro Index (“UMI”) in 2023, which estimates the impact that observed macroeconomic changes may have on credit performance for Upstart-powered unsecured personal loans.
The core personal loans that originated in the second quarter of 2024 or later are currently forecasted to deliver returns in line with target yields. This reversion in performance, relative to the quarterly vintages of core personal loans that originated in the first quarter 2021 through the first quarter 2024, was driven by a combination of factors including increased conservatism in underwriting and the relative stabilization of macroeconomic conditions, as reflected in the UMI, which has helped credit perform in line with our models’ predictions as there has been less unexpected volatility in macroeconomic factors impacting loan performance. Our most recent AI models also benefited from more data on borrower repayment patterns from the period of significant macroeconomic changes. This resulted in substantive positive changes in observed and expected borrower repayments even for vintages with limited seasoning. This makes our more recent models more accurate than those used in early 2021. Refer to section “Factors Affecting Our Performance - Impact of Macroeconomic Environment” for additional details.
For the core personal loans held on our balance sheet, target returns are set similar to those of our institutional investors. We purchase core personal loans to address fluctuations of supply and demand in our marketplace and periodically sell these loans to institutional investors prior to their maturity. Demonstrated credit performance significantly influences sale prices in these transactions and impacts our overall financial results.
We measure credit performance of R&D Loans, which are a substantial part of the loan portfolio held on our balance sheet (refer to section “Liquidity and Capital Resources - Composition of Retained Loan Portfolio”), using an approach similar to the core personal loans held on our balance sheet. Variances between targeted and actual returns for these loans are expected to be higher, as the underlying risk models are in the earlier phases of their development cycle in comparison to core personal loans. The initial target returns for these products are also generally lower than comparative market benchmarks. The combination of these factors decreases the value of R&D Loans on our balance sheet, which negatively impacts our overall financial results. However, this is a required part of our product development cycle, and should be considered alongside other product development costs, such as data science and engineering. These costs collectively are managed as part of overall investment in product development. As our R&D models improve, we expect the difference between target and delivered returns will decrease and converge to market returns. This will allow us to launch these products for our lending partners and institutional investors, at which point they become part of our core product offerings.
Factors Affecting Our Performance
Continued Improvements to Our AI Models
Much of our historical growth has been driven by improvements to our AI models. These models benefit over time from a flywheel effect that is characteristic of machine learning systems: accumulation of repayment data leads to improved accuracy of risk and fraud predictions, which generally results in higher approval rates and lower interest rates, leading to increased volume, and consequently greater accumulation of repayment data. This virtuous cycle describes an important mechanism by which our business grows simply through model learning and recalibration. We expect to continue to invest significantly in the development of our AI models and platform functionalities.
Beyond the ongoing accumulation of repayment data used to train our models, we also frequently make discrete improvements to model accuracy by upgrading algorithms and incorporating new variables, both of which have historically resulted in higher approval rates, more competitive loan offers, increased automation, and faster growth. As a second order effect, the impact of these improvements on our conversion funnel also allows us to unlock new marketing channels over time that have previously been unprofitable.
We believe that ongoing improvements to our technology in this manner will allow us to further expand access and lower rates for creditworthy borrowers, which will continue to fuel our growth. Should the pace of these improvements slow down or cease, or should we discover forms of model upgrades which improve accuracy at the expense of volume, our growth rates could be adversely affected.
In addition to impacting credit performance, the macroeconomic environment has a direct and indirect impact on our business financial condition, and results of operation. In an economic downturn, we believe consumer lending will generally contract. Lending partners and institutional investors will generally require higher rates of return, which in turn increases the interest rates offered to borrowers, leading to lower borrower demand. Macroeconomic factors can also cause fluctuations of available capital in our lending marketplace due to shifts in the risk preferences of our lending partners and institutional investors. We expect these dynamics would generally invert in an economic upswing.
For example, loan funding provided by institutional investors started to become constrained in 2022, largely due to concerns about the macroeconomic environment. Rising interest rates also led to more expensive loan offers across borrower categories, which decreased borrower demand. In order to create greater stability for our business, we began securing committed capital and co-investment arrangements with institutional investors and other third parties that provide loan funding over longer durations. While we believe that the macroeconomic environment started to improve in 2024, disruption in financial markets could once again lower borrower demand or impair our lending partners and result in constrained funding, which would adversely impact our business, financial condition and operating results.
For example, loan funding provided by institutional investors started to become constrained in 2022, largely due to concerns about the macroeconomic environment. In response to inflationary pressure, the U.S. Federal Reserve raised interest rates through 2023, leading to more expensive loan offers across borrower categories, which impacted our business. At the same time, macroeconomic uncertainty generally made institutional investors more cautious and caused them to reduce the amount of capital available to fund Upstart-powered loans.
In response to this challenging macroeconomic environment where many lenders and credit investors had significantly reduced or paused investments in Upstart-powered loans, we announced reductions in workforce in January 2023 (“January 2023 Plan”) that resulted in the termination of approximately 20% of our workforce. To further decrease operating costs, streamline operations, and return Upstart to profitability in the future, during the year ended December 31, 2024, the Company implemented an additional series of initiatives which reduced the Company’s workforce by approximately 13%. Refer to “Note 16. Reorganization Expenses” for more information. While we believe that the macroeconomic environment started to improve in 2024, disruption in financial markets could impair our lending partners and result in constrained funding, which would adversely impact our business, financial condition and operating results.
In order to create greater stability for our business, beginning in 2023, we secured several committed capital and co-investment arrangements with institutional investors and other third-parties that provide loan funding over longer durations. We continue our work on expanding our loan funding capacity and in the interim period, we have utilized and may continue to utilize our balance sheet to support loan funding. While our goal remains to operate as a capital-light marketplace for credit, we will continue to leverage our balance sheet in the short term as we evaluate opportunities to implement committed capital and co-investment structures.
Our credit decisioning process takes into account macroeconomic conditions data, such as unemployment levels and personal savings rates, that we receive from third-party sources. To respond to macroeconomic changes and provide relevant and up-to-date information to our lending partners, we introduced a new metric, UMI,the Upstart Macro Index (“UMI”), in 2023. UMI is designed to quantify the level of underlying macroeconomic risk, specific to our borrower base, relative to a benign credit environment. A UMI of 1.0 reflects loan losses at this baseline rate. We subsequently launched an update to UMI which removes seasonal patterns to better describe the underlying macroeconomic effects. As of December 31, 2024,2025, UMI wasremained elevated, measured at approximately 1.40,1.39, meaning that current macroeconomic conditions contributed an incremental risk of approximately 40%39% to the repayment performance of an Upstart-powered unsecured personal loan, compared to the baseline.baseline measurement of 1.0.
UMI impacts interest rates for loans offered on our marketplace and, as a result, affects the pool of qualified potential borrowers and consumer demand for the loans. The elevated level of UMI resulted in higher interest rates for the loans offered on our marketplace and in turn, decreased the size of the pool of qualified potential borrowers and the borrower acceptance rates of such loans. With our investment in UMI, we focus on our ability to better separate risk among borrowers in our credit decisioning process in changing macroeconomic conditions.
We continuously monitor the direct and indirect impacts of the current macroeconomic conditions, including interest rate changes, on our business, financial condition, and results of operations.
Lending Partners and Market Adoption
Lending partners play two key roles in Upstart’s ecosystem: funding loans and acquiring new customers. Traditional lenders, such as banks, tend to enjoy efficient sources of funding due to their expansive base of deposits. As they adopt our technology and fund a growing proportion of our marketplace transactions, offers made to borrowers will typically improve, generally leading to higher conversion rates and faster growth for our platform.
New lending partners also represent additional acquisition channels through which we can reach and source prospective new borrowers, as these lending partners develop and implement their own digital and in-branch campaigns to drive traffic from their existing customer base to our platform. We view this emerging growth channel to be additive to the marketing acquisition programs we currently run at Upstart.
To provide funding support beyond our lending partners, we have built, and continue to expand, a broad network of institutional investors that can fund Upstart-powered loans through secondary loan purchasing and issuance of pass-through certificates and asset-backed securitizations. This diverse network of capital helps to minimize our reliance on any one funding source. However, any trend towards reduced participation by lending partners will generally erode the overall competitiveness of the offers on our platform, and any declining trend in the participation of broader institutional investment markets with respect to funding availability for Upstart-powered loans will adversely affect our business.
We believe that disruptions in the banking sector may limit our ability to attract new lending partners and may cause existing lending partners to reduce loan originations on our platform. In order to address recent funding constraints for our personal loans, Upstart has utilized its balance sheet to support short-term funding requirements of loans that would otherwise be purchased and held by institutional investors or securitized. We have secured several committed capital and co-investment arrangements with institutional investors and lending partners, which have delivered, and are expected to deliver, a significant amount of loan funding to the Upstart marketplace.
We believe that continued focus on improving our AI models and demonstrating strong performance of Upstart-powered loans over time will allow us to further diversify our sources of capital for our lending marketplace and mitigate the volatility in our loan funding supply.
Product Expansion and Innovation
We believe that significant growth opportunities exist to apply our evolving AI technology to additional segments of credit, and we continue to invest in research and development of our products. We introduced a new offering of unsecured personal loans for borrowers interested in small dollar loans in 2022, launched our HELOC product in the third quarter of 2023, and launched auto secured personal loans in the second quarter of 2024. We may incur expenses to support the launch of new products and fund early loan originations. Monetization prospects for new products are uncertain, and costs associated with integrating, developing and marketing new products might not be recovered, which could weigh on our top-line growth and profitability. For full-year 2024, new products had not yet achieved positive unit economics.
_______ (1)Transaction Volume, Number of LoansLoans, is shown in ones for the years presented.
(2)Beginning in the fourth quarter of 2025, we revised the definition and underlying calculation methodology of Conversion Rate. Prior period figures have been recast to conform to the new definition and methodology. See discussion of “Conversion Rate” below for further information.
(3)Beginning in the fourth quarter of 2025, we revised the definition and underlying calculation methodology of Percentage of Loans Fully Automated. Prior periods have not been adjusted, as the impact was immaterial. See discussion of “Percentage of Loans Fully Automated” below for further information.
We define Transaction Volume, Dollars as the total principal of loan originations (or committed amounts for HELOCs) facilitated on our marketplace during the periods presented. We define Transaction Volume, Number of Loans as the number of loan originations (or commitments issued for HELOCs) facilitated on our marketplace during the periods presented. We believe these metrics are good proxies for our overall scale and reach as a marketplace.
Transaction Volume is driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction Volume can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. Transaction Volume is dependent on the availability of platform funding which is influenced by factors such as volatility in the capital markets and macroeconomic conditions.
We define Transaction Volume, Dollars as the total principal of loan originations (or committed amounts for HELOCs) facilitated on our marketplace during the years presented. We define Transaction Volume, Number of Loans as the number of loan originations (or commitments issued for HELOCs) facilitated on our marketplace during the years presented. Increases in Transaction Volume are dependent on our loan funding programs having sufficient access to capital. Decreases in the availability of funding due to factors such as volatility in the capital markets and macroeconomic conditions will generally cause a decline in Transaction Volume. Transaction Volume is driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction Volume can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. We believe these metrics are good proxies for our overall scale and reach as a marketplace. Transaction Volume, Dollars increased 28%86% in the year ended December 31, 20242025 compared to the prior year and Transaction Volume, Number of Loans increased 59%115% in the year ended December 31, 20242025 compared to the prior year. These increases were primarily due to model improvements and product initiatives, which resulted in an increase in the number of qualified borrowers and more attractive loan offers. The increase in Transaction Volume, Number of Loans was higher than the increase in Transaction Volume, Dollars due to the decrease in average loan size, primarily dueas tounderwriting themodel increaseimprovements drove higher approval rates in smallsmaller dollar categories of loans.
We define Conversion Rate as the Transaction Volume, Number of Loans in a period divided by the total number of rate inquiries received that we estimate to be legitimate, which we record when a borrower actively requests a loan offer on our platform. We track this metric to understand the impact of improvements to the efficiency of our borrower funnel on our overall growth. Beginning in the fourth quarter of 2025, we made two adjustments to revise the definition and underlying calculation methodology of Conversion Rate to better align with how management evaluates the efficiency of our borrower funnel and to better support our multi-product business. First, under the new methodology, an application that does not qualify for an offer for one product but is automatically priced for a different product would count as one rate inquiry during that period rather than two rate inquiries under the old methodology. Second, multiple unfunded applications submitted by a single borrower for the same product across multiple quarters are now considered separate inquiries in each quarter under the new methodology, rather than being consolidated as one inquiry under the old methodology. These changes in aggregate resulted in a net decrease in historical Conversion Rates by 0 to 3 percentage points during 2023 and 2024. Prior period Conversion Rate metrics have been recast to conform to the revised definition and methodology to ensure comparability across periods.
We define Conversion Rate as the Transaction Volume, Number of Loans in a period divided by the number of rate inquiries received that we estimate to be legitimate, which we record when a borrower requests a loan offer on our platform. We track this metric to understand the impact of improvements to the efficiency of our borrower funnel on our overall growth. Historically, our Conversion Rate has benefited from improvements to our technology, which have made our evaluation of risk more accurate and our verification process more automated, or from the addition of lendingcapital partners that have made our offers more competitive. However, our Conversion Rate can be impacted by a variety of internal factors such as changes in the amount of originationplatform and referral fees that we charge or changes in the rate of returns we target for our lending partners and institutional investors. External factors such as shifts in macroeconomic conditions, including interest rate changes, also impact our Conversion Rate. Our ability to continue to improve our Conversion Rate depends in part on our ability to continue to improve our AI models and Percentage of Loans Fully Automated and the mix of marketing channels in any given period. Our Conversion Rate increased to 16.5% in the year ended December 31, 2024 from 9.7% in the year ended December 31, 2023, primarily driven by underwriting model improvements and product initiatives, coupled with continued optimization in our acquisition channels.
Our Conversion Rate increased to 19.4% in the year ended December 31, 2025 from 15.1% in the year ended December 31, 2024, primarily driven by underwriting model improvements and product and pricing initiatives, coupled with continued optimization in our acquisition channels.
A driver of our Contribution Margin and operating efficiency is the Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period. Under this definition, “originated end-to-end” means (i) from initial rate request to final funding for personal loans, including small dollar loans, and (ii) from initial rate request to loan approval for auto loans and HELOCs, due to certain jurisdictions’ local requirements and external dependencies that require human action prior to funding. Beginning in the fourth quarter of 2025, we revised the definition of Percentage of Loans Fully Automated to include HELOCs, which were not included under the prior definition. The impact of this change on metrics reported for prior periods was immaterial; accordingly, prior-period metrics have not been recast, and the change was applied prospectively.
A driver of our Contribution Margin and operating efficiency is the Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period. We have been successful in increasing the level of loan automation on the platform over the past few years while simultaneously holding fraud rates at very low levels. We believe our growth over the last several years has been driven in part by our ability to rapidly streamline and automate the loan application and origination process on our platform. We expect growth of the Percentage of Loans Fully Automated to subside in the near term. However, asAs we expand our loan offerings, this percentage may fluctuate from period to period depending on the loan offering mix and other external factors. Our Percentage of Loans Fully Automated increased to 91% in the year ended December 31, 2024 from 87% in the year ended December 31, 2023.
Our Percentage of Loans Fully Automated remained flat at 91% for the years ended December 31, 2024 and 2025.
Contribution Profit and Contribution Margin have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Contribution Profit and Contribution Margin are not GAAP financial measures of, nor do they imply, profitability. Even if our revenue exceeds variable expenses over time, we may not be able to achieve or maintain profitability, and the relationship of revenue to variable expenses is not necessarily indicative of future performance. Contribution Profit and Contribution Margin reflect all expenses that we consider to be variable, which may involve some judgment and discretion around what costs vary directly with loan volume. Other companies that present contribution profit and contribution margin may calculate it differently and, therefore, similarly titled measures presented by other companies may not be directly comparable to ours.
To derive Contribution Profit, we subtract fromthe revenuesum from fees, net ourof borrower acquisition costs as well as our borrower verification and servicing costs.costs from revenue from fees, net. To calculate Contribution Margin we divide Contribution Profit by revenue from fees, net.
What changed in the latest 10-Q
Risk Factors
Largest changes
A significant portion of our loan funding from institutional investors comes from committed capital and other co-investment arrangements, which may include downside credit risk protection, subject to certain limits and conditions. Under these arrangements, we may be required to compensate investors if loan credit performance deviates from expectations. We may also be required to compensate investors if committed loan sale volumes are not achieved. If loans do not perform as expected for any reason, including due to changes in borrower behavior or ability to pay, borrower demand declines, or our credit performance expectations are inaccurate, our financial results could be adversely affected, including through unfavorable fair value adjustments. We may also experience declines in revenue andsee in full comparisontransactionloanvolumeoriginations if existing arrangements do not provide funding on agreed terms or if we are unable to secure additional arrangements on commercially reasonable terms or at all. In addition, a portion of the institutional funding for loans facilitated through our marketplace comes from private credit funds. These counterparties are subject to their own liquidity, fundraising and market constraints. Certain of these counterparties may experience investor redemptions, fundraising shortfalls or other constraints on available capital that reduce the capital available for loan purchases. As a result, one or more of these counterparties may be unable to fulfill purchase commitments, seek to renegotiate commercial terms, or fail to renew existing arrangements. Any such reduction in participation could reduce the funding capacity available to our marketplace, increase our funding costs, or constrain our ability to originate loans, which could adversely affect our business, financial condition and results of operations.
We havesee in full comparisonsubmittedreceivedanconditionalapplicationapprovaltofrom theOffice of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)to establish an insured national bank, Upstart Bank,N.A.N.A., and our application to the FDIC for deposit insurance remains pending. Wewillhave alsoapplyapplied to the Federal Reserve for approval for Upstart Holdings, Inc. to become a bank holding company. Regulatory approvals for the bank charter, deposit insurance, and bank holding company applications are subject to a number of requirements, including minimum capital and liquidity requirements, compliance and risk management requirements, and a determination that the proposed activities are legally permissible, among others.TheOurapplicationapplications may be denied, regulatory approval may be delayed or subject to conditions, and there may be changes to applicable laws or supervisory expectations that govern the bank’s operations. Once opened, a bank subsidiary will also subject us to various regulations with respect to our activities and will introduce additional operational complexity, including the need to build and maintain bank-specific infrastructure, risk management, compliance, and reporting capabilities. Operating a bank is also likely to result in new costs, which may be significant and could reduce or offset some or all of the anticipated benefits of the bank charter. For these and other reasons, we may be unable to fully realize the benefits, efficiencies, cost reductions, or funding advantages that we expect by obtaining a bank charter, and our business, financial condition, and results of operations may be adversely affected.
Our ability to attract borrowers and facilitate loan originations on our marketplace depends in large part on the effectiveness of our AI models in evaluating borrower creditworthiness and pricing loans appropriately. Our overall operating efficiency and margins further depend in part on our ability to maintain a high degree of automation in our application process and achieve incremental improvements in the degree of automation. If our AI models contain errors, rely on inaccurate assumptions or data, or otherwise fail to perform as expected, loans may be sub-optimally priced or incorrectly decisioned, which could result in losses that are higher than expected, reduced borrower demand, and decreased loan originations. For example, as ofsee in full comparisonMarchJune31,30, 2026, the quarterly vintages of all personal loans excluding small dollar loans that originated in thefirstsecond quarter of 2023 through the first quarter of 2024 and the fourth quarter of 2025 are forecasted to underperform relative to their target returns set at the time of loan origination. Our AI models and related decisioning processes also depend on the availability, accuracy and timeliness of data and other inputs, including information provided by applicants and third-party sources. If the data or inputs used to train, operate, calibrate or monitor our AI models are inaccurate, incomplete, biased or otherwise unreliable, or if our access to key data sources is terminated or interrupted, our models may not perform as expected and our ability to evaluate credit risk or price loans may be adversely affected.
Full comparison: every changed paragraph (26)
•If we are unable to continue to improve our artificial intelligence (“AI”) models or if our AI models are ineffective, including by failing to accurately or timely reflect changes in economic conditions on borrowers’ credit risk, our growth prospects, business, financial condition and results of operations would be adversely affected.
•If we are unable to manage the risks associated with the Upstart Macro Index (UMI),UMI, our credibility, reputation, business, financial condition and results of operations could be adversely affected.
Adverse macroeconomic conditions and resulting uncertainty and volatility have had, and may have in the future, a material adverse effect on our business and results of operations. Such conditions can reduce borrower demand, approval and acceptance rates, loan origination volume and loan funding from lending partners and institutional investors, reduce liquidity in the capital markets, increase funding costs, and increase our reliance on our balance sheet. Many borrowers that access our marketplace have poor, limited or no credit history and may be disproportionately affected by inflation, higher interest rates, cost of living pressures, unemployment or recessionary conditions, which can reduce their ability or willingness to borrow or repay loans. During economic downturns, borrowers may prioritize secured obligations over unsecured personal loans or home equity lines of credit,HELOCs, and higher interest rates may further increase payment burdens, leading to higher delinquencies, defaults, charge-offs and lower recoveries. Because our operations are concentrated in U.S. consumer credit, adverse developments affecting the U.S. economy or consumer credit markets could have a disproportionate impact on our business. In addition, changes in fiscal, monetary, regulatory or foreign policy priorities across presidential administrations may contribute to economic volatility and uncertainty. Any sustained decline in borrower approvability, loan acceptance or origination volume, or any increase in delinquencies or defaults beyond our expectations, could materially adversely affect our business, financial condition and results of operations.
Our business depends on sourcing and maintaining diverse and resilient sources of capital from institutional investors to our marketplace, including through the purchase of whole loans and interests in loans through pass-through certificates and asset-backed securities. A significant portion of loans transacted on our marketplace are purchased by institutional investors.investors, including private credit funds. The availability and capacity of capital from institutional investors depends on many factors that are outside of our control, such as economic and market conditions, interest rates, liquidity in the capital markets and regulatory requirements or restrictions, which are subject to change. We cannot be sure that the existing capital sources will continue to be available, or any new capital sources will become available, on commercially reasonable terms or at all. Decreased capital from institutional investors has negatively impacted our business in the past, and may negatively impact us in the future. Any sustained decline in investor demand for Upstart-powered loans or securities secured by such loans may adversely affect our financial results.
A significant portion of our loan funding from institutional investors comes from committed capital and other co-investment arrangements, which may include downside credit risk protection, subject to certain limits and conditions. Under these arrangements, we may be required to compensate investors if loan credit performance deviates from expectations. We may also be required to compensate investors if committed loan sale volumes are not achieved. If loans do not perform as expected for any reason, including due to changes in borrower behavior or ability to pay, borrower demand declines, or our credit performance expectations are inaccurate, our financial results could be adversely affected, including through unfavorable fair value adjustments. We may also experience declines in revenue and transactionloan volumeoriginations if existing arrangements do not provide funding on agreed terms or if we are unable to secure additional arrangements on commercially reasonable terms or at all. In addition, a portion of the institutional funding for loans facilitated through our marketplace comes from private credit funds. These counterparties are subject to their own liquidity, fundraising and market constraints. Certain of these counterparties may experience investor redemptions, fundraising shortfalls or other constraints on available capital that reduce the capital available for loan purchases. As a result, one or more of these counterparties may be unable to fulfill purchase commitments, seek to renegotiate commercial terms, or fail to renew existing arrangements. Any such reduction in participation could reduce the funding capacity available to our marketplace, increase our funding costs, or constrain our ability to originate loans, which could adversely affect our business, financial condition and results of operations.
We have facilitated securitizations, and may in the future facilitate additional securitizations, of Upstart-powered loans to allow institutional investors, certain lending partners, and/or us to liquidate or finance such loans through the asset-backed securities markets or other capital markets products. In securitization transactions, we sell and convey pools of loans to special purpose entities (“SPEs”),SPEs, which issue notes or certificates pursuant to indentures and trust agreements. We also finance certain loans on our balance sheet through warehouse credit facilities, including by selling loans to warehouse trust SPEs and borrowing under associated credit facilities. Securities issued by securitization SPEs and borrowings under warehouse facilities are secured by the loan pools owned by the applicable SPEs, and we, our lending partners and/or institutional investors may contribute loans to such SPEs in exchange for cash and/or debt or equity interests.
Our ability to attract borrowers and facilitate loan originations on our marketplace depends in large part on the effectiveness of our AI models in evaluating borrower creditworthiness and pricing loans appropriately. Our overall operating efficiency and margins further depend in part on our ability to maintain a high degree of automation in our application process and achieve incremental improvements in the degree of automation. If our AI models contain errors, rely on inaccurate assumptions or data, or otherwise fail to perform as expected, loans may be sub-optimally priced or incorrectly decisioned, which could result in losses that are higher than expected, reduced borrower demand, and decreased loan originations. For example, as of MarchJune 31,30, 2026, the quarterly vintages of all personal loans excluding small dollar loans that originated in the firstsecond quarter of 2023 through the first quarter of 2024 and the fourth quarter of 2025 are forecasted to underperform relative to their target returns set at the time of loan origination. Our AI models and related decisioning processes also depend on the availability, accuracy and timeliness of data and other inputs, including information provided by applicants and third-party sources. If the data or inputs used to train, operate, calibrate or monitor our AI models are inaccurate, incomplete, biased or otherwise unreliable, or if our access to key data sources is terminated or interrupted, our models may not perform as expected and our ability to evaluate credit risk or price loans may be adversely affected.
If we are unable to manage the risks associated with the Upstart Macro Index (UMI),UMI, our credibility, reputation, business, financial condition and results of operations could be adversely affected.
Macroeconomic environments fluctuate over time, and the costs and risks associated with consumer borrowing evolve in response to economic conditions. During periods of challenging macroeconomic conditions, including periods of elevated borrowing costs and heightened consumer credit risk, the pool of qualified borrowers may become smaller, and fewer applicants may receive or accept loan offers on our marketplace. Approving more borrowers can also be limited as we have historically limited the maximum annual percentage rates offered on Upstart-powered loans due to regulatory reasons. These factors have adversely affected, and may in the future adversely affect, transactionloan volumeoriginations on our marketplace and therefore our revenue. If we are not able to maintain or increase transactionloan volumeoriginations on our marketplace, or attract and retain qualified borrowers, our growth prospects, business, financial condition and results of operations would be adversely affected.
We have submittedreceived anconditional applicationapproval tofrom the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to establish an insured national bank, Upstart Bank, N.A.N.A., and our application to the FDIC for deposit insurance remains pending. We willhave also applyapplied to the Federal Reserve for approval for Upstart Holdings, Inc. to become a bank holding company. Regulatory approvals for the bank charter, deposit insurance, and bank holding company applications are subject to a number of requirements, including minimum capital and liquidity requirements, compliance and risk management requirements, and a determination that the proposed activities are legally permissible, among others. TheOur applicationapplications may be denied, regulatory approval may be delayed or subject to conditions, and there may be changes to applicable laws or supervisory expectations that govern the bank’s operations. Once opened, a bank subsidiary will also subject us to various regulations with respect to our activities and will introduce additional operational complexity, including the need to build and maintain bank-specific infrastructure, risk management, compliance, and reporting capabilities. Operating a bank is also likely to result in new costs, which may be significant and could reduce or offset some or all of the anticipated benefits of the bank charter. For these and other reasons, we may be unable to fully realize the benefits, efficiencies, cost reductions, or funding advantages that we expect by obtaining a bank charter, and our business, financial condition, and results of operations may be adversely affected.
We have held more Upstart-powered loans on our balance sheet in recent years and may continue to do so in the future. We have used, and may continue to use, our balance sheet to support our research and developmentR&D activities for new loan products and borrower segments. In addition to research and developmentR&D activities, we have used and may continue to use our balance sheet to purchase Upstart-powered loans from lending partners to address fluctuations in supply and demand in our marketplace.
We hold loans on our balance sheet at fair value and estimate fair value using a discounted cash flowDCF methodology. Increases in market interest rates may reduce the fair value of loans held on our balance sheet, which have negatively affected, and may in the future negatively affect, the fair value of such loans. In addition, for loans held on our balance sheet and any future loans to be held on our balance sheet, we bear the credit risk in the event of borrower default. Our exposure to rising borrower default rates and their volatility has increased, and may continue to increase, as we hold more Upstart-powered loans on our balance sheet. Also, loans for research and developmentR&D purposes make up a substantial portion of the loans held on our balance sheet and are generally more risky and more likely to default than personal loans.
We have introduced auto loans, retail installment contracts purchased from motor vehicle dealers, small dollar loans, and home equity lines of creditHELOC products and are continuing to invest in developing these products and other new credit products and service offerings. We have limited operating history with respect to certain of these products, and new initiatives are inherently risky, as each involves unproven business strategies, new regulatory requirements and new financial products and services with which we, and in some cases our lending partners, have limited or no prior development or operating experience.
A borrower may decide to prepay all or a portion of the outstanding principal amount on a loan at any time without penalty. If the entire outstanding unpaid principal amount of a loan is prepaid, we would not receive a servicing fee for the period after the loan is prepaid in full. Our AI models are designed to predict prepayment rates, but prepayment may occur for a variety of reasons. If a significant volume of prepayments occur that our AI models do not accurately predict, the amount of our revenue from servicing fees would decline and returns targeted by our lending partners and institutional investors would be adversely affected, which would harm our business and results orof operations and our ability to attract new lending partners and institutional investors.
Like other financial and technology services firms, we and certain vendors and service providers that support us have been, and continue to be, the targets of actual or attempted unauthorized access, mishandling or misuse of information, computer viruses or malware, distributed denial-of-service attacks, other cyberattacks, security breaches or incidents, or other similar events. Security breaches, attacks, outages, disruptions, or other incidents affecting us or our vendors or service providers could compromise the confidentiality, integrity or availability of our systems, proprietary models, algorithms, or data, cause service interruptions, disrupt our operations, degrade the user experience of our platform, or result in unauthorized access to, disclosure of, or other processing of sensitive information, including borrower data. Such incidents could adversely affect borrowers, lending partners and other third parties that rely on our platform and could harm our reputation, reduce transactionloan volumeoriginations or otherwise adversely affect our business.
We are also dependent on a number of third-party infrastructure and services, including cloud computing, data storage and network services, to operate our platform. If these services are interrupted, degraded or terminated, whether due to system failures, cyber incidents, human error or other causes, we could experience disruptions in our operations and delays in loan processing or servicing. For example, we host our AI lending platform using Amazon Web Services (“AWS”),AWS, a provider of cloud infrastructure services. In the event that our AWS service agreements are terminated, there is a lapse of service, interruption of internet service provider connectivity, or damage to AWS data centers, we could experience interruptions in access to our platform, as well as delays and additional expense if we must secure alternative cloud infrastructure services, which could reduce confidence in the reliability of our platform and cause lending partners or institutional investors to reduce, suspend or cease funding or other participation on our marketplace.
Our employees and contractors use generative AI technologies in connection with their work, including internally-built generative AI tools that may be integrated into or otherwise impact customer-facing products or services, and the use of such technologies presents risks and challenges that could adversely affect our business. Despite policies governing their use, employee or contractor errors, misuse or unauthorized use of generative AI technologies could result in security incidents and could otherwise introduce security, legal, compliance, or operational risks. Even authorized use of generative AI technologies may generate content, including software code, that is inaccurate, misleading or contains security vulnerabilities. In particular, generative AI tools may produce outputs that appear accurate but are factually incorrect or incomplete, which could result in incorrect information being relied upon by employees or contractors or incorporated into customer-facing products or services. Furthermore, there can be no assurance that our use of generative AI in customer-facing products or services will improve outcomes, enhance user experience, or benefit our business. Use of generative or agentic AI technologies by employees, contractors or others could result in reputational harm, competitive harm or legal liability. In addition, generative AI technologies may introduce cybersecurity risks if vulnerabilities are incorporated into our systems or products. We also use, orand may in the future use, agentic AI tools to support servicing or other customer-facing functions, such as customer support, which may increase the risk of errors, inconsistent outputs or failure to adhere to our policies, regulatory obligations or customer expectations.
Many aspects of the legal framework governing intellectual property rights, licensing, and liability related to generative AI remainsremain unsettled, and our use of such generative AI technologies may expose us to claims of copyright infringement, other intellectual property claims, or reputational harm. While we have taken, and continue to take, steps designed to mitigate risks associated with the use of generative AI in our business, including through policies and controls governing the use of generative AI technologies, our use of AI may present ethical, reputational, legal, competitive, and regulatory risks that could adversely affect our business, financial condition, results of operations, and future prospects.
We may also be subject to heightened regulatory supervision or enforcement at the federal or state level, including by the Consumer Financial Protection Bureau (“CFPB”),CFPB, state attorneys general or other regulatory agencies. Federal and state regulators have increased scrutiny of fees and practices that may be viewed as unfair, deceptive or abusive, and fees charged in connection with loans facilitated through our marketplace could be subject to challenge or refund.
The CFPB has broad authority to regulate and enforce compliance with federal consumer financial protection laws, including the prohibition on unfair, deceptive or abusive acts or practices (“UDAAP”),UDAAP, and laws governing lending, servicing, collections, credit reporting and related activities. The CFPB also has supervisory authority over certain banks, thrifts and credit unions and certain participants in the consumer financial services market and larger participants in other areas of financial services, including some of our lending partners and our home lending business, and has authority to supervise or investigate other non-bank entities it determines may pose risks to consumers.
We also believe that neither we nor our subsidiaries are required to register as an investment adviser under the Investment Advisers Act of 1940, as amended, or as a broker-dealer under the Securities Exchange Act of 1934, as amended,Act, based on the nature of our activities and applicable guidance. However, regulatory interpretations or guidance could change, or regulators could disagree with our positions. If we or any of our subsidiaries were required to register or notice-file as an investment adviser or broker-dealer, or otherwise become subject to such regulatory regimes, we could be required to make significant changes to our business operations, compensation structures, marketing practices or financing activities.
Certain transactions involving institutional investors or loan financing arrangements may rely on exemptions from registration under the Securities Act of 1933, as amended,Act, including Regulation D or Section 4(a)(2). If such transactions were found not to qualify for an exemption or otherwise violate securities laws, we could be subject to rescission claims, enforcement actions, civil penalties or restrictions on future financing activities, including potential “bad actor” disqualification. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
We rely on borrowings under warehouse credit facilities and risk retention financing facilities to fund certain aspects of our operations, including financing loans and retained interests. These facilities are collateral-based and are secured by loans or securitization-related assets held by special purpose entities.SPEs. Our ability to access and maintain these facilities depends on the performance and value of the underlying collateral, compliance with applicable covenants and representations, and the continued willingness of lenders to provide financing.
As of MarchJune 31,30, 2026, we have recorded a valuation allowance to recognize only deferred tax assets that are more likely than not to be realized in the U.S. federal, state and local tax jurisdictions. We assess available positive and negative evidence to determine whether sufficient future taxable income will be generated to utilize our deferred tax assets. Certain deferred tax assets may expire unused or underutilized, which could prevent us from offsetting future taxable income.
We may also be limited in the portion of net operating losses (“NOLs”) that we can use to offset taxable income for U.S. federal and state income tax purposes. The Tax Cuts and Jobs Act made significant changes to the utilization of NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, an ownership change may limit our ability to utilize NOLs. Future changes in our stock ownership, including equity issuances, share repurchases or other transactions, could result in an ownership change for this purpose. Limitations may also apply under state and local law.
We may from time to time register shares for resale or issue shares in connection with financings or other transactions. We have an effective shelf registration statement on Form S-3ASR that permits us to offer and sell shares of our common stock, including through an “at-the-market”ATM offering program.Program. Sales of our shares could make it more difficult for us to sell equity securities in the future at times and prices that we deem appropriate, could cause the trading price of our common stock to decline, and could make it more difficult for stockholders to sell their shares.
Management's Discussion & Analysis (MD&A)
New heading “Loan Sales Fees”
Removed heading “Transaction Volume”
Removed heading “Expense on Convertible Notes”
Largest changes
see in full comparisonWeBeginningdefinein the second quarter of 2026, we refer to the metrics “Transaction Volume, Dollars” and “Transaction Volume, Number of Loans” as “Originations, Dollars” and “Originations, Number of Loans,” respectively, to reflect management’s internal terminology. We define Originations, Dollars as the aggregate of: (i) the total principal of loan originations for personal loans, small dollar loans, and auto loans, (orii) committed amounts forHELOCsHELOCs, and (iii) drawn amounts for unsecured revolving credit lines (Cash Line), in each case facilitated on our marketplace during the periods presented. We defineTransaction Volume,Originations, Number of Loans as the total number ofloansuchoriginationsoriginations,(orcommitments,commitmentsandissueddraws,forasHELOCs)applicable, facilitated on our marketplace during the periods presented. We believe these metrics are good proxies for our overall scale and reach as a marketplace.
As ofsee in full comparisonMarchJune31,30, 2026, we held$1,014.1$1,064.2 million of loans on our condensed consolidated balance sheet. Of this amount,$338.2$487.6 million consisted ofpersonalnon-R&Dloans,Loans, the majority of which would otherwise be purchased by third parties. We also held$631.0$540.3 million ofloansR&D Loans originatedforprimarilyresearchto test anddevelopmentevaluatepurposes,ourprimarilyAI models for new products and borrower segments and to aid insupportpriceof our auto lending products, HELOCs, and the expansion of our unsecured personal loan product to new categories of borrowers.discovery. In addition, we held$44.9$36.3 million of loans through the consolidated securitization. We will continue to utilize our capital to supportresearch and developmentR&D activities and, at times, as a funding source for loans during periods of marketplace funding constraints or to bridge the timing between origination and sales of loans. The extent and timing of utilizing our capital as a funding source for loans will largely depend on the availability of capital in our marketplace relative to the demand from qualified borrowers and our business priorities. We plan to sell loans held on our balance sheet to lending partners and institutional investors over time in the form of secondary sales or securitizations and pass through issuances.
Upstart is the leadingsee in full comparisonartificial intelligence (“AI”)lending marketplace. We aim to radically reduce the cost and complexity of borrowing for all Americans by using our proprietary AI models to remake the entire lending process.Today,Upstart’s marketplace supports both unsecured and secured loans. Unsecured loans include personal loans,includingsmall dollar“relief”loans,loans,and our new unsecured revolving credit product, Cash Line. Secured loans include autoloans,loans – including retail, refinance, and auto secured personalloans,loans – andhome loans in the form of home equity lines of credit (“HELOCs”).HELOCs. Long-term, our vision is to become the always-on, everything-store for credit, where we can automatically approve borrowers at the right prices – instantly and effortlessly.
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Upstart is the leading artificial intelligence (“AI”) lending marketplace. We aim to radically reduce the cost and complexity of borrowing for all Americans by using our proprietary AI models to remake the entire lending process. Today, Upstart’s marketplace supports both unsecured and secured loans. Unsecured loans include personal loans, including small dollar “relief”loans, loans,and our new unsecured revolving credit product, Cash Line. Secured loans include auto loans,loans – including retail, refinance, and auto secured personal loans,loans – and home loans in the form of home equity lines of credit (“HELOCs”).HELOCs. Long-term, our vision is to become the always-on, everything-store for credit, where we can automatically approve borrowers at the right prices – instantly and effortlessly.
Beyond core underwriting, we apply our proprietary AI models to other areas of our business, such as income and identity verification, fraud detection, and identifying loan stacking behavior, among others. The result is an exceptional digital-first experience with significant levels of automation. For example, during the threesix months ended MarchJune 31,30, 2026, 91% of loans on our platform were fully automated, with no human intervention by Upstart. Consumer acquisition is another area where we apply our AI, making these activities increasingly efficient. Consumers primarily access Upstart-powered loans through Upstart.com and, for automotive retail in particular, through auto dealerships that use Upstart’s Auto Finance software.
Our dynamic marketplace allows us to serve borrowers across the credit spectrum. Loans issued through our marketplace are purchased by our network of institutional investors, retained or purchased by our lending partners, or in certain instances, held on our balance sheet. Out of the total principal of loans transacted on our marketplace during the threesix months ended MarchJune 31,30, 2026, 55%61% were purchased by institutional investors, 33%31% were retained or purchased by our lending partners, and 12%8% were held on our balance sheet. Investors may also invest in securities collateralized by Upstart-powered loans through our pass-through and securitization programs.
We retain certain loans on our balance sheet for research and development purposes (“R&D Loans”),purposes, including to test and evaluate our AI models for newer products, to fill gaps in investor demand,products and to aid in price discovery. As of MarchJune 31,30, 2026, 62%51% of loans held on our balance sheet were for R&D purposes, primarily related to our seasoned auto refinance andrefinance, auto retail loanloans products,and HELOCs, as well as newer products including small dollar loans and HELOCs.auto secured personal loans. As products develop and achieve market fit, we no longer consider them as R&D. For example, during the quarter ended June 30, 2026, newly originated auto refinance, auto retail loans and HELOCs were no longer classified as R&D.
We may also retain loans on our balance sheet for purposes unrelated to product development, including to bridge the timing between origination and sales of loans.
An equal investment in all vintages of Upstart-powered personal loans (excluding small dollar loans) originated in the first quarter of 2024 through the fourth quarter of 2025 is currently expected to deliver annual returns in line with a blended target of approximately 11.3% after servicing fees. Looking at performance over a longer period, an equal investment in all vintages of Upstart-powered personal loans (excluding smaller dollar loans) originated in the firstsecond quarter of 2023 through the fourthfirst quarter of 20252026 is currently expected to deliver annual returns in line with a blended target of approximately 10.8% after servicing fees.
At a more granular level, the quarterly vintages originated in the firstsecond quarter of 2023 through the first quarter of 2024 and in the fourth quarter of 2024 are currently forecasted to underperform relative to their target returnsreturns. and quarterlyQuarterly vintages originated in the second and third quarter of 2024 and in the first quarter of 2025 or later are currently forecasted to deliver returns in line with target yields. This reversion in performance to target yields reflects a combination of factors including increased conservatism in underwriting, the relative stabilization of macroeconomic conditions, and improvements in our more recent models.
To respond to macroeconomic changes and provide relevant and up-to-date information to our lending partners, we introduced a new metric, the Upstart Macro Index (“UMI”),UMI, in 2023. As of MarchJune 31,30, 2026, UMI remained elevated, measured at approximately 1.38,1.50, meaning that current macroeconomic conditions contributed an incremental risk of approximately 38%50% to the repayment performance of an Upstart-powered unsecured personal loan, compared to the baseline measurement of 1.0.
_______ (1)Transaction Volume,Originations, Number of Loans, is shown in ones for the periods presented.
(3)Beginning in the fourth quarter of 2025, we revised the definition and underlying calculation methodology of Percentage of Loans Fully Automated. Prior periods have not been adjusted, as the impact was immaterial. For additional information regarding this change, see “Key Operating and Non-GAAP Financial Metrics” in our Annual Report on Form 10-K for the year ended December 31, 2025.
Originations
Transaction Volume
WeBeginning definein the second quarter of 2026, we refer to the metrics “Transaction Volume, Dollars” and “Transaction Volume, Number of Loans” as “Originations, Dollars” and “Originations, Number of Loans,” respectively, to reflect management’s internal terminology. We define Originations, Dollars as the aggregate of: (i) the total principal of loan originations for personal loans, small dollar loans, and auto loans, (orii) committed amounts for HELOCsHELOCs, and (iii) drawn amounts for unsecured revolving credit lines (Cash Line), in each case facilitated on our marketplace during the periods presented. We define Transaction Volume,Originations, Number of Loans as the total number of loansuch originationsoriginations, (orcommitments, commitmentsand issueddraws, foras HELOCs)applicable, facilitated on our marketplace during the periods presented. We believe these metrics are good proxies for our overall scale and reach as a marketplace.
For Cash Line, we count each draw, rather than the establishment of the credit line, because draws represent the customer’s use of the product and more closely reflect the marketplace activity from which we generate ongoing fees.
TransactionOriginations Volume isare driven by improvements in our AI models and technology, including our ability to streamline and automate the loan application and origination process. Transaction VolumeOriginations can also be driven by several other factors, including borrower acceptance rates and their sensitivity to the interest rates offered through our platform. TransactionOriginations Volume isare dependent on the availability of platform funding which is influenced by factors such as volatility in the capital markets and macroeconomic conditions.
Transaction Volume,Originations, Dollars increased 61%50% in the three months ended MarchJune 31,30, 2026 compared to the same period of 20252025, and Transaction Volume, Number of Loans increased 77%55% in the threesix months ended MarchJune 31,30, 2026 compared to the same period of 2025. Originations, Number of Loans increased 50% and 60% in the three and six months ended June 30, 2026 compared to the same period of 2025, respectively. These increases were primarily due to model improvements and product initiatives, which resulted in an increase in the number of qualified borrowersborrower and more attractive loan offers.demand. The increase in Transaction Volume,Originations, Number of Loans was higher than the increase in Transaction Volume,Originations, Dollars due to the decrease in average loan size, primarily as underwriting model improvements drove higher approval rates in smaller dollar categories of loans.
We define Conversion Rate as the Transaction Volume,Originations, Number of Loans in a period divided by the total number of rate inquiries received that we estimate to be legitimate, which we record when a borrower actively requests a loan offer on our platform. We track this metric to understand the impact of improvements to the efficiency of our borrower funnel on our overall growth. Cash Line is excluded because those borrowers may make multiple draws after the line has been initially approved, and those subsequent draws do not represent additional conversions.
Historically, our Conversion Rate has benefited from improvements to our technology, which have made our evaluation of risk more accurate and our verification process more automated, or from the addition of capital partners that have made our offers more competitive. However, our Conversion Rate can be impacted by a variety of internal factors such as changes in the amount of platform and referral fees that we charge orcharge, changes in the rate of returns we target for our lending partners and institutional investors.investors, or changes in products we offer or borrower segments we serve. External factors such as shifts in macroeconomic conditions, including interest rate changes, also impact our Conversion Rate. Our ability to continue to improve our Conversion Rate depends in part on our ability to continue to improve our AI models and Percentage of Loans Fully Automated and the mix of marketing channels in any given period.
Our Conversion Rate increaseddecreased to 18.5%19.7% and 19.2% in the three and six months ended MarchJune 31,30, 20262026, respectively, from 17.5%21.0% and 19.4% in the same periodperiods of 2025, primarily driven by underwritingour modelcontinued expansion into broader borrower segments and improvements andin productthe andaccuracy pricing initiatives, coupled with continued optimization inof our acquisitionunderwriting channels.model.
We regularly evaluate the key operating metrics we use to help investors assess our business and periodically consider whether they continue to provide meaningful insight into our operating performance. As part of this evaluation, we have determined that Conversion Rate, which we have disclosed as an indicator of the efficiency of our borrower funnel dating back to our initial public offering, no longer meaningfully reflects the performance of our business, including our revenue and operating results.
This determination reflects the evolution of our business, including the expansion of our product portfolio. Accordingly, we plan to continue reporting Conversion Rate in our Forms 10-Q and 10-K through the remainder of fiscal year 2026 as a transition period, and we do not intend to report this metric beginning with our Quarterly Report on Form 10-Q for the quarter ending March 31, 2027.
As our products and services continue to evolve, we expect to continue evaluating our key operating metrics disclosures to ensure they remain aligned with how management assesses the business. We may determine to modify, add to, or eliminate certain of our current key operating metrics in future filings.
A driver of our Contribution Margin and operating efficiency is the Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end with no human involvement required by the Company divided by the Transaction Volume,Originations, Number of Loans in the same period. Cash Line is excluded because those borrowers may make multiple draws after the line has been initially approved, and those subsequent draws do not represent additional automation. Under this definition, “originated end-to-end” means (i) from initial rate request to final funding for personal loans, including small dollar loans, and (ii) from initial rate request to loan approval for auto loans and HELOCs, due to certain jurisdictions’ local requirements and external dependencies that require human action prior to funding.
Our Percentage of Loans Fully Automated decreased slightly to 91% in both the three and six months ended MarchJune 31,30, 2026 from 92% in both the samethree periodand ofsix months ended June 30, 2025.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of lossincome from operations to Contribution Profit.
We calculate Adjusted EBITDA as net income (loss) adjusted to exclude stock-based compensation expense and certain payroll tax expenses, depreciation and amortization, expense on convertible notes, provision for income taxes, gain on debt extinguishment, net gain on lease modification and reorganization expenses, as applicable. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. Adjusted EBITDA and Adjusted EBITDA Margin includesinclude interest expense from corporate debt and warehouse credit facilities which is incurred in the course of earning corresponding interest income. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin.
Servicing fees are calculated as a percentage of outstanding principal and are charged monthly to lending partners and institutional investors, including securitization trusts and pass-through entities, that hold loans facilitated through our marketplace. These fees compensate us for servicing activities performed throughout the loan term, including collection, processing and reconciliations of payments received, institutional investor reporting and borrower customer support. Servicing fees are recorded net of any gains, losses or changes to fair value recognized in the underlying servicing rights and obligations, which are carried as assets and liabilities on our condensed consolidated balance sheets. Upstart currently acts as servicer for substantially all outstanding loans facilitated through our marketplace. Borrower payment collections for loans that are more than 30 days past due or charged off aremay generallybe outsourced to third-party collection agencies. Upstart charges lending partners and institutional investors for collection agency fees related to their outstanding loan portfolio. Upstart also receives certain ancillary fees on a per transaction basis inclusive of late payment fees and ACH fail fees.
Loan Sales Fees
We charge our third-party loan purchasers fees for facilitating certain forward-flow loan sales. These fees are recognized as part of the sales proceeds received and represent the difference between the net assets received and the par value of the loans sold.
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 on our condensed consolidated balance sheets as part of our ongoing operating activities, excluding loan servicing assets and liabilities. Interest income, interest expense, and fair value adjustments, net includes realized gain or loss on the sale of loans. For the three and six months ended MarchJune 31,30, 2026, interest income, interest expense, and fair value adjustments, net also includes coupon interest expense and amortization of debt issuance costs related to our convertible senior notes and dividend income earned on certain cash accounts, which were previously included in other income, net. Refer to “Note 1. Description of Business and Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. Interest income, interest expense, and fair value adjustments, net can fluctuate based on the fair value of financial instruments held on our condensed consolidated balance sheets. This amount has historically been a small percentage of our total revenue, and we do not manage our business with a focus on growing this component of revenue.
Other income, net primarily consists of dividend income earned on certain restricted cash balances. For the three and six months ended MarchJune 31,30, 2025, itother income, net included dividend income earned on all unrestricted cash and cash equivalents and restricted cash balances.balances, Beginningas inwell as expense on convertible notes, comprised of coupon interest expense and amortization of debt issuance costs related to our convertible senior notes. For the three and six months ended MarchJune 31,30, 2026, dividend income earned on certain cash accounts isand expense on convertible notes are presented within interest income, interest expense, and fair value adjustments, net. Refer to “Note 1. Description of Business and Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Expense on Convertible Notes
Expense on convertible notes for the three months ended March 31, 2025 comprised of coupon interest expense and amortization of debt issuance costs related to our convertible senior notes. Expense on convertible notes for the three months ended March 31, 2026 is presented within interest income, interest expense, and fair value adjustments, net.
________ (1)For the three and six months ended MarchJune 31,30, 2026, interest income and interest expense include dividend income earned on certain cash accounts and expense on convertible notes, respectively, which were previously included in other income, net. Refer to “Note 1. Description of Business and Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Revenue from fees, net increased $91.6$107.2 million, or 49%,45%, in the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, which included an increase of $73.6$81.2 million in revenue from platform and referral fees, net, and an increase of $17.9$16.9 million in servicing and other fees, net.net, and an increase of $9.1 million in loan sales fees. The increase of the platform and referral fees, net was primarily driven by a 61%50% increase in the Transaction Volume,Originations, Dollars from $2,134$2,820.4 million in the three months ended MarchJune 31,30, 2025 to $3,445$4,227.2 million in the same period in 2026, partially offset by lowerhigher feeloan rates,premium includingfees thoseand relatedloan totrailing prime borrowers.fees. The increase in servicing and other fees, net was primarily duedriven toby thean increase in the outstanding principal of serviced loans, borroweran fees,increase in net gain on servicing rights upon loan sales, as well as an increase in borrower fees. The increase in loan sales fees was driven by increased volumes of forward-flow sales subject to these fees, which are recognized inas connection with salepart of ourthe loans,sales includingproceeds securitizations.received during the three months ended June 30, 2026.
Revenue from fees, net increased $198.8 million, or 47%, in the six months ended June 30, 2026, compared to the same period in 2025, which included an increase of $154.9 million in revenue from platform and referral fees, net, an increase of $31.5 million in servicing and other fees, net, and an increase of $12.5 million in loan sales fees. The increase of the platform and referral fees, net was primarily driven by a 55% increase in the Originations, Dollars from $4,954.0 million in the six months ended June 30, 2025 to $7,672.3 million in the same period in 2026, partially offset by higher loan premium fees and loan trailing fees. The increase in servicing and other fees, net was primarily driven by an increase in outstanding principal of serviced loans, an increase in net gain on servicing rights upon loan sales, as well as an increase in borrower fees. The increase in loan sales fees was driven by increased volumes of forward-flow sales subject to these fees, which are recognized as part of the sales proceeds received during the six months ended June 30, 2026.
Interest income, interest expense, and fair value adjustments, net increased $3.3$0.2 million, or 12%1% in the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase was driven by a $15.5$11.4 million increase in interest income, partially offset by a $8.9$6.5 million increase in unfavorable fair value adjustments and a $3.4$4.8 million increase in interest expense. The increase in interest income was due to dividend income earned on certain cash accounts during the three months ended MarchJune 31,30, 2026, which was previously included in other income, net, as well as the increase in balances of loans and notes receivable and residual certificates held on the condensed consolidated balance sheets by operating entities, partially offset by a decrease in the balance of loans held in the consolidated securitization during the period. The increase in unfavorable fair value adjustments is attributable to a $7.5$7.7 million increase in realized loss on loan sales, and a $4.5$2.1 million decreaseincrease in fair value and realized gainslosses on beneficial interests during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, partially offset by a $3.1$3.3 million decrease in unrealized losses and loan charge-offs. The increase in interest expense was due to $5.1 million expense on convertible senior notes incurred during the three months ended MarchJune 31,30, 2026, which was previously included in other income, net, partiallya offset by $2.5$0.4 million decreasenet increase in interest expense on borrowing facilities and loans recognized by operating entitiesentities, and a $0.7 million decrease in interest expense recognized by consolidated securitization entities due to lower payable to securitization note holders during the period.
Interest income, interest expense, and fair value adjustments, net increased $3.4 million, or 8% in the six months ended June 30, 2026, compared to the same period in 2025. The increase was driven by a $26.9 million increase in interest income, partially offset by a $15.4 million increase in unfavorable fair value adjustments and a $8.1 million increase in interest expense. The increase in interest income was due to dividend income earned on certain cash accounts during the six months ended June 30, 2026, which was previously included in other income, net, as well as the increase in balances of loans and notes receivable and residual certificates held on the condensed consolidated balance sheets by operating entities, partially offset by a decrease in the balance of loans held in the consolidated securitization during the period. The increase in unfavorable fair value adjustments is attributable to a $15.2 million increase in realized loss on loan sales, and a $6.7 million decrease in fair value and realized gains on beneficial interests during the six months ended June 30, 2026 compared to the same period in 2025, partially offset by a $6.4 million decrease in unrealized losses and loan charge-offs. The increase in interest expense was due to $10.1 million expense on convertible senior notes incurred during the six months ended June 30, 2026, which was previously included in other income, net, a $0.6 million net decrease in interest expense on borrowing facilities and loans recognized by operating entities and a $1.4 million decrease in interest expense recognized by consolidated securitization entities due to lower payable to securitization note holders during the period.
Sales and marketing expenses increased by $45.5$41.4 million, or 77%,57%, in the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, which was driven primarily by a $43.7$41.3 million increase in advertising and borrower acquisition costs,costs and a $1.4$0.9 million increase in payroll and other personnel-related expenses, andpartially offset by a $0.4$0.8 million increasedecrease in marketing operation expense.expenses. As a percentage of total revenue, sales and marketing expenses increased from 28% to 34%.31%.
Sales and marketing expenses increased by $86.9 million, or 66%, in the six months ended June 30, 2026 compared to the same period in 2025, which was driven primarily by a $85.0 million increase in advertising and borrower acquisition costs and a $2.3 million increase in payroll and other personnel-related expenses, partially offset by a $0.5 million decrease in marketing operation expenses. As a percentage of total revenue, sales and marketing expenses increased from 28% to 33%.
Customer operations expenses increased by $14.6$15.1 million, or 36%,33%, in the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase was primarily due to a $8.4$8.7 million increase in information verification expenses and systems expenses, a $4.0$3.6 million increase in servicing expenses, and a $2.8 million increase in payroll and other personnel-related expenses, and a $2.1 million increase in servicing expenses. As a percentage of total revenue, customer operations expenses decreased from 19%18% to 18%.17%.
Customer operations expenses increased by $29.7 million, or 34%, in the six months ended June 30, 2026, compared to the same period in 2025. The increase was primarily due to a $17.1 million increase in information verification expenses and systems expenses, a $6.8 million increase in payroll and other personnel-related expenses, and a $5.7 million increase in servicing expenses. As a percentage of total revenue, customer operations expenses decreased from 18% to 17%.
Engineering and product development expenses increased by $22.3$25.0 million, or 39%,36%, for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase was primarily due to a $15.6 million increase in payroll and other personnel-related expenses and a $6.6$13.1 million increase in other engineering operating expenses driven by data and infrastructure costs.costs and a $11.9 million increase in payroll and other personnel-related expenses consistent with the increase in headcount. As a percentage of total revenue, engineering and product development expenses decreased from 27% to 26%.
Engineering and product development expenses increased by $47.3 million, or 37%, for the six months ended June 30, 2026, compared to the same period in 2025. The increase was primarily due to a $27.6 million increase in payroll and other personnel-related expenses consistent with the increase in headcount and a $19.7 million increase in other engineering operating expenses driven by data and infrastructure costs. As a percentage of total revenue, engineering and product development expenses decreased from 27% to 26%.
General, administrative, and other expenses increased by $15.5$15.8 million, or 26%,24%, in the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase was primarily due to a $13.2$12.3 million increase in payroll and other personnel-related expenses,expenses aconsistent $1.8with millionthe increase in office and administrative operating related expenses, andheadcount, a $1.1$2.9 million increase in professional fees, and a $1.3 million increase in amortization and depreciation expenses. The increase was partially offset by a $0.5$0.7 million decrease in amortizationlegal and depreciationcompliance expenses. As a percentage of total revenue, general, administrative, and other expenses decreased from 28%25% to 25%.22%.
General, administrative, and other expenses increased by $31.3 million, or 25%, in the six months ended June 30, 2026, compared to the same period in 2025. The increase was primarily due to a $25.5 million increase in payroll and other personnel-related expenses consistent with the increase in headcount, a $3.9 million increase in professional fees, a $2.0 million increase in office and administrative operating related expenses, and a $0.7 million increase in amortization and depreciation expenses. The increase was partially offset by a $0.7 million decrease in legal and compliance expenses. As a percentage of total revenue, general, administrative, and other expenses decreased from 27% to 23%.
In the three months ended MarchJune 31,30, 2026, other income, net decreasedincreased by $1.1$1.4 million, or 54%,126%, compared to the same period in 2025. The decreaseincrease was primarily driven by dividend income earned on certain cash accounts and expense on convertible notesnotes, which were included within other income, net, for the three months ended MarchJune 31,30, 2026,2025 whichcompared were included withinto interest income and interest expense, respectively, compared to other income, net for the three months ended MarchJune 31,30, 2025.2026. Excluding the impact of this change, other income, net remained consistent for the periods presented.
In the six months ended June 30, 2026, other income, net increased by $0.3 million, or 9%, compared to the same period in 2025. The increase was primarily driven by dividend income earned on certain cash accounts and expense on convertible notes, which were included within other income, net, for the six months ended June 30, 2025 compared to interest income and interest expense, for the six months ended June 30, 2026. Excluding the impact of this change, other income, net remained consistent for the periods presented.
The following table presents a reconciliation of lossincome from operations to Contribution Profit and Contribution Margin. We define Operating Margin as our lossnet income from operations divided by revenue from fees, net.
(1)Borrower acquisition costs were $48.6$60.9 million, and $92.3$102.3 million for the three months ended MarchJune 31,30, 2025 and 2026, respectively, and were $109.5 million and $194.5 million for the six months ended June 30, 2025 and 2026, respectively. Borrower acquisition costs consist of our sales and marketing expenses adjusted to exclude costs not directly attributable to attracting a new borrower, such as payroll-related expenses for our business development and marketing teams, as well as other operational, brand awareness and marketing activities. These costs do not include reorganization expenses.
(2)Borrower verification and servicing costs were $34.5$39.3 million, and $47.5$52.6 million for the three months ended MarchJune 31,30, 2025 and 2026, respectively, and were $73.8 million and $100.1 million for the six months ended June 30, 2025 and 2026, respectively. Borrower verification and servicing costs consist of payroll and other personnel-related expenses for personnel engaged in loan onboarding, verification and servicing, as well as servicing system costs. It excludes payroll and personnel-related expenses and stock-based compensation for certain members of our customer operations team whose work is not directly attributable to onboarding and servicing loans. These costs do not include reorganization expenses.
The following table provides a reconciliation of net lossincome and Net LossIncome Margin to Adjusted EBITDA and Adjusted EBITDA Margin. We define Net LossIncome Margin as net lossincome divided by total revenue.
As of MarchJune 31,30, 2026, our primary source of liquidity was cash and cash equivalents of $472.9$456.0 million. Changes in the balance of cash and cash equivalents are generally a result of working capital fluctuations and the timing of purchases and sales of loans facilitated through our marketplace. To finance purchases of certain loans facilitated through our lending marketplace, we rely on our warehouse credit facilities through special-purpose trusts and corporate cash. We also rely on our risk retention credit facility to finance certain notes receivable retained in our capacity as the risk retention sponsor.
During the threesix months ended MarchJune 31,30, 2026, we repurchased 3.2 million shares of common stock for $100.1 million. As of MarchJune 31,30, 2026, $122.1 million remains available for future purchases of our common stock under our share repurchase program. Refer to “Note 9. Stockholders’ Equity” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our share repurchase program.
We entered into an “at the market” offering program pursuant to which we may offer and sell, from time to time, shares of our common stock with an aggregate offering price of up to $500.0 million, as described in the prospectus supplement dated February 14, 2025 filed with the U.S. Securities and Exchange Commission.SEC. As of MarchJune 31,30, 2026, no shares were issued under the program.
Our warehouse credit facilities, which mature between August 2027 and June 2028,2029, allow us to borrow up to an aggregate of $575.0$650.0 million to purchase loans.million. Our risk retention financing facility, which allows us to borrow up to $100.0$200.0 million, has a maturity which aligns with the stated maturities of the underlying securitization notes receivable pledged as collateral, which range from 20262033 to 2036. As of MarchJune 31,30, 2026, we have drawn an aggregate of $183.3$251.8 million on our warehouse credit facilities and $80.7$92.0 million on our risk retention financing facility. Refer to “Note 8. Borrowings” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our borrowings.
Our cash requirements related to operating lease agreements is $19.6$26.3 million, of which $8.2$6.9 million is expected to be paid within the next 12 months. Our cash requirements related to leases entered into that have not yet commenced is $66.2$56.0 million, anwith immaterialno amount of which isamounts expected to be paid within the next 12 months. Refer to “Note 10. Leases” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our operating lease obligations.
We have committed to purchase loans from certain lending partners at the conclusion of the required holding period, which is generally equal to three business days. As of MarchJune 31,30, 2026, the total loan purchase commitment was $120.7$148.8 million. The Company also has commitments to fund future advances on HELOCs. As of MarchJune 31,30, 2026, these commitments were $21.6$27.8 million,million; howeverhowever, since we can limit these commitments under certain conditions or these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. See “Note 11. Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our commitments.
In connection with our committed capital and other co-investment arrangements, we are obligated to put a certain amount of our assets at risk in relation to the credit performance of the underlying loans. The risk in these arrangements is subject to a dollar cap, which represents our maximum exposure to losses under severe, hypothetical circumstances, for which we believe the possibility is remote. As of MarchJune 31,30, 2026, our aggregate maximum exposure to losses was $1,078.3$1,294.4 million. Refer to “Note 4. Beneficial Interests” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. Our cash requirements for the next 12 months related to investments in these existing arrangements is estimated to be up to $87.3$312.9 million from cash and cash equivalents and up to $23.0$26.0 million from restricted cash.
Net cash used in operating activities was $133.3$269.9 million for the threesix months ended MarchJune 31,30, 2026, which consisted of $80.6$415.5 million net changes in operating assets and liabilities, adjustments for non-cash items of $46.1$135.6 million, and net lossincome of $6.6$9.9 million. The decreaseincrease in non-cash adjustments was primarily related to $62.2$79.3 million of stock-based compensation expense and $74.1 million of changes in fair value of loans, $12.0partially offset by $20.8 million loan premium amortization from the Company’s small dollar loan portfolio, and $7.5 million ofnet gain on loan servicing rights, net,rights from loan sales, partially offset by $34.8 million of stock-based compensation expense.sales. The decrease in net changes in operating assets and liabilities was primarily related to $88.1$517.7 million net payments from purchasepurchases and saleoriginations of loans held-for-sale, partially offset by $8.0$110.8 million in principal payments received for loans held-for-sale and loans held in consolidated securitization.
UPST insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 3 Form 4 filings (2 insiders, 3 trade dates, 270,240 shares, about $7.7M) and open-market sales in 16 filings (4 insiders, 9 trade dates, 197,869 shares, about $5.6M; 3 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: 72,371 (purchases minus sales); net value about $2.1M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-10 | Gu Paul |
Open-market purchase | 50,000 | $25.55 | $1.3M |
| 2026-09-08 | Datta Sanjay |
Open-market sale | 116,000 | $27.29 | $3.2M |
| 2026-09-08 | Datta Sanjay |
Option exercise | 300,000 | $1.35 | $405.0K |
| 2026-08-25 | Mirgorodskaya Natalia |
Open-market sale |
913 | $30.03 | $27.4K |
| 2026-08-20 | Datta Sanjay |
Open-market sale | 8,945 | $28.09 | $251.3K |
| 2026-08-20 | Darling Scott |
Open-market sale | 7,696 | $28.09 | $216.2K |
| 2026-08-20 | Mirgorodskaya Natalia |
Open-market sale | 586 | $28.09 | $16.5K |
| 2026-08-19 | Datta Sanjay |
Open-market sale | 10,000 | $31.46 | $314.6K |
| 2026-08-19 | Blankmeyer Andrea |
Open-market sale |
3,000 | $29.33 | $88.0K |
| 2026-08-17 | Datta Sanjay |
Open-market sale | 2,033 | $29.36 | $59.7K |
| 2026-08-17 | Darling Scott |
Open-market sale | 814 | $29.36 | $23.9K |
| 2026-08-17 | Blankmeyer Andrea |
Open-market sale |
7,175 | $29.36 | $210.7K |
| 2026-06-09 | Datta Sanjay |
Open-market sale | 15,000 | $30.41 | $456.1K |
| 2026-05-29 | Wennes Timothy H |
Grant/award | 6,476 | — | — |
| 2026-05-29 | Terry Hilliard C. Iii |
Grant/award | 6,476 | — | — |
| 2026-05-29 | Hentges Mary |
Grant/award | 6,476 | — | — |
| 2026-05-29 | Bernard Peter J |
Grant/award | 6,476 | — | — |
| 2026-05-29 | Cooper Kerry Whorton |
Grant/award | 6,476 | — | — |
| 2026-05-29 | O'kelly Ciaran |
Grant/award | 6,476 | — | — |
| 2026-05-26 | Mirgorodskaya Natalia |
Open-market sale |
974 | $28.99 | $28.2K |
| 2026-05-20 | Darling Scott |
Open-market sale | 6,634 | $28.78 | $190.9K |
| 2026-05-20 | Datta Sanjay |
Open-market sale | 7,985 | $28.77 | $229.7K |
| 2026-05-20 | Mirgorodskaya Natalia |
Open-market sale | 526 | $28.77 | $15.1K |
| 2026-05-15 | Mirgorodskaya Natalia |
Option exercise | 4,600 | $1.35 | $6.2K |
| 2026-05-15 | Blankmeyer Andrea |
Open-market sale | 4,184 | $30.05 | $125.7K |
| 2026-05-15 | Blankmeyer Andrea |
Open-market sale | 2,759 | $28.96 | $79.9K |
| 2026-05-15 | Blankmeyer Andrea |
Open-market sale | 101 | $30.54 | $3.1K |
| 2026-05-15 | Darling Scott |
Open-market sale | 286 | $28.84 | $8.2K |
| 2026-05-15 | Darling Scott |
Open-market sale | 441 | $29.99 | $13.2K |
| 2026-05-15 | Datta Sanjay |
Open-market sale | 806 | $28.96 | $23.3K |
| 2026-05-15 | Datta Sanjay |
Open-market sale | 1,011 | $30.03 | $30.4K |
| 2026-05-13 | Gu Paul |
Open-market purchase | 50,000 | $27.50 | $1.4M |
| 2026-05-07 | Girouard Dave |
Option exercise | 835,075 | $0.83 | $693.1K |
| 2026-05-07 | Girouard Dave |
Open-market purchase | 300 | $29.76 | $8.9K |
| 2026-05-07 | Girouard Dave |
Open-market purchase | 169,940 | $29.37 | $5.0M |
Well-known investors holding UPST (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| D. E. Shaw & Co. | 2026-06-30 | 0 | $57.2M | 0.04% | No change |
| Baillie Gifford | 2026-06-30 | 1,083,157 | $38.4M | 0.03% | Reduced 2% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 955,585 | $33.9M | 0.02% | Added 51% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 885,159 | $31.4M | 0.05% | Added 17% |
| Coatue Management (Philippe Laffont) | 2026-06-30 | 870,947 | $30.9M | 0.06% | No change |
| D. E. Shaw & Co. | 2026-06-30 | 0 | $28.2M | 0.02% | No change |
| Millennium Management (Israel Englander) | 2026-06-30 | 764,847 | $27.1M | 0.02% | Added 14% |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $16.0M | 0.01% | No change |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 0 | $13.7M | — | Sold out |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $8.9M | 0.01% | No change |
| Oaktree Capital Management (Howard Marks) | 2026-06-30 | 0 | $8.3M | 0.16% | No change |
| D. E. Shaw & Co. | 2026-06-30 | 267,076 | $6.9M | — | Sold out |
| Two Sigma Investments | 2026-06-30 | 0 | $6.3M | 0.0% | No change |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 110,446 | $3.9M | 0.0% | Added 27% |
| Two Sigma Investments | 2026-06-30 | 12,500 | $442.9K | 0.0% | Reduced 65% |