Upstart(UPST) - 2025 Q1 - Quarterly Report

Special Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to substantial risks and uncertainties, cautioning against undue reliance - Forward-looking statements relate to future financial performance, AI model improvements, loan volume, funding strategy, capital allocation, competitive interest rates, brand building, marketing, macroeconomic events, credit performance, banking industry impact, growth management, regulatory compliance, strategic investments, new markets, third-party relationships, fraud protection, loan servicing, competition, intellectual property, corporate funding, employee retention, internal controls, and litigation[10][14] - Readers are cautioned that actual results may differ materially from forward-looking statements due to risks, including those detailed in the "Risk Factors" section[12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and related notes Condensed Consolidated Balance Sheets The balance sheets show a decrease in total assets and liabilities, resulting in an increase in total stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2024 (in thousands) | Mar 31, 2025 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $788,422 | $599,778 | $(188,644) | | Restricted cash | $187,841 | $239,750 | $51,909 | | Loans (at fair value) | $806,304 | $814,677 | $8,373 | | Total assets | $2,366,958 | $2,296,277 | $(70,681) | | Borrowings | $1,402,168 | $1,334,863 | $(67,305) | | Total liabilities | $1,733,740 | $1,619,635 | $(114,105) | | Total stockholders' equity | $633,218 | $676,642 | $43,424 | - Loans at fair value contributed as collateral for consolidated securitization decreased from $102.9 million to $88.9 million[23] Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a significant increase in total revenue and a substantial reduction in net loss for Q1 2025 year-over-year Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2025 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue from fees, net | $138,068 | $185,475 | $47,407 | 34% | | Total interest income, interest expense, and fair value adjustments, net | $(10,274) | $27,896 | $38,170 | 372% | | Total revenue | $127,794 | $213,371 | $85,577 | 67% | | Total operating expenses | $195,262 | $217,867 | $22,605 | 12% | | Loss from operations | $(67,468) | $(4,496) | $62,972 | -93% | | Net loss | $(64,598) | $(2,447) | $62,151 | -96% | | Net loss per share, basic | $(0.74) | $(0.03) | $0.71 | -96% | - Fair value and other adjustments, net, improved significantly from a loss of $(50,731) thousand in Q1 2024 to a loss of $(5,652) thousand in Q1 2025[30] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased due to higher additional paid-in capital and a significantly reduced net loss Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Dec 31, 2024 (in thousands) | Mar 31, 2025 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Common Stock (Amount) | $9 | $10 | $1 | | Additional Paid-in Capital | $1,044,366 | $1,090,236 | $45,870 | | Accumulated Deficit | $(411,157) | $(413,604) | $(2,447) | | Total Stockholders' Equity | $633,218 | $676,642 | $43,424 | - Issuance of common stock upon exercise of stock options contributed $8.2 million to additional paid-in capital in Q1 2025, up from $1.2 million in Q1 2024[33] - Stock-based compensation expense was $32.9 million in Q1 2025, a decrease from $36.3 million in Q1 2024[33] Condensed Consolidated Statements of Cash Flows The company shifted from net cash provided by operations to net cash used, resulting in a significant decrease in total cash Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2025 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $44,337 | $(13,486) | $(57,823) | | Net cash used in investing activities | $(37,547) | $(78,569) | $(41,022) | | Net cash used in financing activities | $(35,426) | $(44,680) | $(9,254) | | Change in cash, cash equivalents and restricted cash | $(28,636) | $(136,735) | $(108,099) | | Cash, cash equivalents and restricted cash at end of period | $439,151 | $839,528 | $400,377 | - Purchases and originations of loans held-for-investment increased significantly from $46.1 million in Q1 2024 to $149.9 million in Q1 2025[35] - Proceeds from warehouse borrowings decreased from $74.3 million in Q1 2024 to $53.7 million in Q1 2025, while repayments increased from $110.2 million to $122.3 million[37] Notes to the Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the figures presented in the financial statements 1. Description of Business and Significant Accounting Policies Upstart applies AI models to consumer credit underwriting via a cloud-based lending marketplace in the U.S - Upstart uses AI models and cloud applications for consumer credit underwriting, connecting consumers with lending partners through its proprietary marketplace[39] - The company reclassified a portion of "payable to investors" from operating to financing activities in the condensed consolidated statement of cash flows, related to fiduciary cash held for institutional investors[42][44] - The company adopted ASU 2023-08 on crypto assets, which had no impact, and is evaluating ASU 2023-09 (income tax disclosures), ASU 2024-03/2025-01 (expense disaggregation), and ASU 2024-04 (convertible debt) for future impact[48][49][51][52][53] 2. Revenue Total revenue from fees increased by 34% year-over-year, driven by higher transaction volume Revenue from Fees, Net (in thousands) | Revenue Component | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2025 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Platform and referral fees, net | $103,859 | $150,975 | $47,116 | 45% | | Servicing and other fees, net | $34,209 | $34,500 | $291 | 1% | | Total revenue from fees, net | $138,068 | $185,475 | $47,407 | 34% | Interest Income, Interest Expense, and Fair Value Adjustments, Net (in thousands) | Interest & Fair Value Component | Three Months Ended Mar 31, 2024 (in thousands) | Three Months Ended Mar 31, 2025 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest income | $51,171 | $40,568 | $(10,603) | -21% | | Interest expense | $(10,714) | $(7,020) | $3,694 | 34% | | Fair value and other adjustments, net | $(50,731) | $(5,652) | $45,079 | 89% | | Total interest income, interest expense, and fair value adjustments, net | $(10,274) | $27,896 | $38,170 | 372% | - The decrease in unfavorable fair value adjustments was primarily due to a $31.7 million decrease in fair value loss on beneficial interests, an $8.3 million decrease in unrealized loss and loan charge-offs, and a $5.1 million decrease in realized loss on loan sales[333] 3. Variable Interest Entities The company consolidates VIEs where it is the primary beneficiary, with total consolidated VIE assets decreasing Consolidated VIEs Financial Summary (in thousands) | Consolidated VIEs (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Total assets | $812,109 | $789,988 | | Total liabilities | $287,574 | $205,496 | | Total net assets | $524,535 | $584,492 | - The company completed a private securitization securities offering (UPST 2023-2) on July 6, 2023, retaining eligible vertical interests and consolidating associated entities as the primary beneficiary[82][85] - Unconsolidated VIEs associated with securitizations had total assets of $449.8 million and maximum exposure to losses of $23.2 million as of March 31, 2025[93][98] 4. Beneficial Interests Beneficial interest assets increased in fair value, while liabilities decreased, and maximum exposure to losses grew Beneficial Interests Fair Value (in thousands) | Beneficial Interest (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Total beneficial interest assets | $176,848 | $216,578 | | Beneficial interest liabilities | $10,089 | $4,032 | - Fair value adjustments and realized gains (losses) on beneficial interests, net, shifted from a loss of $(14,034) thousand in Q1 2024 to a gain of $17,665 thousand in Q1 2025[102] Maximum Exposure to Losses from Beneficial Interests (in thousands) | Maximum Exposure to Losses (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Cash and cash equivalents | $85,105 | $90,726 | | Restricted cash | $84,065 | $111,458 | | Beneficial interests | $204,814 | $228,291 | | Other assets - Line of credit receivable | $54,780 | $79,636 | | Loans | $30,579 | $43,455 | | Total | $459,343 | $553,566 | 5. Fair Value Measurement The company measures various assets and liabilities at fair value, primarily classified as Level 3 Fair Value Measured Items Assets and Liabilities Measured at Fair Value (in thousands) | Fair Value Measured Items (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Assets: | | | | Loans | $806,304 | $814,677 | | Beneficial interest assets | $176,848 | $216,578 | | Line of credit receivable | $56,269 | $81,780 | | Loan servicing assets | $27,439 | $28,886 | | Notes receivable and residual certificates | $22,055 | $19,471 | | Total assets | $1,090,779 | $1,162,521 | | Liabilities: | | | | Payable to securitization note holders | $87,321 | $75,904 | | Trailing fee liabilities | $4,614 | $4,574 | | Beneficial interest liabilities | $10,089 | $4,032 | | Loan servicing liabilities | $1,180 | $1,487 | | Total liabilities | $103,204 | $85,997 | - All listed financial instruments measured at fair value are classified as Level 3, indicating significant unobservable inputs[106][107] Loans The fair value of total loans increased slightly, with a notable shift from held-for-sale to held-for-investment loans Fair Value of Loans by Classification (in thousands) | Loan Type (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Loans held-for-sale | $405,812 | $347,749 | | Loans held-for-investment | $297,543 | $378,012 | | Loans held in consolidated securitization | $102,949 | $88,916 | | Total | $806,304 | $814,677 | - Loans held-for-sale decreased by $58.1 million, while loans held-for-investment increased by $80.5 million[110] - The fair value of loans is sensitive to changes in discount and credit loss rates, with a 10% adverse change in credit loss rates leading to a $7.8 million decrease in fair value as of March 31, 2025[121] Line of Credit Receivable The fair value of the line of credit receivable increased primarily due to new issuances Line of Credit Receivable Fair Value (in thousands) | Line of Credit Receivable (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Fair value | $56,269 | $81,780 | - Issuances of $24.9 million contributed to the increase in fair value during Q1 2025[135] Assets and Liabilities related to Securitization Transactions Notes receivable and payables to securitization note holders both decreased in fair value, reflecting repayments Securitization Assets and Liabilities Fair Value (in thousands) | Securitization Items (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Notes receivable and residual certificates | $22,055 | $19,471 | | Payable to securitization note holders | $87,321 | $75,904 | - Repayments and settlements for notes receivable and residual certificates were $2.7 million in Q1 2025[143] - Repayments and settlements for payable to securitization note holders were $11.4 million in Q1 2025[143] Loan Servicing Assets and Liabilities Loan servicing assets and liabilities both increased and are sensitive to market-servicing rates Loan Servicing Assets and Liabilities Fair Value (in thousands) | Loan Servicing (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Assets | $27,439 | $28,886 | | Liabilities | $1,180 | $1,487 | - A 10% increase in market-servicing rates would decrease the fair value of loan servicing assets by $7.1 million as of March 31, 2025[155] Beneficial Interests Beneficial interest assets increased while liabilities decreased, with high sensitivity to credit risk rate spreads Beneficial Interests Fair Value (in thousands) | Beneficial Interests (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Assets | $176,848 | $216,578 | | Liabilities | $10,089 | $4,032 | - A 10% adverse change in expected credit risk rate spreads would decrease beneficial interest assets by $53.9 million and increase liabilities by $11.4 million as of March 31, 2025[167] Trailing Fee Liabilities Trailing fee liabilities remained stable with immaterial sensitivity to changes in key assumptions Trailing Fee Liabilities Fair Value (in thousands) | Trailing Fee Liabilities (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Fair value | $4,614 | $4,574 | - The fair value sensitivity of trailing fee liabilities to adverse changes in key assumptions does not result in a material impact[173] 6. Goodwill and Intangible Assets Goodwill remained unchanged, while net intangible assets decreased slightly due to amortization Intangible Assets, Net (in thousands) | Intangible Assets (in thousands) | Dec 31, 2024 (Net Carrying Value) | Mar 31, 2025 (Net Carrying Value) | | :--- | :--- | :--- | | Developed technology | $0 | $0 | | Customer relationships | $9,419 | $9,133 | | Total intangible assets | $9,419 | $9,133 | - Goodwill remained constant at $67.1 million for both periods[178] - Amortization expense for intangible assets was immaterial for both periods[179] 7. Balance Sheet Components This section details changes in other assets, property, and accrued expenses and other liabilities Other Assets (in thousands) | Other Assets (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Line of credit receivable (at fair value) | $56,269 | $81,780 | | Receivables | $48,233 | $43,008 | | Loan servicing assets (at fair value) | $27,439 | $28,886 | | Prepaid expenses | $28,830 | $28,129 | | Notes receivable and residual certificates (at fair value) | $22,055 | $19,471 | | Other assets | $17,457 | $17,083 | | Intangible assets, net | $9,431 | $9,145 | | Deposits | $5,185 | $5,587 | | Interest rate caps (at fair value) | $1,864 | $1,129 | | Total other assets | $216,763 | $234,218 | Property, Equipment, and Software, Net (in thousands) | Property, Equipment, and Software, Net (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Internally developed software | $68,481 | $77,784 | | Total property, equipment, and software, net | $39,013 | $42,407 | Accrued Expenses and Other Liabilities (in thousands) | Accrued Expenses and Other Liabilities (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Accrued expenses | $37,781 | $38,321 | | Accounts payable | $12,381 | $13,344 | | Accrued payroll | $64,514 | $12,846 | | Trailing fee liability (at fair value) | $4,614 | $4,574 | | Other liabilities | $3,241 | $4,076 | | Beneficial interest liabilities (at fair value) | $10,089 | $4,032 | | Loan servicing liabilities (at fair value) | $1,180 | $1,487 | | Total accrued expenses and other liabilities | $133,800 | $78,680 | 8. Borrowings Total borrowings decreased due to repayments of warehouse credit facilities Total Borrowings (in thousands) | Borrowings (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Warehouse credit facilities | $195,605 | $126,975 | | Convertible senior notes | $1,230,379 | $1,230,379 | | Total borrowings | $1,402,168 | $1,334,863 | - Warehouse credit facilities decreased by $68.6 million, while convertible senior notes remained constant[187] - The company was in compliance with all applicable covenants for its warehouse credit facilities as of March 31, 2025[195] - The company issued $431.3 million in 2.00% convertible senior notes due 2029 and $500.0 million in 1.00% convertible senior notes due 2030, and repurchased $334.2 million of 2026 Notes[196] 9. Stockholders' Equity Common stock reserved for future issuance increased, while no stock was repurchased in Q1 2025 Common Stock Reserved for Future Issuance | Common Stock Reserved for Future Issuance | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Options issued and outstanding | 10,709,898 | 10,122,309 | | Restricted stock units outstanding | 3,703,631 | 3,826,545 | | Shares available for future issuance under 2020 plan | 7,669,374 | 11,353,410 | | Shares available for issuance under employee stock purchase plan | 3,425,952 | 4,209,172 | | Total | 25,508,855 | 29,511,436 | - No common stock repurchases were made in Q1 2025, with $222.1 million remaining available under the share repurchase program[210] - An "at the market" offering program for up to $500 million of common stock was initiated on February 14, 2025, with no shares issued as of March 31, 2025[211][212] - Total unrecognized stock-based compensation expense related to unvested stock options was $50.8 million, expected over 2.5 years, and for RSUs was $143.7 million, expected over 1.4 years[215][216] 10. Leases Operating lease liabilities totaled $47.1 million with a weighted-average remaining lease term of 3.36 years Operating Lease Liabilities (in thousands) | Lease Liabilities (in thousands) | Mar 31, 2025 | | :--- | :--- | | Total undiscounted lease payments | $52,012 | | Operating lease liabilities | $47,074 | Operating Lease Expense (in thousands) | Lease Expense (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2025 | | :--- | :--- | :--- | | Rent expense | $3,542 | $3,571 | | Variable lease payments | $917 | $960 | - The weighted-average remaining lease term was 3.36 years, and the weighted-average discount rate was 5.25% as of March 31, 2025[229] 11. Commitments and Contingencies The company has various funding commitments and is involved in several ongoing legal proceedings Commitments (in thousands) | Commitments (in thousands) | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Total loan purchase commitment | $72,800 | $89,300 | | Unfunded line of credit commitments | $7,600 | $7,800 | | Commitments to fund future HELOC advances | $7,600 | $11,200 | - Maximum potential amount of future payments for loan repurchase and indemnification obligations was $11.5 billion as of March 31, 2025[239] - The SEC closed its investigation into the company's disclosures, including the use of AI models and loans, on March 10, 2025, and will not pursue enforcement action[253] - The company is a defendant in multiple securities class action and derivative lawsuits, with the class action certified on March 27, 2025[241][242][243][244][245][246][247][248][249][250][251][252] 12. Income Taxes The company's effective tax rate was (1.20)% for Q1 2025 due to state tax liabilities and a full valuation allowance Income Tax Metrics | Income Tax Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2025 | | :--- | :--- | :--- | | Provision for income taxes | $14 | $29 | | Effective tax rate | (0.02)% | (1.20)% | - The effective tax rate differs from the U.S. statutory tax rate primarily due to a full valuation allowance on deferred tax assets[256] 13. Net Loss Per Share Net loss per share improved significantly to $(0.03) in Q1 2025 from $(0.74) in Q1 2024 Net Loss Per Share Data | Net Loss Per Share Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2025 | | :--- | :--- | :--- | | Net loss | $(64,598) | $(2,447) | | Weighted-average common shares outstanding, basic | 87,030,695 | 94,274,538 | | Net loss per share, basic | $(0.74) | $(0.03) | | Net loss per share, diluted | $(0.74) | $(0.03) | - Potentially dilutive securities, including stock options, RSUs, ESPP purchase rights, and convertible debt, were excluded from diluted EPS calculation due to the net loss[260] 14. Segment Information The company operates in three segments, with Personal Lending being the only reportable segment - The company has three operating segments: Personal Lending (unsecured personal loans and small dollar loans), Auto Lending (auto refinance and auto retail loans), and Other (HELOCs and other)[261] - Only Personal Lending meets the definition of a reportable segment[261] Personal Lending Segment Performance (in thousands) | Personal Lending Metrics (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2025 | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue from fees, net | $135,414 | $182,580 | $47,166 | 34.8% | | Borrower acquisition costs | $(23,194) | $(45,141) | $(21,947) | 94.6% | | Borrower verification and servicing costs | $(26,950) | $(29,474) | $(2,524) | 9.4% | | Contribution Profit | $85,270 | $107,965 | $22,695 | 26.6% | 15. Subsequent Events No subsequent events requiring recognition or disclosure were identified after the reporting period - No material subsequent events were identified that required additional recognition or disclosure[271] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting AI's role, funding strategy, and improved operating metrics - Upstart uses AI models and cloud applications to underwrite consumer credit, connecting consumers with lending partners through its marketplace[276] - In Q1 2025, 60% of loan principal was purchased by institutional investors, 29% retained by lending partners, and 11% held on Upstart's balance sheet[279] - Core personal loans originated in Q2 2024 or later are forecasted to deliver returns in line with target yields, a reversion from underperformance in earlier vintages[287] - The Upstart Macro Index (UMI) was approximately 1.49 as of March 31, 2025, indicating an incremental risk of approximately 49% to repayment performance compared to baseline[293] Key Operating & Non-GAAP Financial Metrics | Key Operating & Non-GAAP Financial Metrics | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2025 | Change (%) | | :--- | :--- | :--- | :--- | | Transaction Volume, Dollars (in thousands) | $1,130,799 | $2,133,608 | 89% | | Transaction Volume, Number of Loans | 119,380 | 240,706 | 102% | | Conversion Rate | 14.0% | 19.1% | 5.1 pp | | Percentage of Loans Fully Automated | 90% | 92% | 2 pp | | Contribution Profit (in thousands) | $81,142 | $102,372 | 26% | | Contribution Margin | 59% | 55% | -4 pp | | Adjusted EBITDA (in thousands) | $(20,339) | $42,577 | N/A | | Adjusted EBITDA Margin | (16)% | 20% | 36 pp | | Adjusted Net Income (Loss) (in thousands) | $(27,165) | $31,189 | N/A | | Adjusted Net Income (Loss) Per Share, Basic | $(0.31) | $0.33 | N/A | | Adjusted Net Income (Loss) Per Share, Diluted | $(0.31) | $0.30 | N/A | - Transaction Volume, Dollars increased 89% and Number of Loans increased 102% YoY, driven by model improvements and product initiatives[299] - Conversion Rate increased to 19.1% from 14.0% YoY, primarily due to underwriting model improvements and optimization in acquisition channels[300] - Percentage of Loans Fully Automated increased to 92% from 90% YoY[301] - Total revenue increased by 67% to $213.4 million, and net loss decreased by 96% to $(2.4) million in Q1 2025 compared to Q1 2024[329] - Sales and marketing expenses increased by 68% to $59.0 million, primarily due to a $23.7 million increase in advertising and borrower acquisition costs[336] - Engineering and product development expenses decreased by 8% to $57.8 million, mainly due to an $8.0 million decrease in payroll and personnel-related expenses from capitalized software development costs[338] - Net cash used in operating activities was $13.5 million in Q1 2025, a decrease from $44.3 million provided in Q1 2024[370] - Net cash used in investing activities increased to $78.6 million, primarily due to $149.9 million in purchases and originations of loans held-for-investment[373] - As of March 31, 2025, the company held $814.7 million in loans on its balance sheet, with $538.2 million for R&D purposes and $187.6 million in core personal loans[375] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including discount rate, credit, counterparty, and interest rate risk - The company is exposed to market discount rate risk on $725.8 million of loans as of March 31, 2025; a 100 basis point increase in discount rate would decrease fair value by $8.8 million[384] - Loans held in consolidated securitization ($88.9 million as of March 31, 2025) are not materially sensitive to discount rate changes[385] - Beneficial interest assets ($216.6 million as of March 31, 2025) are sensitive to discount rate changes; a 100 basis point increase would decrease fair value by $3.7 million[387] - The company is exposed to credit risk on $725.8 million of loans as of March 31, 2025; a 10% increase in credit risk would decrease fair value by $7.8 million[390] - Beneficial interest assets and liabilities are highly sensitive to credit risk rate spreads; a 10% adverse change would decrease assets by $53.9 million and increase liabilities by $11.4 million as of March 31, 2025[392] - The company held $839.5 million in cash, cash equivalents, and restricted cash as of March 31, 2025, with $162.3 million held by an institutional investor, mitigated by corporate guarantees[394][395] - The company is exposed to interest rate risk on $127.0 million under warehouse credit facilities, which bear floating interest rates[397] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025[400] - No material changes in internal control over financial reporting occurred during Q1 2025[401] - Management acknowledges inherent limitations in control systems, which can only provide reasonable assurance against errors and fraud[402] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 11 for a description of material pending legal proceedings - Material pending legal proceedings are detailed in "Note 11. Commitments and Contingencies" and "Risk Factors"[403] Item 1A. Risk Factors Investing in the company's common stock involves a high degree of risk related to economic conditions, funding, and regulations - Business is adversely affected by uncontrollable economic conditions (interest rates, inflation, recession, banking disruptions)[410] - Inability to maintain diverse and resilient loan funding from institutional investors or manage committed capital risks could harm growth[414][415] - AI models' ineffectiveness or errors, especially in predicting economic impacts, could lead to higher losses and reduced demand[418][420] - Reliance on a few top lending partners (83% of Q1 2025 transaction volume from top three) poses concentration risk[453] - Reputation and brand are critical; negative publicity, regulatory scrutiny (e.g., AI bias, "true lender" challenges), or misconduct could adversely affect the business[454][455][461][462][463] - The business is subject to a wide range of evolving federal, state, and local laws and regulations, with non-compliance potentially leading to fines, penalties, and operational restrictions[466][467][468][469][471][472] - Substantially all revenue is from unsecured personal loans, making the company susceptible to fluctuations in that market[480] - Security breaches, improper data access, or other security incidents could harm reputation, operations, and expose the company to liability[505][506][507][509][510] - The company relies on third-party vendors and loan aggregators; their inadequate performance or termination of relationships could increase costs and adversely affect the business[568][570] - The company's convertible senior notes and warehouse credit facilities expose it to indebtedness risks, including repayment obligations and covenant compliance[649][650][652][659][660] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or repurchases of common stock occurred during Q1 2025 - No repurchases of common stock were made during Q1 2025[694] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[695] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[696] Item 5. Other Information The Chief Technology Officer adopted a Rule 10b5-1 trading arrangement during the quarter - Paul Gu, CTO, adopted a Rule 10b5-1 trading arrangement on February 26, 2025, to sell up to 656,500 shares by May 31, 2026[698] - No other officers or directors modified or terminated trading arrangements during Q1 2025[699] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q - The Sales Agreement dated February 14, 2025, between the company and BTIG, LLC is listed as Exhibit 10.1[702] - Certifications of the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) and Inline XBRL documents are filed[702] - Exhibit 32.1 certifications are not deemed filed with the SEC and are not incorporated by reference into other filings[703] Signatures The report is signed by the Chief Executive Officer and Chief Financial Officer on May 6, 2025 - The report was signed by Dave Girouard (CEO) and Sanjay Datta (CFO) on May 6, 2025[707]