Upstart(UPST) - 2025 Q4 - Annual Report

Lending Partnerships and Revenue - In the year ended December 31, 2025, the top three lending partners originated 83% of the loans facilitated through the marketplace, contributing to 61% of total revenue[34] - Upstart has more than 100 lending partners as of December 31, 2025, allowing for a diverse capital supply and risk-sharing arrangements[48] AI and Technology - As of December 31, 2025, the AI personal loan underwriting model expanded from 23 variables in 2014 to over 2,500 variables, trained on nearly 104 million repayment events[37] - In 2025, 91% of Upstart-powered loans were fully automated, an increase from approximately 70% at the time of the initial public offering in December 2020[52] - An internal study in 2025 showed that Upstart's AI model approves 43% more borrowers and yields 33% lower average APR for approved loans compared to traditional models[52] - Upstart's technology platform is built on Amazon Web Services, designed for high availability and horizontal scalability, allowing for rapid feature development[58] - The company utilizes AI and proprietary tools to streamline loan origination and servicing, enhancing the user experience for borrowers[68] Customer Acquisition and Marketing - Upstart's customer acquisition channels include direct mail, email marketing, organic traffic, online advertising, and marketing affiliates, with a significant number of borrowers coming through partners like Credit Karma[71] Operations and Servicing - Upstart's operations team focuses on expediting the approval process for borrowers with non-automated applications and addressing any issues during the application process[69] - The company emphasizes early intervention for borrowers who miss payments, utilizing AI for customized servicing interventions[72] - Upstart holds collections licenses in most states and conducts both first-party collections and partnerships with third-party agencies for charged-off loans[73] Market Competition - The consumer lending market is highly competitive, with Upstart competing against banks, non-bank lenders, and fintech platforms[75] - Upstart's competitive advantages include advanced AI models, compelling loan offers, an automated application process, and strong brand recognition[79] Regulatory Compliance - The company is subject to extensive regulations from various federal and state agencies, including the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC)[78] - The company is committed to compliance with federal and state laws, including the Truth in Lending Act and the Fair Credit Reporting Act, to ensure consumer protection[81] - The company has developed a compliance management system to minimize compliance-related risks associated with consumer protection laws[104] - The company is subject to extensive state and local laws governing consumer lending, which may impose various requirements including licensing and interest rate limitations[101] Financial Performance and Risks - As of December 31, 2025, the company held $930.8 million in loans on its consolidated balance sheets, up from $703.4 million in 2024, indicating a significant increase in loan volume[457] - A hypothetical 100 basis point increase in the discount rate would result in a $12.0 million decrease in the fair value of loans as of December 31, 2025[457] - The company was exposed to credit risk on $930.8 million of loans as of December 31, 2025, with a hypothetical 10% increase in credit risk leading to a $10.5 million decrease in fair value[464] - The fair value of beneficial interest assets was estimated at $396.2 million as of December 31, 2025, with a hypothetical 100 basis point increase in the discount rate resulting in a $4.9 million decrease in fair value[461] - A hypothetical 10% adverse change in the credit risk spread would lead to a $44.4 million decrease in the fair value of beneficial interest assets and a $4.7 million increase in liabilities as of December 31, 2024[466] - A hypothetical 20% adverse change in the credit risk spread would result in a $89.6 million decrease in beneficial interest assets and a $10.3 million increase in liabilities as of December 31, 2024[466] - An increase in interest rates could lead to higher delinquencies, defaults, and charge-offs, adversely affecting the company's business[471] Employee and Organizational Structure - The company employed 1,405 full-time employees as of December 31, 2025, with no employees represented by a labor union[117] - The company has implemented a digital-first approach, allowing employees in eligible roles to work from anywhere in the U.S. and Canada, enhancing talent acquisition[115] - The company provides competitive employee benefits, including a 401(k) match and a generous Employee Stock Purchase Plan, to attract and retain top talent[116] Asset Management - As of December 31, 2024, the company held beneficial interest assets of $176.8 million and liabilities of $10.1 million, which increased to $396.2 million and $5.1 million, respectively, by December 31, 2025[466][467] - The company held cash, cash equivalents, and restricted cash totaling $976.3 million as of December 31, 2024, increasing to $1,057.0 million by December 31, 2025[469] - As of December 31, 2024, and 2025, $137.4 million and $191.6 million of cash were held by an institutional investor related to line of credit receivable and beneficial interest asset[470] - The company was exposed to interest rate risk on $195.6 million and $97.3 million under warehouse credit facilities as of December 31, 2024, and 2025, respectively[472] - The carrying value of non-marketable equity securities, which do not have readily determinable fair values, totaled $41.3 million as of December 31, 2024, and 2025[475] - The company assesses non-marketable equity securities for impairment on a quarterly basis, considering both qualitative and quantitative factors[474] - The company manages counterparty risk by selecting financially strong counterparties and spreading risk among multiple entities[468] Intellectual Property - The company had four patents granted and six patent applications pending in the United States related to its proprietary risk model and data engineering as of December 31, 2025[106]