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What changed in Upstart Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Upstart Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+847 added−810 removedSource: 10-K (2025-02-14) vs 10-K (2024-02-15)

Top changes in Upstart Holdings, Inc.'s 2024 10-K

847 paragraphs added · 810 removed · 666 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

126 edited+23 added−31 removed68 unchanged
Biggest changeOur goal is to continue expanding our lending partnerships to new participants and deepen our relationships with existing lending partners. 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.
Biggest changeOur goal is to continue expanding our lending partnerships to new participants and deepen our relationships with existing lending partners. 1 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. 7 Table of Contents 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.
FCRA requires a permissible purpose to obtain a consumer credit report and requires that persons who report loan payment information to credit bureaus do so accurately and to resolve disputes regarding reported information timely. FCRA also imposes disclosure requirements on creditors who take adverse action on credit applications based on information contained in a credit report.
FCRA requires a permissible purpose to obtain a consumer credit report and requires that persons who report loan payment information to credit bureaus do so accurately and timely resolve disputes regarding reported information. FCRA also imposes disclosure requirements on creditors who take adverse action on credit applications based on information contained in a credit report.
For example, a significant number of consumers that apply for a loan on Upstart.com learn about and access Upstart.com through the website of one of our partners, Credit Karma. • Direct mail —We apply our strengths in data science to target individuals who both qualify for and may have a need for an Upstart-powered loan.
For example, a significant number of consumers that apply for and obtain a loan on Upstart.com learn about and access Upstart.com through the website of one of our partners, Credit Karma. • Direct mail —We apply our strengths in data science to target individuals who both qualify for and may have a need for an Upstart-powered loan.
Sanctions Laws Under the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, or USA PATRIOT ACT, and certain U.S. sanctions laws, our lending partners are required to maintain anti-money laundering, customer due diligence and record-keeping policies and procedures, which we perform on behalf of our lending partners, and to avoid doing business with certain sanctioned persons or entities or certain types of sanctioned activity in certain countries.
Sanctions Laws Under the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, or USA PATRIOT ACT, and certain U.S. sanctions laws, our lending partners are required to maintain anti-money laundering, customer due diligence and record-keeping policies and procedures, some of which we perform on behalf of our lending partners, and to avoid doing business with certain sanctioned persons or entities or certain types of sanctioned activity in specific countries.
We announce material information to the public about us, our products and services and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, webcasts, the investor relations section of our website (ir.upstart.com), in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. 25 Table of Contents
We announce material information to the public about us, our products and services and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, webcasts, the investor relations section of our website (ir.upstart.com), in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. 24 Table of Contents
As of December 31, 2023, we had more than 100 lending partners. Our lending partners retain loans that align with their business and risk objectives. Because lenders vary with respect to program objectives, risk tolerance and funding capacity, program parameters can vary significantly across different lenders. Lending partners have access to an administrative interface for reporting and program management.
As of December 31, 2024, we had more than 100 lending partners. Our lending partners retain loans that align with their business and risk objectives. Because lenders vary with respect to program objectives, risk tolerance and funding capacity, program parameters can vary significantly across different lenders. Lending partners have access to an administrative interface for reporting and program management.
Department of the Treasury’s Office of Foreign Assets Controls and equivalent foreign authorities. Our AML compliance program includes policies, procedures, reporting protocols, and internal controls, including the designation of an AML compliance officer, and is designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.
Department of the Treasury’s Office of Foreign Assets Controls, or OFAC, and equivalent foreign authorities. Our AML compliance program includes policies, procedures, reporting protocols, and internal controls, including the designation of an AML compliance officer, and is designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.
Upstart employees are also passionate about building an environment that works for all. Over the last three years, we have invested heavily in growing our employee resource groups, and currently have nine employee led organizations designed to support employees in communities that matter to them.
Upstart employees are also passionate about building an environment that works for all. Over the last few years, we have invested heavily in growing our employee resource groups, and currently have nine employee led organizations designed to support employees in communities that matter to them.
The ability to analyze an individual’s credit data to target and mail prescreened offers of credit gives this channel a meaningful data advantage over other channels. • Organic traffic —As our brand recognition and reputation grow, an increasing number of potential borrowers come directly to Upstart.com simply by word of mouth. • Email marketing —We have an automated email program that sends customized messages and reminders to potential borrowers once they have created accounts to encourage them to complete their loan application. • Online advertising —Search engines and social channels enable targeted outreach to potential borrowers with specific messages.
The ability to analyze an individual’s credit data to target and mail prescreened offers of credit gives this channel a meaningful data advantage over other channels. • Organic traffic —As our brand recognition and reputation grow, an increasing number of potential borrowers come directly to Upstart.com. • Email marketing —We have an automated email program that sends customized messages and reminders to potential borrowers once they have created accounts to encourage them to complete their loan application. • Online advertising —Search engines and social channels enable targeted outreach to potential borrowers with specific messages.
State Disclosure and Lending Practice Requirements The loans originated on our platform by our lending partners may be subject to state laws and regulations that impose requirements related to loan disclosures and terms, credit discrimination, credit reporting, debt collection, and unfair or deceptive business practices.
The loans originated on our platform by our lending partners may be subject to state laws and regulations that impose requirements related to loan disclosures and terms, credit discrimination, credit reporting, debt collection, and unfair or deceptive business practices.
Over time, we have been able to deploy and blend more sophisticated modeling techniques, leading to a more accurate system. This co-dependency presents a challenge to others who may aim to short-circuit the development of a competitive model.
Over time, we have been able to deploy and blend more sophisticated modeling techniques, leading to a more accurate system. This co-dependency presents a challenge to others who may aim to short-circuit the development of competitive models.
We have pass-through certificate programs sponsored by certain financial institutions under which institutional investors can purchase securities collateralized by Upstart-powered loans from an issuer trust. While there are minimal differences between whole loan sales and sales of pass-through certificates from Upstart’s perspective, both programs are offered to provide flexibility to institutional investors in our marketplace.
We have pass-through certificate programs sponsored by certain financial institutions under which institutional investors can purchase securities collateralized by Upstart-powered loans from an issuer trust. 10 Table of Contents While there are minimal differences between whole loan sales and sales of pass-through certificates from Upstart’s perspective, both programs are offered to provide flexibility to institutional investors in our marketplace.
Our backend systems are designed to flexibly integrate with multiple third-party data sources to feed these models and support real-time decisioning. Responsive Web Design Our user interface is responsive to ensure applicants and borrowers have a smooth experience regardless of whether they are accessing our website from a desktop, mobile device or tablet.
Our backend systems are designed to flexibly integrate with multiple third-party data sources to feed these models and support real-time decisioning. 12 Table of Contents Responsive Web Design Our user interface is responsive to ensure applicants and borrowers have a smooth experience regardless of whether they are accessing our website from a desktop, mobile device or tablet.
We believe we compete favorably based on the following competitive factors: • Constantly improving AI models; • Compelling loan offers to consumers that improve regularly; • Automated and user-friendly loan application process; • Cloud-native, multi-tenant architecture; • Combination of technology and customer acquisition for lending partners; • Robust and diverse lending marketplace; and • Brand recognition and trust.
We believe we compete favorably based on the following competitive factors: • Constantly improving AI models; • Compelling loan offers to consumers that improve regularly; • Automated and user-friendly loan application process; • Cloud-native, multi-tenant architecture; • Combination of technology and customer acquisition for lending partners; • Robust and diverse lending marketplace; and 14 Table of Contents • Brand recognition and trust.
While incumbent lenders may have vast quantities of historical repayment data, their training data lacks the hundreds of non-traditional variables that power our model. Modeling Techniques Growth in our training data has enabled the development of increasingly sophisticated modeling techniques.
While incumbent lenders may have vast quantities of historical repayment data, their training data lacks the hundreds of non-traditional variables that power our models. Modeling Techniques Growth in our training data has enabled the development of increasingly sophisticated modeling techniques.
Regulation B, which implements ECOA, prohibits discrimination based on age, gender, ethnicity, nationality, or marital status, and restricts creditors from requesting certain types of information from loan applicants or engaging in certain loan-related practices, and from using advertising or making statements that would discourage on a prohibited basis a reasonable person from making or pursuing an application.
Regulation B, which implements ECOA, prohibits discrimination based on age, gender, ethnicity, nationality, or marital status, and restricts creditors from requesting certain types of information from loan applicants or engaging in certain loan-related practices, and from using advertising or making statements that would discourage on a prohibited basis a reasonable person from making or 15 Table of Contents pursuing an application.
To that end, we have a small number of applications submitted and pending to obtain additional licenses, particularly with respect to obtaining additional authorization to engage in home lending and the purchase of retail installment contracts. We are also typically required to complete an annual report (or its equivalent) to each state’s regulator.
To that end, we have a small number of applications submitted and pending to obtain additional licenses, particularly with respect to obtaining additional authorization to engage in home lending and the purchase of retail installment contracts. We are also typically required to complete an annual report (or its equivalent) to each state’s regulator for licenses we hold in that state.
Inspired by our company mission, we also provide important traditional financial benefits like a 401(k) match (where we match 401(k) contributions up to a set dollar amount, ensuring 24 Table of Contents equal access to these benefits dollars regardless of salary level), a generous Employee Stock Purchase Plan, and access to a financial planning and money management platform.
Inspired by our company mission, we also provide important traditional financial benefits like a 401(k) match (where we match 401(k) contributions up to a set dollar amount, ensuring equal access to these benefits dollars regardless of salary level), a generous Employee Stock Purchase Plan, and access to a financial planning and money management platform.
If a borrower with an outstanding loan qualifies for SCRA protection the interest rate on their loan (including certain fees) will be reduced to 6% for the duration of the borrower’s active duty. During this period, any interest holder in the loan will not receive the difference between 6% and the loan’s original interest rate.
If a borrower with an outstanding loan qualifies for SCRA protection the interest rate on their loan (including 18 Table of Contents certain fees) will be reduced to 6% for the duration of the borrower’s active duty. During this period, any interest holder in the loan will not receive the difference between 6% and the loan’s original interest rate.
It also has supervisory and examination powers over certain providers of consumer financial products and services, including large banks, payday lenders, “larger participants” in certain financial services markets defined by CFPB regulation, and non-bank entities determined to present a risk to consumers after notice and an opportunity to respond.
It also has supervisory and examination powers over certain providers of consumer financial products and services, including large banks, payday lenders, “larger participants” in certain financial services markets defined by CFPB regulation, and non-bank entities the CFPB determines present a risk to consumers after notice and an opportunity to respond.
The content of our websites and information that can be accessed through our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
The content of our websites and information that can be accessed through our websites is not incorporated by reference into this Annual Report on Form 10-K or 23 Table of Contents in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
The majority of the members of this team have doctorate degrees in statistics, mathematics, computer science, economics or physics and many have extensive past experience in quantitative finance. Culture The Upstart culture is central to our talent advantage and we have carefully and thoughtfully built it as we have grown.
The majority of the members of this team have doctorate 22 Table of Contents degrees in statistics, mathematics, computer science, economics or physics and many have extensive past experience in quantitative finance. Culture The Upstart culture is central to our talent advantage and we have carefully and thoughtfully built it as we have grown.
Our Technology Infrastructure Our cloud-based software platform incorporates modern technologies and software development approaches to allow for rapid development of new features. 12 Table of Contents Cloud-Native Technologies We run our technology platform as containerized services on the Amazon Web Services cloud. Our architecture is designed for high availability and horizontal scalability.
Our Technology Infrastructure Our cloud-based software platform incorporates modern technologies and software development approaches to allow for rapid development of new features. Cloud-Native Technologies We run our technology platform as containerized services on the Amazon Web Services cloud. Our architecture is designed for high availability and horizontal scalability.
In addition, as the product offerings of Upstart or our lending partners change, as states enact new licensing requirements or amend existing licensing laws or regulations, or as states regulators or courts adjust their interpretations of licensing statutes and regulations, we may be required to obtain additional licenses.
In addition, as the product offerings of Upstart or our lending partners change, as states enact new licensing requirements or amend existing licensing laws or regulations, or as states regulators or courts adjust their interpretations of licensing statutes and regulations, we may be required to obtain additional licenses or face additional requirements under current licenses.
In the year ended December 31, 2023, 87% of Upstart-powered loans were fully automated, an increase from 75% in 2022. Automation improvements were due in large part to product, engineering and machine learning enhancements such as eliminating previously manual processes, increasing the accuracy of our verification and fraud detection models, and removing inefficient or unnecessary processes and procedures.
In the year ended December 31, 2024, 91% of Upstart-powered loans were fully automated, an increase from 87% in 2023. Automation improvements were due in large part to product, engineering and machine learning enhancements such as eliminating previously manual processes, increasing the accuracy of our verification and fraud detection models, and removing inefficient or unnecessary processes and procedures.
Results from the study showed that our AI model approves 44% more borrowers and yields 36% lower average APR for approved loans. • Superior digital experience —Whether consumers apply for a loan through Upstart.com or directly through a lending partner’s website, the application experience is streamlined into a single application process and the loan offers provided are firm.
Results from the study showed that our AI model approves 101% more borrowers and yields 38% lower average APR for approved loans. • Superior digital experience —Whether consumers apply for a loan through Upstart.com or directly through a lending partner’s website, the application experience is streamlined into a single application process and the loan offers provided are firm.
We believe that these employee benefits, combined with competitive salaries and an equity program that grants restricted stock units to all full-time employees, have ensured that we remain a top employer in our industry. As of December 31, 2023, we had 1,388 full-time employees. We also engage temporary employees, contractors and consultants as needed to support our operations.
We believe that these employee benefits, combined with competitive salaries and an equity program that grants restricted stock units to all full-time employees, have ensured that we remain a top employer in our industry. As of December 31, 2024, we had 1,193 full-time employees. We also engage temporary employees, contractors and consultants as needed to support our operations.
At a more granular level, all quarterly 11 Table of Contents 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.
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.
Borrowers on our platform are supported via a combination of internal payments specialists and third-party service providers. 14 Table of Contents We hold collections licenses in the majority of states and conduct some first-party collections activities. We also partner with third-party agencies for collections, especially for accounts more than 30 days past due.
Borrowers on our platform are supported via a combination of internal payments specialists and third-party service providers. We hold collections licenses in the majority of states and conduct first-party collections activities. We also partner with third-party agencies for collections, especially for accounts more than 30 days past due.
The quarterly vintages of core personal loans that originated in the first quarter 2021 through the second quarter 2023 are currently forecasted to underperform relative to their target returns. The core personal loans that originated in the third quarter of 2023 or later are currently forecasted to deliver returns in line with target yields.
The quarterly vintages of core personal loans that originated in the first quarter of 2021 through the first quarter of 2024 are currently forecasted to underperform relative to their target returns. 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.
Within the construct of each lender’s self-defined lending program, our platform enables the origination of conforming and compliant loans at a low per-loan cost. 9 Table of Contents Our Ecosystem Our ecosystem includes consumers, banks, credit unions, auto dealers and institutional investors who purchase Upstart-powered loans directly or invest in securities issued by our pass-through and securitization programs.
Within the construct of each lender’s self-defined lending program, our platform enables the origination of conforming and compliant loans at a low per-loan cost. Our Ecosystem Our ecosystem includes consumers, banks, credit unions and auto dealers, as well as institutional investors who purchase Upstart-powered loans directly or invest in securities issued by our pass-through and securitization programs.
This broad ecosystem allows participants to access and benefit from our products in a variety of ways, which leads to broader adoption of our AI lending solutions. Consumers On the consumer side, we have built a mobile-responsive web application to aggregate demand on Upstart.com, where consumers are presented with lender-backed offers from our lending partners.
This broad ecosystem allows participants to access and benefit from our products in a variety of ways, which leads to broader adoption of our AI lending solutions. Consumers On the consumer side, we have built a mobile app and a mobile-responsive website application to aggregate demand on Upstart.com, where consumers are presented with offers from our lending partners.
Credit ratings are often publicly available, which help institutional investors and lending partners gain confidence in Upstart-powered loans. • Insights into changes in the economy —Introduced in 2023, the Upstart Macro Index (“UMI”) estimates the impact of the macroeconomy on credit performance for Upstart-powered unsecured personal loans and helps our lending partners and institutional investors better understand and account for the effect that macroeconomic conditions have on our credit performance.
Credit ratings are often publicly available, which help institutional investors and lending partners gain confidence in Upstart-powered loans. • Insights into changes in the economy —In 2023, we introduced UMI, which estimates the impact of the macroeconomy on credit performance for Upstart-powered unsecured personal loans and helps our lending partners and institutional investors better understand and account for the effect that macroeconomic conditions have on our credit performance.
Under EFTA, and Regulation E that implements it, we must obtain consumer consents prior to receiving electronic transfer of funds from consumers’ bank accounts, and our lending partners may not condition an extension of credit on the borrower’s agreement to repay the loan through preauthorized (recurring) electronic fund transfers.
Under EFTA, and Regulation E that implements it, we must obtain consumer consents prior to receiving electronic transfer of funds from consumers’ bank accounts, and loans offered by Upstart or through our lending partners may not condition an extension of credit on the borrower’s agreement to repay the loan through preauthorized (recurring) electronic fund transfers.
We believe we have structured our organization such that we are in compliance with Regulation RR and will continue to conduct our business in a manner that allows us to remain in compliance with this regulation. Compliance We review our policies and procedures to ensure compliance with laws and regulations applicable to us and our lending partners.
We believe we have structured our organization such that we are in compliance with Regulation RR and will continue to conduct our business in a manner that allows us to remain in compliance with this regulation. 21 Table of Contents Compliance We review our policies and procedures to ensure compliance with laws and regulations applicable to us and our lending partners.
Value Proposition to Lending Partners and Institutional Investors • Competitive digital lending experience —We provide banks and credit unions with a cost effective way to compete with the technology budgets of their competitors. • Expanded customer base —We refer customers that apply for loans through Upstart.com to our lending partners, helping them grow both loan volumes and number of customers. • Upstart referral network —Once we aggregate consumer demand on our website, we pass those customers to our lending partners • Branded product —Lending partners can serve customers with a branded Upstart application on their own website or mobile application. • Flexible configurations —We built a configurable lending solution designed to meet the needs of our lending partners.
Value Proposition to Lending Partners and Institutional Investors • Competitive digital lending experience —We provide banks and credit unions with a cost effective way to compete with the technology budgets of their competitors. • Expanded customer base —We refer customers that apply for loans through Upstart.com to our lending partners, helping them grow both loan volumes and number of customers. • Upstart referral network —Once we aggregate consumer demand on our website, we pass those customers to our lending partners. • Flexible configurations —We built a configurable lending solution designed to meet the needs of our lending partners.
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 2023 is currently expected to deliver returns in line with a blended target of 9.0%.
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%.
If the CFPB were to conclude that our loan origination assistance or servicing activities, or any loans originated by our lending partners on our platform, violate applicable laws or regulations, we could be subject to a formal or informal inquiry, investigation and/or enforcement action. Formal enforcement actions are generally made public.
If the CFPB were to conclude that our loan origination assistance or servicing activities, or any loans originated by our lending partners on our platform, violate applicable laws or regulations, we could be subject to a formal or informal inquiry, investigation and/or enforcement action. We are not currently subject to any enforcement actions by the CFPB.
To improve the loan funding capacity for our marketplace across business and macroeconomic cycles, we secured multiple committed capital arrangements with institutional investors in 2023, which delivered a significant amount of loan funding to the Upstart marketplace. We continue our work on further developing and securing committed capital arrangements for our marketplace.
Beginning in 2023, to improve the loan funding capacity for our marketplace across business and macroeconomic cycles, we secured multiple committed capital and other co-investment arrangements with institutional investors which have delivered a significant amount of loan funding to the Upstart marketplace. We continue our work on further developing and securing committed capital and other co-investment arrangements for our marketplace.
These protections include: a limit on the Military Annual Percentage Rate (an all-in cost-of-credit measure which is the same as the APR for loans facilitated on our platform) of 36%, certain required disclosures before origination, a prohibition on charging prepayment penalties and a prohibition on arbitration agreements and certain other loan agreement terms.
These protections include: a limit on the Military Annual Percentage Rate (an all-in cost-of-credit measure which is the same as the APR for loans facilitated on our platform) of 36%, certain required disclosures before origination, a prohibition on charging prepayment penalties, a prohibition against repossessions of collateral without a court order, and a prohibition on arbitration agreements and certain other loan agreement terms.
In addition, the FTC Telemarketing Sales Rule implements the FTC’s Do-Not-Call Registry and imposes numerous other requirements and limitations in connection with telemarketing. Our policies address the requirements of TCPA as well as FTC Telemarketing Sales Rule and other laws limiting telephone outreach. Furthermore, Upstart does not engage in certain activities covered by TCPA.
In addition, the FTC Telemarketing Sales Rule implements the FTC’s Do-Not-Call Registry and imposes numerous other requirements and limitations in connection with telemarketing. Our policies address the requirements of TCPA as well as FTC Telemarketing Sales Rule and other laws limiting telephone outreach. Furthermore, Upstart does not engage in prohibited activities under TCPA.
Employees in eligible roles (which comprise the majority of our full-time roles) can work from anywhere in the United States, including in one of our three offices in Austin, Texas; Columbus, Ohio; or San Mateo, California.
Employees in eligible roles (which comprise the majority of our full-time roles) can work from anywhere in the United States, including in one of our five offices in Austin, Texas; Columbus, Ohio; New York, New York; or San Mateo, California.
As of December 31, 2023, we had two patents issued and three patent applications in the United States related to our proprietary risk model and data engineering. We may file additional patent applications or pursue additional patent protection in the future to the extent we believe it will be beneficial.
As of December 31, 2024, we had four patents issued and four patent applications in the United States related to our proprietary risk model and data engineering. We may file additional patent applications or pursue additional patent protection in the future to the extent we believe it will be beneficial.
Based on publicly available actions, the FTC’s primary focus has been with respect to financial technology company marketing and disclosure practices as it relates to lending products, and on junk fees 18 Table of Contents as it relates to automotive dealerships. We maintain policies and procedures that require our marketing and loan application and servicing operations comply with UDAP standards.
Based on publicly available actions, the FTC’s primary focus has been with respect to financial technology company marketing and disclosure practices as it relates to lending products, and on junk fees. We maintain policies and procedures that require our marketing and loan application and servicing operations comply with UDAP standards.
CAN-SPAM also requires the need to provide a functioning mechanism that allows the recipient to opt-out of receiving future commercial e-mail messages from the sender of such messages. Our email communications with all consumers are formulated to comply with the CAN-SPAM Act.
CAN-SPAM also requires the sender of emails set for a commercial purpose to provide a functioning mechanism that allows the recipient to opt-out of receiving future commercial e-mail messages from the sender of such messages. Our email communications with all consumers are formulated to comply with the CAN-SPAM Act.
When a consumer registers on our platform, we obtain his or her consent to transact business electronically, receive electronic disclosures and maintain electronic records in compliance with ESIGN and UETA requirements, and we maintain electronic signatures and records in a manner intended to support enforceability of relevant consumer agreements and consents.
When a consumer registers on our platform, we obtain consent to transact business electronically, for the consumer to receive electronic disclosures and for us to maintain electronic records in compliance with ESIGN and UETA requirements, and we maintain electronic signatures and records in a manner intended to support enforceability of relevant consumer agreements and consents.
In addition, the CFPB may, in connection with its supervisory authority, also conduct on-site examinations of our and our lending partners’ businesses on a periodic basis, subject to whether the applicable lending partner satisfies the assets threshold for CFPB supervision.
The CFPB may investigate our organization, business conduct, markets and activities. In addition, the CFPB may, in connection with its supervisory authority, also conduct on-site examinations of our HELOCs and our lending partners’ businesses on a periodic basis, subject to whether the applicable lending partner satisfies the assets threshold for CFPB supervision.
Most prospective borrowers and applicants interact with Upstart via our online platform and help center, but we also make agent-based support readily available to all borrowers. For phone support, we partner with external call center vendors and have a team of dedicated Upstart agents with specialized training. Servicing Operations Upstart-powered loans are serviced via our homegrown platform.
Most prospective borrowers and applicants interact with Upstart via our online platform and help center, but we also make agent-based support readily available to all borrowers. For phone support, we partner with external call center vendors and have a team of dedicated Upstart agents with specialized training.
Further, we are subject to inspections, examinations, supervision and regulation by applicable agencies in each state in which we are licensed. Regulatory oversight of our business may change over time.
Further, we are subject to inspections, examinations, supervision and regulation by applicable agencies in each state in which we are licensed to broker, purchase, and or service loans. Regulatory oversight of our business may change over time.
We have a detailed privacy policy that addresses the GLBA and is accessible from every page of our website. We work to maintain the security of consumers’ personal information securely, and we do not sell, rent or share such information with third parties for marketing purposes unless previously agreed to by the consumer.
We have a detailed privacy policy that addresses the GLBA and Safeguards Rule and is accessible from every page of our website. We work to maintain the security of consumers’ personal information, and we do not sell, rent or share such information with third parties for marketing purposes unless agreed to by the consumer or in accordance with applicable law.
For retail installment contracts, required disclosures can also include certain conditions related to Guaranteed Asset Protection waivers. For HELOCs, required open-end disclosures are provided during the origination process and servicing requirements under TILA are fulfilled by a third party servicer.
For retail installment contracts, required disclosures can also include certain conditions related to Guaranteed Asset Protection waivers or other ancillary products. For HELOCs, required open-end disclosures are provided during the origination process and servicing requirements under TILA are fulfilled by a third party servicer that we oversee.
We continue to invest in expansion of our product offerings and launched a new HELOC product in 2023. • Access to capital markets —We have built a broad network of institutional investors who provide loan funding through purchases of whole loans, pass-through certificates and asset-backed securitizations.
We continue to invest in expansion of our product offerings. 11 Table of Contents • Access to capital markets —We have built a broad network of institutional investors who provide loan funding through purchases of whole loans, pass-through certificates and asset-backed securitizations.
The SEC heavily regulates the manner in which broker-dealers are permitted to conduct their business activities. We believe we have conducted, and we intend to continue to conduct, our business in a manner that does not result in Upstart being characterized as a broker-dealer, based on guidance published by the SEC and its staff.
We believe we have conducted, and we intend to continue to conduct, our business in a manner that does not result in Upstart being characterized as a broker-dealer, based on guidance published by the SEC and its staff.
Throughout history, affordable credit has been central to unlocking mobility and opportunity. The FICO score was invented in 1989 and remains the standard for determining who is approved for credit and at what interest rate. While FICO is rarely the only input in a lending decision, most lenders use simple rules-based systems that consider only a limited number of variables.
The FICO score was invented in 1989 and remains the standard for determining who is approved for credit and at what interest rate. While FICO is rarely the only input in a lending decision, most lenders use simple rules-based systems that consider only a limited number of variables.
Consumer Marketing Our growth and marketing approach is driven by the strength of our product and the interest rates we offer. While many lenders see consumer choice as a detractor from sales volume, we benefit when consumers compare our offers to other lenders’ offers. Over time, our ability to offer lower rates than our competitors has improved significantly.
Consumer Marketing Our growth and marketing approach is driven by the strength of our product and the interest rates we offer. While many lenders see consumer choice as a detractor from sales volume, we benefit when consumers compare our offers to other lenders’ offers.
In addition to the CFPB, the Federal Trade Commission has jurisdiction to investigate aspects of our business, including with respect to marketing practices. Other state and federal agencies, including prudential bank regulators and state attorneys general have the ability to regulate aspects of our business.
In addition to the CFPB, the Federal Trade Commission has jurisdiction to investigate aspects of our business, including with respect to marketing practices. Other state and federal agencies, including prudential bank regulators, state departments of financial institutions, and state attorneys general have the ability to regulate aspects of our business directly or through our lending partners.
Fair Debt Collection Practices Act The federal Fair Debt Collection Practices Act, or FDCPA, and Regulation F that implements FDCPA, provides guidelines and limitations on the conduct of certain debt collectors in connection with the collection of consumer debts.
Fair Debt Collection Practices Act The federal Fair Debt Collection Practices Act, or FDCPA, and Regulation F, its implementing regulation, provide guidelines and limitations on the conduct of certain debt collectors in connection with the collection of consumer debts.
State licensing statutes impose a variety of requirements and restrictions, including: • record-keeping requirements; • collection and servicing practices; • requirements governing electronic payments, transactions, signatures and disclosures; • examination requirements; • surety bond and minimum net worth requirements; • financial reporting requirements; • notification requirements for changes in principal officers, stock ownership or corporate control; and • restrictions on advertising and other loan solicitation activity, as well as restrictions on loan referral or similar practices.
Those licenses also subject us to the supervisory and examination authority of state regulators. 20 Table of Contents State licensing statutes impose a variety of requirements and restrictions, including: • record-keeping requirements; • collection and servicing practices; • requirements governing electronic payments, transactions, signatures and disclosures; • examination requirements; • surety bond and minimum net worth requirements; • financial reporting requirements; • notification requirements for changes in principal officers, stock ownership or corporate control; and • restrictions on advertising and other loan solicitation activity, as well as restrictions on loan referral or similar practices.
These rules apply to loans facilitated through our platform as well as to retail installment contracts purchased by Upstart from automotive dealerships, and we assist with compliance as part of the services we provide to our lending partners.
These requirements apply to loans facilitated or made through our platform and retail installment contracts purchased by Upstart from automotive dealerships. We also assist our lending partners with their compliance obligations, as part of the services we provide.
We collect and use a wide variety of information to help ensure the integrity of our services and to provide features and functionality to borrowers on our platform.
Privacy and Data Security Laws We collect and use a wide variety of information to help ensure the integrity of our services and to provide features and functionality to the borrowers and lending partners on our platform.
By way of example, in 2020, the California Consumer Financial Protection Law was enacted, which seeks to emulate the CFPB with respect to its enforcement and supervisory capabilities as well as require additional state registration for certain covered persons.
By way of example, in 2020, the California Consumer Financial Protection Law was enacted, which seeks to emulate the CFPB with respect to its enforcement and supervisory capabilities as well as require additional state registration for certain covered persons. We expect that regulatory examinations by both federal and state agencies will continue.
The retail installment contracts we purchase are subject to state laws and regulations that impose requirements on contract disclosures and terms, credit discrimination, credit reporting, debt collection and repossession, and unfair or deceptive business practices.
The retail installment contracts we purchase and HELOCs are subject to state laws and regulations that impose requirements on contract disclosures and terms, credit discrimination, credit reporting, debt collection and repossession, and unfair or deceptive business practices. Our ongoing compliance program seeks to comply with these requirements.
We believe that our business consists of providing a platform for consumer lending for which investment adviser registration and regulation does not apply under applicable federal or state law, and do not believe that we or any of our subsidiaries are required to register as an investment adviser with either the SEC or any of the various states. 22 Table of Contents Broker-Dealer Regulations under the Exchange Act We are not currently registered with the SEC as a broker-dealer under the Exchange Act or any comparable state law.
We believe that our business consists of providing a platform for consumer lending and loan financing for which investment adviser registration and regulation does not apply under applicable federal or state law, and do not believe that we or any of our subsidiaries are required to register as an investment adviser with either the SEC or any of the various states.
Prior to referring a consumer to an affiliate, RESPA requires the person making each referral to provide each person to whom business is referred an Affiliated Business Arrangement Disclosure Statement. Our policies are designed to support compliance with RESPA.
Prior to referring a consumer to an affiliate, RESPA requires the person making each referral to provide each person to whom business is referred an Affiliated Business Arrangement Disclosure Statement.
We have also made significant investments in Upstart Auto Retail, a front-end software-as-a-service application that modernizes the auto sales process for both the consumer and the dealer. Similar to Upstart.com, we expect Upstart Auto Retail to become an important aggregator of consumer demand.
We have also made significant investments in Upstart Auto Retail, a front-end software-as-a-service application that modernizes the auto sales process for both the consumer and the dealer. Similar to Upstart.com, we expect Upstart Auto Retail to become an important aggregator of consumer demand. Consumers on our platform are generally offered unsecured personal loans, secured auto loans, and HELOCs.
In 2023, more than 87% 2 of our loans were fully automated where borrowers were approved instantly, with zero documentation to upload. 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.
In 2024, more than 91% 1 of Upstart-powered loans were fully automated where borrowers were approved instantly. 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 products.
For borrowers who miss payments, we focus on early intervention and attempt to reach them via emails, calls, texts, and mail to help bring their account current or offer hardship options in accordance with the creditor’s servicing policies.
Servicing Operations Upstart-powered loans, with the exception of HELOCs, are serviced via our homegrown platform. For borrowers who miss payments, we focus on early intervention and attempt to reach them via emails, calls, texts, and mail to help bring their account current or offer hardship options in accordance with the creditor’s servicing policies.
Under such agreements, our employees, consultants and contractors are subject to invention assignment provisions designed to protect our proprietary information and ensure our ownership in intellectual property developed pursuant to such agreements. For additional information about our intellectual property and associated risks, see Item 1A.
Under such agreements, our employees, consultants and contractors are subject to invention assignment provisions designed to protect our proprietary information and ensure our ownership in intellectual property developed pursuant to such agreements. For additional information about our intellectual property and associated risks, see Item 1A. “ Risk Factors ” of this Annual Report on Form 10-K.
Our ongoing compliance program seeks to comply with these requirements. 21 Table of Contents State Licensing/Registration We hold licenses, registrations, and similar filings so that we can conduct business, including providing referral services and origination assistance to lenders on our platform and servicing and collecting loans, and purchasing retail installment contracts, in all states and the District of Columbia where our activities require such licensure, registration or filing.
State Licensing/Registration We hold licenses, registrations, and similar filings so that we can conduct business, including providing referral services and origination assistance to lenders on our platform and servicing and collecting loans, and purchasing retail installment contracts, and originating HELOCs, in all states and the District of Columbia where products are offered and our activities require such licensure, registration or filing.
We enter into nonexclusive agreements with our institutional investors who purchase whole loans, the trust entities in our pass-through programs and the grantor trust entities in our asset-backed securitizations.
We enter into nonexclusive agreements with our institutional investors who purchase whole loans and participate in our pass-through and asset-backed securitization programs.
The Federal Controlling the Assault of Non-Solicited Pornography and Marketing, or CAN-SPAM, Act makes it unlawful to send certain electronic mail messages that contain false or deceptive information and provide other protections for email users.
The Federal Controlling the Assault of Non-Solicited Pornography and Marketing, or CAN-SPAM, Act applies to commercial messages and makes it unlawful to send electronic mail messages that contain false or deceptive information, among other requirements.
As part of the services we provide, we ensure compliance with the requirements of the Military Lending Act. Bank Secrecy Act, USA PATRIOT Act, and U.S.
As part of the services we provide, we ensure compliance with the requirements of the Military Lending Act and state analogs that also provide protections for these consumers. Bank Secrecy Act, USA PATRIOT Act, and U.S.
This aspect of our business, including the collection, use, and protection of the information we acquire from our own services as well as from third-party sources, is subject to laws and regulations in the United States. Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the use, transmission, and disclosure of information.
This aspect of our business, including the collection, use, and protection of the information we acquire from our own services as well as from third-party sources, is subject to laws and regulations in the United States.
Many states have laws and regulations that are similar to the federal consumer protection laws referred to below, but the degree and nature of such laws and regulations vary from state to state.
Below, we summarize several of the material federal and state lending, servicing and consumer protection related laws applicable to our business. Many states have laws and regulations that are similar to the federal consumer protection laws referred to below, but the degree and nature of such laws and regulations vary from state to state.
Our AI models have been continuously upgraded, trained and refined for more than ten years. We apply AI models to income and identity fraud, acquisition targeting, loan stacking, time-delimited default and prepayment prediction, and servicing.
Our AI models have been continuously upgraded, trained and refined for more than ten years. We apply AI models to income and identity fraud, acquisition targeting, loan stacking, time-delimited default and prepayment prediction, and servicing. We believe the flywheel effects generated by our constantly improving AI models provide a significant competitive advantage.
We have secured multiple committed capital arrangements with institutional investors, which deliver a significant amount of loan funding to the Upstart marketplace. We continue our work on expanding committed capital arrangements for our marketplace. • Continuous engagement with rating agencies —Upstart-powered personal loans are analyzed by credit rating agencies and are subject to significant and constant scrutiny from experts.
We continue our work on expanding our relationships with institutional investors to deliver capital to our marketplace. • Continuous engagement with rating agencies —Upstart-powered personal loans are analyzed by credit rating agencies and are subject to significant and constant scrutiny from experts.
“ Risk Factors ” of this Annual Report on Form 10-K. Fair Credit Reporting Act The federal Fair Credit Reporting Act, or FCRA, as amended by the Fair and Accurate Credit Transactions Act, implemented by Regulation V, and administered by the CFPB, promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies.
Fair Credit Reporting Act The federal Fair Credit Reporting Act, or FCRA, as amended by the Fair and Accurate Credit Transactions Act, implemented by Regulation V, promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies.
It also requires disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of the account by the servicer.
RESPA also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts. It further requires disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of the account by the servicer.
We abide by policies and procedures implemented by our lending partners to comply with ECOA’s provisions prohibiting discouragement and discrimination. ECOA also requires creditors to provide applicants with timely notices of adverse action taken on credit applications, including disclosing to applicants who have been declined their rights and the reason for the denial.
ECOA also requires creditors to provide applicants with timely notices of adverse action taken on credit applications, including disclosing to applicants who have been declined their rights and the reason for the denial.
Competition Consumer lending is a vast and competitive market, and we compete in varying degrees with all other sources of unsecured consumer credit, including banks, non-bank lenders (including retail-based lenders) and other financial technology lending platforms. Because personal loans often serve as a replacement for credit cards, we also compete with the convenience and ubiquity that credit cards represent.
Competition Consumer lending is a vast and competitive market, and we compete in varying degrees with all other sources of unsecured and secured consumer credit, including banks, non-bank lenders (including retail-based lenders) and other financial technology lending platforms.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSUMMARY OF RISK FACTORS The material risks that may affect our business, financial condition or results of operations include, but are not limited to, those relating to the following: • Our business has been and will continue to be adversely affected by economic conditions and other factors that we cannot control, including the recent bank failures and resulting disruption in the banking sector. • 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. • If we are unable to continue to improve our AI models or if our AI models contain errors or are otherwise ineffective, 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. • 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 is at an early research and development stage with an unproven track record, our credibility, reputation, business, financial condition and results of operations could be adversely affected. • We have incurred net losses, and we may not be able to achieve profitability in the future. • If we are unable to manage risks associated with the loans on our balance sheet, our business, financial condition and results of operations may be adversely affected. • Our revenue growth rate and financial performance in the past may not be indicative of future performance. • Our quarterly results are likely to fluctuate and as a result may adversely affect the trading price of our common stock. • 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. • Our top three lending partners account for a significant portion of loan originations on our marketplace and our revenue. 26 Table of Contents • 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. • Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure or perceived failure to comply with such laws and regulations could harm our business, financial condition and results of operations. • If we are unable to manage the risks related to our loan servicing and collections obligations, our business, financial condition and results of operations 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.
Biggest changeSUMMARY OF RISK FACTORS The material risks that may affect our business, financial condition or results of operations include, but are not limited to, those relating to the following: • Our business has been and will continue to be adversely affected by economic conditions and other factors that we cannot control. • If we are unable to maintain diverse and resilient loan funding to our marketplace from institutional investors or successfully manage risks associated with committed capital and other co-investment arrangements, our growth prospects, business, financial condition and results of operations could be adversely affected. • If we are unable to continue to improve our AI models or if our AI models contain errors or are otherwise ineffective, 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. • If we are unable to approve a significant number of borrowers for loans through our marketplace, our growth prospects, business, financial condition and results of operations would be adversely affected. • 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, and we may not be able to achieve profitability in the future. • If we are unable to manage risks associated with the loans on our balance sheet, our business, financial condition and results of operations may be adversely affected. • Our revenue growth rate and financial performance in the past may not be indicative of future performance. • Our quarterly results are likely to fluctuate and as a result may adversely affect the trading price of our common stock. 25 Table of Contents • 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. • Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure or perceived failure to comply with such laws and regulations could harm our business, financial condition and results of operations. • If we are unable to manage the risks related to our loan servicing and collections obligations, our business, financial condition and results of operations 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. • We rely on strategic relationships with loan aggregators to attract applicants to our marketplace, and if we cannot maintain effective relationships with loan aggregators or successfully replace their services, our business could be adversely affected.
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, and institutional investors to fund, loans facilitated through our marketplace.
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.
We are increasingly dependent on information systems, services and infrastructure to operate our business. In the ordinary course of our business, we collect, process, transmit and store large amounts of sensitive information, including personal information, credit information and other sensitive data of borrowers and potential borrowers.
We are increasingly dependent on data, information systems, services and infrastructure to operate our business. In the ordinary course of our business, we collect, process, transmit and store large amounts of sensitive information, including personal information, credit information and other sensitive data of borrowers and potential borrowers.
The risks we face in connection with acquisitions include: • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • utilization of our financial resources for acquisitions or investments that may fail to realize the anticipated benefits; • inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; • coordination of technology, product development and sales and marketing functions and integration of administrative systems; 52 Table of Contents • transition of the acquired company’s borrowers to our systems; • retention of employees from the acquired company; • regulatory risks, including maintaining good standing with existing regulatory bodies or receiving any necessary approvals, as well as being subject to new regulators with oversight over an acquired business; • attracting financing; • cultural challenges associated with integrating employees from the acquired company into our organization; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • potential write-offs of loans or intangibles or other assets acquired in such transactions that may have an adverse effect on our results of operations in a given period; • liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; • assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property or increase our risk for liability; and • litigation, claims or other liabilities in connection with the acquired company.
The risks we face in connection with acquisitions include: 52 Table of Contents • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • utilization of our financial resources for acquisitions or investments that may fail to realize the anticipated benefits; • inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; • coordination of technology, product development and sales and marketing functions and integration of administrative systems; • transition of the acquired company’s borrowers to our systems; • retention of employees from the acquired company; • regulatory risks, including maintaining good standing with existing regulatory bodies or receiving any necessary approvals, as well as being subject to new regulators with oversight over an acquired business; • attracting financing; • cultural challenges associated with integrating employees from the acquired company into our organization; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • potential write-offs of loans or intangibles or other assets acquired in such transactions that may have an adverse effect on our results of operations in a given period; • liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; • assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property or increase our risk for liability; and • litigation, claims or other liabilities in connection with the acquired company.
Our failure to address these risks or other problems encountered in connection with any future acquisitions and strategic investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally.
Our failure to address these risks or other problems encountered in connection with any future acquisitions and strategic investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, or cause us to incur unanticipated liabilities and harm our business generally.
We, through our warehouse trust special purpose entities, have entered into warehouse credit facilities to partially finance the purchase of loans from certain lending partners that originate loans through our marketplace, which credit facilities are secured by the purchased loans.
We, through our warehouse trust special purpose entities, have entered into warehouse credit facilities to partially finance the purchase of certain loans from certain lending partners that originate loans through our marketplace, which credit facilities are secured by the purchased loans.
Factors that could cause fluctuations in the trading price of our common stock include: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of financial technology stocks; • general economic conditions, including economic slowdowns, recessions, rising interest and inflation rates, tightening of credit markets and disruptions in the banking sector; • a reduction in the availability of loan funding and liquidity from lending partners and institutional investors; • quarterly fluctuations in demand for the loans we facilitate through our marketplace; • changes in operating performance and stock market valuations of other financial technology companies and technology companies that offer services to financial institutions; • sales of shares of our common stock by us or our stockholders, including sales to cover tax withholding obligations upon vesting of RSUs issued to our employees; • issuance of shares of our common stock, whether in connection with an acquisition or upon conversion of some or all of the outstanding Notes; 79 Table of Contents • failure of securities analysts to maintain coverage of us, changes in financial estimates or other statements made by securities analysts or others, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections; • announcements by us or our competitors of new products, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • fluctuations in the trading volume of our shares or the size of our public float; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • compliance with government policies or regulations; • the issuance of any cease-and-desist orders from regulatory agencies that we are subject to; • developments or disputes concerning our intellectual property or other proprietary rights; • market perception of the accuracy of our AI models; • actual or perceived data security breaches or other data security incidents; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • recruitment or departure of key personnel; and • other events or factors, including those resulting from war, incidents of terrorism, political unrest, natural disasters, pandemics or responses to these events.
Factors that could cause fluctuations in the trading price of our common stock include: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of financial technology stocks; • general economic conditions, including economic slowdowns, recessions, changes in interest and inflation rates, tightening of credit markets and disruptions in the banking sector; • a reduction in the availability of loan funding and liquidity from lending partners and institutional investors; • quarterly fluctuations in demand for the loans we facilitate through our marketplace; • changes in operating performance and stock market valuations of other financial technology companies and technology companies that offer services to financial institutions; • sales of shares of our common stock by us or our stockholders, including sales to cover tax withholding obligations upon vesting of RSUs issued to our employees; • issuance of shares of our common stock, whether in connection with an acquisition or upon conversion of some or all of the outstanding Notes; • failure of securities analysts to maintain coverage of us, changes in financial estimates or other statements made by securities analysts or others, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections; • announcements by us or our competitors of new products, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • fluctuations in the trading volume of our shares or the size of our public float; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • compliance with government policies or regulations; 81 Table of Contents • the issuance of any cease-and-desist orders from regulatory agencies that we are subject to; • developments or disputes concerning our intellectual property or other proprietary rights; • market perception of the accuracy of our AI models; • actual or perceived data security breaches or other data security incidents; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • recruitment or departure of key personnel; and • other events or factors, including those resulting from war, incidents of terrorism, political unrest, natural disasters, pandemics or responses to these events.
In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • our Board of Directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause; • vacancies and newly-created seats on our Board of Directors will be able to be filled only by our Board of Directors and not by stockholders; • only the Chair of our Board of Directors, our Chief Executive Officer, our president, or a majority of our entire Board of Directors are authorized to call a special meeting of stockholders; • certain litigation against us or our directors, stockholders, officers or employees can only be brought in Delaware; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and • any amendment of the above anti-takeover provisions in our amended and restated certificate of incorporation or amended and restated bylaws will require the approval of at least 66 2/3% of the combined voting power of our then-outstanding shares of our capital stock. 82 Table of Contents These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company.
In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • our Board of Directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause; • vacancies and newly-created seats on our Board of Directors will be able to be filled only by our Board of Directors and not by stockholders; • only the Chair of our Board of Directors, our Chief Executive Officer, our president, or a majority of our entire Board of Directors are authorized to call a special meeting of stockholders; • certain litigation against us or our directors, stockholders, officers or employees can only be brought in Delaware; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and • any amendment of the above anti-takeover provisions in our amended and restated certificate of incorporation or amended and restated bylaws will require the approval of at least 66 2/3% of the combined voting power of our then-outstanding shares of our capital stock. 84 Table of Contents These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company.
These risks and difficulties include our ability to: • successfully mitigate any adverse effects of economic conditions such as high interest rates, inflation, unemployment levels, personal savings rates and other macroeconomic factors on our business; • improve the effectiveness and predictiveness of our AI models, including successfully adjusting our proprietary AI models, products and services in a timely manner in response to changing macroeconomic conditions and fluctuations in the credit market; • maintain and increase the volume of loans facilitated through our AI lending marketplace; • successfully maintain diverse and resilient loan funding to our marketplace from institutional investors; • attract new lending partners to our marketplace and maintain existing lending partnerships; • successfully meet our borrower demand with competitive products and terms; • offer competitive interest rates to borrowers on our marketplace, while enabling our lending partners and institutional investors to achieve an adequate return over their cost of funds; • successfully build our brand and protect our reputation from negative publicity; • increase the effectiveness of our marketing strategies; • continue to expand the number of potential borrowers; • comply with and successfully adapt to complex and evolving regulatory environments; • protect against increasingly sophisticated fraudulent borrowing and online theft; • successfully compete with companies that are currently in, or may in the future enter, the business of providing online lending services to financial institutions or consumer financial services to borrowers; • enter into new markets and introduce new products and services; • effectively secure and maintain the confidentiality of the information received, accessed, stored, provided and used across our systems; • successfully obtain and maintain corporate funding and liquidity to support growth and for general corporate purposes; • attract, integrate and retain qualified employees; and • effectively manage and expand the capabilities of our operations teams, outsourcing relationships and other business operations.
These risks and difficulties include our ability to: • successfully mitigate any adverse effects of economic conditions such as high interest rates, inflation, unemployment levels, personal savings rates and other macroeconomic factors on our business; • improve the effectiveness and predictiveness of our AI models, including successfully adjusting our proprietary AI models, products and services in a timely manner in response to changing macroeconomic conditions and fluctuations in the credit market; • maintain and increase the volume of loans facilitated through our AI lending marketplace; • successfully maintain diverse and resilient loan funding to our marketplace from institutional investors; • attract new lending partners to our marketplace and maintain existing lending partnerships; • successfully meet our borrower demand with competitive products and terms; • offer competitive interest rates to borrowers on our marketplace, while enabling our lending partners and institutional investors to achieve an adequate return over their cost of funds; 31 Table of Contents • successfully build our brand and protect our reputation from negative publicity; • increase the effectiveness of our marketing strategies; • continue to expand the number of potential borrowers; • comply with and successfully adapt to complex and evolving regulatory environments; • protect against increasingly sophisticated fraudulent borrowing and online theft; • successfully compete with companies that are currently in, or may in the future enter, the business of providing online lending services to financial institutions or consumer financial services to borrowers; • enter into new markets and introduce new products and services; • effectively secure and maintain the confidentiality of the information received, accessed, stored, provided and used across our systems; • successfully obtain and maintain corporate funding and liquidity to support growth and for general corporate purposes; • attract, integrate and retain qualified employees; and • effectively manage and expand the capabilities of our operations teams, outsourcing relationships and other business operations.
These claims, lawsuits, and proceedings could involve, and in some cases have involved, labor and employment, discrimination and harassment, commercial disputes, intellectual property rights (including patent, trademark, copyright, trade secret, and other proprietary rights), class actions, general contract, tort, defamation, data privacy rights, antitrust, common law fraud, government regulation, or compliance, alleged federal and state securities and “blue sky” law violations or other investor claims, and other matters.
These claims, lawsuits, and proceedings could involve, and in some cases have involved, labor and employment, discrimination and harassment, commercial disputes, intellectual property rights (including patent, trademark, copyright, trade secret, and other proprietary rights), class actions, general contract, tort, defamation, data privacy rights, antitrust, common law fraud, government regulation, alleged federal and state securities and “blue sky” law violations or other investor claims, and other matters.
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 on our marketplace or other censure that could have an adverse effect on our business, results of operations and financial condition.
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.
We or the participants in our marketplace, including lending partners and institutional investors, may face litigation, government enforcement or other challenges, for example, based on claims that our lending partners did not establish loan terms that were permissible in the state they were located or did not correctly identify the home or host state in which they were located for purposes of interest exportation authority under federal law.
We or the participants in our marketplace, including lending partners and institutional investors, may face litigation, government enforcement or other challenges, for example, based on claims that our lending partners did not establish loan terms that were permissible in the state they were located or did not correctly identify the home state in which they were located for purposes of interest exportation authority under federal law.
If the profile of borrowers using any new products and services is different from that of those currently served by the existing loan products offered on our marketplace, our AI models may not be able to accurately evaluate the credit risk of such borrowers, and we may not be able to obtain loan funding for new products and services on commercially reasonable terms, or at all.
If the profile of borrowers using any new products and services is different from that of those currently served by the existing loan products offered through our marketplace, our AI models may not be able to accurately evaluate the credit risk of such borrowers, and we may not be able to obtain loan funding for new products and services on commercially reasonable terms, or at all.
In 2023, we acted as a sole retaining sponsor to asset-backed securitizations and, in one instance, retained not only the securities required for risk retention purposes under Regulation RR, but also additional residual equity interests, exposing us to greater credit risk. The securities we retain may lose value, including becoming worthless.
In 2023 and 2024, we acted as a sole retaining sponsor to asset-backed securitizations and, in one instance, retained not only the securities required for risk retention purposes under Regulation RR, but also additional residual equity interests, exposing us to greater credit risk. The securities we retain may lose value, including becoming worthless.
However, we may need to further increase our existing compensation levels in response to competition, rising inflation or labor shortages, which would increase our operating costs and reduce our margins. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
However, we may need to further increase our existing compensation levels in response to competition, rising inflation or labor shortages, which would increase our operating costs and reduce our margins. Many of the companies with which we compete for experienced employees have greater resources and may be able to offer more attractive terms of employment.
As noted above, there are also bases on which the Madden decision’s validity might be subject to challenge or the Madden decision may be addressed by federal regulation or legislation. Nevertheless, there can be no guarantee that a Madden-like claim will not be brought successfully against us, our lending partners or our institutional investors.
As noted above, there are also bases on which the Madden decision’s validity might be subject to challenge or the Madden decision may be addressed by federal regulation or legislation. Nevertheless, there can be no guarantee that a Madden-like claim will not be brought against us, our lending partners or our institutional investors.
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 of Upstart-powered loans, and borrowers’ ability and willingness to repay their loans.
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.
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 and optimize other aspects of the lending process, such as borrower acquisition, fraud detection, default timing, loan stacking and prepayment timing.
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 success also depends on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. Competition is high for skilled personnel, including engineering and data analytics personnel, particularly in the San Francisco Bay Area where one of our headquarters is located.
Our success also depends on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. Competition is high for skilled personnel, including engineering and data analytics personnel, particularly in the San Francisco Bay Area where our headquarters is located.
For example, if we elect to deliver shares of our common stock to settle the conversion (other than paying cash in lieu of delivering any fractional share) of the Notes (as defined below), it may have a dilutive effect on our stockholders’ equity holdings.
For example, if we elect to deliver shares of our common stock to settle the conversion (other than paying cash in lieu of delivering any fractional share) of our outstanding Notes (as defined below), it may have a dilutive effect on our stockholders’ equity holdings.
If our lending partners continue to suspend, limit or cease their operations or terminate their relationships with us, the number of loans facilitated through our marketplace will decrease and our revenue will be adversely affected. Moreover, new lending partners may find our sales and onboarding process to be long and unpredictable.
If our lending partners suspend, limit or cease their operations or terminate their relationships with us, the number of loans facilitated through our marketplace will decrease and our revenue will be adversely affected. Moreover, new lending partners may find our sales and onboarding process to be long and unpredictable.
While we have been proactively working with the federal government and regulatory bodies to ensure that our AI lending marketplace and other services are in compliance with applicable laws and regulations, we can provide no assurance that we will not be subject to any regulatory actions.
While we have been proactively working with the federal government and state regulatory bodies to ensure that our AI lending marketplace and other services are in compliance with applicable laws and regulations, we can provide no assurance that we will not be subject to any regulatory actions.
We have in the past and may choose to retain additional securities, such as notes or certificates, issued in asset-backed securitization transactions we sponsor or facilitate. The certificates represent residual equity interests in the SPEs and are subordinated to the notes and thus are exposed to greater credit risk.
We have in the past and may choose in the future to retain additional securities, such as notes or certificates, issued in asset-backed securitization transactions we sponsor or facilitate. The certificates represent residual equity interests in the SPEs and are subordinated to the notes and thus are exposed to greater credit risk.
Madden addressed circumstances under which a defaulted extension of credit under a consumer credit card account was assigned, following default, to a non-bank debt buyer that then attempted to collect the loan and to continue charging interest at the contracted-for rate.
The Madden case addressed circumstances under which a defaulted extension of credit under a consumer credit card account was assigned, following default, to a non-bank debt buyer that then attempted to collect the loan and to continue charging interest at the contracted-for rate.
Certain recent litigation and regulatory enforcement has challenged, or is currently challenging, the characterization of bank partners as the “true lender” in connection with programs involving origination and/or servicing relationships between a bank partner and non-bank lending platform or program manager.
Certain recent litigation and regulatory enforcement has challenged, or is currently challenging, the characterization of bank partners as the “true lender” of loans in connection with programs involving origination and/or servicing relationships between a bank partner and non-bank lending platform or program manager.
These laws also are often subject to changes that could severely limit the operations of our business model. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to financial institutions also could impact the manner in which we conduct our business.
These laws also are subject to changes that could severely limit the operations of our business model. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to financial institutions also could impact the manner in which we conduct our business.
For a large portion of borrowers’ data used in our AI lending marketplace, we obtain borrowers’ data from national consumer reporting agencies, such as TransUnion, and rely on their services in order to process loan applications.
For a large portion of borrowers’ data used in our AI lending marketplace, we obtain borrowers’ data from national consumer reporting agencies, such as TransUnion, and rely on their services in order to process loan applications for our lending partners.
Our business depends on our employees, vendors, and service providers to process a large number of increasingly complex transactions, including transactions that involve significant dollar amounts and loan transactions that involve the use and disclosure of personal and business information.
Our business depends on our employees, vendors, and service providers to process a large number of increasingly complex transactions, including transactions that involve significant dollar amounts and loan transactions that involve the use and disclosure of sensitive personal and business information.
The nature of our business is such that our financial statements involve a number of complex accounting policies, many of which involve significant elements of judgment, including determinations regarding the consolidation of variable interest entities, determinations regarding the fair value of financial assets and liabilities (including loans, notes receivable, payable to securitization note holders and residual certificate holders, servicing assets and liabilities, and trailing fee liabilities) and the appropriate classification of various items within our financial statements.
The nature of our business is such that our financial statements involve a number of complex accounting policies, many of which involve significant elements of judgment, including determinations regarding the consolidation of variable interest entities, determinations regarding the fair value of financial assets and liabilities (including loans, line of credit receivable, notes receivable, payable to securitization note holders and residual certificate holders, servicing assets and liabilities, and trailing fee liabilities) and the appropriate classification of various items within our financial statements.
Our overall operating efficiency and margins further depend in part on our ability to maintain a high degree of automation in our loan application process and achieve incremental improvements in the degree of automation.
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.
Accordingly, we may need to engage in equity, debt or convertible debt financings to secure additional funds. If we raise additional funds by issuing equity securities or securities convertible into equity securities, our stockholders may experience dilution.
Accordingly, we may need to engage in equity, equity-linked or debt financings to secure additional funds. If we raise additional funds by issuing equity securities or securities convertible into equity securities, our stockholders may experience dilution.
Further, we do not have control over any content on loan aggregator websites, and it is possible that our brand and reputation may be adversely affected by being associated with such content. An unsatisfied borrower could also seek to bring claims against us based on the content presented on a loan aggregator’s website.
Further, we do not have control over any content on loan aggregator websites unrelated to our product, and it is possible that our brand and reputation may be adversely affected by being associated with such content. An unsatisfied borrower could also seek to bring claims against us based on the content presented on a loan aggregator’s website.
In the event of continued 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 further relying on our balance sheet to support funding, each of which could adversely affect our business, financial condition and results of operations.
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.
Further, although we attempt to verify the income, employment and education information provided by certain selected applicants, we cannot guarantee the accuracy of applicant information. Our fraud models rely in part on data we receive from a number of third-party verification vendors, data collected from applicants, and our experience gained through monitoring the performance of borrowers over time.
Further, although we attempt to verify the income, employment and education information provided by applicants, we cannot guarantee the accuracy of applicant information. Our fraud models rely in part on data we receive from a number of third-party verification vendors, data collected from applicants, and our experience gained through monitoring the performance of borrowers over time.
If those representations and warranties were not accurate when made and are not timely cured or incurable, we may be required to repurchase the underlying loans. Failure to repurchase such loans could constitute a default, an event of default or termination event under the agreements governing our various arrangements or transactions and could require us to indemnify certain financing parties.
If those representations and warranties were not accurate when made and are not timely cured or incurable, we may be required to repurchase the underlying loans. Failure to repurchase such loans could constitute a default or termination event under the agreements governing our various arrangements or transactions and could require us to indemnify certain financing parties.
However, the expansion of our loan offerings beyond unsecured personal loans, such as auto loans and home equity lines of credit, may cause fluctuations of such percentage from period to period depending on the loan offering mix. As a result of these factors, our revenue may further decline, and our financial performance may continue to be adversely affected.
However, the expansion of loan offerings on our platform beyond unsecured personal loans, such as auto financing and home equity lines of credit, may cause fluctuations of such percentage from period to period depending on the loan offering mix. As a result of these factors, our revenue may further decline, and our financial performance may continue to be adversely affected.
In addition, the terms of our existing corporate debt agreements do, and any future debt agreements may, preclude us from paying dividends. As a result, capital appreciation of our common stock, if any, will be the only way for stockholders to realize any future gains on their investment for the foreseeable future. 84 Table of Contents
In addition, the terms of our existing corporate debt agreements do, and any future debt agreements may, preclude us from paying dividends. As a result, capital appreciation of our common stock, if any, will be the only way for stockholders to realize any future gains on their investment for the foreseeable future. 86 Table of Contents
In our asset-backed securitizations, pass-through certificate transactions, warehouse credit facilities and whole loan sale arrangements, we make numerous representations and warranties concerning the characteristics of the Upstart-powered loans sold and transferred in connection with such transactions, including representations and warranties that the loans meet the eligibility requirements of those facilities and of institutional investors.
In our asset-backed securitizations, pass-through certificate transactions, warehouse credit facilities, whole loan sale arrangements and other commercial transactions, we make numerous representations and warranties concerning the characteristics of the Upstart-powered loans sold and transferred in connection with such transactions, including representations and warranties that the loans meet the eligibility requirements of those facilities and of institutional investors.
If our AI models are unable to accurately reflect the credit risk of loans under such economic conditions, we, our 30 Table of Contents 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.
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 29 Table of Contents institutional investors.
In addition, a number of participants in the consumer financial services industry have been the subject of putative class action lawsuits, state attorney general actions and other state regulatory actions, federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive or abusive acts or practices, violations of state licensing and lending laws, including state usury and disclosure laws, actions alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases, and allegations of noncompliance with various state and federal laws and regulations relating to originating, servicing, and collecting consumer finance loans and other consumer financial services and products.
In addition, a number of participants in the consumer financial services industry have been the subject of putative class action lawsuits, state attorney general actions and other state regulatory actions or federal regulatory enforcement actions alleging noncompliance with various laws and regulations relating to originating, servicing and collecting consumer loans and providing consumer financial services and products, including actions relating to alleged unfair, deceptive or abusive acts or practices, violations of state licensing and lending laws, including state usury and disclosure laws and actions alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases.
Borrowers may prepay a loan at any time without penalty, which could reduce our servicing fees and deter our lending partners and institutional investors from investing in loans facilitated through our lending marketplace. A borrower may decide to prepay all or a portion of the remaining principal amount on a loan at any time without penalty.
Borrowers may prepay a loan at any time without penalty, which could reduce our servicing fees and deter our lending partners and institutional investors from investing in loans facilitated through our lending marketplace. A borrower may decide to prepay all or a portion of the outstanding principal amount on a loan at any time without penalty.
A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other existing or future indebtedness.
A default under the applicable Indenture or the fundamental change itself could also lead to a default under agreements governing our other existing or future indebtedness.
In addition, the publication of information arising from our agreement with the LDF or the SBPC, including the reports published by Relman, could lead to additional regulatory scrutiny for our lending partners. We have been subject to other governmental inquiries on this topic.
In addition, the publication of information arising from our agreement with the LDF and the SBPC, including the reports published by Relman, could lead to additional regulatory scrutiny for us or our lending partners. We have been subject to other governmental inquiries on this topic.
In addition, many governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal data.
In addition, many governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal information.
Further, any negative publicity related to any of our third-party partners, including any publicity related to quality standards or safety concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure. 59 Table of Contents We incorporate technology from third parties into our platform.
Further, any negative publicity related to any of our third-party partners, including any 60 Table of Contents publicity related to quality standards or safety concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure. We incorporate technology from third parties into our platform.
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.
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 51 Table of Contents 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.
Additionally, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted.
Additionally, upon conversion of the Notes, as applicable, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted.
If we are unable to realize the expected operational efficiencies or cost savings from the reductions in our workforce, or if we experience significant adverse consequences as a result, our business, financial conditions and results of operations may be adversely affected.
If we are unable to realize the expected operational efficiencies or cost savings from the reductions in our workforce, or if we experience significant adverse consequences as a result, our business, financial condition and results of operations may be adversely affected.
See 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 51 Table of Contents 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.
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.
Any negative publicity or public perception of Upstart-powered loans or other similar consumer loans or the consumer lending service we provide may also result in us being subject to more restrictive laws and regulations and potential investigations and enforcement actions.
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.
The complaint alleges that the defendants’ acquisition, collection and enforcement of the bank’s credit card receivables violated New York’s civil usury law and that, as in Madden, the defendants, as non-bank entities, are not entitled to the benefit of federal preemption of state usury law.
The complaint alleged that the defendants’ acquisition, collection and enforcement of the bank’s credit card receivables violated New York’s civil usury law and that, as in Madden , the defendants, as non-bank entities, are not entitled to the benefit of federal preemption of state usury law.
Following the enactment of the CCPA, certain states, including but not limited to Texas, Virginia, Colorado and Utah, have enacted, and other states are proposing to enact, laws and regulations that impose obligations similar to the CCPA or that otherwise involve significant obligations and restrictions.
Following the enactment of the CCPA, certain states, including but not limited to Texas, Virginia, Colorado, Maryland, Oregon and Utah, have enacted, and other states are proposing to enact, laws and regulations that impose obligations similar to the CCPA or that otherwise involve significant obligations and restrictions.
As of December 31, 2023, a valuation allowance has been recorded to recognize only deferred tax assets that are more likely than not to be realized in the United States federal, state and local tax jurisdictions.
As of December 31, 2024, a valuation allowance has been recorded to recognize only deferred tax assets that are more likely than not to be realized in the United States federal, state and local tax jurisdictions.
If we fail to effectively follow such procedures we may, among other things, be limited in our ability to secure the collateral associated with loans issued through our auto lending marketplace. 68 Table of Contents 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.
If we fail to effectively follow such procedures we may, among other things, be limited in our ability to secure the collateral associated with loans issued through our auto lending marketplace. 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.
In particular, interest rates of Upstart-powered loans have always been and are currently less than 36%, as compared to the triple-digit interest rates of many payday or small dollar loans that have been subject to such criticism.
In particular, interest rates of Upstart-powered consumer loans have always been and are currently less than 36% APR, as compared to the triple-digit interest rates of many payday or small dollar loans that have been subject to such criticism.
For example, the GLBA includes limitations on financial institutions’ disclosure of nonpublic personal information about a consumer to non-affiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by non-affiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy notices and practices with respect to information sharing with affiliated and unaffiliated entities as well as to safeguard personal borrower information.
For example, the GLBA includes limitations on financial institutions’ disclosure of nonpublic personal information 72 Table of Contents about a consumer to non-affiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by non-affiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy notices and practices with respect to information sharing with affiliated and unaffiliated entities as well as to safeguard personal borrower information.
If we are unable to comply with such laws and regulations, we could lose one or more of our licenses or authorizations, become subject to greater scrutiny by regulatory agencies or become subject to sanctions or litigation, which may have an adverse effect on our ability to perform our servicing obligations or make our marketplace available to borrowers in particular states.
Overall, if we are unable to comply with such laws and regulations governing servicing activities, we could lose one or more of our licenses or authorizations, become subject to greater scrutiny by regulatory agencies or become subject to sanctions or litigation, which may have an adverse effect on our ability to perform our servicing obligations or make our marketplace available to borrowers in particular states.
We must comply with regulatory regimes or facilitate compliance with regulatory regimes on behalf of our lending partners that are independently subject to federal and/or state oversight by bank regulators, including those applicable to our referral and marketing services, consumer credit transactions, loan servicing and collection 65 Table of Contents activities and the purchase and sale of whole loans and other related transactions.
We must comply with regulatory regimes or facilitate compliance with regulatory regimes on behalf of our lending partners that are independently subject to federal and/or state oversight by bank regulators, including those applicable to our referral and marketing services, consumer credit transactions, loan servicing and collection activities and the purchase and sale of whole loans and other related transactions.
Our business involves developing and operating an online lending marketplace that provides our lending partners 72 Table of Contents with access to technology, including proprietary AI models, and related services, so lending partners can assess the credit risk of potential borrowers and offer loans online, and our revenue derives primarily from fees based on the platform and referral services provided to our lending partners and loan servicing.
Our business involves developing and operating an online lending marketplace that provides our lending partners with access to technology, including proprietary AI models, and related services, so lending partners can assess the credit risk of potential borrowers and offer loans online, and our revenue derives primarily from fees based on the platform and referral services provided to our lending partners and loan servicing.
In addition, prospective lending partners undertake an extensive diligence review of our platform, compliance and servicing activities before choosing to partner with us. Further, the implementation of our AI lending model often involves shifts by the lending partner to a new software platform or changes in their operational procedures, which may involve significant time and expense to implement.
In addition, prospective lending partners undertake an extensive diligence review of our platform, compliance and servicing activities before choosing to partner with us. Further, the implementation of our AI models often involve shifts by the lending partner to a new software platform or changes in their operational procedures, which may involve significant time and expense to implement.
Further, we, our securitization vehicles and our institutional investors that purchase Upstart-powered loans originated by our lending partners rely on the ability, as subsequent holders of the loans, to continue charging 60 Table of Contents the interest rates and fee structures and enforce other contractual terms agreed to between the lending partners and the borrowers, as permitted under federal banking laws.
Further, we, our securitization vehicles and our institutional investors that purchase Upstart-powered loans originated by our lending partners rely on the ability, as subsequent holders of the loans, to continue charging the interest rates and fee structures and enforce other contractual terms agreed to between the lending partners and the borrowers, as permitted under federal banking laws.
The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of existing or new governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
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.
We may need to raise additional funds in the future, including through equity, debt or convertible debt financings, to support business growth and those funds may not be available on acceptable terms, or at all.
We may need to raise additional funds in the future, including through equity, equity-linked, or debt financings, to support business growth and those funds may not be available on acceptable terms, or at all.
It is also possible that such investment of resources may need to be delayed or deferred, as was the case with respect to the small business loan product when we decided to suspend its development in January 2023 due to the adverse macroeconomic conditions affecting our business at that time.
It is also possible that such investment of resources may need to be delayed or deferred, as was the case with respect to the small business loan product when we decided to suspend its development in January 43 Table of Contents 2023 due to the adverse macroeconomic conditions affecting our business at that time.
Factors that may cause fluctuations in our quarterly financial results include but are not limited to: 34 Table of Contents • general economic conditions, including economic slowdowns, recessions, interest rate changes, inflation, tightening of credit markets and disruptions in the banking sector; • our cost of borrowing money and access to loan funding sources; • our ability to improve the effectiveness and predictiveness of our AI models, including improvements that negatively impact transaction volume, such as lower approval rates; • our ability to attract new lending partners and institutional investors to our marketplace; • our ability to maintain relationships with existing lending partners and institutional investors; • our ability to maintain or increase loan volumes, and improve loan mix and the channels through which the loans, lending partners and loan funding are sourced; • our ability to maintain effective relationships with loan aggregators from which prospective borrowers access our website; • our ability to identify and prevent fraudulent activity and the impact of fraud prevention measures; • changes in the fair value of assets and liabilities on our balance sheet; • the timing and success of new products and services; • the effectiveness of our direct marketing and other marketing channels; • the amount and timing of operating expenses related to maintaining and expanding our business, operations and infrastructure, including acquiring new and maintaining existing lending partners and institutional investors and attracting borrowers to our marketplace; • the number and extent of prepayments of loans facilitated on our platform; • network outages or actual or perceived security breaches or incidents; • our involvement in litigation or regulatory enforcement efforts (or the threat thereof) or those that impact our industry generally; • the length of the onboarding process related to acquisitions of new lending partners; • changes in laws and regulations that impact our business; and • changes in the competitive dynamics of our industry, including consolidation among competitors or the development of competitive products by larger well-funded incumbents.
Factors that may cause fluctuations in our quarterly financial results include but are not limited to: • general economic conditions, including economic slowdowns, recessions, interest rate changes, inflation, tightening of credit markets and disruptions in the banking sector; • our cost of borrowing money and access to loan funding sources; • our ability to improve the effectiveness and predictiveness of our AI models, including improvements that negatively impact transaction volume, such as lower approval rates; • our ability to attract new lending partners and institutional investors to our marketplace; • our ability to maintain relationships with existing lending partners and institutional investors; • our ability to maintain or increase loan volumes, and improve loan mix and the channels through which the loans, lending partners and loan funding are sourced; • our ability to maintain effective relationships with loan aggregators from which prospective borrowers access our website; • our ability to identify and prevent fraudulent activity and the impact of fraud prevention measures; • changes in the fair value of assets and liabilities on our balance sheet; • the timing and success of new products and services; • the effectiveness of our direct marketing and other marketing channels; 34 Table of Contents • the amount and timing of operating expenses related to maintaining and expanding our business, operations and infrastructure, including acquiring new and maintaining existing lending partners and institutional investors and attracting borrowers to our marketplace; • the number and extent of prepayments of loans facilitated on our platform; • the availability and integrity of our network, products and services or infrastructure, or actual or perceived security breaches or incidents experienced by us or third parties that we rely on to operate our business; • our involvement in litigation or regulatory enforcement efforts (or the threat thereof) or those that impact our industry generally; • the length of the onboarding process related to acquisitions of new lending partners; • changes in laws and regulations, or interpretations of such laws and regulations, that impact our business; and • changes in the competitive dynamics of our industry, including consolidation among competitors or the development of competitive products by larger well-funded incumbents.
Furthermore, the correlation between UMI and the level of macroeconomic risks in terms of losses or defaults within Upstart-powered loan portfolios may not be as significant or meaningful as we expect.
Furthermore, the correlation between UMI and the level of macroeconomic risks in terms of losses or defaults within Upstart-powered unsecured personal loan portfolios may not be as significant or meaningful as we expect.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the Nasdaq Global Select Market.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the Nasdaq Global Select Market.
In the event that our AWS service agreements are terminated, or 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 in the event we must secure alternative cloud infrastructure services.
In the event that our AWS service agreements are terminated, or there is a 57 Table of Contents 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 in the event we must secure alternative cloud infrastructure services.
Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined 70 Table of Contents in our favor, could also cause significant harm to our reputation, lead to additional investigations and enforcement actions from other agencies or litigants, and further divert management attention and resources from the operation of our business.
Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation, lead to additional investigations and enforcement actions from other agencies or litigants, and further divert management attention and resources from the operation of our business.
Regardless, the settlement may also invite other states to initiate their own actions, and set their own regulatory standards through enforcement. In addition, in June 2019, private plaintiffs filed class action complaints against multiple traditional credit card securitization programs, including, Petersen, et al. v. Chase Card Funding, LLC, et al., (No. 1:19-cv-00741- 61 Table of Contents LJV-JJM (W.D.N.Y.
Regardless, the settlement may also invite other states to initiate their own actions, and set their own regulatory standards through enforcement. In addition, in June 2019, private plaintiffs filed class action complaints against multiple traditional credit card securitization programs, including, Petersen, et al. v. Chase Card Funding, LLC, et al., (No. 1:19-cv-00741-LJV-JJM (W.D.N.Y.
Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of consumers or lending partners, increased regulatory 57 Table of Contents scrutiny, fines or penalties, loss of revenue or liability for damages, any of which could adversely affect our business, financial condition and results of operations.
Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation, loss of consumers or lending partners, increased regulatory scrutiny, fines or penalties, loss of revenue or liability for damages, any of which could adversely affect our business, financial condition and results of operations.
Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate the consumer financial services industry in ways that make it 67 Table of Contents more difficult or costly for us to offer our AI lending marketplace and related services or facilitate the origination of loans for our lending partners.
Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate the consumer financial services industry in ways that make it more difficult or costly for us to offer our AI lending marketplace and related services or facilitate the origination of loans for our lending partners.
Our asset-backed securities have been subject to downgrades in the past, and any future downgrade or non-publication of ratings may increase the interest rates that are required to attract investment in such asset-backed securities, adversely impacting our ability to provide liquidity or financing to our lending partners and institutional 76 Table of Contents investors.
Our asset-backed securities have been subject to downgrades in the past, and any future downgrade or non-publication of ratings may increase the interest rates that are required to attract investment in such asset-backed securities, adversely impacting our ability to provide liquidity or financing to our lending partners and institutional investors.
If the CFPB, or another regulator, were to issue a consent decree or other similar order against us, this could also directly or indirectly affect our results of operations.
If the CFPB, or another regulator, were to issue a consent decree or other similar order against us or our lending partners, this could also directly or indirectly affect our results of operations.
For example, the quarterly vintages of core personal loans that originated in the first quarter of 2021 through the second quarter of 2023 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.
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.
If we are unable to effectively manage the foregoing risks, our growth prospects, business, financial condition and results of operations could be adversely affected. 43 Table of Contents Misconduct and errors by our employees, former employees, vendors, or service providers could harm our reputation and subject us to significant legal liability.
If we are unable to effectively manage the foregoing risks, our growth prospects, business, financial condition and results of operations could be adversely affected. Misconduct and errors by our employees, former employees, vendors, or service providers could harm our reputation and subject us to significant legal liability.
Therefore, it is possible that new laws and regulations will be adopted in the United States, or existing laws and regulations may be interpreted in new ways, that would affect the operation of our marketplace and the way in which we use artificial intelligence and machine learning technology, including with respect to fair lending laws.
Therefore, it is possible that new laws and regulations will be adopted in the United States, or existing laws and regulations may be interpreted in new ways, that would affect the operation of our marketplace and the way in which we use AI and machine learning technology, including with respect to fair lending laws.
Although we have reserved for potential payments of past tax liabilities on our financial statements, a successful assertion by one or more tax authorities could result in substantial tax liabilities in excess of such reserves as well as penalties and interest, and could harm our business, financial condition and results of operations.
Although we have reserved for potential payments of 80 Table of Contents past tax liabilities on our financial statements, a successful assertion by one or more tax authorities could result in substantial tax liabilities in excess of such reserves as well as penalties and interest, and could harm our business, financial condition and results of operations.
Commitments and Contingencies”; regulatory activity; and the overall user experience of our platform. Negative publicity or negative public perception of these factors, even if inaccurate, could adversely affect our brand and reputation.
Commitments and Contingencies” ; regulatory activity; and the overall user experience of our marketplace. Negative publicity or negative public perception of these factors, even if inaccurate, could adversely affect our brand and reputation.
A lack of future taxable income would adversely affect our ability to utilize NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income.
A lack of future taxable income would adversely affect our ability to utilize NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its 79 Table of Contents ability to utilize its NOLs to offset future taxable income.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThese services include Web Application Penetration Testing, Infrastructure security testing, NIST assessments, third party partner due diligence audits, consultant engagements, incident response preparedness, and vendor security review.
Biggest changeThese services include product penetration testing, third party partner due diligence audits, security controls assessment, incident response preparedness, and vendor security review.
“ Risk Factors ” of this Annual Report on Form 10-K, including the risk factors titled “ —Security breaches and incidents compromising borrowers’ confidential information that we store may harm our reputation, adversely affect our results of operations and expose us to liability ”. 85 Table of Contents Governance One of the key functions of our Board of Directors is informed oversight of our risk management process, including risks from cybersecurity threats.
“ Risk Factors ” of this Annual Report on Form 10-K, including the risk factors titled “ —Security breaches and incidents compromising borrowers’ confidential information that we store may harm our reputation, adversely affect our results of operations and expose us to liability ”. 87 Table of Contents Governance One of the key functions of our Board of Directors is informed oversight of our risk management process, including risks from cybersecurity threats.
As part of our overall risk management system, we assess our safeguards in collaboration with various functional teams, including Information Security, Information Technology, Risk and Legal, and train our employees on these safeguards.
As part of our overall risk management system, we assess our safeguards in collaboration with various functional teams, including Information Security, Engineering, Risk and Legal, and train our employees on these safeguards.
We have a set of company-wide policies and procedures concerning cybersecurity matters that include security risk assessment, identity and access control, vendor security and network security. There are other policies related to cybersecurity involving employees' use of company equipment and resources, generative AI, remote work and workplace security and safety.
We have a set of company-wide policies and procedures concerning cybersecurity matters that include security risk assessment, identity and access control, vendor security and vulnerability management. There are other policies related to cybersecurity involving employees' use of company equipment and resources, generative AI, remote work and workplace security and safety.
Our Chief Information Security Officer works closely with a team of cybersecurity professionals with extensive experience and expertise in cybersecurity threat assessments and detection, incident response and mitigation.
Our Chief Information Security Officer works closely with a team of cybersecurity professionals with extensive experience and expertise in cybersecurity control development, threat assessments, detection & incident response and mitigation.
Personnel at all levels and teams are required to receive periodic security awareness training to ensure that they understand our cybersecurity policies and their roles in protecting our information systems or any information residing therein.
Security is a shared responsibility, and personnel at all levels and teams are required to receive periodic security awareness training to ensure that they understand our cybersecurity policies and their roles in protecting our information systems or any information residing therein.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to our headquarters, we lease 146,024 square feet of office space for origination and servicing operations in Columbus, Ohio expiring in August 2029 and we lease 12,493 square feet of office space in Austin, Texas expiring in February 2028. We lease all of our facilities and do not own any real property.
Biggest changeIn addition to our headquarters, we lease 54,870 square feet of office space in Columbus, Ohio expiring in June 2027, 146,024 square feet of office space for origination and servicing operations in Columbus, Ohio expiring in August 2029, 12,493 square feet of office space in Austin, Texas expiring in March 2028, and have an agreement to use 507 square feet of office space in New York, New York expiring in March 2025.
We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations.
We lease all of our facilities and do not own any real property. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations.
ITEM 2. PROPERTIES Our corporate headquarters are located in San Mateo, California and Columbus, Ohio and consist of 108,015 square feet and 54,870 square feet of space, respectively, under leases that expire in February 2028 and June 2027, respectively.
ITEM 2. PROPERTIES Our corporate headquarters is located in San Mateo, California and consists of 108,015 square feet of space under leases that expire in February 2028.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, please see “ Note 13. Commitments and Contingencies ” in Part II, Item 8 of this Annual Report on Form 10-K and “ Risk Factors ” in Part I, Item 1A of this Annual Report on Form 10-K incorporated herein by reference. ITEM 4.
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, please see “ Note 12. Commitments and Contingencies ” in Part II, Item 8 of this Annual Report on Form 10-K and “ Risk Factors ” in Part I, Item 1A of this Annual Report on Form 10-K incorporated herein by reference. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 86 Table of Contents PART II
MINE SAFETY DISCLOSURES Not applicable. 88 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 86 PART II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 87 Item 6. [RESERVED] 88 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 89 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 108 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 88 PART II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 89 Item 6. [RESERVED] 91 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 92 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 112 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUnregistered Sales of Equity Securities There were no repurchases of the Company’s common stock during the three months ended December 31, 2023. Issuer Purchases of Equity Securities None.
Biggest changeUnregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities There were no repurchases of the Company’s common stock during the three months ended December 31, 2024.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on December 16, 2020, the date our common stock began trading on the Nasdaq Global Select Market, and its relative performance is tracked through December 31, 2023.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on December 16, 2020, the date our common stock began trading on the Nasdaq Global Select Market, and its relative performance is tracked through December 31, 2024.
The returns shown are based on historical results and are not intended to suggest future performance. 87 Table of Contents This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Upstart Holdings, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
The returns shown are based on historical results and are not intended to suggest future performance. 89 Table of Contents This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Upstart Holdings, Inc. under the Securities Act of 1933, as amended, or the Exchange Act. 90 Table of Contents
Holders of Record As of February 8, 2024, we had 160 holders of record of our common stock.
Holders of Record As of February 6, 2025, we had 159 holders of record of our common stock.
Removed
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2024 Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2021 2022 2023 Total revenue $ 848,589 $ 842,444 $ 513,562 Net income (loss) 135,443 (108,665) (240,132) Net Income (Loss) Margin 16 % (13) % (47) % Adjusted to exclude the following: Stock-based compensation and certain payroll tax expenses (1) $ 87,461 $ 128,038 $ 178,400 Depreciation and amortization 7,541 13,513 24,903 Reorganization expenses — — 15,536 Expense on convertible notes 1,976 4,684 4,706 Net gain on lease modification — — (737) (Benefit) provision for income taxes (1,712) (409) 107 Acquisition-related costs 1,237 — — Adjusted EBITDA $ 231,946 $ 37,161 $ (17,217) Adjusted EBITDA Margin 27 % 4 % (3) % _________ 104 Table of Contents Upstart Holdings, Inc.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Year Ended December 31, 2022 2023 2024 Total revenue $ 842,444 $ 513,562 $ 636,528 Net loss (108,665) (240,132) (128,581) Net Loss Margin (13) % (47) % (20) % Adjusted to exclude the following: Stock-based compensation and certain payroll tax expenses (1) $ 128,038 $ 178,400 $ 139,726 Depreciation and amortization 13,513 24,903 20,549 Reorganization expenses — 15,536 4,382 Expense on convertible notes 4,684 4,706 7,694 Gain on debt extinguishment — — (33,361) Net gain on lease modification — (737) — Provision for income taxes (409) 107 185 Adjusted EBITDA $ 37,161 $ (17,217) $ 10,594 Adjusted EBITDA Margin 4 % (3) % 2 % _________ (1) Payroll tax expenses include the employer payroll tax-related expense on employee stock transactions, as the amount is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business. 108 Table of Contents Upstart Holdings, Inc.
Adjusted Net Income (Loss) Per Share is calculated by dividing Adjusted Net Income (Loss) Per Share by the weighted-average common shares outstanding.
Adjusted Net Income (Loss) Per Share is calculated by dividing Adjusted Net Income (Loss) Per Share by the weighted-average common shares outstanding.
Percentage of Loans Fully Automated 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 divided by the Transaction Volume, Number of Loans in the same period.
Percentage of Loans Fully Automated 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.
Overview Upstart applies artificial intelligence 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.
Overview 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.
While we believe that our cash on hand will be sufficient to meet our liquidity needs for at least the next 12 months, our future capital requirements will depend on multiple factors, including our revenue growth, working capital requirements, volume of loan purchases for product development purposes or during market downturns, and our capital expenditures.
While we believe that our cash and cash equivalents on hand will be sufficient to meet our liquidity needs for at least the next 12 months, our future capital requirements will depend on multiple factors, including our revenue growth, working capital requirements, volume of loan purchases for product development purposes or during market downturns, and our capital expenditures.
Upstart pays these lending partners a one-time loan premium fee upon completion of the minimum holding periods. Upstart also pays lending partners monthly loan trailing fees based on the amount and timing of principal and interest payments made by borrowers of the underlying loans.
Upstart pays these lending partners a one-time loan premium fee upon completion of the minimum holding periods. Upstart also pays certain lending partners monthly loan trailing fees based on the amount and timing of principal and interest payments made by borrowers of the underlying loans.
Lending Partner 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.
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.
Interest income, interest expense, and fair value adjustments, net also includes realized gain (loss) on the sale of loans. Interest income, interest expense, and fair value adjustments, net can fluctuate based on the fair value of financial instruments held on our consolidated balance sheets.
Interest income, interest expense, and fair value adjustments, net also includes realized gain or loss on the sale of loans. Interest income, interest expense, and fair value adjustments, net can fluctuate based on the fair value of financial instruments held on our consolidated balance sheets.
Some of these limitations are as follows: • Although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense and certain employer payroll taxes on employee stock transactions.
Some of these limitations are as follows: • Although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense and certain employer payroll taxes on employee stock transactions.
The following table presents a reconciliation of income (loss) from operations to Contribution Profit and Contribution Margin. We define Operating Margin as our income (loss) from operations divided by revenue from fees, net.
The following table presents a reconciliation of loss from operations to Contribution Profit and Contribution Margin. We define Operating Margin as our loss from operations divided by revenue from fees, net.
We expect to increase the size of our general and administrative function to support the further growth of our business. As a result, we expect that our general, administrative and other expenses will increase in absolute dollars but may fluctuate as a percentage of our total revenue from period to period. 97 Table of Contents Upstart Holdings, Inc.
We expect to increase the size of our general and administrative function to support the further growth of our business. As a result, we expect that our general, administrative and other expenses will increase in absolute dollars but may fluctuate as a percentage of our total revenue from period to period. 100 Table of Contents Upstart Holdings, Inc.
We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share are useful measures for investors in evaluating our ability to generate earnings, more readily compare between past and future years, and provide comparability of our performance with the performance of other companies.
We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share are useful measures for investors in evaluating our ability to generate earnings, more readily compare between past and future periods, and provide comparability of our performance with the performance of other companies.
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 under their own brand, according to their own business and regulatory requirements.
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.
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expenses as well as certain items that are not related to core business and ongoing operations, such as reorganization expenses and net gain on a lease modification.
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expenses as well as certain items that are not related to core business and ongoing operations, such as gain on debt extinguishment, net gain on lease modification and reorganization expenses.
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 2023 is currently expected to deliver returns in line with a blended target of 9.0%.
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%.
(2) Represents a non-GAAP financial measure. See the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures ” for further information. Transaction Volume We define Transaction Volume, Dollars as the total principal of loan originations facilitated on our marketplace during the years presented.
(2) Represents a non-GAAP financial measure. See the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures ” for further information. Transaction Volume 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.
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 a committed capital structure. Our credit decisioning process takes into account macroeconomic conditions, such as unemployment levels and personal savings rates, that we receive from third party sources.
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.
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 on our business, financial condition, and results of operations.
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.
Transaction Volume can also be driven by 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 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.
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 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 peri od.
Variances between targeted and actual returns for these loans are expected to be higher, as the underlying risk models are in the early phases of their development cycle. The initial target returns for these products are also generally lower than comparative market benchmarks.
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.
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 consolidated balance sheets. Upstart currently acts as loan servicer for substantially all outstanding loans facilitated 96 Table of Contents Upstart Holdings, Inc.
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 consolidated balance sheets. Upstart currently acts as loan servicer for substantially all outstanding loans facilitated through the Upstart marketplace.
We define Transaction Volume, Number of Loans as the number of loan originations facilitated on our marketplace during the years presented. Increases in Transaction Volume are dependent on our loan funding programs having sufficient access to capital.
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.
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 associated with the January 2023 Plan.
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.
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.
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. 94 Table of Contents Upstart Holdings, Inc.
Liquidity and Capital Resources Sources and Uses of Cash As of December 31, 2023, our primary source of liquidity was cash of $368.4 million. We also held $5.0 million of investments in certificates of deposit with maturities greater than three months as of December 31, 2023.
Liquidity and Capital Resources Sources and Uses of Cash and Cash Equivalents As of December 31, 2024, our primary source of liquidity was unrestricted cash and cash equivalents of $788.4 million. We also held $5.0 million of investments in certificates of deposit with maturities greater than three months as of December 31, 2024.
In response to this challenging macroeconomic environment where many lenders and credit investors have significantly reduced or paused investments in Upstart-powered loans, we announced reductions in workforce in November 2022 (“November 2022 Plan”) and January 2023 (“January 2023 Plan”) that resulted in the termination of approximately 7% and 20% of our workforce, respectively.
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.
In 2022, we introduced a new offering of personal loans for borrowers interested in small dollar loans, and in the third quarter of 2023, we launched a HELOC product on our platform. We may incur expenses to support the launch of new products and fund early loan originations.
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.
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. 92 Table of Contents Upstart Holdings, Inc.
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.
In 2023, we secured several committed capital arrangements with institutional investors, which have delivered, and are expected to deliver, a significant amount of loan funding to the Upstart marketplace.
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.
These costs do not include reorganization expenses associated with the January 2023 Plan. (2) 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.
These costs do not include reorganization expenses. (2) 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.
Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP. The following table provides a reconciliation of net income (loss) and Net Income (Loss) Margin to Adjusted EBITDA Margin. We define Net Income (Loss) Margin as net income (loss) divided by total revenue.
Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP. The following table provides a reconciliation of net loss and Net Loss Margin to Adjusted EBITDA Margin.
As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP.
As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP. 105 Table of Contents Upstart Holdings, Inc.
The following table provides a calculation of Contribution Profit and Contribution Margin: Year Ended December 31, 2021 2022 2023 Revenue from fees, net $ 801,275 $ 907,272 $ 560,431 Borrower acquisition costs (1) (307,613) (302,713) (90,517) Borrower verification and servicing costs (2) (95,782) (157,808) (116,620) Total direct expenses (403,395) (460,521) (207,137) Contribution Profit $ 397,880 $ 446,751 $ 353,294 Contribution Margin 50 % 49 % 63 % _______ (1) 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.
The following table provides a calculation of Contribution Profit and Contribution Margin: Year Ended December 31, 2022 2023 2024 Revenue from fees, net $ 907,272 $ 560,431 $ 635,466 Borrower acquisition costs (1) (302,713) (90,517) (125,017) Borrower verification and servicing costs (2) (157,808) (116,620) (128,916) Total direct expenses (460,521) (207,137) (253,933) Contribution Profit $ 446,751 $ 353,294 $ 381,533 Contribution Margin 49 % 63 % 60 % _______ (1) 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.
Adjusted EBITDA and Adjusted EBITDA Margin includes interest expense from corporate debt and warehouse credit facilities which is incurred in the course of earning corresponding interest income.
We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. Adjusted EBITDA and Adjusted EBITDA Margin includes interest expense from corporate debt and warehouse credit facilities which is incurred in the course of earning corresponding interest income.
Starting in 2022, we increased the utilization of our balance sheet to fund loans to fill gaps in investor demand, to aid in price discovery, and to hold loans on our balance sheet for research and development purposes (“R&D Loans”), including to test and evaluate our AI models for these loans.
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.
In addition, we earn a smaller portion of our revenue from interest income for loans held on our balance sheet and gain or (loss) generated through our capital markets programs. 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.
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 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 associated with the January 2023 Plan.
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. 106 Table of Contents Upstart Holdings, Inc.
These fees are combined for accounting purposes as they represent a single performance obligation. We do not charge the borrowers on our platform any referral, platform or other similar fees for our loan matching services.
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.
The decrease in servicing fees was primarily due to a decrease in the outstanding principal of serviced loans, as well as a decrease in net gain related to loan servicing rights upon loan sales. 99 Table of Contents Upstart Holdings, Inc.
The decrease in servicing fees was primarily due to a decrease in the outstanding principal of serviced loans, partially offset by an increase in net gain related to loan servicing rights upon loan sales. 102 Table of Contents Upstart Holdings, Inc.
The following presents our key operating and financial metrics: Year Ended December 31, 2021 2022 2023 Transaction Volume, Dollars $ 11,751,762 $ 11,204,274 $ 4,645,669 Transaction Volume, Number of Loans (1) 1,314,591 1,129,672 437,659 Conversion Rate 23.7% 14.1% 9.7% Percentage of Loans Fully Automated 69% 75% 87% Contribution Profit (2) $ 397,880 $ 446,751 $ 353,294 Contribution Margin (2) 50% 49% 63% Adjusted EBITDA (2) $ 231,946 $ 37,161 $ (17,217) Adjusted EBITDA Margin (2) 27% 4% (3)% Adjusted Net Income (Loss) (2) $ 224,141 $ 19,373 $ (46,933) Adjusted Net Income (Loss) Per Share: Basic (2) $ 2.87 $ 0.23 $ (0.56) Diluted (2) $ 2.37 $ 0.21 $ (0.56) _______ (1) Transaction Volume, Number of Loans is shown in ones for the years presented.
The following presents our key operating and financial metrics: Year Ended December 31, 2022 2023 2024 Transaction Volume, Dollars $ 11,204,274 $ 4,645,669 $ 5,930,029 Transaction Volume, Number of Loans (1) 1,129,672 437,659 697,092 Conversion Rate 14.1% 9.7% 16.5% Percentage of Loans Fully Automated 75% 87% 91% Contribution Profit (2) $ 446,751 $ 353,294 $ 381,533 Contribution Margin (2) 49% 63% 60% Adjusted EBITDA (2) $ 37,161 $ (17,217) $ 10,594 Adjusted EBITDA Margin (2) 4% (3)% 2% Adjusted Net Income (Loss) (2) $ 19,373 $ (46,933) $ (17,834) Adjusted Net Income (Loss) Per Share: Basic (2) $ 0.23 $ (0.56) $ (0.20) Diluted (2) $ 0.21 $ (0.56) $ (0.20) _______ (1) Transaction Volume, Number of Loans is shown in ones for the years presented.
Year Ended December 31, 2021 2022 2023 Net income (loss) $ 135,443 $ (108,665) $ (240,132) Adjusted to exclude the following: Stock-based compensation and certain payroll tax expenses (1) 87,461 128,038 178,400 Reorganization expenses — — 15,536 Net gain on lease modification — — (737) Acquisition-related costs 1,237 — — Adjusted Net Income (Loss) $ 224,141 $ 19,373 $ (46,933) Net income (loss) per share: Basic $ 1.73 $ (1.31) $ (2.87) Diluted $ 1.43 $ (1.31) $ (2.87) Adjusted Net Income (Loss) per Share: Basic $ 2.87 $ 0.23 $ (0.56) Diluted $ 2.37 $ 0.21 $ (0.56) Weighted-average common shares outstanding: Basic 78,106,359 82,771,268 83,765,896 Diluted 94,772,641 92,023,924 83,765,896 _________ (1) Payroll tax expenses include the amount of employer payroll tax-related expense on employee stock transactions, as the amount is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.
Year Ended December 31, 2022 2023 2024 Net loss $ (108,665) $ (240,132) $ (128,581) Adjusted to exclude the following: Stock-based compensation and certain payroll tax expenses (1) 128,038 178,400 139,726 Reorganization expenses — 15,536 4,382 Gain on debt extinguishment — — (33,361) Net gain on lease modification — (737) — Adjusted Net Income (Loss) $ 19,373 $ (46,933) $ (17,834) Net loss per share: Basic $ (1.31) $ (2.87) $ (1.44) Diluted $ (1.31) $ (2.87) $ (1.44) Adjusted Net Income (Loss) Per Share: Basic $ 0.23 $ (0.56) $ (0.20) Diluted $ 0.21 $ (0.56) $ (0.20) Weighted-average common shares outstanding: Basic 82,771,268 83,765,896 89,450,038 Diluted 92,023,924 83,765,896 89,450,038 _________ (1) Payroll tax expenses include the amount of employer payroll tax-related expense on employee stock transactions, as the amount is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Other Income (Expense), Net Year Ended December 31, Change 2022 2023 $ % Other income (expense), net $ 9,473 $ 21,206 $ 11,733 124 % In the year ended December 31, 2023, other income (expense), net increased by $11.7 million, or 124%, compared to the prior year.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Other Income, Net Year Ended December 31, Change 2023 2024 $ % Other income, net $ 21,206 $ 18,793 $ (2,413) (11)% Other income, net decreased by $2.4 million, or 11%, in the year ended December 31, 2024 compared to the prior year.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Customer Operations Year Ended December 31, Change 2022 2023 $ % Customer operations $ 187,994 $ 150,418 $ (37,576) (20) % % of revenue 22 % 29 % Customer operations expenses decreased by $37.6 million, or 20%, in the year ended December 31, 2023, compared to the prior year.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Customer Operations Year Ended December 31, Change 2023 2024 $ % Customer operations $ 150,418 $ 157,996 $ 7,578 5 % % of revenue 29 % 25 % Customer operations expenses increased by $7.6 million, or 5%, in the year ended December 31, 2024, compared to the prior year.
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. R&D Loans are not yet part of our established capital markets programs or other loan funding programs with institutional investors.
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 quarterly vintages of core personal loans that originated in the first quarter 2021 through the second quarter 2023 are currently forecasted to underperform relative to their target returns. The core personal loans that originated in the third quarter of 2023 or later are currently forecasted to deliver returns in line with target yields.
However, the quarterly vintages of core personal loans that originated in the first quarter of 2021 through the first quarter of 2024 are currently forecasted to underperform relative to their target returns.
Borrower acquisition, verification and servicing costs are highly correlated with Transaction Volume, 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 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.
The Notes mature on 105 Table of Contents Upstart Holdings, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) August 15, 2026 unless earlier converted, redeemed, or repurchased in accordance with their terms. Refer to “ Note 10.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) earlier converted, redeemed, or repurchased in accordance with their terms. Refer to “ Note 8.
Composition of Balance Sheet Loan Portfolio As of December 31, 2023, we held $1,156.4 million of loans on our consolidated balance sheet. $411.1 million of these loans were originated for research and development purposes, primarily in support of our auto lending products and expansion of our unsecured personal loan product to new categories of borrowers.
Composition of Balance Sheet Loan Portfolio As of December 31, 2024, we held $806.3 million of loans on our consolidated balance sheet. $455.2 million of these loans were originated for research and development purposes, primarily in support of our auto lending products, HELOCs, and expansion of our unsecured personal loan product to new categories of 111 Table of Contents Upstart Holdings, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Year Ended December 31, 2021 2022 2023 Sales and marketing $ 6,059 $ 11,354 $ 8,166 Customer operations 6,251 9,355 10,683 Engineering and product development 39,191 72,169 110,381 General, administrative, and other 21,685 33,067 45,809 Total stock-based compensation $ 73,186 $ 125,945 $ 175,039 Revenue Revenue from Fees, Net The following table sets forth our revenue from fees, net in the years presented: Year Ended December 31, Change 2022 2023 $ % Platform and referral fees, net $ 732,237 $ 414,120 $ (318,117) (43) % Servicing and other fees, net 175,035 146,311 (28,724) (16) % Total revenue from fees, net $ 907,272 $ 560,431 $ (346,841) (38) % Revenue from fees, net decreased $346.8 million, or 38%, in the year ended December 31, 2023, compared to the prior year, due to a $318.1 million decrease in revenue from platform and referral fees, net and a $28.7 million decrease in servicing and other fees, net.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Year Ended December 31, 2022 2023 2024 Sales and marketing $ 11,354 $ 8,166 $ 11,705 Customer operations 9,355 10,683 7,038 Engineering and product development 72,169 110,381 70,786 General, administrative, and other 33,067 45,809 43,871 Total stock-based compensation $ 125,945 $ 175,039 $ 133,400 Revenue Revenue from Fees, Net The following table sets forth our revenue from fees, net in the years presented: Year Ended December 31, Change 2023 2024 $ % Platform and referral fees, net $ 414,120 $ 502,411 $ 88,291 21 % Servicing and other fees, net 146,311 133,055 (13,256) (9) % Total revenue from fees, net $ 560,431 $ 635,466 $ 75,035 13 % Revenue from fees, net increased $75.0 million, or 13%, in the year ended December 31, 2024, compared to the prior year, due to an $88.3 million increase in revenue from platform and referral fees, net and a $13.3 million decrease in servicing and other fees, net.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) 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.
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.
The increase was partially offset by a $24.1 million increase in interest expense due to an increase in borrowings compared to the prior year, including $6.7 million of interest expense recognized by consolidated securitization entities.
The increase was partially offset by an increase in interest expense due to an increase in borrowings, including an increase of $2.9 million recognized by consolidated securitization entities.
Year Ended December 31, 2021 2022 2023 Revenue from fees, net $ 801,275 $ 907,272 $ 560,431 Income (loss) from operations 140,881 (113,863) (256,525) Operating Margin 18 % (13) % (46) % Sales and marketing, net of borrower acquisition costs (1) $ 25,840 $ 43,063 $ 36,626 Customer operations, net of borrower verification and servicing costs (2) 21,797 30,186 33,798 Engineering and product development 133,999 237,247 280,138 General, administrative, and other 122,677 185,290 212,388 Interest income, interest expense, and fair value adjustments, net (47,314) 64,828 46,869 Contribution Profit $ 397,880 $ 446,751 $ 353,294 Contribution Margin 50 % 49 % 63 % _________ (1) Borrower acquisition costs were $307.6 million, $302.7 million, and $90.5 million for the year ended December 31, 2021, 2022 and 2023, respectively.
Year Ended December 31, 2022 2023 2024 Revenue from fees, net $ 907,272 $ 560,431 $ 635,466 Loss from operations (113,863) (256,525) (172,856) Operating Margin (13) % (46) % (27) % Sales and marketing, net of borrower acquisition costs (1) $ 43,063 $ 36,626 $ 41,783 Customer operations, net of borrower verification and servicing costs (2) 30,186 33,798 29,080 Engineering and product development 237,247 280,138 253,653 General, administrative, and other 185,290 212,388 230,935 Interest income, interest expense, and fair value adjustments, net 64,828 46,869 (1,062) Contribution Profit $ 446,751 $ 353,294 $ 381,533 Contribution Margin 49 % 63 % 60 % _________ (1) Borrower acquisition costs were $302.7 million, $90.5 million, and $125.0 million for the years ended December 31, 2022, 2023 and 2024, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Year Ended December 31, 2022 2023 Net cash used in operating activities $ (674,681) $ (160,493) Net cash used in investing activities (114,125) (118,455) Net cash provided by financing activities 130,032 214,268 Change in cash and restricted cash $ (658,774) $ (64,680) Net Cash from Operating Activities Our main sources of cash provided by operating activities are our revenue from fees earned under contracts with lending partners and institutional investors and interest income we receive for loans held on our balance sheet.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Cash Flows The following table summarizes our cash flows during the years indicated: Year Ended December 31, 2023 2024 Net cash provided by (used in) operating activities $ (111,712) $ 186,331 Net cash used in investing activities (118,455) (237,726) Net cash provided by financing activities 165,487 559,871 Change in cash, cash equivalents and restricted cash $ (64,680) $ 508,476 Net Cash from Operating Activities Our main sources of cash provided by operating activities are our revenue from fees earned under contracts with lending partners and institutional investors and interest income we receive for loans held on our balance sheet.
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 secured multiple committed capital arrangements with institutional investors in 2023, which delivered a significant amount of loan funding to the Upstart marketplace.
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.
The decrease was primarily due to a $212.2 million decrease in advertising and other traffic acquisition cost. As a percentage of total revenue, sales and marketing expenses decreased from 41% to 25%. 100 Table of Contents Upstart Holdings, Inc.
The increase was primarily due to a $34.5 million increase in advertising and other traffic acquisition costs and a $5.2 million increase in payroll and other personnel related expenses. As a percentage of total revenue, sales and marketing expenses increased from 25% to 26%. 103 Table of Contents Upstart Holdings, Inc.
Results of Operations The following table summarizes our historical consolidated statements of operations and comprehensive income (loss): Year Ended December 31, 2021 2022 2023 Revenue: Revenue from fees, net $ 801,275 $ 907,272 $ 560,431 Interest income, interest expense, and fair value adjustments, net: Interest income 20,634 105,580 168,996 Interest expense (3,274) (10,843) (34,894) Fair value and other adjustments 29,954 (159,565) (180,971) Interest income, expense, and fair value adjustments, net 47,314 (64,828) (46,869) Total revenue 848,589 842,444 513,562 Operating expenses (1) : Sales and marketing 333,453 345,776 127,143 Customer operations 117,579 187,994 150,418 Engineering and product development 133,999 237,247 280,138 General, administrative, and other 122,677 185,290 212,388 Total operating expenses 707,708 956,307 770,087 Income (loss) from operations 140,881 (113,863) (256,525) Other income (expense), net (5,174) 9,473 21,206 Expense on convertible notes (1,976) (4,684) (4,706) Net income (loss) before income taxes 133,731 (109,074) (240,025) (Benefit) provision for income taxes (1,712) (409) 107 Net income (loss) $ 135,443 $ (108,665) $ (240,132) ________ (1) Includes stock-based compensation expense as follows: 98 Table of Contents Upstart Holdings, Inc.
Results of Operations The following table summarizes our historical consolidated statements of operations and comprehensive loss: Year Ended December 31, 2022 2023 2024 Revenue: Revenue from fees, net $ 907,272 $ 560,431 $ 635,466 Interest income, interest expense, and fair value adjustments, net: Interest income 105,580 168,996 186,360 Interest expense (10,843) (34,894) (40,433) Fair value and other adjustments, net (159,565) (180,971) (144,865) Total interest income and fair value adjustments, net (64,828) (46,869) 1,062 Total revenue 842,444 513,562 636,528 Operating expenses (1) : Sales and marketing 345,776 127,143 166,800 Customer operations 187,994 150,418 157,996 Engineering and product development 237,247 280,138 253,653 General, administrative, and other 185,290 212,388 230,935 Total operating expenses 956,307 770,087 809,384 Loss from operations (113,863) (256,525) (172,856) Other income, net 9,473 21,206 18,793 Expense on convertible notes (4,684) (4,706) (7,694) Gain on debt extinguishment — — 33,361 Net loss before income taxes (109,074) (240,025) (128,396) (Benefit) provision for income taxes (409) 107 185 Net loss $ (108,665) $ (240,132) $ (128,581) ________ (1) Includes stock-based compensation expense as follows: 101 Table of Contents Upstart Holdings, Inc.
The increase was primarily driven by a $63.4 million increase in interest income, including a $19.7 million increase in interest income recognized by consolidated securitization entities, due to an increase in unpaid principal balance of loans held on the consolidated balance sheets.
The increase in interest income was primarily driven by an increase in the average outstanding principal balance of loans held on the consolidated balance sheets during the period, including $9.3 million of interest income recognized by consolidated securitization entities.
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.
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.
Engineering and Product Development Year Ended December 31, Change 2022 2023 $ % Engineering and product development $ 237,247 $ 280,138 $ 42,891 18 % % of revenue 28 % 55 % Engineering and product development expenses increased by $42.9 million, or 18%, for the year ended December 31, 2023, compared to the prior year.
Engineering and Product Development Year Ended December 31, Change 2023 2024 $ % Engineering and product development $ 280,138 $ 253,653 $ (26,485) (9) % % of revenue 55 % 40 % Engineering and product development expenses decreased by $26.5 million, or 9%, for the year ended December 31, 2024, compared to the prior year.
General, Administrative, and Other Year Ended December 31, Change 2022 2023 $ % General, administrative, and other $ 185,290 $ 212,388 $ 27,098 15 % % of revenue 22 % 41 % General, administrative, and other expenses increased by $27.1 million, or 15%, for the year ended December 31, 2023, compared to the prior year.
General, Administrative, and Other Year Ended December 31, Change 2023 2024 $ % General, administrative, and other $ 212,388 $ 230,935 $ 18,547 9 % % of revenue 41 % 36 % General, administrative, and other expenses increased by $18.5 million, or 9%, for the year ended December 31, 2024, compared to the prior year.
Fair Value Measurement ” in Part II, Item 8 of this Annual Report on Form 10-K.
Borrowings ” in Part II, Item 8 of this Annual Report on Form 10-K for further details on our Notes.
Borrowings ” in Part II, Item 8 of this Form 10-K for further details on our warehouse credit facilities. We lease office facilities under operating lease agreements which expire between 2027 and 2029. Our cash requirements related to these lease agreements are $70.8 million, of which $15.0 million is expected to be paid within the next 12 months.
Our cash requirements related to these lease agreements are $55.9 million, of which $15.4 million is expected to be paid within the next 12 months. Refer to “ Note 11. Leases ” in Part II, Item 8 of this Annual Report on Form 10-K for further details on our operating lease obligations.
Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. Further, if we are unable to raise additional capital when our cash balances and cash generated by operations are insufficient to satisfy liquidity needs, our results of operations and financial condition would be materially and adversely impacted.
Further, if we are unable to raise additional capital when our cash and cash equivalents balances and cash generated by operations are insufficient to satisfy liquidity needs, our results of operations and financial condition would be materially and adversely impacted. 110 Table of Contents Upstart Holdings, Inc.
The increase in non-cash adjustments was primarily related to $234.8 million of changes in fair value of financial instruments held on the Company’s balance sheet, $175.0 million of stock-based compensation, and $24.9 million of depreciation and amortization, partially offset by $13.7 million gain on loan servicing rights.
The increase in non-cash adjustments was primarily related to $125.0 million of changes in fair value of loans held on the Company’s balance sheet, $133.4 million of stock-based compensation, $20.5 million of depreciation and amortization, and $16.5 million of changes in fair value of servicing assets, partially offset by $33.4 million of gain on debt extinguishment.
The decrease of the platform and referral fees, net was primarily driven by a 61% decrease in the Transaction Volume, Number of Loans from 1,129,672 in the year ended December 31, 2022 to 437,659 in the year ended December 31, 2023, which was partially offset by increases in prices of our services.
The increase of the platform and referral fees, net was primarily driven by a 59% increase in the Transaction Volume, Number of Loans from 437,659 in the year ended December 31, 2023 to 697,092 in the year ended December 31, 2024.
Net cash used in operating activities was $160.5 million for the year ended December 31, 2023, which primarily consisted of adjustments for non-cash items of $420.2 million, net loss of $240.1 million, and $340.6 million in net changes in operating assets and liabilities.
Net cash provided by operating activities was $186.3 million for the year ended December 31, 2024, which consisted of adjustments for non-cash items of $253.4 million, $61.5 million in net changes in operating assets and liabilities, and net loss of $128.6 million.
The decrease in net changes in operating assets and liabilities was primarily related to $491.9 million in net purchases of loans held-for-sale, a $43.0 million decrease in amounts payable to investors, a $8.9 million increase in other assets, a $6.8 million decrease in operating lease liabilities and right-of-use assets, and a $6.1 million decrease in accounts payable partially offset by $189.7 million in principal payments received for loans held-for-sale, $24.8 million in principal payments received for loans held in consolidated securitization and a $2.2 million increase in accrued expenses.
The increase in net changes in operating assets and liabilities was primarily related to $192.9 million in principal payments received for loans held-for-sale, $48.0 million in principal payments received for loans held in consolidated securitization, and $44.1 million of changes in accrued expenses and other liabilities, partially offset by $207.3 million of net payments from purchase and sale of loans held-for-sale, $8.7 million of changes in other assets, and $6.7 million of payments on beneficial interest liabilities.
To address these limitations, we provide a reconciliation of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share to loss from operations and net income (loss), respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) To address these limitations, we provide a reconciliation of Contribution Profit, Contribution Margin, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share to income (loss) from operations and net income (loss), respectively.
We have been successful in increasing the level of loan automation on the platform over the past few years while simultaneously holding fraud rates constant and at very low levels.
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 o rigination process on our platform.
We also held $566.2 million of core personal loans which would otherwise be immediately purchased by institutional investors and $179.1 million of core personal loans held by the consolidated securitization. We will continue to utilize our capital to support research and development activities and, at times, as a funding source for core personal loans during periods of marketplace funding constraints.
We will continue to utilize our capital to support research and development activities and, at times, as a funding source for core personal loans during periods of marketplace funding constraints.
We track this metric to understand the impact of improvements to the efficiency of our borrower funnel on our overall growth.
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 97 Table of Contents Upstart Holdings, Inc.
Operating Expenses Sales and Marketing Year Ended December 31, Change 2022 2023 $ % Sales and marketing $ 345,776 $ 127,143 $ (218,633) (63) % % of revenue 41 % 25 % Sales and marketing expenses decreased by $218.6 million, or 63%, in the year ended December 31, 2023 compared to the prior year.
Operating Expenses Sales and Marketing Year Ended December 31, Change 2023 2024 $ % Sales and marketing $ 127,143 $ 166,800 $ 39,657 31 % % of revenue 25 % 26 % Sales and marketing expenses increased by $39.7 million, or 31%, in the year ended December 31, 2024 compared to the prior year.
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expense, reorganization expenses, and net gain on lease modification.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share We define Adjusted Net Income (Loss) as net income (loss) exclusive of stock-based compensation expense and certain payroll tax expense, gain on debt extinguishment, net gain on lease modification, and reorganization expenses.
Net Cash from Investing Activities Net cash used in investing activities was $118.5 million for the year ended December 31, 2023 as a result of $157.2 million purchases and originations of loans held-for-investment, $56.9 million acquisition of beneficial interest assets, $10.6 million of capitalized software costs, partially offset by $102.4 million in principal payments received for loans held-for-investment and $4.3 million of principal payments received for notes receivable and repayments of residual certificates.
Net Cash from Investing Activities Net cash used in investing activities was $237.7 million for the year ended December 31, 2024 as a result of $323.1 million purchases and originations of loans held-for-investment and $63.3 million acquisition of beneficial interest assets, partially offset by $145.3 million in principal payments received for loans held-for-investment.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted) 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.
Credit Performance While the credit performance of Upstart-powered loans can be impacted by a variety of macroeconomic and other factors, we consider credit performance to be one of the most important measures of the effectiveness of our AI models.
Credit Performance We consider credit performance of Upstart-powered loans to be one of the most important measures of the effectiveness of our AI models. However, credit performance is impacted by multiple factors, including factors that our models do not predict, such as macroeconomic conditions.
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 89 Table of Contents Upstart Holdings, Inc.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

27 edited+6 added−1 removed15 unchanged
Biggest changeThe interest rate caps provide protection to the credit facilities against exposure to changes in cash flows to the extent the 1-month SOFR exceeds the strike rate. The UAWT interest rate cap matures in April 2029 and the ULT interest rate cap matures June 2025. Refer to “Note 4. Derivative Financial Instruments” for further details.
Biggest changeWe have entered into interest rate cap agreements in connection with certain warehouse credit facilities with an aggregate notional amount of $241.1 million. The interest rate caps provide protection for certain credit facilities against exposure to changes in cash flows to the extent the 1-month SOFR exceeds the strike rate.
We are exposed to credit risk in the event of default by these financial institutions to the extent the amount recorded on our consolidated balance sheets exceeds the insured amounts by the Federal Deposit Insurance Corporation, or FDIC. We reduce credit risk by placing our cash and restricted cash in reputable institutions.
We are exposed to credit risk in the event of default by these financial institutions to the extent the amount recorded on our consolidated balance sheets exceeds the insured amounts by the Federal Deposit Insurance Corporation, or FDIC. We reduce credit risk by placing our cash, cash equivalents and restricted cash in reputable institutions.
A hypothetical 10% and 20% increase in credit risk spread would result in a $9.1 million and $16.7 million decrease, respectively, in the fair value of beneficial interest assets held on our consolidated balance sheet, and would result in a $5.6 million and $11.2 million increase in the fair value of beneficial interest liabilities on our consolidated balance sheet, respectively, as of December 31, 2023.
A hypothetical 10% and 20% adverse change in credit risk spread would result in a $9.1 million and $16.7 million decrease, respectively, in the fair value of beneficial interest assets held on our consolidated balance sheet, and would result in a $5.6 million and $11.2 million increase in the fair value of beneficial interest liabilities on our consolidated balance sheet, respectively, as of December 31, 2023.
Higher interest rates also correspond with higher payment obligations for borrowers, which may reduce the ability of individual borrowers to remain current on their obligations, leading to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreasing recoveries, all of which could have a material adverse effect on our business.
Higher interest rates also correspond with higher payment obligations for borrowers, which may reduce the ability of individual borrowers to remain current on their obligations, leading to increased delinquencies, defaults, borrower bankruptcies and charge-offs, and decreasing recoveries, all of which could have a material adverse effect on our business.
Counterparty Risk We are subject to risk that arises from our derivative financial instruments, beneficial interests, warehouse facilities, and third-party custodians. These activities generally involve an exchange of obligations with unaffiliated lenders or other individuals or entities, referred to in such transactions as “counterparties”.
Counterparty Risk We are subject to risk that arises from our derivative financial instruments, line of credit receivable, beneficial interests, warehouse facilities, and third-party custodians. These activities generally involve an exchange of obligations with unaffiliated lenders or other individuals or entities, referred to in such transactions as “counterparties”.
Adjustments and impairments are recorded in other expense on the consolidated statements of operations and comprehensive income (loss) upon recognition of such adjustments or impairments. As of December 31, 2022 and 2023, the carrying value of our non-marketable equity securities, which do not have readily determinable fair values, totaled $41.3 million. 111
Adjustments and impairments are recorded in other expense on the consolidated statements of operations and comprehensive loss upon recognition of such adjustments or impairments. As of December 31, 2023 and 2024, the carrying value of our non-marketable equity securities, which do not have readily determinable fair values, totaled $41.3 million. 115
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $1.9 million and $3.7 million decrease, respectively, in the fair value of payable to securitization note holders on the consolidated balance sheet as of December 31, 2023.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $1.9 million and $3.7 million decrease, respectively, in the fair value of payable to securitization holders on the consolidated balance sheet as of December 31, 2023, and do not result in a material impact to the fair value of payable to securitization note holders as of December 31, 2024.
The fair values of these loans, beneficial interests, securitization notes and residual certificates, and payable to securitization note holders are estimated based on a discounted cash flow model which involves the use of significant unobservable inputs and assumptions. These instruments are sensitive to changes in credit risk. 109 Table of Contents Upstart Holdings, Inc.
The fair values of these loans, beneficial interests, securitization notes and residual certificates, and payable to securitization note holders are estimated based on a discounted cash flow model which involves the use of significant unobservable inputs and assumptions. These instruments are sensitive to changes in credit risk.
As of December 31, 2022 and 2023, we were exposed to credit risk on $1,010.4 million and $977.3 million, respectively, of loans held on our consolidated balance sheet excluding loans held in consolidated securitization. Loans bear fixed interest rates and are carried on our consolidated balance sheets at fair value.
As of December 31, 2023 and 2024, we were exposed to credit risk on $977.3 million and $703.4 million, respectively, of loans held on our consolidated balance sheets, excluding loans held in consolidated securitization. Loans bear fixed interest rates and are carried on our consolidated balance sheets at fair value.
As of December 31, 2022 and 2023, we were exposed to market discount rate risk on $1,010.4 million and $977.3 million, respectively, of loans held on our consolidated balance sheets, excluding loans held in consolidated securitization.
As of December 31, 2023 and 2024, we were exposed to market discount rate risk on $977.3 million and $703.4 million, respectively, of loans held on our consolidated balance sheets, excluding loans held in consolidated securitization.
As of December 31, 2022 and 2023, we were exposed to interest rate risk on $336.5 million and $387.4 million, respectively, under our warehouse credit facilities, which bear floating interest rates. Changes in interest rates may impact our cost of borrowing.
As of December 31, 2023 and 2024, we were exposed to interest rate risk on $387.4 million and $195.6 million, respectively, under our warehouse credit facilities, which bear floating interest rates. Changes in interest rates may impact our cost of borrowing.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $2.4 million and $4.8 million decrease, respectively, in the fair value of loans held in the consolidated securitization on the consolidated balance sheet as of December 31, 2023.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $2.4 million and $4.8 million decrease, respectively, in the fair value of loans held in the consolidated securitization as of December 31, 2023, and a $1.1 million and $2.3 million decrease, respectively, as of December 31, 2024.
We manage this risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple such counterparties, and placing contractual limits on the amount of dependence on any single counterparty.
We manage this risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple such counterparties, and placing contractual limits on the amount of dependence on any single counterparty. 114 Table of Contents Upstart Holdings, Inc.
As of December 31, 2023, we were also exposed to market discount rate risk on payable to securitization note holders of $141.4 million.
As of December 31, 2023 and 2024, we were also exposed to market discount rate risk on payable to securitization note holders of $141.4 million and $87.3 million, respectively.
Credit Risk Credit risk refers to the risk of loss of the loans on our consolidated balance sheets arising from individual borrower default due to inability or unwillingness to meet their financial obligations.
Credit Risk Credit risk refers to the risk of loss of loans arising from individual borrower default due to inability or unwillingness to meet their financial obligations.
Loans held in the consolidated securitization are included in loans, at fair value on the consolidated balance sheets. The fair value of these loans is determined by the sum of the fair value of the related securitization notes and residual certificates issued by the consolidated entities, and uses the same projected net cash flows as the underlying collateral loan pool.
The fair value of these loans is determined by the sum of the fair value of the related securitization notes and residual certificates issued by the consolidated entities, and uses the same projected net cash flows as the underlying collateral loan pool.
We are also exposed to credit risk on $41.0 million of beneficial interest assets and $4.2 million of beneficial interest liabilities held on the consolidated balance sheet as of December 31, 2023.
We are also exposed to credit risk through credit risk rate spreads on beneficial interest assets and beneficial interest liabilities held on the consolidated balance sheet of $41.0 million and $4.2 million, respectively, as of December 31, 2023, and $176.8 million and $10.1 million, respectively, as of December 31, 2024.
As of December 31, 2022 and 2023, we held $532.5 million and $467.8 million, respectively, related to cash and restricted cash in business checking accounts and interest-bearing deposit accounts at various financial institutions in the United States.
As of December 31, 2023 and 2024, we held $467.8 million and $976.3 million, respectively, related to cash, cash equivalents and restricted cash in business checking accounts and interest-bearing deposit accounts as well as money market accounts at various financial institutions in the United States.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $12.0 million and $23.7 million decrease, respectively, in the fair value of loans held on our consolidated balance sheet as of December 31, 2022 and a $11.7 million and $23.1 million decrease, respectively, as of December 31, 2023.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $11.7 million and $23.1 million decrease, respectively, in the fair value of loans as of December 31, 2023 and a $9.0 million and $17.9 million decrease, respectively, as of December 31, 2024.
As of December 31, 2022, a hypothetical 10% and 20% increase in credit risk would result in a $11.9 million and $23.9 million decrease, and as of December 31, 2023, a hypothetical 10% and 20% increase in credit risk would result in a $12.5 million and $25.0 million decrease in the fair value of loans held on our consolidated balance sheets, respectively.
As of December 31, 2023, a hypothetical 10% and 20% increase in credit risk would result in a $12.5 million and $25.0 million decrease, and as of December 31, 2024, a hypothetical 10% and 20% increase in credit risk would result in a $9.1 million and $18.1 million decrease in the fair value of loans, respectively.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $1.2 million and $2.4 million decrease, respectively, in the fair value of beneficial interest assets held on our consolidated balance sheet as of December 31, 2023.
A hypothetical 100 basis point and 200 basis point increase in the discount rate would result in a $1.2 million and $2.4 million decrease, respectively, in the fair value of beneficial interest assets as of December 31, 2023, and a $3.2 million and $6.4 million decrease, respectively, as of December 31, 2024. 113 Table of Contents Upstart Holdings, Inc.
A hypothetical 100 and 200 basis point increase in the credit risk would result in a $2.7 million and $5.2 million decrease, respectively, in the fair value of loans held in consolidated securitization on the consolidated balance sheet as of December 31, 2023.
A hypothetical 10% and 20% increase in the credit risk would result in a $2.7 million and $5.2 million decrease, respectively, in the fair value of loans held in consolidated securitization as of December 31, 2023 and a $1.8 million and $3.6 million decrease, respectively, as of December 31, 2024.
Our inability or failure to manage market risks could harm our business, financial condition or results of operations. Discount Rate Risk Discount rate sensitivity refers to the risk of loss to future earnings, values or future cash flows that may result from changes in market discount rates.
Discount Rate Risk Discount rate sensitivity refers to the risk of loss to future earnings, values or future cash flows that may result from changes in market discount rates.
We are exposed to market risk directly through loans and securities held on our consolidated balance sheets, access to the securitization markets, institutional 108 Table of Contents Upstart Holdings, Inc. investor demand for loans facilitated through our marketplace, and availability of funding under our current credit facilities and term loans.
We are exposed to market risk directly through loans and securities held on our consolidated balance sheets, access to the securitization markets, institutional investor demand for loans facilitated through our marketplace, and availability of funding under our warehouse credit facilities. Our inability or failure to manage market risks could harm our business, financial condition or results of operations.
As of December 31, 2023, we were also exposed to market discount rate risk on other financial instruments, including $41.0 million of beneficial interest assets. Beneficial interest assets are estimated at fair value using a discounted cash flow model which considers projected defaults, losses and recoveries to project future losses and net cash flows on the underlying loans.
Beneficial interest assets are estimated at fair value using a discounted cash flow model which considers projected defaults, losses and recoveries to project future losses and net cash flows on the underlying loans. We use two different discount rates for expected cash flows associated with demonstrated to-date credit performance and those associated with future credit performance.
Loans held in the consolidated securitization are included in loans, at fair value on the consolidated balance sheets.
As of December 31, 2023 and 2024, we held $179.1 million and $102.9 million, respectively, of loans held in the consolidated securitization which are included in loans, at fair value, on the consolidated balance sheets.
We use two different discount rates for expected cash flows associated with demonstrated to-date credit performance and those associated with future credit performance. Any gains and losses from discount rate changes are recorded in earnings.
Any gains and losses from discount rate changes are recorded in earnings.
Removed
During the year ended December 31, 2023 we entered into interest 110 Table of Contents Upstart Holdings, Inc. rate cap agreements in connection with our warehouse credit facilities with an aggregate notional amount of $299.6 million.
Added
As of December 31, 2023 and 2024, we were also exposed to market discount rate risk on other financial instruments, including $41.0 million and $176.8 million of beneficial interest assets, respectively.
Added
As of December 31, 2023 and 2024, we held $179.1 million and $102.9 million, respectively, of loans held in the consolidated securitization which are included in loans, at fair value, on the consolidated balance sheets.
Added
These assets and liabilities are associated with committed capital and other co-investment arrangements with institutional investors and lending partners, in which the Company puts certain amounts of assets at risk. See “ Note 4. Beneficial Interests ” for additional information on maximum exposure to losses from these arrangements.
Added
A hypothetical 10% and 20% adverse change in credit risk spread would result in a $44.4 million and $89.6 million decrease, respectively, in the fair value of beneficial interest assets, and would result in a $4.7 million and $10.3 million increase in the fair value of beneficial interest liabilities, respectively, as of December 31, 2024.
Added
As of December 31, 2023 and 2024, $62.7 million and $137.4 million, respectively, of the Company’s cash was held by one of our institutional investors in relation to the line of credit receivable and the beneficial interest asset. We mitigate our risk exposure through corporate guarantees provided by the investor.
Added
The Upstart Auto Warehouse Trust interest rate cap matures in April 2029 and the Upstart Loan Trust interest rate cap matures June 2025. Refer to “Note 9. Interest Rate Cap Arrangements” for further details.

Other UPST 10-K year-over-year comparisons