Upstart Holdings 10-Qquarter ended 2026-03-31
Debt defaultCEO/CFO change
AI underwriting expanded loan approvals, but rising borrower-acquisition costs and lower fee rates squeezed marketplace margins.
Filed 2026-05-05 16:08 ET
Key figures · Q1 FY2026 · period ended 2026-03-31
- Revenue$308.2MYoY +44.4%
- Operating income−$7.5MYoY −67.2%
- Net income−$6.6MYoY −171.6%
- Total assets$3.0BQoQ −0.4%
- Total debt$2.0B1QoQ +4.5%
How total debt adds up Borrowings $1,922M + Payable to securitization note holders (at fair value) $39M Total debt $1,961M Lines as the filer presents them on its balance sheet.
- Shareholders' equity$733.2MYoY +8.4%QoQ −8.2%
- Tangible book value$658.1M2QoQ −9.0%
Notes (2)
- Total debt: Includes the payable to securitization note holders at fair value -- this filer's own balance-sheet line, not a standard concept. About the summary: The summary's $1.92B is the Borrowings line, one of the 2 lines that make up total debt (see ⓘ).
- Tangible book value: From the notes to the financial statements; the balance sheet does not present this as a separate line.
How this filing reads
- Health−0.4Cash of $473M faced $133M quarterly operating outflow, $1.92B borrowings, and a covenant-breach waiver.
- Momentum−0.2Revenue rose 44%, while adjusted EBITDA fell 5% and contribution margin declined five points.
- Outlook−0.2Older vintages underperform targets; $631M in R&D loans and uncertain bank approval add execution risk.
Executive Summary
Upstart’s lending marketplace expanded rapidly in Q1 2026, but growth did not translate into better profitability: revenue increased 44%, while acquisition spending and lower fee rates compressed margins. Management attributes higher approvals and transaction volumes to improved AI underwriting, although older loan vintages still underperform their original return targets. Expansion into auto lending and home-equity credit, alongside an application to establish a national bank, offers diversification but requires capital and introduces execution and regulatory risks. For investors, the thesis depends on converting marketplace growth into cash generation without increasingly underwriting that growth through Upstart’s own balance sheet.
Key Financial Highlights
| Metric | Q1 2026 / quarter-end | Investor interpretation |
|---|---|---|
| Revenue | $308M, +44% Y/Y | Loan growth outpaced revenue as fee rates declined. |
| GAAP operating loss | $(7.52)M vs $(4.50)M | Expenses grew faster than revenue. |
| GAAP net loss / diluted EPS | $(6.65)M / $(0.07) vs $(2.45)M / $(0.03) | Growth has not restored profitability. |
| Adjusted EBITDA | $40.5M, −5% Y/Y; margin 13% vs 20% | Non-GAAP profitability weakened alongside GAAP results. |
| OCF / FCF | $(133)M / $(140)M | Cash usage substantially exceeded the net loss. |
| Total assets | $2.96B, broadly flat | Asset composition and funding matter more than total size. |
| Total equity / tangible common equity | $733M / $658M; equity −8.2% since year-end | Repurchases reduced the capital cushion. |
| Cash and cash equivalents | $473M | Restricted cash is not equivalent to unrestricted liquidity. |
| Borrowings, carrying value | $1.92B, +5.1% since year-end | Funding increased despite broadly flat assets. |
| Revenue category | Q1 2026 revenue | Y/Y change |
|---|---|---|
| Platform and referral fees, net | $220M | +49% |
| Servicing and other fees, net | $52M | +52% |
| Interest income, interest expense and fair-value adjustments, net | $31M | +12% |
- Marketplace activity: transaction volume $3.45B, +61%; loans facilitated 425,356, +77%; conversion 18.5% vs 17.5%. Smaller loans and lower fee rates, including for prime borrowers, diluted revenue growth relative to originations.
- Acquisition economics: borrower-acquisition costs rose 90% to $92.3M; contribution margin fell to 50% from 55%. Greater volume required disproportionately more acquisition spending.
- Earnings quality: net purchases and sales of held-for-sale loans consumed $88.1M, explaining much of the divergence between OCF and net loss; capital expenditures were $6.99M.
- Capital return: $100M repurchased retired 3.19M shares, but issuance offset part of this reduction; outstanding shares fell by 2.32M, or 2.4%. Stock-based compensation was $34.8M, +17%.
- Valuation and presentation: unfavorable fair-value and other adjustments were $(14.5)M vs $(5.65)M, including $9.49M of realized loan-sale losses. Reclassifying cash dividends and convertible-note expenses into revenue changed presentation, not net loss or cash flow.
Business Developments
Management is pursuing a broader, continuously available credit marketplace across personal loans, auto lending and home-equity credit. AI improvements expanded approvals in smaller-dollar categories, but fully automated originations were broadly stable at 91%.
Newer products remain capital-intensive: 62% of balance-sheet loans supported R&D, totaling $631M, while Auto Lending and Other contribution losses widened to $(11.2)M from $(5.34)M. Reclassifying home-equity and auto retail loans as held for sale signals planned distribution rather than necessarily lower underlying exposure.
Upstart applied to establish an insured national bank and plans to seek bank-holding-company approval. This could change its operating model, but approval and benefits remain uncertain; CEO succession and a new CFO add execution demands.
Risk Assessment
- Funding and liquidity: OCF usage and repurchases compete with lending commitments; floating-rate warehouse borrowings rose 88% to $183M, one facility required a post-quarter covenant-breach waiver, and $66.5M principal of convertible notes matures in August 2026.
- Credit and model reliability: Q1 2023–Q1 2024 personal-loan vintages are forecast below target returns; further deterioration could undermine funding confidence and force tighter underwriting.
- Valuation and retained exposure: maximum estimated co-investment loss exposure rose 16% to $1.08B; a 10% adverse credit-risk change would reduce beneficial-interest asset fair value by $99.3M.
- Partner concentration: two customers supplied 45% of revenue, so reduced participation could disrupt both origination capacity and earnings.
- Regulatory execution: AI explainability, bank-partnership enforceability and national-bank approval requirements could restrict products, increase compliance costs or delay strategic expansion.
Strategic Outlook and Investor Actionables
Management is betting on better underwriting, broader products and durable funding to scale the marketplace. The opportunity is repeatable fee growth; the threat is growth that requires rising acquisition spending and retained credit exposure.
- AI-led growth: conversion starts at 18.5%. Success means sustained marketplace growth alongside target loan returns; failure means higher approvals followed by deteriorating vintages.
- Product diversification: R&D loans total $631M. Success means narrower newer-product contribution losses and loan sales; failure means mounting losses and retained exposure.
- Funding durability: 12% of originated principal stayed on Upstart’s balance sheet. Success means growth supported by external purchasers; failure means increasing retention or further covenant pressure.
- Financial conversion: contribution margin starts at 50%, with negative OCF. Success means narrowing GAAP losses and lower cash usage without sacrificing revenue; failure means continued margin compression and cash consumption.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
Model 006 · prompt 41c4ca4692 · 2026-10-14 16:53:57Z