UPST Upstart Holdings 10-Q 2026-09-30 section summaries

Business and Q3 2026 performance

Upstart uses AI models and cloud software to connect borrowers and auto dealers with lending partners. Partners may retain loans; Upstart may also purchase loans for resale or hold them. Strong fee growth drove higher revenue and operating income, while larger fair-value losses and interest expense reduced the contribution from interest and fair-value results.

Q3 revenue grew 33.7% year over year, below 9M growth of 39.5%; fee revenue growth was 40.8% in Q3 and 44.4% for 9M. Operating income rose 52.1% in Q3 and 81.9% for 9M. Q3 2025 net income included a $7.246M debt-extinguishment gain; Q3 2026 had none. Loan-sales fees were separately presented beginning Q2 2026, having previously been included in servicing and other fees. Q3 fair-value losses included $26.864M on loans and related items and $3.259M of realized loan-sale losses; 9M loan-sale losses were $16.584M, versus a $1.525M gain in 9M 2025. The 2026 classification of cash dividend income and convertible-note expense changed, without affecting net income or cash flows.

Segment results and earnings bridge

Unsecured Lending (formerly Personal Lending; the name change was administrative) is the sole reportable segment. Its costs and contribution profit reflect borrower acquisition, verification and servicing economics.

Q3 borrower acquisition costs were $76.280M versus $61.771M; verification and servicing costs were $41.522M versus $34.445M. For 9M, segment revenue was $921.634M versus $672.254M and contribution profit was $561.339M versus $412.008M; acquisition costs grew faster than segment revenue.

Engineering and G&A expenses increased substantially. Customer A generated 41% of Q3 revenue (37% a year earlier) and Customer B 13% (16%); together they represented 54% of Q3 and 51% of 9M 2026 revenue.

Balance sheet, cash flow and capital

Negative operating cash flow reflects large loan-marketplace purchase and resale flows: 9M purchases and originations of loans held for sale were $9.721430B, with $9.038098B of sale proceeds. Upstart repurchased 3.193M shares for $100.057M in 9M (average $31.31); shares increased from 98.033M to 98.907M. Equity-statement stock-based compensation was $124.868M in 9M 2026 versus $107.237M in 2025. Common shares reserved for issuance totaled 24.905M, including options, RSUs, PRSUs and shares available under equity plans. Of the $400M repurchase authorization, $122.1M remained.

Funding, loan exposure and valuation risks

Aggregate debt principal was $2.054164B, compared with $1.860774B at year-end; $26.842M of unamortized discounts reduced carrying value. Upstart repaid $66.544M principal of its 0.25% 2026 Notes at maturity. Remaining convertible-note principal was $1.621250B, comprising $431.250M due 2029, $500M due 2030 and $690M due 2032. Warehouse borrowings were $327.604M against $650M of capacity, with $539.992M collateral; Upstart was covenant-compliant. A risk-retention facility had $105.310M outstanding, backed by pledged securitization notes with $104.0M fair value.

Loans at fair value were $940.747M, including $659.32M held for sale and $252.54M held for investment. Upstart reclassified $314.0M of HELOCs and auto loans to held for sale in March 2026. Loans purchased for immediate resale and corresponding resales were each $7.5346B in 9M 2026. Many assets and liabilities are Level 3 fair-value measurements. A 100-basis-point increase in loan discount rates would reduce loan fair value by $10.707M; a 10% adverse credit-risk change would reduce beneficial-interest asset value by $114.803M. More severe credit and liquidity assumptions remain a valuation risk.

Unconsolidated securitization VIEs held $2.990B of assets and $2.060B of liabilities at September 30, 2026; Upstart’s maximum loss exposure was $145.796M. Maximum exposure across committed-capital and co-investment arrangements increased to $1.4991B from $931.76M, including $181.0M related to assets held by one institutional investor. Consolidated VIE creditors generally have recourse only to their respective VIE assets.

Other material developments and risks

Loan repurchase and indemnification obligations can arise from contractual breaches, legal-compliance issues, identity theft or early defaults. The maximum potential amount—balances of loans held by lending partners and investors—was $18.573B, versus $14.290B at year-end; payments were $61.4M in 9M 2026 versus immaterial amounts in 2025. The company reported no material contingent liability for future repurchases. A securities class action remains ongoing; Upstart says it believes the remaining claims against it are without merit. Related derivative cases are largely stayed, and the company cannot estimate a reasonably possible loss.

After quarter-end, a subsidiary entered a $200M senior secured revolver and drew $175M. It is intended to support general corporate purposes and initial capitalization of Upstart Bank, which remains subject to regulatory approval. The facility initially bears Term SOFR plus 3.00%, matures in October 2027 subject to earlier termination provisions, and includes minimum-liquidity, eligible-asset and leverage covenants.

Upstart Holdings — Q3 and nine months ended September 30, 2026

Consolidated results

Amounts in $ millions, except margins.

Fee revenue growth reflected higher originations and servicing activity. Servicing fees also benefited from a larger serviced-loan balance, gains on servicing rights upon loan sales, and higher borrower fees; loan sales fees reflected increased forward-flow sales. Higher loan premium and trailing fees partly offset growth in platform and referral fees.

Unfavorable fair-value adjustments reflected unrealized losses and loan charge-offs, as well as realized losses on loan sales. In Q3, realized loan-sale losses increased by $2.9 million and unrealized losses/charge-offs by $11.3 million; for 9M, the increases were $18.1 million and $4.9 million, respectively. Interest-income growth for 9M was partly offset by lower securitized-loan balances. Prior-year results included a $7.246 million gain on repurchase of part of the 2026 convertible notes, which did not recur.

Operating costs and non-GAAP profitability

Q3 operating margin improved to 10% from 9%, while 9M operating margin was 4% versus 3%. Contribution margin was 60% versus 57% in Q3, but 55% versus 57% for 9M. Adjusted EBITDA margin declined to 24% from 26% in Q3 and to 20% from 22% for 9M. Adjusted EBITDA excludes recurring stock-based compensation and other items; stock compensation was $39.955 million in Q3 and $119.232 million for 9M, compared with $34.155 million and $99.497 million. Stock compensation plus related payroll taxes totaled $40.945 million in Q3 and $122.938 million for 9M 2026.

Expense growth supported advertising and borrower acquisition, verification and servicing, personnel, data and infrastructure, and AI-model and product development. Customer operations declined as a share of revenue (17% versus 18% in both comparisons); engineering rose to 25% from 23% in Q3 and remained 26% for 9M. Sales and marketing was 31% of 9M revenue versus 28%.

Marketplace activity and operating metrics

Originations grew 44% in Q3 and 51% for 9M; loan counts rose 34% and 50%, respectively. Dollar growth exceeded count growth as average loan size increased, reflecting more auto and HELOC loans and fewer small-dollar loans. Management cited AI-model improvements, product initiatives and increased marketing-channel traffic. Conversion fell as applications grew faster than originations amid expansion to broader borrower segments and disciplined underwriting. Upstart plans to report conversion through FY 2026 and discontinue it starting with Q1 2027 filings.

For 9M originations, institutional investors purchased 64% of principal, lending partners retained or purchased 30%, and 6% was held on Upstart’s balance sheet at quarter-end. More than 50% of platform loan funding came through committed capital and other co-investment arrangements. The company said an equal investment across its 12 recent quarterly personal-loan vintages earned an average return, net of servicing fees, about 660 basis points above the corresponding two-year U.S. Treasury yield; each vintage exceeded that yield by approximately 500 basis points or more.

Cash flows and balance-sheet funding

Operating cash outflow included $542.3 million of net changes in operating assets and liabilities, including $683.3 million of net purchases and originations of loans held for sale, partly offset by $163.5 million of principal collections. Investing inflows included $289.8 million of principal collections on loans held for investment and notes receivable and $180.9 million of net proceeds from beneficial-interest assets; outflows included $241.9 million of loan purchases/originations and $13.0 million of capitalized software costs. Financing included $259.8 million of net borrowing proceeds and a $59.1 million increase in payables to investors, offset partly by share repurchases and $66.5 million of 2026 Notes repayments at maturity.

Cash and cash equivalents were $461.5 million at quarter-end. Consolidated balance-sheet loans totaled $940.7 million: $429.2 million non-R&D loans, $482.6 million R&D loans and $28.9 million in consolidated securitization. About 51% of balance-sheet loans were classified as R&D. Upstart expects to sell loans over time through secondary sales, securitizations or pass-through issuances, while retaining flexibility for product development and to bridge marketplace funding constraints.

Convertible senior notes had $1.6213 billion aggregate principal outstanding, maturing from 2029 to 2032; the company had previously issued $661.3 million aggregate principal of 0.25% convertible notes due 2026. Warehouse facilities permitted up to $650.0 million of borrowing, of which $327.6 million was drawn; the Auto Warehouse Trust 2 maturity was subsequently moved to March 2027. Of a $200.0 million risk-retention facility, $105.3 million was drawn. In October 2026, Upstart entered a $200.0 million senior secured revolver and borrowed $175.0 million. During 9M it repurchased 3.2 million shares for $100.1 million, leaving $122.1 million authorized; no shares had been issued under its $500.0 million at-the-market program by quarter-end.

Commitments included $152.5 million for loan purchases, $21.2 million of future HELOC advances and $80.8 million of operating-lease cash requirements ($7.8 million due within 12 months). Maximum loss exposure under committed-capital and co-investment arrangements was $1.4991 billion; expected next-12-month cash needs for existing arrangements were up to $354.7 million from cash and cash equivalents and $26.2 million from restricted cash. Management expected liquidity to be sufficient for at least 12 months, while warning that growth, working capital, loan purchases, market downturns and capital expenditures could increase capital needs and that additional financing could dilute shareholders or impose restrictive terms.

Risks and presentation

Credit performance affects loan fair values, co-investment interests, borrower pricing and approvals, and funding-provider appetite. Upstart’s UMI was approximately 1.50 at September 30, indicating about 50% incremental risk to unsecured personal-loan repayment performance versus its 1.0 baseline, and rose to approximately 1.53 after quarter-end. Its historically limited maximum APRs can constrain offers and approvals as expected credit losses rise. Off-balance-sheet whole-loan sales, co-investments and securitizations support liquidity and diversify investors, but involve continuing servicing obligations; when Upstart is a securitization’s retaining sponsor, it must retain at least 5% of credit risk.

The company changed presentation of 2026 convertible-note interest and debt-issuance-cost amortization and cash-account dividend income among interest expense, other income and interest income; this affects line-item comparisons. Upstart reported no material changes to critical accounting policies during 9M 2026.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

Upstart’s principal market risks involve discount rates, borrower credit performance, interest rates, counterparty performance, and privately held equity investments. Fair values for loans and beneficial interests rely on discounted-cash-flow models with significant unobservable inputs, so changes in assumptions may affect earnings.

Fair-value exposures and sensitivities

The company retains residual certificates in consolidated securitizations; their value is eliminated in consolidation. The disclosed discount-rate and credit-risk shocks were not material to the fair value of securitized loans or note-holder payables.

Beneficial interests arise from committed-capital and other co-investment arrangements that put company assets at risk. Their fair value is particularly sensitive to adverse changes in borrower credit performance.

Funding, counterparties, and other investments

The significant increase in floating-rate warehouse exposure raises sensitivity of borrowing costs to interest-rate changes. Higher rates may also increase investor-required returns, weaken borrower demand and qualification, and contribute to delinquency, defaults, bankruptcies, charge-offs, and lower recoveries.

Cash balances above FDIC-insured limits are exposed to bank-default risk. Corporate guarantees mitigate the exposure to the institutional investor; other counterparty exposures include warehouse facilities and custodians. Upstart cites counterparty selection, diversification, and contractual limits as mitigants. Non-marketable equity securities are adjusted for observable orderly transactions; valuation adjustments and impairments involve judgment and are recorded in other income, net.

Controls and Procedures

As of September 30, 2026, management, including the CEO and CFO, concluded that disclosure controls and procedures were effective and designed to provide reasonable assurance that information required in SEC filings is recorded, processed, summarized, and reported on time.

There were no material changes to internal control over financial reporting during Q3 2026, and no changes were identified that were reasonably likely to materially affect those controls. The company cautioned that controls provide reasonable, not absolute, assurance: inherent limitations—including human error, collusion, management override, changing conditions, and cost constraints—mean they may not prevent or detect every error or instance of fraud.

Principal business and funding risks

Upstart’s marketplace depends on both borrowers meeting credit criteria and external investors or lending partners supplying capital. Macroeconomic stress—including inflation, higher rates, unemployment or recession—could reduce borrower demand, approvals, offer acceptance and originations while increasing delinquencies, defaults, charge-offs and funding costs. Because many loans are unsecured, borrowers may prioritize secured debt in a downturn. Regulatory limits on maximum APRs may also prevent Upstart or its partners from pricing for higher risk, making some loans uneconomic or offers less competitive.

A significant share of originations and revenue depends on a limited number of lending partners, as well as institutional investors, whole-loan purchasers, private-credit providers and loan aggregators such as Credit Karma. These parties may reduce or stop activity, change terms, or favor competitors as credit performance, funding costs, liquidity, regulation or strategy change. Replacing partners can be slow and costly. Funding arrangements may include volume requirements or obligations to compensate investors for credit underperformance. If funding becomes unavailable or more expensive, Upstart may have to reduce originations, accept less favorable terms or retain more loans on its balance sheet.

Warehouse facilities, securitizations and risk-retention financing are important to funding loans and retained interests. Upstart may be unable to refinance on acceptable terms, and retained subordinated or residual interests can lose substantial value. Representations-and-warranties claims may require loan repurchases, payments or indemnities when liquidity is constrained. Counterparty failures and covenant breaches could further limit financing or force asset sales. Servicing fees are also exposed to loan performance, prepayments, servicing economics and investor demand.

Upstart has held more loans on its balance sheet to support product research and development and address marketplace imbalances. These loans are carried at fair value using discounted cash flows, so higher market rates can reduce their value; Upstart also bears borrower credit risk. Research-and-development loans are generally riskier and more likely to default than personal loans. Higher-than-expected defaults have already produced unfavorable fair-value adjustments that reduced revenue and could do so again. Greater holdings would raise liquidity needs and could increase the share of revenue from interest income.

Models, products and execution

Upstart relies on AI models and timely, accurate data for borrower acquisition, underwriting, pricing, fraud detection and automation. Model errors, biased or incomplete data, data interruptions, inadequate validation or slow responses to changing economic conditions could misprice or misapprove loans, increase losses, reduce originations and weaken investor or partner confidence. The company’s Upstart Macro Index (UMI), an estimate of macroeconomic risk in certain Upstart-powered personal-loan portfolios, has been revised and may be revised again; it is not a broad economic forecast or a reliable prediction of future company results. Misinterpretation or perceived inaccuracy could damage confidence.

Unsecured personal loans have historically represented most marketplace originations. Diversification into auto loans, dealer-purchased retail installment contracts, small-dollar loans and HELOCs brings different funding, margin, credit, servicing and regulatory requirements. These newer products have limited histories and may grow more slowly, require more balance-sheet funding or incur higher losses and costs than expected. Competition from banks, fintechs, credit-card and buy-now-pay-later providers could pressure fees and loan volumes while raising acquisition costs. Borrowers may prepay without penalty, ending future servicing fees and reducing partner returns if prepayments differ from model predictions.

Upstart has incurred net losses in some periods and may do so again. Investment in AI, products, marketing and platform development may not generate sufficient revenue; lower-margin product mix, acquisition costs and operating or execution challenges could also impede profitability. Results may fluctuate with funding, credit performance, product mix, rates and expenses; loan demand has generally been lower in Q1 than Q4. The OCC conditionally approved establishment of Upstart Bank, N.A., but FDIC deposit-insurance approval remains pending and Upstart has applied to the Federal Reserve to become a bank holding company. Approvals, operational readiness and anticipated benefits are uncertain; a bank subsidiary could add substantial regulatory, operational and compliance costs.

Legal, regulatory and operational exposure

Consumer-finance, fair-lending, privacy, AI/ML, bank-partnership and servicing rules are evolving. Regulators may require costly model testing, documentation, transparency, manual review or product changes, or restrict data and model use. Investigations, including inquiries concerning marketplace activity, marketing, underwriting, pricing, fair lending and licensing, can consume resources even without enforcement. Challenges to bank-partner “true lender” status, interest-rate exportation or loan assignments could make loans unenforceable, limit rates or fees, or damage partner and investor relationships. Upstart also faces securities and consumer-related litigation; adverse outcomes could bring damages, penalties, remediation, injunctions or business restrictions, potentially exceeding revenue from the activities involved.

The platform depends on cloud infrastructure, vendors, consumer-reporting and verification data, payment services, and third-party distribution. Outages, vendor failures, cyberattacks, software defects, fraud or inaccurate data could interrupt applications, underwriting, pricing, servicing or reporting; cause losses or data exposure; and trigger legal, regulatory and reputational costs. Sensitive borrower information and proprietary models require strong security, privacy and continuity controls. Generative or agentic AI may produce inaccurate outputs, insecure code or servicing and compliance errors. Insurance and recovery plans may not cover resulting losses. Domestic cash deposits exceed FDIC insurance limits, creating potential access risk during financial-system stress.

Capital, ownership and shareholder risks

Outstanding Notes may require cash repayment at maturity or upon specified fundamental changes; conversion may also require cash unless Upstart elects share-only settlement. Insufficient liquidity or financing could trigger defaults or cross-defaults, while note provisions may deter or delay transactions. Future equity issuance, awards, acquisitions and note conversions could dilute shareholders; an effective shelf registration permits common-stock sales, including through an ATM program. Capped calls may reduce some conversion dilution only up to a cap and depend on unsecured counterparties.

Stock-price volatility may reflect market conditions, results, funding, regulation, litigation, cybersecurity and perceptions of AI performance; volatility can prompt securities litigation. Significant insider and other large-holder voting power, together with charter, bylaw and Delaware-law provisions, may impede takeovers or proxy contests. The board’s repurchase program has no required size or completion date, and repurchases may reduce cash. Upstart has never paid cash dividends and does not expect to do so in the foreseeable future; shareholder returns depend on stock-price appreciation.

Rule 10b5-1 Trading Arrangements

During Q3 2026, Dave Girouard, former CEO and Executive Chairman, adopted a Rule 10b5-1 trading arrangement on September 9, 2026. It covers sales of up to 1,490,596 shares:

The arrangement runs through November 30, 2027, or ends earlier if all covered transactions are completed. No other officers or directors adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2026. The section reports no operating or financial developments.