Outperforming on Q1 Expectations
Upstart Holdings (NASDAQ: UPST), the innovative AI-driven lending platform catering to banks and credit unions, displayed a significant uptick in lending activity during Q1, surpassing market projections. The company experienced a notable surge in lending volumes compared to a year prior, alongside an improved conversion rate.
Q2 Revenue Guidance Below Par
However, despite a successful Q1, Upstart’s Q2 revenue forecast falls short of expectations, with an anticipated revenue of $125 million, below the consensus estimate of $143.3 million. This projection includes $135 million in revenue from fees and a $10 million net interest loss. The expected contribution margin for Q2 is 56%, slightly lower than the 59% recorded in Q1.
Earnings and Efficiency Targets
The company foresees adjusted EBITDA for Q2 at -$25 million, compared to the -$20.3 million reported in Q1. CEO Dave Girouard emphasized Upstart’s commitment to enhancing operational efficiency and financial performance while maintaining a responsible investment strategy for long-term sustainability.
Positive EBITDA Projections for Q4
Despite the Q2 challenges, Upstart anticipates a return to sequential growth in the latter half of the year, with a positive EBITDA expected by the end of 2024. Girouard remains steadfast in the company’s ability to navigate the current credit environment and achieve profitability.
Financial Performance Overview
For Q1, Upstart delivered an adjusted EPS of -$0.31, outperforming the average analyst estimate of -$0.39. This marked an improvement from the -$0.11 reported in Q4 2023 and the -$0.47 in Q1 2023. Q1 revenue reached $138.1 million, exceeding the consensus of $124.8 million, with growth from the previous quarter and year-over-year.
Healthy Loan Originations and Conversion Rates
During Q1, Upstart’s lending partners facilitated 119,380 loans totaling $1.1 billion, representing a 13% increase from Q1 2023. The conversion rate on loan requests also improved significantly, reaching 14% compared to 11.6% in Q4 2023 and 8% in Q1 2023.
Operational Efficiencies and Margins
While the company’s contribution profit in Q1 decreased to $81.1 million from $95.6 million in Q4, it showcased growth compared to $67.6 million in Q1 2023. The contribution margin for Q1 stood at 59%, slightly lower than the 63% reported in the previous quarter but improved from 58% year-over-year.
Looking Ahead
Despite a rise in total operating expenses to $195.2 million in Q1, Upstart remains optimistic about its trajectory. The company’s stock saw a marginal increase of 0.1% in after-market trading on Tuesday, showcasing investor interest in its resilience and growth potential.
Conclusion
Upstart Holdings has demonstrated a robust performance in Q1, exceeding market expectations, despite challenges in the upcoming quarter. The company’s strategic focus on efficiency and profitability bodes well for its long-term sustainability, with a positive EBITDA outlook for Q4 2024. As investors await further insights from the upcoming conference call, Upstart’s journey to financial success continues amidst evolving market conditions.