Revenue

12 Months Ended

Dec. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

Revenue from fees, net

The Company disaggregates revenue from fees by type of service for the years presented as follows:

	Year Ended December 31,
	2019		2020		2021
Revenue from fees, net:
Platform and referral fees, net	$	144,055	$	200,257	$	726,161
Servicing and other fees, net	15,792		28,343		75,114
Total revenue from fees, net	$	159,847	$	228,600	$	801,275

Platform and referral fees, net

The Company enters into contracts with bank partners to provide access to a cloud-based artificial intelligence lending platform developed by the Company (the “Upstart platform”) to enable banks to originate

unsecured personal and secured auto loans. The Upstart platform includes a cloud-based application (through Upstart.com or a bank-branded program) for submitting loan applications, verifying information provided within submitted applications, risk underwriting (through a series of proprietary technology solutions), delivery of electronic loan offers, and if the offer is accepted by the borrower, an electronic loan documentation signed by the borrower. Bank partners can specify certain parameters of loans they are willing to originate. Under these contracts, bank partners can choose to use Upstart’s referral services, which allow them to access new borrowers through Upstart’s marketing channels. The Company’s contracts with bank partners are non-cancelable and generally have 12-month terms that automatically renew.

After origination, Upstart-powered loans are either retained by bank partners, purchased by the Company for immediate resale to institutional investors under loan sale agreements, or purchased and held by the Company. For loans purchased by the Company, Upstart pays bank partners a one-time loan premium fee upon completion of the minimum contractual holding period. Upstart also pays bank partners monthly loan trailing fees based on the amount and timing of principal and interest payments made by borrowers of the underlying loans. Both the loan premium fees and loan trailing fees are consideration payable to customers and are recorded as a reduction to platform and referral fees, net, which is part of revenue from fees, net, in the consolidated statements of operations and comprehensive income (loss). The Company recognized $5.5 million, $8.3 million and $23.6 million, of loan premium fees and loan trailing fees as contra-revenue within platform and referral fees, net for the year ended December 31, 2019, 2020, and 2021 respectively.

As of December 31, 2020 and 2021, the Company recorded $1.3 million and $4.3 million of loan trailing fee liability, respectively, which is recorded at fair value and included within accrued expenses and other liabilities on the Company’s consolidated balance sheets. Refer to “Note 4. Fair Value Measurement” for additional information on changes in fair value associated with trailing fee liabilities.

The Company’s arrangements for platform and referral services typically consist of an obligation to provide one or both of these services to customers, which are our bank partners, on a when and if needed basis (a stand-ready obligation), and revenue is recognized as such services are performed. Additionally, the services have the same pattern and period of transfer, and when provided individually or together, are accounted for as a single combined performance obligation representing a series of distinct services.

Platform and referral services are typically provided under a fixed or declining (tier-based) price per unit based on volume or as a percentage of the total value of loans originated each period with certain bank partners subject to minimum fees; however, pricing for these services may also be based on usage fees, calculated as a percentage of each loan originated. Tier-based pricing, when offered, resets on a monthly basis and does not accumulate. Given that the nature of the Company’s promise is to stand-ready and provide continuous access to and process transactions through the platform, tier-based pricing based on usage represents variable consideration. Platform and referral fees represent variable consideration as loan origination volume is not known at contract inception. These fees are determined each time a loan is originated. Fees for platform and referral services are typically billed and paid on either a daily or monthly basis. As such, the Company’s contracts with customers do not include a significant financing component.

The Company did not recognize revenue from performance obligations related to prior years for the years presented. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded as of December 31, 2020 and 2021. The Company had $8.1 million and $44.8 million of accounts receivable that are included in other assets on the consolidated balance sheets related to contracts with customers as of December 31, 2020 and 2021, respectively. The standard payment terms on accounts receivable are 30 days. The Company’s allowance for bad debt and bad debt expense were immaterial for the years presented.

The Company capitalizes incremental costs of obtaining a contract with a customer, which are certain sales commissions paid to acquire bank partners. Capitalized costs are amortized over the expected period of benefit, which we have determined, based on an analysis, to be three years. The Company applies the practical expedient to

expense costs to obtain contracts with customers if the amortization period is one year or less. As of December 31, 2021, the Company had an immaterial amount of contract costs capitalized within other assets on the consolidated balance sheets. For the year ended December 31, 2021, the Company amortized an immaterial amount of capitalized contracts costs to sales and marketing in the consolidated statements of operations and comprehensive income (loss).

For the year ended December 31, 2019, 2020 and 2021, the Company had one customer (“Customer A”) which accounted for 80%, 63%, and 56% of the Company’s total revenue, respectively. For the year ended December 31, 2020 and 2021, a second customer (“Customer B”) accounted for 18%, and 27% of the Company’s total revenue, respectively.

Customers accounting for greater than 10% of accounts receivable were as follows:

	Year Ended December 31,
	2020	2021
Customer C	34%	*
Customer D	15%	25%
Customer E	*	33%

* Less than 10%

Servicing and other fees, net

The Company also enters into contracts with bank partners and institutional investors to provide loan servicing for the life of Upstart-powered loans. These services commence upon origination of these loans by bank partners and include collection, processing and reconciliations of payments received, investor reporting and borrower customer support as well as distribution of funds to the holders of the loans. The Company charges the loan holder a monthly servicing fee calculated based on a predetermined percentage of the outstanding principal balance. Servicing fees also include fees earned for the facilitation of Upstart co-sponsored securitization transactions as well as certain ancillary fees charged on a per transaction basis for processing late payments and payments declined due to insufficient funds. Servicing fees are recognized in the period the services are provided. Loan servicing fees are not within the scope of ASC 606 and are accounted for under ASC 860, Transfers and servicing of financial assets.

Commencing in the fourth quarter of 2021, the Company began charging fees for providing services in connection with the Company’s establishment of Upstart co-sponsored securitization transactions. These fees are accounted for under ASC 606 and are recognized within servicing and other fees, net in the consolidated statements of operations and comprehensive income (loss) in the period the services are provided. For the year ended December 31, 2021, the Company recognized $1.1 million of these fees.

Servicing and other fees, net also include gains and losses on assets and liabilities recognized under loan servicing arrangements for loans retained by bank partners or loans sold to institutional investors. Such gains or losses are recognized based on whether the benefits of servicing are expected to be more or less than adequate compensation for servicing obligations performed by the Company. Servicing fees also include changes in fair value of loan servicing assets and liabilities in the years presented. Refer to “Note 4. Fair Value Measurement” for additional information on changes in fair value associated with servicing assets and liabilities.

The Company recognized a net gain (loss) related to loan servicing rights upon loan sales for the years presented as follows:

	Year Ended December 31,
	2019		2020		2021
Net gain (loss) related to loan servicing rights	$	(857)	$	1,530	$	6,916

The Company generally outsources borrower payment collections for loans that are more than 30 days past due or charged off to third-party collection agencies. The Company charges bank partners and institutional investors for collection agency fees related to their outstanding loan portfolio. The Company has discretion in hiring the collection agencies and determining the scope of their work. As the principal in the arrangement, the Company recognizes gross revenue from collection agency fees in the period that the services are provided. Upstart also receives certain ancillary fees inclusive of late payment fees and ACH fail fees. Revenue from collection agency fees and borrower fees are included in servicing and other fees, net as part of revenue from fees, net in the Company’s consolidated statements of operations and comprehensive income (loss). The total fees charged by collection agencies are also recognized in the period incurred and reported as part of customer operations expenses.

The Company recognized collection agency fees and borrower fees, which are included in servicing and other fees, net for the years presented as follows:

	Year Ended December 31,
	2019		2020		2021
Collection agency fees	$	2,111	$	2,777	$	4,473
Borrower fees	1,539		2,093		7,289

Interest Income and Fair Value Adjustments, Net

Interest income and fair value adjustments, net is comprised of interest income, interest expense and net changes in the fair value of financial instruments, held in the Company’s normal course of business at fair value, including loans and notes receivable and residual certificates, payable to securitization note holders and residual certificate holders.

The table below presents components of the interest income and fair value adjustments, net presented in the Company’s consolidated statements of operations and comprehensive income (loss):

	Year Ended December 31,
	2019		2020		2021
Interest income and fair value adjustments, net:
Interest income	$	63,313	$	26,408	$	20,634
Interest expense	(26,485)		(8,026)		(3,274)
Fair value and other adjustments, net(1)(2)	(32,486)		(13,566)		29,954
Total interest income and fair value adjustments, net	$	4,342	$	4,816	$	47,314

_________

(1)Includes $(2.3) million, $(2.2) million, and $7.3 million of realized gain (loss) on sale of loans.

(2)Includes $0.0 million, $(2.1) million, and $28.1 million of income (loss) from capital market programs, net.

Amounts in the table above include interest income, interest expense and fair value adjustments, net related to consolidated securitization trusts. The table below presents the amounts related to consolidated securitization trusts for the year ended December 31, 2019 and 2020. Due to the deconsolidation of the securitization trust during the year ended December 31, 2020, there is no interest income, interest expense or fair value adjustment related to consolidated securitization trusts for the year ended December 31, 2021.

	Year Ended December 31,
	2019		2020
Interest income and fair value adjustments, net related to consolidated securitization trusts:
Interest income	$	38,218	$	5,173
Interest expense	(6,331)		(1,074)
Fair value and other adjustments, net	(30,676)		(3,555)
Total interest income and fair value adjustments, net	$	1,211	$	544

Interest income

Interest income is recognized based on the terms of the underlying agreements with borrowers for loans held on the Company’s consolidated balance sheets and is earned over the life of a loan.

Interest income also includes accrued interest earned on outstanding loans but not collected. Loans that have reached a delinquency of over 120 days are classified as non-accrual status and any accrued interest recorded in relation to these loans is reversed in the respective period. The Company does not record an allowance for credit losses on accrued interest receivable. As of December 31, 2020 and 2021, the Company has recorded $0.9 million and $2.6 million of accrued interest income in loans on the consolidated balance sheets, respectively.

Interest expense

Interest expense is primarily related to interest recorded on the Company’s notes issued as part of the consolidated securitizations and borrowings on warehouse credit facilities and risk retention funding loans. Interest expense includes accrued interest incurred but not paid. Accrued interest expenses were immaterial as of December 31, 2020 and 2021.

Fair value and other adjustments, net

Fair value and other adjustments, net include changes in fair value of financial instruments, other than loan servicing assets and liabilities, common stock warrant liabilities, and convertible preferred stock warrant liabilities. These adjustments are recorded in the Company’s consolidated statements of operations and comprehensive income (loss) and include both realized and unrealized changes to the value of related assets and liabilities. Refer to “Note 4. Fair Value Measurement” for additional information.

Fair value and other adjustments, net also include gains received through our securitization programs and amounts received from borrowers for previously charged-off loans held on the Company’s consolidated balance sheets. These amounts are recognized in the period received.