Q4 2022 Pagaya Technologies Ltd Earnings Call
[music].
Good day, and welcome to dip a guy out Q4, and full year 2022 earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
At this time I'd like to turn the call over to Jen see John <unk> head of Investor Relations.
Thank you you may begin.
You and welcome to the Guy is fourth quarter and full year 2022 earnings call.
Joining me today to talk about our business and results are involved through the night Chief Executive Officer of the Guy and Michael Landau Chief Financial Officer.
You can find the presentation that accompanies our prepared remarks, our earnings release and a replay of today's webcast on the Investor Relations section of our website at Investor got the guide.
Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include but are not limited to our competitive advantages and strategy macroeconomic conditions and outlook future products and services and future business and financial performance. Our actual results may differ from those kind of.
Completed by these forward looking statements.
After that could cause these results to differ materially are described in today's press release and in our most recent form 6K as furnished with the U S Securities and Exchange Commission as well as our subsequent filings made with the S E T.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
Additionally, non-GAAP financial measures will be discussed on the call reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and in the appendix to the earnings presentation, which are posted on our Investor Relations website with that let me turn the call over to Carl.
Jessie Thank you all for joining us today to discuss our fourth quarter and full year 2022 resorts.
Today, I will discuss financial and operational highlights from the fourth quarter and full year 2022.
We view, our business model and differentiated value proposition and provide an update on expansion of our network infrastructure.
I will then hand, it over to our CFO , Mike <unk> to discuss our financials and 2023.
We will then take your questions.
This was an incredible year of growth for our company.
We delivered seven $3 billion in network volume, which grew 49% E mobility and was approximately five times higher than our volume in 2020.
We achieved total revenue and other income of $749 million, which grew 58% and was above the high end of our 2022 guidance.
Our markets were highly volatile with higher cost of funding driven by multiple interest rate hikes and widening spreads.
Our net worth followed by millions of data points on consumer behavior.
Build us to react quickly and adjust our model to drive better relative performance.
Even with significantly higher cost of capital, we delivered near break even adjusted EBITDA of negative $4 $8 million in full year 2022.
Our results in the fourth quarter reflects the resiliency of our business.
We delivered $1 $8 billion in network volume growing 10% you don't believe.
Total revenue and other income grew 25% to $193 million adjusted.
Adjusted EBITDA was negative $9 million, Mike will discuss our financials in more detail in a few minutes.
D. C has exceeded my expectations, we achieved major milestones, while learning how to be a giant in rapidly shifting external conditions. We are a different company than we really like that.
In 2022, we made significant progress on our key strategic objectives.
Expanding and monetizing our network infrastructure.
We successfully transitioned to a public company, giving us the fuel to drive future expansion.
We delivered record top line results and added industry leaders to our management team.
A bench with decades of <unk> across both banking and financial services.
We all boarded six new partners to our network in 2022, including visa Kalana and a top three auto lender.
By the way to twice as many applications in 2022 compared to 2021 and raised more than $7 billion in funding.
I'm proud to announce we also completed our first ever M&A transaction.
The advantage of the current market dislocation to position our business for the future we acquired Darwin home elevating our offering into a premier end to end solution.
We also received our first AAA rating from Moody's and BBB arrest on a single family rental securitization.
With these achievements we are entering 2023 with a strong momentum.
Okay.
The exceptional growth we have seen in the past few years is a testament to the strength of our network infrastructure in just three years, we grew from $100 million of revenues to a $750 million.
Altra business.
Our problem is originate over $7 billion in assets annually and providing access to unique investment opportunities for our institutional investors.
I want to take a few minutes to go over the basic fundamentals of our business model.
The guy who's the B to B to C platform.
Rounded with a mission to make financial opportunities more accessible by innovating legacy underwriting system with AI technology and data science.
Yeah, there's not a lender or with Zalviso, we partner with financial institutions, who originate assets with the assistance of our technology at the same time, we connect partners to institutional investors, who want exposure to these asset.
And that we promised to grow with limited incremental risk or copycat.
We employ a unique upfront funding model that enables better optimization of investor returns by locking in the cost of funding costs before sourcing.
Required retail traditionally.
Finally, our network is diverse across five product in consumer credit and real estate with an addressable market opportunity in the brilliance.
We believe these attributes make our business scalable resilient and positioned for the long term.
The level of infrastructure, we are building is getting stronger with guidance.
We on board, New pulp mill scan your product and opening new channels.
We are collecting more than 25 financial institutions across five product 200 looking vessels across the country.
Powering the real economy by facilitating billions of dollars of presentation annually.
Since inception, approximately one one trillion dollars in application volume has come through our network and incredible amount of data and consumer behavior insights. They continuously make our model has a small tail as we grew up.
We have been able to deliver consistent value creation over time for our partners and investors.
Network volume is driven by two factors the application flow, we see from our pulp mills and the rate at which the application flow is converted to network assets.
Application flow as you can see on slide 10 growth consistently over time.
In 2022, we sell application flow grow nearly hundred percent versus <unk> driven.
Driven by growth from Newpage Mills, and as we scale newer products such as O. Two.
As macro conditions evolve, we can optimize full investor retail through our conversion rate when.
When facing tighter market liquidity conditions are more challenging credit environment, we can reduce our conversion rates to improve asset returns.
Conversion rates declined by nearly 50% in Q4 2022 compared to the pilot as we shifted the portfolio to a more resilient Bowl archetype.
Pablo see immediately value creation, when they join our network.
Average partners have seen three X growth in origination that are enabled by our network between the third and 12 months of on boarding.
In 2020 to approximately $650 million.
Off network volume was generated by new partners and channels on our platform.
Institutional investors connected to our network get one stop shop access to short duration high Eagle consumer credit and real estate assets.
Analytics and data driven insights enable relative outperformance of assets originated by our cloud node versus the broader market.
On Slide 12, we show the credit performance of our personal loan portfolio from Q1, 2021 to Q3 2022 or three months.
Our portfolio has consistently outperformed the comparable market benchmark.
This is a result of our ability to dynamically adapt to optimize leave town as market conditions evolve.
We show an example of this on slide 13 of our presentation in the fourth quarter of 2021, we spud of credit deterioration in certain cohorts in the personal loan borrower population market wide. We reacted quickly to adjust the weighting of our portfolio across several attributes, including Bulwell annual income long term and they like paint.
As of December 2022, approximately 70% of our personal loan book was waiting to boil with greater than $70000 in annual income compared to only 55% in January 2022.
We adjusted the duration of the portfolio to reflect a larger proportion of 60 months loans versus 36 months.
We sold a significant portion of boil seeking shoulder perm loans, we're looking to refinance following the expiration of the government stimulus.
We reduced exposure to boys, who do not seem to also pay at origination improving the consistency and stability of payments.
Let me shift now to give an update on two of our newer products OTO and single family rental.
Auto is our second largest product after personal alone we launched <unk> in 2019 and have seen the product grew to approximately $110 billion of application volume evaluated annually.
Eight times the level, we saw in 2020.
We have 10, plus OTA partners, including a top three U S auto lender, who we on boarded in the second quarter of 2022.
We are now connected to approximately 20000 franchise and independent dealerships through our partners, helping them sell to consumers in all 50 states.
The power of our network lies in the many cross application opportunities to apply AI, driven data science and technology in.
In 2020, we made a decision to apply AI to real estate recognizing the significant potential for disruption in there so far in March.
They are roughly 16 million single family rental households in the United States with an estimated approximately value of four trillion dollars we.
We believe we can reshape the its a sound investment landscape with a truly tech first solution.
Our AI engine powered by nearly 300 million unique consumer data points generates insights on evolving credit demographic and economic trends, we offer a unique value proposition to investors by leveraging these insights to select acquire and operate homes on their behalf.
To take a rest of our offering to the next level, we recently acquired Darling homes and industry, leading property technology platform led by two founding members of door Dash.
Combination of poor diet core AI technology, and data network without with proprietary software and operational does three main themes.
The first create the tech first fully integrated solution for all participants, including residents in vessels and third party service provider.
Second elevate the living experience for our residents with a mobile app that offers the full spectrum of services from the application process to let the payment processing to home repairs.
Third our naval research and data driven decision, making to optimize asset performance on behalf of our investors I am excited about the path forward and Thats a fire.
Another example of the cross applicability of our AI networking new spaces to create incremental value.
While our rest of our product is still in a very early stages. The opportunity is significant and I'm confident in the combined capabilities of the poor guy are powered by Darwin platform.
To summarize our achievements this year reflect the hard work and dedication of our team and the strength of our business model that can deliver through all environments.
Now, let me hand, it over to Michael <unk>, our CFO to discuss our financials in 2023 option.
Thank you Gal and good morning, everyone I'm going to spend the next few minutes discussing how our strategy translates into results with a focus on the key metrics that drive our performance.
We had a strong year in 2022.
Network volume grew by 49% to seven $3 billion total revenue and other income grew 58% to $749 million exceeding the high end of our 2022 outlook.
Revenue from fees, which make up more than 90% of total revenue grew by 54% year over year.
Fee revenue less production cost measure of gross profit for our business grew 10% as the resiliency of our business model more than offset the impact of significant capital markets volatility.
I'll discuss this in more depth in a few minutes.
Adjusted EBITDA was near breakeven and negative $5 million, reflecting meaningful investments in our platform to support our future growth.
We saw financial markets worsen in the second half of 2022.
However, we remain focused on what we can control and our fourth quarter results reflect this.
Network volume was up 10% year over year, and total revenue and other income increased by 25%.
Revenue from fees grew 24%, reaching a record take rate of 10% in the quarter production.
Production costs, which are expenses incurred from our partners related to the origination of network volume grew by 60% as newer products and partners grew at a faster pace than our more mature products and partners.
We exercised discipline on our fixed cost base with operating expenses, excluding stock based compensation roughly flat in the quarter compared to prior year I would also note that in the fourth quarter. We returned to a more normalized run rate of stock based compensation expense of $19 million compared to our first two quarters of being a publicly traded company.
Adjusted EBITDA was negative $9 million in the fourth quarter.
As we enter 2023, we're focused on delivering sustainable profitability on an adjusted EBITDA basis.
But the fundamentals of our B to B to C business model set us up well to achieve this.
The Guy is a connector and the financial ecosystem.
The ability to scale and monetize our network is meaningful.
Not having to build a consumer facing platform from the ground up but rather connect into partners that have existing application flow. We can grow rapidly as we've clearly demonstrated these past few years.
And then by ultimately connecting those partners to investors the monetization opportunity is significant combined.
With increasing scale and disciplined cost management, we have a clear path forward to profitability.
Now diving deeper into the components of our revenue model, which you can find on slide 21 of our earnings presentation.
First network volume is the critical driver of our fee revenue.
We have three fee revenue streams comprised of AI integration capital markets execution and contract fees, which combined make up our take rate.
AI integration fees are earned from both sides of our network partners and investors partners utilize <unk> technology to expand their customer base investors obtained diversified exposure to a unique asset for Gaia sits in the middle earning fees for the creation sourcing and delivery of these assets.
In 2022, AI integration fees grew from 48% to 65% of total revenue as we began to earn incremental fees from certain partners related to the growing contribution of our guys network on their total volume.
Moving on to capital markets execution and contract fees, we have multiple funding channels to enable the purchase of network assets from our partners such as asset backed securitizations.
Capital markets execution fees are earned from market pricing of our ABS transaction, while contract fees are related to the management performance and other fees earned for administering these vehicles.
In 2022, as a result of tighter market liquidity and a materially higher investor cost of capital we saw capital markets execution fees declined from 32% to 15% of total revenues contract fees remained relatively stable at 12%.
Finally interest and investment income, which is not part of our take rate is primarily earned from our risk retention assets and corporate cash balances.
To summarize revenue grew by 58% year on year, driven by the 49% growth in network volume combined with a greater ability to monetize both sides of the network, taking your take rate to a record of 10%.
Now, let me discuss our unit economics, and how they've evolved over time.
Our take rate grew from 9% of network volume to 10% during the year at the same time, we on boarded six new partners in 2022 and scaling into newer products, such as auto which led to production costs, increasing two 7% of network volume in the fourth quarter of 2022 as.
As a result gross profit was 3% of network volume in the fourth quarter.
When put into the context of high inflation and a rapid increase in cost of capital driven by 400 basis points of interest rate hikes. During the year. We are proud of our ability to deliver a relatively stable gross profit even in such a volatile macro backdrop.
Now turning to operating costs as our business grows operating leverage has been created with scale as you can see on the left side of slide 23 of our earnings presentation.
We are reaching a stabilizing operating expense level after significant investments over the past two years in public company and bank partnership readiness.
Operating expenses, excluding stock based compensation as a percent of total revenue fell from 43% in the first half of 2022% to 39% in the second half of 'twenty two while revenue grew 30%, 36% over that same time period.
We're also taking proactive measures to reduce our fixed cost base as we enter 2020 through our recently announced head count reduction in conjunction with other new expense initiatives to be implemented throughout the year are expected to result in approximately $50 million in annualized run rate saving now I'll spend a few minutes discussing our 2023 outlook.
In the first quarter, we expect network volume to range between one seven and $1 8 billion total.
Total revenue and other income to range between $175 million and $180 million and adjusted EBITDA to range between negative $5 million and breakeven.
In the full year 2023, we expect network volume to range between seven five and $8 billion total revenue and other income to a range between $775 million and $825 million and adjusted EBITDA to range between $10 million and $25 million.
The core assumptions underlying our 2023 outlet include first an expectation that the first half of the year will be more challenging than the second.
Primarily due to the state of financial markets.
Also with rate uncertainty driving expected higher cost of funding in the first half we're continuing to manage our conversion ratio, which we expect will lead to lower network volume in the first half of the year compared to the second.
Finally, we expect volume from new partners to our network to ramp up in the second half of the year.
With that let me hand, it back to the operator for Q&A after which I will make a few brief closing remarks operator.
Thank you.
We will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Take our first question from the line of Ryan I'll come on.
From UBS. Please go ahead.
Good morning, Thanks for taking my question you provided some really good data on your unsecured personal loan portfolio on the delinquency rate can you talk a little bit about how delinquency rates for other asset classes are trending.
Definitely thank you so much for joining the call today, So first and foremost I want to make the point that when we're looking on our performance. We are looking really for our relative performance and as we've been in the last few years, we've been very consistently outperforming the benchmark as we show in this slide.
Our two main products or the <unk> on the PL to put things in perspective in October our month on book three PPD is coming at 1.25%, which was much lower than the average of one 6% at Q3 2022 and to put that in context.
Versus the I would say higher than expected vintages of Q3, 2021, which was lending at 234. So we are seeing is very strong.
Momentum in getting the knick used to be where they need to be 2022 expected to be much better than 2021, and we are constantly working to improve to improve days, reaching now 50% lower from the P. D than we used to be in the highs of 2021.
On the other side, we didn't experience the same type of phenomena that we saw when P. Yet. So 2021 vintages are actually performing as management expectations from that perspective in 2022, we still have a little bit of coming to normality, but deep use are not skyrocketing and theyre actually stable with that.
We have increased our weighted average coupon by 200 to 300 basis points to be aligned with investors and the economy around us.
That's extremely helpful. Thank you and then as you mentioned earlier you went through at 20% workforce reduction in January .
How do you think you're positioned now in terms of your cost structure and how are you thinking of balancing near term expense management with a longer term investment and product.
Including expanding into new loan category.
Great Hey, Irina Thanks for thank you Brian .
Let me take that in two parts first your first part of the question is around the.
The reduction in work force and how we're positioned.
The most important thing to reiterate is that we're committed to.
EBITDA profitability on a sustained basis and so the the workforce reduction was a key step towards that.
And as we mentioned during the call we actually have a broader set of initiatives that we've identified which is going to create $50 million in gross annualized run rate savings and just breaking that down further thats comprised of $30 million of compensated related from the reduction in force and an additional $20 million of other expense initiatives.
We'll bring in throughout the year.
So we feel like that puts us in a really strong position and that allows us to be is it really the one of the key parts of guiding to a positive EBITDA in 2023.
In terms of the second part of your question on how do we how do we manage that balancing of near term management with longer term investments.
What I'll say is we're continuously focused on execution for the long run we have not changed at all our strategy or reduced investment in our strategy and just to be specific about that we're focused and continue to be focused on big banks on the expansion novato growing our <unk> business and the scaling of PL there none of the.
The actions that we're taking this year are compromising those long term objectives from the short term.
And just to maybe even give you. An example of how we're operating to balance we've taken advantage just in the last few weeks of the market dislocation to invest in the long term, which is part of our acquisition of Darwin.
We feel like we've got significant runway in the existing products that we've been building and with the expense reduction where now streamlining our expense base alongside with the revenue expansion and so just to summarize all of that we continue to invest in the long term and the long term, but we do see opportunity to save on expenses in the near term without compromising those.
Yeah.
Okay.
Great. Thank you.
Okay.
Thank you we take next question from the line of Eugene Simony with Moffett Nathanson. Please go ahead.
Hi, Good morning, guys. Thank you for taking my question.
So I wanted to ask about that the trajectory of network volumes.
It seems pretty clear that you guys that maintain conservative stands in your credit box from the data on approvals and as a result of that network volume of staying stable kind of flattish this quarter and that's what you're projecting for the first quarter of next year with the with the potential to pick up after that.
Help us understand a little bit your philosophy and your considerations around this would seemingly conservative credit standards, what I'm thinking about is that you know signals of potential stabilization in the macro environment.
That I think that coming up right now.
In some some lenders potentially maybe opening up the credit box a little bit maybe compare and contrast, a little bit Hopper guy thinks about it and how should we think about when a guy you know it might be comfortable and relaxing. This conservative credit standards. What are you guys looking for to us to do that.
Thank you gene and that's a really really important questions I appreciate the ability to unpack that a little bit and talk about our business model.
If you think about how we're positioned as part of the ecosystem.
We're generating increased application flow through our partners and that has continued to grow and you saw some of those metrics in the charts. We showed in the presentation as.
As we continue to grow with new partners, we are scaling.
Into five different products, and that's generating significant amount of application flow to the point of over one trillion.
Applications that we've now seen.
That application code has grown over 100% year over year and really that's the starting point for our network volume as the applications that we see.
From the application flow, we've been within our control management the conversion ratio.
And we describe the macro changes we use that conversion ratio as the tool to optimize investor returns.
And as investors costs or capital increase we've tightened the conversion ratio to the tune of around 50% versus Q4 in Q4 versus last year.
Now at the same time, we on boarded six new partners to two large partners last year that we've announced.
A top U S bank in auto and garner.
So as we think about going forward really for us it's about.
Seeing the macro indicators, which allow us to pivot that conversion ratio, we start off the year from a very conservative start to the extent, we see market headwinds subside. It will allow us to improve that conversion ratio and generate more network volume, but all of that is in the context of making sure we generate investor rich.
Turns.
The level that our investors.
Require out of us.
I don't know if you would like to add anything to that.
I think there is a close up here to think about is maybe we'll give you a nice reference a frame.
Think about the application.
As the network volume as the part of the company, which is completely growth and all what we do all day every day to continue to connect to many more partners getting more unique flow.
And continue to build that independently of where we are spending in the macro environment situation and that you should expect to continue to be so in the next quarters and years.
Part of building the franchise and the power of the network on the other side of the business you're managing this short term risks and opportunities and that is being driven mainly by the conversion rate that will produce a different outcome. So I think the frame of like the growth of the guy that is coming from the network application.
And then the over the top of management, where the conversion is kind of like a nice spring two boutiques into kersey out between the two.
Yeah got it yes, no that's very clear and very helpful frame. Thank you I guess, just a quick follow up on that.
Are there any so when you're talking about the management of your conversion volume and your decision lets say at 2023 goes on too.
It turned out which was kind of all waiting for I'm sure.
What are the key macro factors that you are looking at.
Are there any that you can kind of point to that can help investors track when the environment might be becoming more positive for you guys.
So think about it as two sides of things as we are looking on so we are less looking on it from expectations or any kind of heuristics. We are monitoring very closely the production and the performance of the early.
Early indicators.
And that we do and as the stage of their corner remains in a strong place that he is the head fertilizer and we are definitely there.
So consumer and consumer liquidity the driver and the other part of it is the liquidity in the general market that could be influenced by macro economy by certainty of intuit's blades, it how to quantify to one factor, but like the availability of credit.
Definitely something across the spectrum that could drive that but the main most important piece as well the economies and therefore, how much we need to react or diesel we ought to be for places.
And a lot of the thing Youre seeing because we all becoming much more prudent about these things that we saw in 2021 that we actually didn't like and we started to see that in Q3 2021, and we started kind of like the change in direction from that perspective. So if you think about it there is in a normal environment yesterday in <unk>.
Mine was 45 or 50% of conversion I guess will be like higher so less negative.
And we are managing that as we see the economy and the macro trends.
Holding around us.
Got it got it okay. Thank you and sorry, if I can just throw one more and I am just a strategic question unrelated to the Darvin acquisition and it was very interesting and gout youll.
Can you elaborate that a little bit of your excitement about the asset far segment can you maybe provide a bit more detail on what you see as the synergies between that business and your kind of core lending enablement business, just because youre, obviously, it seems a little bit different.
Since it's not an add to lending class, it's kind of a different type of the business. So if you can talk about the synergies between between the business that'd be great.
Sure. So so so in order to see the connectivity, let's let's take a step back or let them go to 30000 fluids and think about the guy and where he sees the consumer so the guy as having some interactions puzzles, obviously, but any interruption with a person when he's doing in auto and auto loan.
Take out or an OTA purchase when he's going and he is doing and taking it to a detailed when he is moving these debt credit card actually to a consolidated personal alone and even with the new cloud nine other initiatives that we have discussed about when someone is buying a TV online effectively per guy.
Behind to provide that liquidity in AI in underwriting.
And as the Fr is another pillar from that perspective, where a consumer is making a financial decision letting been renting a house that could connect into the applicability of AI and to be able to do that now when we speak about it so far and how we thought about it we started.
To actually have the discussion in the work 18 months ago with modeling and fine to understand.
The trends of the demographics in the U S and therefore.
And therefore, the different needs for housing is happening in the U S and as you can imagine there. So far is a huge market that is under invested by institutions and quite frankly, not a lot of very strong technology has been entering this space yet.
We've been doing that for the last 18 to 24 months and while we started to see in the last few quarters.
Is that in order to get deeper into the execution and unlocking unpack the advantage of AI and modeling to be able to have an advantage of an end to end on the way consumers are residents are actually interacting with their homes and getting.
The right outcomes, the right pricing et cetera.
Well He's award where you can go to a much more vertical oriented and to have that conversation and such and by doing. So we are having an advantage of having an end to end data perspective on how to serve these tenant ultimately that is coming with Darling downs.
<unk> created a one of the kind of solution that is collectively.
Building all of these pieces of the management of the houses of the connectivity to the tenants of that drop that we allow our model to unpack much more opportunity from these things.
And to create a unique solution end to end and from the <unk> again 30000 foot perspective, obviously, the asset is could be coming and other data mode from the real estate that adds to the full networking capabilities. When we have so I know, it's an innovate a lot, but I hope it gave you kind of like the direction and the connectivity.
How we think about it and how we see it.
Yes, no that was super helpful. Thank you very much guys.
Okay.
Thank you we'll take our next question from the lineup how coach with loop capital. Please go ahead.
Hey, good morning, Thanks for taking my question I wanted to ask about the auto business and you mentioned.
The connected 20000 dealerships both franchise and.
Independent and that's a that's a staggering number because there's only about 18000 franchise.
Dealers in the countries and a lot more independents, but a lot of scale of the 20000.
How many of them are active or up done at least one loan or more.
First question. Thanks.
So can you repeat the question on the second part of the the first one about the independents I heard the second part that I Love joyful.
Okay.
As of the 20000, you mentioned you're connected to.
How many of the 20000.
You've done alone with is it all 20000 or is it half or is it.
Where are you at in penetrating kind of.
Getting activity on the platform from those 20000.
Sure.
Ill just say it just to put the numbers in perspective, when we're talking about the 20000 is independent and franchise.
And we see and we see applications from all of them just to be clear we are not connected to them directly we are connected to them through our partners that have that.
<unk> with them. So we took the approach of instead of going after that.
The actual franchise and independent dealerships, which is not our business. We are connected to a very big lenders that had already established one of the kind of very mature type of pipes with all of them. So so as we think about the business we are actually connecting to the partner.
Is that at the end are connecting to these 20, K independent and franchise. So the flow as you think about it coming through all these dealerships and are getting access to the applications and I don't have a number of top of my head, but like we did with a very big part of them.
Already our take of offload that.
It's an even better that's even better set up so that is that the number three auto lender that that's your partner or is it a dealer management system companies.
It helps you get to those 20000.
So we are connecting <unk> to over 10 partners.
The one you said he's like well connect is one of the biggest top three pulp mills and they are connected to many different franchise and dealerships and the flow that go through that goes to us too.
Excellent. Thank you that's great. Thank you very much.
Thank you for your question.
Thank you we take next question from the line of Joseph Buffy, but contact Canaccord Genuity. Please go ahead.
Hey, guys. Good morning, Nice results here in a tough environment, maybe we start on the funding side a little bit.
Nice to see $7 billion in funding in 2022, maybe you could provide us an update from your perspective on Investor continued investor appetite for these.
These asset classes of loans.
Where you are right now and you know how much I guess runway you've got available into 2023 with existing funding vehicles and.
And many and maybe any expectation of how you look at.
Potentially raising new ones. This year, and then I'll have a follow up thanks.
Sure. So so so from an appetite I would say that like Q4 was the hardest you had the least amount of liquidity in the market.
And in that quarter, we closed $1 4 billion of ABS.
But when you were thinking about the start of the start of the year started much better and we just priced.
This this week and $800 million ABS, which was kind of like four times over subscribed on the more senior part and over one times subscribed on the junior pieces.
So we see a healthy come back into that into that reality and as we see the historical peak user coming to go down we expect that numbers to go materially higher so will not say that these are the best days for that type of discussions and partners, but that's what it may cost of funding for Q4 to Q1 from us.
Reds perspective went down and we are very very well established in the institutional investors worldwide to be able to tap that market as a top leader from that perspective.
And maybe another interesting part to note is that like in our recent ABS. We have one of the most diversified book we've had the inbound.
Long time, so we are continuously adding new investors as such.
That's great that's great color, Joe and then.
I guess, maybe could you go into a little more detail it sounds like take rates moving up some but program fees are moving up also off offsetting some of the take rate how that balance works and you know I know you mentioned some program fees for newer partners were.
Higher and maybe why is that.
Just just just that that balance on on the kind of Cogs versus revenue side would be great. Thanks a lot.
Yeah, I'll take that one thanks, thanks for the question Joe.
Oh actually split it into two parts. The first talk about the take rate side and on on revenues what we're.
What we're seeing is that we've really started to benefit from the two sided network that we've built in particularly our role in the ecosystem and what I described in some of the prepared remarks was around the increased monetization and what you saw in the fourth quarter was AI integration fees were higher they were higher because we have.
Been able to demonstrate through these markets the value of <unk>, many cases being 20% to 30% of volume on some of our partners networks or summer party platforms, and so that has translated into an ability for us to generate higher economics with those partners.
AD integration fees were up and that offset some of the softness that we've all experienced in the capital markets and so that's on the take rate side, and that's taken us to a roughly 10%.
Level in the fourth quarter.
Now looking forward I think we said before 810% of our range I think given the expansion that we've seen probably 9%, 10% is a reasonable range for us for 2023 and that that will also be driven somewhat by product and partner mix.
Now on the on the production.
Production cost side, you are right to point out that production costs are higher now again that is a function of product and partner mix and particularly what we see is we're expanding into new products and with new partners is typically in the early days of those relationships, we have lower margin or in other words higher fee.
These higher costs and higher those higher costs.
Are associated with either the product itself. So for example in auto there's this higher structural fees given theres more market participants those dealers. In addition to lenders, etc. And then with partners again, we want to make sure were in Theyre proving the value proposition for Guy and we're happy to do that for a period of time before.
Then talk about economic optimization, and so thats why youre seeing the production costs, ranging up and we expect to be in the 6% to 7%. So putting those two things together call it 9% to 10% on the take rate side, 6% to 7% on the production cost that leads to a gross profit.
<unk>, which we expect to be stable and has been stable.
Relatively stable over the last year or so in the 3% range hopefully that helps answer your question Joe.
That was a good explanation thanks Michael.
Thank you ladies and gentlemen, we have reached the end of the question and answer session.
And I'd like to turn the floor back over to Gil <unk> CEO for closing comments over to you Sir.
In closing.
Sure.
I would like to reiterate how proud I am of our team.
And while we have accomplished in 2022, we have a strong momentum into 2023 and I want to thank all of you for joining us today, and we look forward to continuing to partner with you in the future.
So lots and have a great day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Okay.