Q1 2023 Pagaya Technologies Ltd Earnings Call
Speaker 1: The.
Speaker 1: And.
Speaker 2: Good day and welcome to the Pagaya First Quarter, 2023 on your call. Today's call is being recorded. At the time I would like to turn the call over to Dancer John , head of investor relations. Please go ahead.
Speaker 3: Thank you and welcome to Pagaya's first quarter of 2023 earnings conference call. Joining me today to talk about our business and results are Gull Kruvener, Chief Executive Officer of Pagaya, and Michael Carlander, 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 atinvestor.pagaya.com.
Speaker 3: 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.
Speaker 3: Our actual results may differ from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and in our form 20F filed on April 20th, 2023, as furnished with the US Securities and Exchange Commission, as well as our subsequent filings made with the SEC.
Speaker 3: 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.
Speaker 3: Additionally, non- GAAP financial measures will be discussed on the call. Reconciliation 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 VESR relations website. With that, let me turn the call over to Gal.
Speaker 3: non- GAAP financial measures will be discussed on the call. Reconciliation 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 VESTSR relations website. With that, let me turn the call over to Gal. Thank you, Jensi.
Speaker 4: This quarter was another proof point of our ability to execute through volatility and progress on our long-term strategy.
Speaker 4: I will start with a performance update, then an overview of our plan to achieve our medium-term growth ambition, before I pass it over to Mike to discuss this quote of financial and outlook for the remainder of the year.
Speaker 4: Let me take you through the financial highlights for the quarter.
Speaker 4: We beat guidance on all of our key metrics as this quota, network volume, revenue and adjusted?? Gun ???
Speaker 4: We return to profitability on adjusted EBDA basis ahead of our outlook.
Speaker 4: And I'm increasing our adjusted EBITDA guidance for the full year, reflecting our focus on driving sustainable, profitable growth.
Network volume in the quarter was $1.85 billion, 12% higher than last year.
This drove total revenue and other income of 187 million dollars, 9% higher than last year, and adjusted EBITDA of $2 million.
As a reminder, we close our acquisition of Darwin in January , and invest in we made to take our SFR platform to the next level.
If we exclude the impact of Darwin, adjusted EBITDA would have been approximately $5 million. A light for light improvement of $14 million, sequentially versus the fourth quarter of 2022.
Now I will discuss operational highlights that drove these results. On the partner side, 20% of our network's volume came from a partner and product that were unmoulded in 2022.
As our network grows, we see increased monetization opportunities, with AI integration fees growing by 230 basis points from 5.5% to 7.8% of network volume.
On the funding sites, we were the top issuer of personal loan ABAs in the US in Q1.
Continuing that ranking from 2022, with over 30% share of market.
We onboarded two major asset managers to our network and strengthened our relationship with some of our long-term funding investors, such as GAC.
Our funding capabilities remain robust as our AI technology enable us to outperform the market.
With these achievements in mind, we are confident we are well positioned for future growth.
We remain focused on what we can control, although the timing and pace of our growth can be somewhat influenced by market conditions.
Now, stepping back for a second, we want to talk about the Gaia mission.
Pagaya's mission is to empower our partners to deliver more financial opportunities to more people, more often.
We do this by leveraging AI technology and data science.
We partner with financial institutions like Eli, Sofie and Clana, who originate loans with our network. Institutional investors purchase these loans through our networks too.
Today, over 1 million US consumers currently have active loans that were originated with the Pagaya technology.
We have a unique business model that we believe is inherently less volatile than other comparable film-text in consumer-lending space. What kind of environments are watching?
On slide 13 of our Elling presentations, we compiles Pagaya's volume and revenue versus the market benchmark.
which shows that we have been able to deliver more consistent and stable performance over time.
Looking ahead, our medium-term financial ambition is to reach $25 billion in network volume and $1 billion in fee revenues less production costs, or FRLPC.
We plan to do this by one, bringing more value to existing partners, two, adding new partners, including large banks, and finally, by driving a 3 to 4% FRLPC margin.
This brings us to what I believe is an inflection point in our company's journey. We already have the tools we need to reach our medium-term ambition. We have become meaningful contributors to the growth of some of our most mature partners.
Looking at our top three personal loan partners, approximately 26% of the total origination volume are being created using our network. That compares to only 10% of their origination volumes in the first quarter of 2021. As our value grows, we see improving economic.
volume for our auto business grew by 51% year over year, supported by increasing application flow of the large bank we onboarded in 2022.
We grew network volume for that partner by four times since its first quarter on our network, with significant runway to scale further in the near future.
The combination of increasing scale of material partners and the addition of new partners and products has resulted in substantial growth over the past few years.
2022 network volume was nearly 5x larger than network volume in 2020.
We have significant runway for future growth with our network as it stands today. We show an illustration of this on slide 21 and 22. We believe we can reach our medium-term ambition of $25 billion of network volume and $1 billion of FRLPC with just $2.5 billion.
the existing partners and products on our network. Let me dive into this a bit further. In 2022, we onboarded six new partners with an estimated combined annual origination volume of over 65 billion dollars.
We have already demonstrated that for some of our mature partners, we can drive growth equivalent to nearly 30% of the partner's total originations.
If we assume that we eventually reach 30% of 2022 origination volume for just the 6 partners we onboarded last year, this is an additional $20 billion of network volume, on top of the $7 billion we already delivered in 2022.
Give us a total of around $27 billion in annual network volume.
That assumes zero growth from other power mills on our network and zero new power mills.
While we will of course continue to drive growth from existing partners and adding new ones, we have the ability to reach our financial goals even without doing so.
If we apply our target FRLPC margin of 3-4% to the $27 billion of network volume, that translates to nearly $1 billion of FRLPC.
apply our target FRLPC margin of 3-4% to the $27 billion of network volume, that translates to nearly $1 billion of FRLPC. Now let me discuss the FRLPC margin of $27 billion.
our focus on growing and diversifying our funding networks. We offer institutional investors one-stop shop access to five different markets at scale with our performance enabled by AI.
We have raised over 16 billion dollars in funding across all of our financial vehicles since 2020 and we have been able to do so consistently even in severe market dislocations.
Our ABS deeds are typically oversubscribed by two to three times, enabling us to become the top personal loan ABS issuer in the US, reaching this rank in just four years.
As our auto business grows, we are increasing issuance to fund new partners' originations.
We issued 1.1 billion in 2022, ramping up to nearly 800 billion dollars in May 2023, yield to date.
Our investor base is growing.
Our old book for our ABS vehicle has around 80 unique investors.
and is becoming more diversified over time with a mix of large asset managers, sovereign wealth funds, hedge funds and insurance companies.
We have seen a significant step up over time in repeating investments from existing investors, as you can see on slide 30.
speaking to the tracks of our performance track record.
As we announced last month, we extended our funding relationship with GAC through 2028.
We also welcomed new top tier institutional investors who are funding network.
As we announced yesterday, we are partnering with Angela Gordon, VAR Departments, and Atlas to provide funding for a multi-billion dollar credit union.
We believe that growing investor demand is a reflection of our ability to consistently deliver asset outperformance with AI technology.
While application volume from partners tend to grow over time, as our network expands, our conversion rate is our level to optimize as a performance as macro conditions evolve.
Backed by AI-driven insights, we have been exercising underwriting prudence in the current environment, reducing our approval rates by nearly 50%, as you can see on slide 32.
As liquidity conditions will improve, we can dial the rate back up and increase network volume. In fact, if we applied our peak third quarter in 2021 conversion rate to fully in 2022 application volume, network volume in 2022 would have been over $10 billion.
doubled what it was in 2021.
With the faster reaction time enabled by our AI, our personal loan portfolio has consistently outperformed the market benchmark.
30 days past you, at month on book three, for Q4 2022 ventages are 55% lower than Q4 2021 ventages.
which were some of the worst performing ventures market-wide. With recent ventures returning to Q1 2021 performance levels, we are comfortable with our target ROA range of 8 to 12% return. Before I turn things over to Mike, let me recap. I believe that our business is at inflection point.
First, our network is expanding with significant runway ahead of us.
As the network expands, our AI technology gets stronger with more training data points and increased model accuracy.
As our data mode rose, we have an increase in ability to monetize our network.
Increasing scale and monetization combined with a focus of operational efficiency give us an achievable path forward to delivering sustainable, profitable growth. Let me pass it over to Mike to discuss this as well as our 2023 outlook in more detail. Thanks, Gao.
The inflection point Gallagher spoke to is also starting to be reflected in our financial performance.
We believe that the path forward to delivering sustainable profitability will primarily be a function of three factors.
Number one, significant runway for future growth, which I'll spoke to. Number two, a resilient business model that enables consistent delivery of our targeted three to four percent FRLPC margin. And number three, a continued focus on operating efficiency. Number three, a continued focus on operating efficiency.
As a reminder, in 2022, we made significant discretionary investment, resulting in near-break-even adjusted EBITDA of negative $5 million.
In the first quarter of 2023, we returned to positive adjustity, but that excluding the impact of Darwin, a $14 million sequential improvement improvement versus Q4 2022.
Our Q1 2023 results reflected a focus on higher margin generating volumes, further monetizing our network, and executing on cost savings initiatives, while also optimizing for asset returns as market conditions remain volatile. Network volume grew by 12% year over year, to $1.85 billion.
of total revenues grew by 11% year-over-year.
Our take rate defined as revenue from fees as a percentage of network volume remains stable versus the prior year at 9.5%.
This reflects an evolving composition of our fee revenue, as you can see on slides 40 and 41.
While capital market fees are lower in the current macro environment, we've increased AI integration fees and contract fees.
We believe our ability to effectively hedge the impact of financial markets with multiple revenue streams speaks to the resiliency of our business model and the future potential to monetize the network as we grow.
After factoring in production costs, our FRRLPC margin declined to 2.7% in Q1.
While this is below our target of 3 to 4% of network volume, we view this as a transitory period where capital markets fees are pressured by current market conditions, and AI integration fees are on the rise.
We expect our FRLPC margin to increase above 3% in the second quarter and on a four-year basis in 2023, as we realize the full quarter's impact of improving economics.
Turning to operating expenses. Last quarter, we spoke about call savings initiatives that we planned to implement in 2023 to deliver gross annualized savings of $50 million. Dr.
We accelerated the bulk of those initiatives in Q1.
Operating expenses less stock-based compensation, depreciation, and one-time expenses in the first quarter decline $10 million sequentially versus the fourth quarter of 2022. Excluding the impact of our recent Darwin acquisition.
Our operating expense ratio declined by 3% of points to Quentialee versus 422 to 29% of total revenue.
Gapnet loss was $61 million, impacted by non-cash items such as share-based compensation, and our election to a shift to available for sale accounting for our risk retention asset.
Gapnet Laws in the Quarter reflected the cumulative impact of this shift.
Adjusted net loss in the quarter was $11 million excluding these items.
In summary, let me reiterate that we remain committed to delivering sustainable profitability on an adjusted EBITDA basis. With another quarter of strong execution behind us, we are entering Q2 with significant momentum.
As a result, we are raising our Justity Bidic guidance to now range between $15 million and $30 million on the year.
Our outlook for second quarter and fiscal year 23 reflects a few factors.
First, continued prudence in underwriting standards as the environment remains uncertain.
Second, delivering our target 3 to 4% FRLPC margin, and third, a continued focus on cost management. It's important to note with limited visibility, we are not factoring in any material improvements in capital markets into our outlook. In the second quarter, we expect networks
We expect network volume to range between $7.5 and $8 billion. Total revenue and other income to range between $775 and $825 million.
and adjusted EBITDA to range between $15 million and $30 million.
With that, let me turn it back to the operator for Q&A.
We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
For purchase, spend, use and secure keep-a-man. If it may be necessary to pick up your headset, if you're pressing the keys.
participants using the sticker key for main. It may be necessary to pick up your headset if progressing the key. One moment please, why are we both for questions?
And our first question comes from...
Joseph Vassi with Kanakord.
Hey guys, good morning and thanks for taking the questions. Nice to see the progress in the business and nice to see the fine tune up on the EBIT dial line. Just, you know, at a high level, maybe some of the top of the funnel metrics we could dive into, I know you. www.c?? hell.com
You disclosed a really nice increase in application volume in auto. Just wondering what you're seeing in some of the other verticals and related to that appetite from new lenders.
becoming partners and then I'll follow up. George, you're with Galhiel. Thanks for the questions. So at your point and I'll definitely also was the application that we grew the most, but then over 50% because of like very good partnerships we landed. That's.
that the part where we're growing the most. Second to that, I would say that we are seeing a strong demand for application for existing partners continue to grow up. Both on the personnel owners of other new partners as you know, like Cloud and how they'll digest.
on board and working very diligently to increase the amount of application flow and to ramp up this type of, this type of power washing.
From new partner perspective, we do expect to have one or two more at the other half of the quarter. Hopefully big names that we've been working a lot on and will show the importance and the progress of the lending partners as such. From the way we think about conversion of these things, obviously it's important to say that.
of the tetra that as soon as the environment improves, we can tweak it that up and create a lot of growth based on what we have already. And the other piece is in these days it's bringing us a better quality of boil oils that they actually have in higher-fighted, higher income because of other funding partners are closing their...
their credit box more and more. And maybe the left point to add just like on the funding side of that which is another top of the funnel metric we have raised over two and a half billion and in Dorallio today to support that growth.
Great, and then maybe one on conversion rate. I know it's down as your remaining prudent and crosses on underwriting, but looks like it's kind of stabilized here for a couple quarters. How do we feel about that conversion rate trajectory?
Or basically do you think we're at the bottom of where conversion rate is or would there be something that would take it lower other than perhaps another macro like downturn? Thanks a lot guys.
So I think you are your own point. We are in the field today that we have buttoned out. And like we're up to the bottom from a conversion perspective, I will say that these things are coming from when we see the funding cost and where we see the our way of the assets that we are producing.
For an LRWA perspective, we believe that we are in the 80th-leg percent, which is our target and therefore we don't need to reduce the conversion rate. So I think the next thing you will see in the coming quarter is the conversion we start to go up. It's how to predict exactly when and how, but definitely the trend of the direction is for that and that's what we...
believe in the power of the situation we are standing and kind of like the inflection point of the project from that perspective. Thank you. Thank you. Our next question comes from my colleague with benchmark.
Thanks. Just kind of want to follow up on Joe's question on the verticals. Can you talk a little bit more about the geographic dispersion of where you're seeing strength weakness throughout the different regions a little bit? Thanks. Sure. So I'm NeLa.
From regions perspective, it's rather the diversified across the US. So like the big stage, such as the California Texas, et cetera, you will assume that they are higher percentage that if you do it by population, it's kind of like more or less the same. OK, great. And then just to follow up, you mentioned AI integration please going up. Can you talk about how you're able to pass those 12? Thanks.
Hey, happy to go and thanks for the question, Michael. It's Mike. Absolutely. We see in these times, the value proposition of the GAIA is really enabling our partners to continue to grow. And it's got a touch on in this environment. You see credit tightening.
and that's allowed us to grow our integration fees by approximately 230 basis points over last year. Thank you very much.
And just following on that, does that mean that you have a host of people who want to use your API and that you're you know, by able by increasing the cost that's almost limiting the expansion in the near term, just based upon availability or your capacity I should say.
Yeah, I think this is a good idea. I think that if you think about it in economics and environments like that, you are probably more time in places where you have a higher margin or higher fees. And as the environment in the market is becoming more stable, you will move more to grow in the lower mountain type of products.
and you will deal as pro dental that side too. So I think that you can think about it that notice like it's lower of growth in that environment and that's part of the way we influence things. But then this is where we move to where positive there are things from the mental health of the business that touch and everything's well-known.
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Thanks and go on my great quarter. Maybe following up on that a little bit, I think Pagaya had some unique advantages during that difficult funding environment because you kind of pre-funded and you were able to sort of get compensated for that.
And Moshe, nice to hear you and thanks a lot for the questions. So it may be a little bit less intuitive, but in times like that, as you mentioned, our value proposition is actually becoming more apparent. So let me talk about it both on the partner side, as you mentioned, and on the inside.
So for the south side, the Palo side, like we are a real part of the ability to fund it. And we're enjoying doing that. This is our duty, that's what we are here to support our Palo to be able to bring more credit to our consumers. And you see that in a few places in the presentation that I want to share, so to speak.
with many other problems, including as the Bay goes by, and especially in these environments. On the funding side, and sorry, and for that, like it obviously creates, for us, a lower cyclicality, volatility versus others, because we are becoming...
a big part of that and the ecosystem in these days. So like in normal days, the environment is growing and we are keeping our share, but in days like that, the environment may be not growing, but we are increasing our social. And that is a little bit of the last volatility more consistently that we are speaking and historically.
We started with a positive volatile market, but really much appreciated stability. Their date for them, top number one kind of metrics in the stability of the network, and it strengthens in their value for their value for position, their ability to be the for the consumers and therefore, increasing our value for position with them.
So I think that the stability is something that like the public is very much appreciated and we are working day in day out to make sure we are going to be for that through the time and as such getting compensated for that early order. On the funding side, in days like that, investors want to be more prudent, they want a high quality source of assets.
that is coming with a very strong underwriting capabilities. And I think to that, just yesterday we announced a very unique bubble sheet that we did together with Angela Borden and Vardey to be able to facilitate some kind of support for you that allows through a credit union through our technology. So being there next to our funders, next to our funding partners and to be able to continue to experiment with you. Continue to tej the June ????
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Great, thanks. And maybe as a follow-up, the idea of being able to charge AI fees versus capital markets fees, I would imagine it's generally when the capital markets environments were more robust. It was easier for your customers to pay you in those capital markets fees. But you talk a little bit about how you see that mix.
evolving over time? Sure. Yeah, Mike, you want to take it? Absolutely. Hey, Moshe. Really, I think a good demonstration of the resiliency of the business model, because there's actually a slide, I think it's 41, in the deck that shows us our capabilities. You've got those two different types of fees that you refer to.
On the capital market side, you've seen the trend actually decrease as market liquidity has dried up overall. And we actually think that's now really hitting a bottoming out point. And the other side, you've got the AI integration piece, which is everything Gal just spoke to around the value add from a partner perspective and from overall ability to grow.
And so those two things will ebb and flow depending on the overall market. Our goal is to deliver consistent results of FRLPC in the 3 to 4%. And we think we can get there through multiple ways, which is the unique structure of our business model that's resilient.
Thanks very much. Our next question comes from character Acorthera, with SVB Mofet and Nathanson.
Okay, thank you. Good morning. On DARREN, you disclose DARREN's contribution to adjusted EBITDA. Could you also disclose DARREN's contribution to revenue and maybe to volume two?
Hey, thanks for the question. I'd say maybe stepping back on the question around Darwin overall, I would just start by saying, we're really pleased with the progress of the integration. We spoke last quarter about the value of Darwin and a strong leadership team and disruptive technology that's really gonna add to our overall vertical.
platform in the SFR space. So overall, really excited about the future growth trajectory allowing with Darwin coming into our platform. From an actual results perspective, actually very immaterial in terms of overall business, which is in line with our expectations.
We did disclose, as you mentioned, on adjusted EBITDA. Without the adjusted EBITDA impact of Darwin, we would have been approximately $5 million. So in the order of single digit, small millions of dollars of impact, we don't expect that to be material in the upcoming quarter. But over time, we expect to really generate the synergy.
So I'm going to make that for a second for our mission. For our mission perspective, a guy is created to provide access to credit people to throw our hospitals, whatever they are, and whatever type of loans they want to get. The same region and vision exists for us and the liquid engines facing the U.S.
There are big bubbles of the population in the US that is looking to get access to more affordable housing in places where they should have the ability to do so in a cheaper post on the one hand side and not to be restricted by high level FICO or other types of restriction things.
So with that in mind, we designed that we purchased the Darwin and to be able to collect the modern AI that are allowing to unlock a lot of potential value of the ability to provide housing to more people, residential, and high quality through the Darwin Park. So in our perspective, we believe that like...
I would say the end of this year or maybe the start of next year, we're going to start seeing material progress in that perspective from the growth in the XFD and from the ability to implement all of that and to bring to a re-change in the way we operate. Just take it every time to have the full integration and understanding and the design of what up to fire you. Do that.
But we are very certain that at this moment going to become a meaningful contribution from our business in the next year. Okay, make sense. One last question please. You raised about 75 million last month. What are the priorities for deploying that capital?
either organically or inorganicly. Sure. We spoke at the time of the opportunities that we see in the market, just given current valuations. We think it's a really exciting time right now, whether it's going to be in our potential opportunities for strategic transactions such as M&A.
So primarily the goal of that raise was to give us the resources that are necessary to be able to execute on future M&A transactions, haven't announced anything at this point, but again, we see a lot of opportunities in the market right now and this gives us the ability to execute very quickly. Should one of those come to fruition.
Thank you. Our next question comes from Rhina Kumar with UBS. Hi, this is ZTECO Carney on behalf of Rhina Kumar. Thanks for taking my questions.
So, network volume and revenue and other income came in above your prior expectations for the quarter, but you are maintaining your targets for both for the full year. So can you just help us understand some of the underlying macro assumptions that are built into the full year top line outlook?
Yeah, thank you very much for the question. So I think it goes back a little bit to the conversion rate and the discussions we had before. We have a very strong confidence in the business and the ability to execute, but we are maintaining that guidance because our ability to predict the conversion point in time, given the...
managing that conversion ratio to drive to that target return of 8 to 12% for our investors. We're really pleased that we've been able to generate that return at this point. We'll continue to monitor it, but really that's going to be the driving force to allow us to toggle that conversion rate when the market improves. That's a uncertainty at this time, but when the market improves, we'll be able to.
increase that conversion ratio which can lead to upside on potential volume, but we're not taking a view at this point of when that will happen.
Understand, that's very helpful. And just as a follow up, have you seen any material impacts from the ongoing challenges that US regional bank states, particularly as it relates to partner demand for your network solution?
Yeah, so I want to thank you again back to the announcement we had yesterday, which we partnered with Balden, Angela Gordon, to facilitate a chronic UNNATED UNION, and the San Pablo de Provoio. So we see the impact of that from two sides, on the one hand side, it gives us a unique opportunity.
to utilize the technology and the AI to facilitate more of that and to help banks, credit unions, et cetera, to get a better funding position. With the strong relationships we have on the capital market side and the private capital, bundled with a unique AI, we are time-fighting in the perfect moment in the future.
to react and to be an even more centralized base with our network AI. Great, thank you so much. Our next question comes from how goch with the Riley Finan Show. Thank you, boring everybody. I'd like to ask a question on slide 17. It shows the percentage of volume that you're increased over the past two years. It's gone from like 14% to 26%. And the reference point of RQ122 is that there was a tremendous amount of lending going on. And...
It was high growth and high demand and everyone was issuing lots of credit. And then a year later, it's a very different situation in Q1. It's very tight everywhere. My question is, what do you think is...
What's normal? What do you think will be a normal percentage you might have of your partner's volume?
in a more normalized environment. Clearly not 14, is it 26? Somewhere in between, thank you. So you're absolutely right about your observations that you see here, Klausos, with a very different funding or macro environment. What we have been noticing historically is that once you hit the target,
like the different partners, think about it more as a partnership that once you set it up, and once you grow it, and it's kind of like a land and expense strategy, your ability to grow that over time is relevant. So the major part of it is the ability to integrate very heavily into the way these organizations are working and to be able to provide...
Okay, that's great. Thank you. All of the questions would be then for a new customer.
a new platform that you've connected to through APIs or software like Ally, or another type of aggregator of a great amount of application demand. But, you know, generally...
What is the trajectory on a kind of same store basis that you launch and then maybe in year one, year two, year three? Because I like that term land and expand because it sounds like, hey, the volume will build over time, even with an existing partner. Can you give us your thoughts on that? Yes. So I want to actually speak about it from two lanes, if that's fine by you. So the self lane.
more than that, the funding for that accelerated 4x for what we call the first quarter that we are onboarding and up until two quarters after. So the first piece of the integration is like continuing to expand and it usually can start as low as like 1, 2, 3% and in the heights of it could reach to the 25 plus percent that you just described.
in that particular set, and this is the most that this is creating. So, think that you have a partner and you've been working with Aim434Eels and you learn the flow and the application, you know, the different type of uniqueness that that partner has. And what it's actually doing is using you a unique data advantage that your AI can convert into a higher conversion.
but you have knowledge and four fields of specific data that no one has had. So to your question, in the early days, it can be a few percentage points, and if we are very successful, it could come to a double digit, even like above 25%, and we all do to solve for the partner need, so every partner is a little bit different, but with that, it's coming a unique advantage that we are learning.
this channel very much and optimizing for that and therefore other potential competition in the future will have much harder time to pay for that given the work and the uniqueness of knowledge that we have on our own.
Thank you very much. Excuse me for the final question. I will turn back to Gal Grubner. Please go ahead. Thank you, operator. And now we have a unique last question, guys. In AR.
to our Q&A session as a participant.
We want to change GDP to ask one question that it chose as if it were an analyst on our own code.
Let me explain how we went about it. We uploaded our early materials and stories and materials earnings to CHEDGDP this morning and promoted it to suggest a question as if it were a synthesized analyst and suggest an answer as if it were the CEO of the Graphic Technology, which means me.
I'm going to have Jensi read the question that Chet GDP suggested and I will read out loud the answer that it provided. To be clear, we did not edit or change a single word of both the question and the answer provided by Chet GDP.
have GenC read the questions that change GDP suggested and I will read out loud the answer that it provided to be clear. We did not edit or change a single word of both the questions and the answer provided by change GDP. Here we go GenC.
Thanks, Skolm. The question from ChatGPT is, how does the guidance wrap in growth in the auto business contribute to the company's overall competitive position, and what opportunities do you see in this segment moving forward? And the answer to the ChatGPT providers for me to consider to say is the following.
Thank you for your question. For the highest rapid growth in the auto business has significant contributed to our overall competitive position by expanding our network and strengthening our AI data modes.
Our connection to over 20,000 dealerships, both franchising and independent, through our partnership with major landals, has allowed us to access a vast majority of unique data, which in turn improves the power and accuracy of our AI models.
This enables us to provide better underlying solutions and drive growth for our partners. As for opportunities in this segment moving forward, we see tremendous potential in continuing to expand our partnerships and further scaling our auto business.
Our recent addition of a large auto bank has already led to a 51% increase in total author application volume evaluated by Spagaya Network. This rose not only enhanced our ability to serve our existing partners, but also a fraqty partners who recognize the value of our innovation and the writing technology.
Moreover, as we continue to gain operational leverage through scale and cost management, we expect to achieve sustainable profitability, further solidifying our competitive position in the market.
In summary, the rapid growth of our auto business has put Spagaya at an inflection point, and we are well positioned to capitalize on the opportunities in this segment to drive our medium-term goal of reaching $25 billion in net worth volume and $1 billion in fee, revenue, less production costs. Thank you very much to GDP for the question and the proposed answer.
In summary, the rapid growth of our auto business has put Pagaya at the inflection point, and we are well positioned to capitalize on the opportunities in this segment to drive our medium-term goal of reaching $25 billion in net worth volume and $1 billion in fee revenue plus production costs. Thank you very much, AGDP, for the question and the proposed answer. With that, I'll stop there.
I will make a few closing remarks. I'm confident in our ability to continue to deliver for our partners and investors. We have significant momentum as we enter Q2 and beyond, and we continue driving towards achieving our mission.
Thank you all for joining us today and we look forward to continuing to partner with you in the future. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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