Q2 2023 Pagaya Technologies Ltd Earnings Call

Operator: Good day. Welcome to Pagaya Q2 2023 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Jency John, Head of Investor Relations.

Speaker 1: day and welcome to PAGAIA's second quarter 2023 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Jenci John , Head of Investor Relations.

Good day and welcome to the Guy S. Second quarter 2023 earnings call. Today's call is being recorded at this time I would like to turn the call over to Jen see John head of Investor Relations.

Jency John: Thank you. Welcome to Pagaya Q2 2023 Earnings Conference Call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya, and Michael Kurlander, our Chief Financial Officer. You can find the materials that accompany our prepared remarks and a replay of today's webcast on the investor relations section of our website at investor.pagaya.com. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve certain 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 contemplated by these forward-looking statements.

Speaker 1: Thank you and welcome to PAGAIA's second quarter 2023 earnings conference call. Joining me today to talk about our business and results are Gaul Kuebner, Chief Executive Officer of PAGAIA, and Michael Kurlander, our Chief Financial Officer.

Thank you and welcome to the Guy had second quarter 2023 earnings Conference call. Joining me today to talk about our business and results our golf Cubbena, Chief Executive Officer, Guy here, and Michael <unk>, Our Chief Financial Officer.

You can find the materials that accompany our prepared remarks and a replay of today's webcast on the Investor Relations section of our website at investor It up a guy at dotcom.

Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve certain 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 contemplated by these forward looking statements.

Jency John: Factors that could cause these results to differ materially are described in today's press release and in our Form 20-F filed on 20 April 2023 with the US Securities and Exchange Commission, as well as our subsequent filings made with the SEC. 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, including adjusted EBITDA, adjusted net income, and fee revenue less production costs, or FRLPC, will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release and other materials which are posted on our investor relations website.

Factors that could cause these results to differ materially are described in today's press release and in our form 20-F filed on April 28, 2023, with the U S Securities and Exchange Commission as well as our subsequent filings made with the SEC.

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, including adjusted EBITDA, adjusted net income and fee revenue less production costs or F. R. L. P. C will be discussed on the call reconciliations to the most directly comparable GAAP financial measures are available in our earnings release and other materials materials, which are posted on our investor Relations website.

Jency John: Before we begin our prepared remarks, we want to note that this quarter we published our inaugural shareholder letter in lieu of our usual earnings presentation. We encourage you to review the shareholder letter, which was furnished with the SEC on Form 6-K today, for detailed commentary on our business and performance in conjunction with accompanying earnings supplement and press release. All documents are available on our investor relations website. With that, let me turn the call over to Gal.

Before we begin our prepared remarks, we want to note that this quarter, we published our inaugural shareholder letter in lieu of our usual earnings presentation.

We encourage you to review the shareholder letter, which was furnished with the SEC on form 6K today for detailed commentary on our business and performance in conjunction with the accompanying earning supplement and press release.

All documents are available on our Investor Relations website.

With that let me turn the call over to Carl.

Gal Krubiner: Thanks, Jency. At Pagaya, we thrive for continuous improvements. As mentioned, we are committed to providing our existing and future shareholders communication that is transparent and comprehensive. Our shareholder letter is a reflection of this commitment, and you can expect to see more of that in the future. We had a strong Q2, exceeding the high end of our guidance across all our KPIs, network volume, total revenue, and adjusted EBITDA. Our performance reflects our ability to consistently deliver for the lenders and investors on our network. We delivered record network volume in Q2 of approximately $2 billion, despite an historical low conversion rate in light of the current macro environment. Our lending partners are sending more applications our way as they tighten their own credit boxes. Investors continue to come to us to invest their capital.

Thanks Jesse.

It's forgotten we strive for continuous improvement.

As mentioned, we are committed to providing our existing and future shareholder communications.

Communications that is transparent and comprehensive.

Our shareholder letter is a reflection of these commitments.

And you can expect to see more of that in the future.

We had a strong second quarter.

Exceeding the high end of our guidance across all our kpis.

Network volume total revenue and adjusted EBITDAR.

Our performance reflects our ability to consistently deliver for the lenders and investors on our network.

We delivered record network volume in the second quarter of approximately $2 billion. Despite an historical low conversion rate in light of the current macro environment.

Our lending pulp mills are selling more applications, our way as they tighten the own credit boxes and investors continue to come through us to invest their capital.

Gal Krubiner: The demand is high for our products on both sides of the network. Total revenue grew by 8% year over year to $196 million. We are earning more fees on our lending platform product as demand grows. That resulting in growth in our fee revenue, less production cost, both year over year and compared to Q1 2023. Adjusted EBITDA grew to $17.5 million, more than triple the prior year period, and our second highest EBITDA in our history. With a continued momentum in our business, we are raising our network volume and adjusted EBITDA outlooks for the full year, which Mike will speak to more in the minutes. Now let me spend a few minutes discussing our business for those of you who are new to our story. I encourage all of you to read our shareholder letter in-depth, which discuss our product offering and platform in more detail.

The demand is high for our products on both sides of the network.

Total revenue grew by 8% year over year to $196 million.

We are building more fees on our lending platform product as demand grows.

That resulting in growth in our fee revenue less production cost most evils will yield and compared to Q1 2023.

Adjusted EBITDA grew to 17 and a half million dollars.

More than triple the prior year.

Period, and our second highest EBITDA in our history.

With the continued momentum in our business, we are raising our network volume and adjusted EBITDA outlooks for the full year.

Which Mike will speak to more in the minutes.

Now, let me spend a few minutes discussing our business for those of you who are new to our story.

I encourage all of you to read the real shareholder literally index, which discuss our product offering and platform in more detail.

Gal Krubiner: Pagaya is designed to solve a critical problem in consumer credit. An estimated 42% of Americans are denied access to credit, or don't get as much credit as they would like under traditional underwriting systems. Our mission is to unlock that opportunity with technology, to help more people get access to more credit. To address this problem, we created a two-sided tech-enabled network that connects the lenders who originate loans to investors who want to purchase those assets. Lenders who integrate with Pagaya's network originate more loans, gain new customers, and earn more revenues, and all of this without taking any incremental risk. On the other side of our network, institutional investors get access to diversified and high-yielding asset pools at scale. We have pioneered a network comprised of two distinct products, a lending product and an investor product. We believe this model gives Pagaya an edge over other structures.

<unk> is designed to solve a critical problem in consumer credit.

An estimated 42% of Americans are denied access to credit or don't get as much credit is due.

They would like on the traditional underwriting systems.

Our mission is to unlock that opportunity with technology.

To help more people get access to more credit.

To address this problem, we created a two sided tech enabled network.

That connect the lenders, who originate loans to investors, who want to purchase those assets.

Lenders, who integrate with for guidance network originate more loans gain new customers and earn more revenues.

And all of this without taking any incremental risk.

On the other side of our network institutional investors get access to diversified and high yielding assets for us at scale.

We have pioneered the network comprised of two distinct products.

Lending product and an investor products.

We believe this model use per guy an edge over other structures.

Gal Krubiner: We are proud of the organization we built, housing best-in-class lending technology and asset distribution capabilities on one platform. We hired leading experts in their respective fields, lending and financial market industry veterans, and world-class engineers. As a result, Pagaya offers a value proposition to lender and investors that we don't believe is replicated anywhere else today and will be difficult to build organically at this scale. On the lender side of the network, our product suite provides access to fully automated credit decisioning technology, secure data exchange and analytics, and real-time funding of any loan originated. The product is deeply embedded in each lender's loan origination system via customized seamless APIs. Once integrated, our product allows for smarter and faster credit evaluation with the ability to evaluate and price a loan in less than half a second.

We are proud of the organization, we built housing best in class lending technology and as the distribution capabilities on one platform.

We hired leading experts in their respective fields.

Lending and financial market industry veterans and World Class Engineers.

As a result for Gaia offers a value proposition to lenders and investors that we don't believe that replicated anywhere else today and will be difficult to build organically at this scale.

On the lending side of the network our product suite provides access to fully automated credit Decisioning technology secure debt exchange in analytics and real time funding of any loan originated.

The product is deeply embedded in each lenders loan origination system via customized seamless API items.

Once integrated our product allows for smarter and faster credit evaluation with our ability to evaluate and price alone in less than half a decade.

Gal Krubiner: All of this results in a sticky product, evident by the fact that we have grown to over 25 lending partners, and since inception, no lender has left our network. Institutional investors on the other side of the network connect to a distribution platform that delivers a continuous flow of billions of dollars of assets across multiple markets, including personal loans, auto, and point of sale. In H1 of the year, we raised $3.1 billion across seven different ABS deals, and just closed on our most recent $800 million personal loan deal in July. We were once again the number one personal loan ABS issuer in Q2. Our reputation as a benchmark issuer and our performance track record continue to draw new investors to our network. We continue to see improving trends in asset performance.

All of this results in a sticky products evidenced by the fact that we have grown to over 25 lending potholes and since inception, no lender has left our networks.

Institutional investors on the other side of the network connect to a distribution platform that delivers a continuous flow of billions of dollars of assets across multiple markets.

Including personal loans auto and point of sale.

In the first half of the year, we raised $3 1 billion.

Across seven different ABS deals and.

And just closed on our most recent 800 million personal loan deal in July .

We were once again the number one personal loan ABS issuer in the second quarter.

Our reputation as a benchmark <unk> and <unk>.

Our performance track record continued to draw unions vessels to our network.

We continue to see improving trends in asset performance.

Gal Krubiner: Early-stage delinquencies for recent personal loan and auto vintages, our two largest markets, continue to decline, while the weighted average coupon remains stable. This translates to improving returns for investors, enabled by our continued low conversion rate. The flywheel effect is fueled by hundreds of millions of data points that flow through our network, which enables better outcomes for both existing and future network participants. The real impact is that over $7 billion of assets were created last year in the consumer finance ecosystem that would not have been created if it were not for Pagaya. The strength of our product offering reinforce my confidence in our ability to grow existing partners, add new ones, and attract new investors. With the pipeline we have today, we believe we can grow our network significantly over the next few years.

Early stage delinquencies for recent personal loan and auto vintages.

Our two largest markets continue to decline.

While the weighted average coupon remained stable.

This translates to improving returns for investors enabled by our continued low conversion rates.

The flywheel effect.

Fueled by hundreds of millions of data points.

That flow through our network.

Which enables better outcomes for both existing and future network participants.

The real impact is that over $7 billion of assets were created less diesel in the consumer finance ecosystem that would not have been created if it were not for Bulgaria.

The strength of our product offering reinforce my confidence in our ability to grow existing partners and new ones and attract new investors.

With the pipeline we have today, we believe we can grow our network significantly over the next few years.

Gal Krubiner: To my fellow Pagayans, I'm incredibly grateful for your hard work and commitment to achieving our mission of increasing access to credit for more consumers across the country. With that, let me pass it over to Mike to discuss our financial results in more detail.

And to my fellow for guidance I'm incredibly grateful for your hard work and commitment to achieving our mission of increasing access to credit for more consumers across the country.

With that.

Let me pass it over to Mike to discuss our financial results in more detail.

Michael Kurlander: Thanks, Gal. We exceeded all of our performance targets this quarter, reflecting the momentum of the business and our focus on profitable growth. While macro headwinds continue, we remain focused on what we can control. Lenders are sending more applications our way as they tighten their own credit boxes, enabling us to deliver our highest-ever network volume while managing to a historically low conversion rate. On the investor side of the network, we're starting to see some green shoots, with market liquidity starting to recover from the significant volatility we saw last year. Investor sentiment appears to be improving, with consumer unsecured ABS issuances higher this quarter than the prior two sequential quarters, supporting our ability to continue to raise capital to fund new loan origination. We continue to improve unit economics as we scale. Total revenue and other income grew 8% year over year to $196 million.

Thanks Carl.

We exceeded all of our performance targets this quarter, reflecting the momentum of the business and our focus on profitable growth.

While macro headwinds continue we remain focused on what we can control.

Lenders are sending more applications, our way as they tightened their own credit boxes, enabling us to deliver our highest ever network volume, while managing to a historically low conversion rates.

On the Investor side of the network, we're starting to see some green shoots with market liquidity has started to recover from the significant volatility we saw last year.

Investor sentiment appears to be improving with consumer unsecured ABS issuance is higher this quarter and the prior two sequential quarters supporting our ability to continue to raise capital to fund new loan originations.

We continue to improve unit economics as we scale.

Total revenue and other income grew 8% year over year to $196 million.

Michael Kurlander: Revenue from fees, which made up 95% of total revenue in Q2, grew by 14% year over year. Our take rate, defined as revenue from fees as a percentage of network volume, grew by 110 basis points year over year to 9.5% and remained stable sequentially. Production costs grew by 15% year over year and amounted to 6.2% of network volume in Q2, 80 basis points above Q2 2022, and a decline of 60 basis points sequentially versus Q2 2023. The net result is that our FRLPC, our measure of gross profit, grew by 12% year over year and 30% sequentially, amounting to 3.3% of network volume, which is within our target range of 3% to 4%.

Revenue from feed which made up 95% of total revenue in the second quarter grew by 14% year over year.

Our take rate defined as revenue from fees as a percentage of network volume grew by 110 basis points year over year to nine 5% and remained stable sequentially.

Production costs grew by 15% year over year and amounted to six 2% of network volume in the second quarter.

80 basis points above second quarter, 'twenty, two and a decline of 60 basis points sequentially versus <unk> 23.

The net result is that our fr LPC, our measure of gross profit grew by 12% year over year and 30% sequentially.

Mounting to three 3% of network volume, which is within our target range of 3% to 4%.

Michael Kurlander: As you can see in our shareholder letter on page seven of our earnings supplement, this growth is primarily a function of the evolving composition of our fees, as well as partner and product mix. As a reminder, we earn margin on both sides of our network, on both our partner product and our investor product. In today's environment, we see increased reliance on our lending partner product as our lending partners tighten their own credit standards and face more challenging funding markets. We are earning higher margin on the lending side of the network. This is helping to offset the lower fees we're currently earning on the investor product in today's higher cost of funding environment. The resulting growth in FRLPC was the key driver of our EBITDA delivery this quarter, demonstrating the ability of our two-sided network to deliver consistent results.

As you can see in our shareholder letter and page seven of our earnings supplement. This growth is primarily a function of the evolving composition of our fleet as well as partner and product mix.

As a reminder, we earn margin on both sides of our network on both our partner product and our investor products.

In today's environment, we see increased reliance on our lending partner product as our lending partners tightened their own credit standards and creates more challenging funding markets.

As a result, we are earning higher margin on the lending side of the network business.

This is helping to offset the lower fees were currently earning on the investor product in today's higher cost of funding environment.

The resulting growth in FRE LPC was the key driver of our EBITA delivery this quarter demonstrating the ability of our two sided network to deliver consistent results.

Michael Kurlander: Moving on to operating expenses. Our total research and development, sales and marketing, and general and administrative expenses were approximately $85 million in Q2, down significantly from the prior year quarter, which was impacted by one-time stock-based compensation expenses related to our transition to becoming a public company. As we said in Q1, our goal this year is to deliver $50 million in annualized cost savings, excluding the impact of our recent Darwin acquisition. We delivered on this target earlier than our original expectation by accelerating our cost savings initiative, which included actions to reduce both compensation and non-compensation expenses. Core operating expenses, excluding stock-based comp, depreciation, and one-time expenses, declined by $12 million versus Q4 2022, or roughly $50 million in run rate savings. The resulting operating leverage enabled our FRLPC expansion to drop straight to the bottom line.

Moving on to operating expenses.

Our total research and development sales and marketing and general and administrative expenses were approximately $85 million in Q2 down significantly from the prior year quarter, which was impacted by onetime stock based compensation expenses related to our transition to becoming a public company.

As we said in Q1, our goal this year to deliver $50 million in annualized cost savings, excluding the impact of our recent Darwin acquisition.

We delivered on this target earlier than our original expectation by accelerating our cost savings initiatives, which included actions to reduce both compensation and non compensation expenses.

Core operating expenses, excluding stock based comp depreciation and one time expenses declined by $12 million versus the fourth quarter of 2022 or roughly $50 million and run rate period.

The resulting operating leverage enabled our FRE LPC expansion to dropped straight to the bottom line.

Michael Kurlander: We delivered adjusted EBITDA of $17.5 million, compared to $5 million in Q2 2022. We believe we are on track to continue to deliver sustainable profitability over the long term, supported by the strengthening of our value add to our partners and investors and the operating leverage embedded in our business model. Given the strong momentum of our business in H1 of the year, we are raising our full-year outlook ranges for network volume and adjusted EBITDA. Our outlook for Q3 and fiscal year 2023 reflects a few assumptions. First, we expect to remain prudent in our conversion rate of application volume in light of the ongoing macro uncertainty. Second, we continue to target FRLPC as a percentage of network volume of 3% to 4% as our network grows and we strengthen our value proposition to both our partners and investors.

We delivered adjusted EBITDA of $17 5 million compared to $5 million in the second quarter of 2022.

We believe we are on track to continue to deliver sustainable profitability over the long term supported by the strengthening of our value add to our partners and investors and the operating leverage embedded in our business model.

Given the strong momentum of our business in the first half of the year, we are raising our full year outlook ranges for network volume and adjusted EBITDA.

Our outlook for the third quarter and fiscal year 2023 reflects a few assumptions.

First we expect to remain prudent in our conversion rate of application volume related to the ongoing macro uncertainty.

Second we continue to target <unk> as a percentage of network volume of 3% to 4% as our network growth and we strengthen our value proposition to both our partners and investors.

Michael Kurlander: While economics on our partner products have been improving, we are not factoring in any material improvements in financial markets, which can impact the level of capital markets execution fees we earn. Finally, we will continue to focus on cost discipline and driving operating leverage. In Q3 2023, we expect network volume to range between $1.9 and 2 billion, total revenue and other income to range between $190 million and 200 million. Adjusted EBITDA to range between $10 million and 20 million. For the full year 2023, we expect network volume to range between $7.6 and 8.1 billion. Total revenue and other income to range between $775 million and 825 million, and adjusted EBITDA to range between $40 million and 50 million. With that, let me turn it back to the operator for Q&A.

While economics on our partner product had been improving we are not factoring in any material improvements in financial market, which.

It can impact the level of capital markets execution fees, we earn.

Finally, we will continue to focus on cost discipline and driving operating leverage.

In the third quarter of 2023, we expect network volume to range between one nine and $2 billion.

Total revenue and other income to range between $190 million and $200 million.

And adjusted EBITDA to range between $10 million and $20 million for the full year 2023, we expect network volume to range between seven six and $8 1 billion.

Total revenue and other income to range between $775 million and $825 million and.

<unk> EBITDA to range between $40 million and $50 million with that let me turn it back to the operator for Q&A.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Eugene Simuni with MoffettNathanson. Please proceed.

Thank you if you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star. He is our first question is from Eugene <unk>.

With Moffett Nathanson. Please proceed.

Eugene Simuni: Hi, guys. Congrats on a strong quarter. Wanted to start with network volume trends, good to see it exceed the expectations. Can you talk a little bit more detail about what allowed network volume to be as strong as it was? Maybe the attribution across better than expected macro environment, better than expected demand from your existing customers, or a higher level of success with onboarding new customers? That would be very helpful.

Hi, guys congrats on a strong quarter.

I wanted to start with network volume trend so good to see it exceed exceed expectations. So can you talk a little bit more detail about what allowed that network volume to be as strong as it was.

Maybe the attribution across better than expected macro environment better than expected demand from your existing customers or <unk>.

A higher level of success with on boarding new customers that would be very helpful.

Michael Kurlander: Hey, Eugene, it's Mike. Thanks for the question. You're right. We did see network volume hit a record level this quarter. What that was driven by to start with was really strong demand from both sides of the network. On the partner side, we had a 20% increase in application flow. That's really the core driver. We also saw increased demand on the investor side as well. That led to the network volume. Now, within that, we actually see that the macro headwinds were still with us. One of the things that we control on our side is the conversion ratio of that increased application flow. We kept our conversion ratio very low this quarter. That's really a function of us being very prudent in light of the existing macro.

Hey, <unk>, it's Mike Thanks for the thanks for the question.

Youre right, we did see a network volume hit a record level this quarter and really what that was driven by to start with was really strong demand from from both sides of the network on the on the partner side.

<unk> had 20% increase in application flow and that's really the core driver and we also saw increased demand on the investor side as well and that led to the network volume now within that actually you actually see that the macro headwinds, we're still with us and one of the things that we control on our side.

The conversion ratio of that increased.

Application flow.

We kept our conversion ratio very very low this quarter and thats really a function of us being very prudent in light of the existing macro tower.

Michael Kurlander: One of our core responsibilities, of course, is to create the right returns for our investors. Even though we had higher demand from our lending partners, we kept the conversion ratio really tight, and yet within that, we delivered record network volume. That gives us a lot of encouragement around where we think we can go in the future and the embedded growth that's within the network when we can pull that conversion ratio a little bit higher.

For one of our core responsibilities of course is to create returns the right returns for our investors and so even though we had higher demand from our from our lending partners.

We kept the conversion ratio really tight in that within that we delivered record network volume and so that gives us a lot of <unk>.

<unk> around where we can go in the future in the embedded growth within the network. When we can pull that conversion ratio a little bit higher.

Eugene Simuni: Got it. That's very helpful. Just to follow up on that, can you talk a bit about your success with capturing and onboarding new customers, especially larger US banks?

Got it that's very helpful and then.

Follow up on that can you talk a bit about your success.

With capture them in on boarding new customers, especially.

A large large our U S banks.

Gal Krubiner: Hi, Eugene, this is Gal. I'm going to take this one. When we're speaking about where we are standing in the pipeline, we feel very confident in our pipeline today. We actually think we can land another big bank partner over the next 12 months. We are actually in conversations with many of the top 25 banks as they are seeing the unique product that we are offering to the lenders. Part of the context for that is some headwinds in the banking industry that liquidity might be more constrained and therefore the fact that we can allow for the ability to progress more loans with consumers is actually something that they very much like. Therefore is giving us a lot of tailwind for that ability.

Hi, Eugene This is got a lot to take this one.

So when we're speaking about where we are spending in the pipeline, we feel very confident in our pipeline today.

We actually think we can learn and other big Bank Pablo over the next 12 months and we are actually in conversations with many of the top 25 banks as they are seeing the unique product that we are offering to the lender.

Part of the of the of the <unk>.

Context for that is some headwinds in the banking industry that <unk>.

The liquidity might be more constrained and therefore.

Factors, we can allow for the BDC to progress more.

Loans with consumers is actually something that they are very much alike.

And therefore, it's giving hospitals tailwind where that ability.

Gal Krubiner: We did work in the last year, if you remember, a little bit or invested, not a little bit, about moving our product to become more AAA-rated for banks. We are feeling very strongly that our offering right now is in the level and the stage that is relevant and therefore, we expect to see more conversions coming through based on the airline cloud and the successes we had in the past.

We did work in the last deal if youll remember a little bit about who will invest if not a little bit.

About moving our products to become more AAA too late for banks.

We are feeling very strongly that our offering right now is in the level at this stage that he has led event and therefore.

We are 10.

<unk> expect to see more conversions coming through based on the airline cloud enough successes, we had in the past.

Eugene Simuni: Got it. Okay. Thank you.

Got it okay. Thank you.

Operator: Our next question is from Rayna Kumar with UBS. Please proceed.

Our next question is from Reena Kumar with UBS. Please proceed.

Rayna Kumar: Hi. Good evening. Thanks for taking my question. Just want to start with your Q3 guidance. I noticed that the midpoint of your Q3 guide implies 120 basis point quarter-over-quarter decline in adjusted EBITDA margin. Just curious if that's seasonality or if there's any other underlying drivers there.

Hi, Good evening. Thanks for taking my question just wanted to start with your third quarter guidance.

I noticed that the midpoint of your guide implies a 120 basis point quarter over quarter decline in adjusted EBITDA margin. Just curious is that seasonality or if theres any other underlying drivers there.

Michael Kurlander: Hey, Rayna, it's Mike. I'll take that one. Thanks for the question. Let me maybe take a step back for a second and just mention that we're definitely pleased with the gains that we've been able to put through in terms of our profitability this year. I know your question was on Q3, when you think about the full year, we're now expecting to be $40 to $50 million. That's 10x where we were last year. We've been able to do that because we've been able to increase our FRLPC margin, and really that's all dropped to the bottom line. The core driver is our gross margin increasing and that operating leverage that's really been able to drop all the way down to the bottom line.

Hey, Ryan, it's Mike I'll take that one thanks for the thanks for the question.

Let me maybe take a step back for a second and just mentioned that we're definitely pleased with the gains that we've been able to put through in terms of our profitability. This year.

I know your question was on third quarter, but when you think about the full year, we're now expecting to be 40% to $50 million Thats Tenex, where we were last year.

We've been able to do that because we took are revealing.

R R.

If our LPC margin and really that's all drops to the bottom line. So the core driver of our gross margin increasing in that operating leverage.

<unk> been able to drop all we got to the bottom line now to your question.

Michael Kurlander: Now to your question. As a reminder, we are still a growth company. As we move forward, we do expect to see opportunities to invest in our growth. That's really all going to be driven just by a long-term focus on the company expanding and growing. As we expand the network, we're going to continue to invest in our product, but continue the trends of profitability that you've seen so far this year.

As a reminder, we are still a growth company and so as we move forward, we do expect to see opportunities to invest in.

Our growth and Thats really aren't going to be driven just by our long term focus on the company expanding and growing and as we expand our network. We're going to continue to invest in our product will continue to continue the trends and profitability that you've seen so far this year.

Rayna Kumar: That is very helpful. Just another question on conversion rates. Of course, the macro environment still remains very fluid, but with more talks of a soft landing here, if the Fed were to pivot, how would you manage conversion rates? Would this be a signal to begin lifting conversion rates and would it be an immediate transition, or would there be a few quarter lag before you become more constructive on it?

Well, that's very helpful. And then just one other question on conversion rate of course, the macro environment remains very fluid, but with more talks of a soft landing here if the fed.

Third were to pivot how would you manage conversion rates will just be a signal to begin lifting conversion rate then would it be.

An immediate transition or would there be a few quarter lag before.

You've become more constructive on it.

Michael Kurlander: Here's the way we think about it, Rayna. Really, rates are a bit of an indirect impact to us because we're not a direct lender, and our job is really to manage the investor returns holistically in terms of whatever's driving their investor returns and their hurdles. The way we think about it is we will lift our conversion rates when we feel comfortable to do so that it meets our investor return thresholds. Obviously, those hurdles will come down and should come down when the macro becomes more stable. From a response time perspective, I think one of the things that we're really proud of around what we've built here is that our response is in real-time. I even go back to late 2021 when we started to see trends of consumer behavior deteriorating. We responded in real-time.

Here's the way, we think about it really right here a bit of an indirect impact to us because we're not we're not a direct lender.

And our job is really to manage the industrial returns holistically in terms of whatever driving their investor returns hurdles.

So the way we think about it is we will lift our conversion rates when when we feel comfortable to do so that it meets our investment return thresholds.

Obviously, those hurdles will come down and should come down when the macro becomes more stable and from a response perspective I think one of the things that we're really proud of around what we built here at.

Our responses in real time, and you can go back to late 'twenty. One when we started to see a trend of consumer behavior deteriorating. We responded in real time and on the other side when we see the environment improving we also expect to respond in real time now.

Michael Kurlander: On the other side, when we see the environment improving, we also expect to respond in real-time. Now, with all of that said, we've definitely, as I said before, are going to maintain prudence with the conversion rate in light of the continued macro. Within that, we were able to produce record volume, and we'll look forward to improving that conversion ratio as soon as we feel comfortable that the macro is stabilizing.

Now with all of that said, we definitely as I said before are going to maintain prudent with the conversion rate in light as we continued macro and within that we were able to produce record volume book and we'll look forward to improving that conversion ratio as soon as we feel comfortable that the macro is stabilizing.

Rayna Kumar: Got it. Thank you.

Got it thank you.

Operator: Our next question is from Joseph Vafi with Canaccord Genuity. Please proceed.

Our next question is from Joseph <unk> with Canaccord Genuity. Please proceed.

Joseph Vafi: Guys, good afternoon. Nice to see good solid demand from both sides of the network. Maybe we just start. I know it does feel like application flow was also growing, not just network volume. I know you didn't really disclose that, but wanted to get a feel if there's a kind of a range or a band that you wanted to throw out on what application flow growth might have been. Also, I know you said that conversion rate was also muted, but was wondering if you dialed that down at all in the quarter, or was it kind of more flat sequentially? I'll follow up.

Good afternoon, and nice to see good solid.

Demand from both sides of the network, maybe we just start I know.

Application.

It does feel like application flow was also growing not just network volume.

No you didnt really disclose that but wanted to get a feel if there is a kind of a range or a band that you wanted to throw out on what application flow growth might have been and then also I know you said that.

Our conversion rate was also muted but was wondering if you've dialed that down at all in the quarter or was it kind of more flattish sequentially and then ill follow up.

Okay.

Michael Kurlander: Hey, Joe, it's Mike. Our application flow this quarter was up 20% sequentially over the prior quarter. The top of the funnel for us is really healthy. We're really excited to see that growth come through. If you think about that in the range of how that translates into network volume, the application flow times our conversion rate is ultimately what drives our network volume. We saw roughly $200 billion in additional application flow this quarter. Think about that in terms of our conversion ratio. We can produce in the order of 20% higher network volume to the extent we can produce 20% higher in the conversion ratio. That's the way we think about it, is we're managing to a pretty low conversion ratio right now, slightly below 2%.

Hey, Joe its Mike.

Our application flow this quarter was up <unk>.

20% sequentially over the prior quarter. So the top of the funnel for US is really healthy we're really excited to see that growth come through now.

Now if you think about that.

<unk>.

And the range of how that translates into network volume the application flow.

Our conversion rate is ultimately what drives our network volume, we see we saw roughly $200 billion in additional application for this quarter and.

And to think about that in terms of our in terms of our conversion ratio.

We can produce in the order of 20% higher network volume to the extent, we can produce 20% higher than the conversion ratio and that's the way. We think about it is we're managing to a pretty low conversion ratio right now.

Michael Kurlander: There's a lot of embedded growth in that as we can grow the conversion ratio from there. Does that answer your question?

Slightly below 2% and.

And Theres a lot of embedded growth in that as we can grow that grow the conversion ratio from there does that answer your question.

Joseph Vafi: Yeah, that makes sense. Obviously I think with that kind of sequential growth and clearly you got to filter that down and be prudent. That makes total sense. Just wanted to dig down also into FRLPC margin or as a percentage of network volume and kind of connect that back to your commentary on investor side of the network fees being a little muted and that margin was up, I guess, to 3.3% here in this quarter versus 3 a year ago. I know that the lender side is doing well. I'm just trying to get a feel for would you say that margin year over year on FRLPC as a percentage of network volume is down on the investor side, or do you think it's flat year over year and then the gain was coming from the lender side? If that question makes sense. Thanks.

Yes that makes sense that makes sense, and obviously I think with that kind of sequential growth.

Clearly you know you.

You got to filter that down.

<unk> be prudent so that makes total sense.

Just wanted to dig down also.

Fr LP see margin or as.

As a percentage of network volume and kind of.

Connect that back to your commentary on Investor side of the network fees being a little muted.

That margin was up I guess, the three 3% here in this quarter.

Versus three a year ago, and I know that the lender side is doing well I'm just trying to get a feel for.

Yes.

What would you say that margin year over year in Fr LPC.

Percentage of network volume is down on the Investor side or do you think its flat year over year and then the gain was coming from the lender side. If that question makes sense. Thanks.

Michael Kurlander: Sure. Really the gain that we've seen is really on the partner product. The demand on the partner product side has been very strong as our partners are relying on us more for growing their business and actually converting more of their application flow. When you think about that overall, what we're really pleased about is the evolution of our FRLPC by product. You'll remember we talked last quarter about some of the new initiatives we had for growing our unit economics on the partner product side. This quarter, going to 3.3%, you're seeing the full quarter impact of those taking hold. As you said, we're actually seeing lower contribution from FRLPC on the investor side. We expect that will come back with market liquidity.

Sure really the gains that we've seen is really on the partner product the demand on the partner product side, it's been very strong as our partners are relying on us more for.

Growing their business and actually converting more of their application flow.

Now when you think about that overall, what we're really pleased about is the evolution of our <unk> our product. So we talked to Youll remember, we talked last quarter about some of the new <unk>.

<unk>, we had four economics unit growing our unit economics on the partner product side this quarter going to three 3% youre seeing the full quarter impact.

<unk>.

Im taking hold now as you can.

We're actually seeing lower contribution from EVAR LTC on the Investor side now, we expect that will come back with market liquidity, but right. Now if you think about where we were a year ago versus today. What we're really excited about is we now have a much more balanced.

Michael Kurlander: Right now, if you think about where we were a year ago versus today, what we're really excited about is we now have a much more balanced approach or a much more balanced mix of our FRLPC between the partner side and the investor side. I'd actually encourage you to look, there's a slide we put into the financial supplement that actually breaks this out going over the last few quarters. You can see that in the investor deck.

Okay.

Approach are in much more balanced mix of our FERC <unk> between the partner side of the Investor side, and then actually encourage you to look there is a slide we put into the financial supplement, but actually breaks this outgrowing over the last few quarters and so you can see you can see that in the in the investor deck.

Joseph Vafi: Awesome. Thanks. Very helpful. Thanks, guys.

Awesome. Thanks very helpful. Thanks, guys.

Operator: Our next question is from Michael Legg with The Benchmark Company. Please proceed.

Our next question is from Michael Legg with Benchmark Company. Please proceed.

Michael Legg: Thanks. Great quarter, guys. Can you talk a little bit about the ABS funds raised, the performance of how those funds have done, and how it impacts current raises? Kind of relate that a little bit to your exposure to your investments in that, further how, if that limits your capacity, the ability to raise those funds, or you're obviously the largest fund of ABS. Can you raise as much as you want? By the amount of raise, how that impacts your decisions on your conversion rate. Thanks.

Thanks, Great quarter, guys can you talk a little about the ABS funds raised the performance of those funds have done and how it impacts current raises and then kind of relate that a little bit to your exposure to your investments in that and then further how if that.

Limit your capacity the ability to raise those funds or is that.

Obviously, the largest wanted to maybe ask can you raise as much as you want and then by the amount of ways how that impacts your decisions on your conversion rate. Thanks.

Gal Krubiner: Hi, Mike. It's Gal here. I will take the first part, and then Mike will chime in. From a funding perspective, we definitely see an improvement market conditions. I think both from the terms of the liquidity in the market, Q4 was the bottom, and since then we see an improved liquidity. In that capacity, I think what we're seeing very clearly is that the repeatable strong issuers like ourselves are getting a lot of traction, but smaller shelves, et cetera, are not really managing to close deals. It's kind of like talking to the scale and the importance of scale, building these things in motion. Just to give you one example, in July, we upsized the deal, an ABS deal from $600 million to $800 million. At the peak of the order book, we had $2 billion of orders.

Hi, Mike its Scott here.

Ill take the first part and then Mike will chime in.

So from a funding perspective, we definitely see an improvement of market conditions.

I think both from the sales of the liquidity in the market Q4.

Both of them and since then we see it.

Inc.

And in that capacity I think like what we're seeing very clearly is that a repeatable strong issuers like ourselves are getting enough protection.

But smaller shelf et cetera, really managing to closing so its like kind of like talking to the scale and the importance of scale building. These things in motion just to give you. One example in July we upsized the deal an ABS deal from $600 million to $800 million at the peak of the order book, we had $2 billion or deals so that speaks to the.

Gal Krubiner: That speaks to the strength and the ability of the team to deliver that capabilities into a funding strategies that are becoming very material for our ability to perform in different market conditions. Now to the side of the investment, Mike, do you want to take it?

Strengths in the ability of the team to deliver.

Debt capabilities into our funding strategies that are becoming really let's say that as for our ability to perform in different market conditions.

Now to the.

To the size of the investment multiple tickets yes.

Michael Kurlander: Yeah, from a balance sheet perspective, actually quite manageable, and I'll explain why. As you know, we don't actually put loans on our balance sheet, and so really our only asset on the balance sheet is the risk retention which comes from issuing ABS and the 5% mandatory holdings that we have to put on the balance sheet. If you think about that 5% and the fact that every quarter we're actually receiving cash flows from our prior investments. Actually, we had material cash flows this quarter from prior investments around $65 million. The fact that we've been able to grow and diversify our funding facilities for the investments in loan securities, that means that the actual net outflow from a cash flow perspective is in the 2% to 3% range.

Our balance sheet perspective.

Actually quite quite manageable on our claim Outswing wise as you know, we don't actually put loans on our balance sheet and so really our only asset on the balance sheet is the risk retention, which comes from issuing ABS in the 5% mandatory holdings that we have to we have to put on the balance sheet and so.

Do you think about that 5% and the fact that <unk>.

Every quarter, we're actually receiving cash flows from our private prior investments actually we have material cash flows this quarter from from prior investments around $65 million and the fact that we've been able to grow and diversify our funding facilities for the investments in loans and securities that means that the actual net outflow from.

From a cash flow perspective is in the 2% to 3% range so that gives us.

Michael Kurlander: That gives us actually a long runway to be able to continue to grow the business. Obviously long term, we'll diversify and actually supplement the ABS distribution mechanism with other funding products that don't have the same balance sheet requirements. In the near term, we feel really good about the position we're in.

Actually a long runway to be able to continue to grow the business and obviously long term.

To diversify and actually supplement the ABS distribution mechanism with other funding products that don't have the same balance sheet requirements, but in the near term we feel really good about the position we're in.

Michael Legg: Great. Congrats on the quarter. Nice job.

Great Congrats on the quarter and nice job.

Operator: Our next question is from Hal Goetsch with B. Riley Financial. Please proceed.

Our next question is from Howard <unk> with B Riley financial Please proceed.

Hal Goetsch: Could you give us a perspective of this application flow, $200 billion in the quarter is a staggering sum of money? Only about $2 billion of it is actually closed on 1%, and that's a huge number, a very selective process. Could you tell us more about that and also maybe the mix of this application flow? How much of it is coming from auto and different personal loans? What was it maybe a year ago on application flow? Thank you.

Could you give us a perspective of.

This application flow $200 billion in it.

Quarter is staggering sum of money.

Only about $2 billion of it is actually closed on 1%.

That's a huge number very selective process could you tell us more about <unk>.

<unk>.

Tell us more about that and also maybe the mix of this application or how much of that is coming from auto.

And.

Private loans and also loan.

What was it year ago on application flow. Thank you.

Gal Krubiner: Sure. It's Gal here. From the level of application flow, I think the important piece to share is the importance of seeing this flow, even if a conversion is happening or not. Part of that is the data that we are collecting and the ability to reach to a bigger and better part of the American consumer parts. We are choosing actively, both because of the prudence and some other events that you need to do on the modeling side to be focused on small population of that and to be able to deliver that. When you think about the network itself as a product or as a connectivity, from that perspective, I think we are now seeing something like almost $1 trillion of application a year.

Sure. So we've got here.

Yes.

From from the level of application flow I think the important piece too.

Here is the importance of seeing these flow even if the conversion rates have been anywhere notes because part of that is there.

Data that we're collecting and the ability to reach to bigger and better parts of them American consumer parts, we are choosing actively.

Both because of the prudent munis.

Some other advanced that you need to do on the on the modeling side to be focus on small population of that and to be able to deliver that.

But when you think about when you think about the network itself is a product or as a connectivity from that perspective, I think we are now seeing something like almost a trillion dollar level of application of yield and therefore, you can imagine their ability to create a lot of value and to monetize that over time will not end up in the one from the 2%.

Gal Krubiner: Therefore, you can imagine that the ability to create a lot of value and to monetize that over time will not end up in the 100, 2% as such, and we will find more and better ways to be able to do that. From a growth perspective on the network side, again, rough numbers, I would say it is like over 100% over the last year or so. From that perspective, I would say that majority are coming from auto loans and the PL. On the PL side, it was more flow from partners. On the auto, it was new partner that we have the idea of bringing up.

As such I would find more and better ways to be able to do that.

On a growth perspective on the network side.

Again rough numbers I would say, it's like over 100%.

Over the last field <unk>, so in that from that perspective, I would say that.

My jewelry, Dr coming from.

Oh, two loans in the P&L on the Pls side. It was more more flow from <unk> and on the <unk>. It was the new pulp mill that we have and.

They are bringing bringing up.

Gal Krubiner: Last example that I will leave it with you is that, for example, application on point of sale, that a year ago we didn't have our partner, Klarna, and this time around we are seeing a lot of applications through that. It's a total new space that our network was not exposed to, and now we're starting to ramp up that collected data and obviously creating a better model. The last piece I would say is internally, we believe that AI capabilities could improve the ability to convert by 30% year over year, 20% to 30%. To that extent, different macro situations could change that over the short-term period. What we're building here and seeing that is how we monetize that piece out of the network and connectivity that I shared, and that's really the secret sauce.

Electric less example that I'll leave it with you is that for example application on point of sale.

Although we didn't have our Pablo Plaza and this time around we are seeing a lot of applications, where that is a total new space that that our network was of exposed to and now we are starting to ramp up that collected data and obviously, creating a better model.

The last piece I will say like internally, we believe that like.

AI capabilities could improve the ability to convert by 30% year over year, 12% to 30%.

To that extent different macro situations could change that fulfilled the short term gilead, but like what were building here and then seeing that is how we monetize that piece out of the network and connectivity into nice share and that's really the secret sauce.

Yes.

Hal Goetsch: Thank you.

Thank you.

Operator: As a reminder to star one on your telephone keypad if you would like to ask a question. Our next question is from David Scharf with JMP Securities. Please proceed.

As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from David Scharf with JMP Securities. Please proceed.

David Scharf: Hi. Good afternoon. Thanks for taking my questions. I appreciate all the color on sort of the current cyclical backdrop. Maybe can focus a couple of questions on just future new business and secular growth. First is, I'm curious, on the personal loan side, the bulk of the volume is still originated by sort of legacy branch-based companies, like the OneMain, Mariners, World Acceptance, Lendmark, and so forth. Obviously, your partners are digital lenders. I'm curious, are any of these sort of legacy non-prime, near-prime personal lenders exploring using third-party services like yours for handling turndowns?

Hi, yes. Good afternoon, thanks for taking my questions.

I appreciate all the color on sort of the current sort of cyclical backdrop maybe.

Can focus a couple questions on just.

Future.

New business in secular growth first is I'm curious on the personal loan side.

The bulk of the volume is still.

Originated by sort of legacy branch based companies like the one means Mariners world acceptance lindmark and so forth.

Obviously your partners are our digital lenders I'm curious are any of these.

Sort of legacy <unk>.

Non prime near Prime personal lenders exploring.

Using third party services like yours for handling turned out.

Gal Krubiner: Yes, definitely. To my comment in the earlier of the Q&A, we are speaking with top 25 banks. Part of the conversation over there are personal loans. We actually have two prospects that we are in deep discussions on these pieces and are very relevant. I would say definitely. I think if I take a step back, the banking industry is really interested in three main products, the personal loan, the auto, and the point of sale. Point of sale, obviously something that is a little bit more new, that people are trying to get their hands around and play the market share. From an auto perspective, there is a lot of maturity in that space, and it's just a matter of getting into that.

Yes definitely so.

My comments in the area of the Q&A, we're sticking with top 25 banks.

Part of the compensation over their personal loans.

We actually had two very two prospects that we have.

With the.

Sessions in these spaces.

<unk>.

So I would say definitely I think I think things like take a step back the banking industry is leading to sitting in three main products that telcel alone the hotel and the point of sale point of sale, obviously something that is a little bit more new that people are trying to get their hands around and play the market share.

And then from an auto perspective.

There is a lot of Ms.

Maturity in that space too and it's just a matter of getting into that we are a little bit more relevant to the subprime side rather than the super powerful banks are really limited.

Gal Krubiner: We are a little bit more relevant to the subprime side rather than the super prime, so banks that are going over the super prime are relevant for us. With the PL, it's more a complementary product that usually banks wants to offer to their customer base. That's where we see the biggest success from a PL perspective.

Probably more relevant for us.

And it's more of a complementary product that's usually banks must offer to their customer base and that's where we see the biggest successfully with the perspective on a traditional player.

David Scharf: Okay. Maybe that's a good segue to my next question, which was to get a little better understanding on maybe what products you'd be involved in with the large banks. Specifically it's because large banks historically have just not cared that much about personal loans. It's been sort of an afterthought of asset class. They dabble in here or there. Recognizing that, and then on the subprime auto side, you already have really good penetration with a lot of leading subprime auto lenders based on who's in your securitizations. As it relates to asset class with a large bank, is it on the card side point of sale? Once again, we kind of know that personal loans is not a real big ceiling within the banking community.

Okay, maybe that's a good segue to my next question, which was to get a little better understanding on maybe what products you would be involved in with the.

Large banks I mean.

The companies I, just rattled off are non bank financials, and specifically it's because.

Large banks historically have just not care that much about personal loans, it's been sort of an afterthought.

Asset class they dabble in here or there.

So.

Recognizing that and then on the <unk>.

Subprime auto side, you already have really good penetration with a lot of leading subprime auto lenders based on who is in your securitizations.

So as it relates to asset class with a large bank is it on the card side point.

Point of sale.

Once again, we kind of know that personal loans is.

Not a real big.

Fueling within the banking community.

David Scharf: Is card or revolving credit something that they're interested in exploring with you?

As Carter revolving credit something that they're interested in exploring with you as long as you keep it on the counter with the.

Operator: As long as you keep it on the counter by you should be fine.

The science.

Gal Krubiner: True. I'm not sure who was interrupting but to your question, I think if you look on the full growth strategy of the company, the answer is all of them. The capabilities that Pagaya has is really divided to two, right? To the product connectivity to the banks, lenders becoming very embedded in the loan origination systems and different parts of the system that needs to be able to maintain that in a seamless API integrator. The second piece is the ability to take all of that data into create from AI, the ability to approve more loans. The third piece is the distribution of these assets into the investor community. When you think about that, the same flow works in personal loan, auto loan, POS, and credit card.

So I'm not sure who is developing that Nick.

To that to your question.

I think if you look on the full growth stoppage of the company.

So is all of them.

The capabilities that the Guy ahead is really divided into two rights through the product connectivity to the bank becoming bank.

Banks lenders, becoming very embedded in the loan origination systems in different parts of the system that needs to be able to maintain that and as seamless API integrated the second piece.

Is the ability to take all of that data integrate from the AI the ability to approve more more bulk sales and then the third piece is the distribution of these assets into the Investor community.

So when you think about that the same.

Who works in person alone auto loan.

Gal Krubiner: When you're asking yourself what is the growth strategy that you want to persuade, you're asking the question of opportunity versus effort versus capability. When we started from the PL space, and to your comment, PL is definitely much smaller than credit cards. Because we have so much knowledge and capabilities in that, it's very natural for us to continue to explore that with banks, even if it's not the biggest pie of their books. On the very high, the second side of the discussion, you have the credit card, which is by far the biggest opportunity with banks, but we don't have a full yet mature credit card product.

And credit card and then when you were asking yourself what is the growth strategy that he was persuade youre asking the question of opportunities versus therefore vessels capability. When we started from the <unk> space.

And to your comment <unk> is definitely much smaller than credit cards, but because we have so much knowledge and capabilities aimed at is very natural for us to continue to explore that with banks, even if it's not the biggest part of their.

Their books and on the very high.

The second side of the discussion the credit cards, which is by far the biggest opportunities with banks.

We don't have a full yet mature credit card thoughts actually on the critical path we.

Gal Krubiner: Actually, on the credit card part, we have a partnership with Visa that we signed a year ago, to be able to persuade it and to bring that capabilities and offering and product to the banks, which is in motion and in works. I would describe POS as the new major that this year definitely started to become much more interesting that most of the banks we are speaking with are having internal initiatives, which we are kind of like connecting into that as part of our strategy. I hope that gave you the color you were looking for.

We have partnership with visa to be able to we selling daily go to be able to persuade it into bring that capabilities and offering and products of the bank, which is in motion and it works.

And I would be surprised pass as the new merger that D. C has definitely started to become much more interesting that most of the banks and I'm speaking with having internal initiatives.

Which we are kind of like connecting into that platform.

So I hope that gave you the color.

David Scharf: Yeah, no, very much thank you, and congrats. Just terrific results today.

Yes, no very very much. Thank you and congrats just terrific results today.

Gal Krubiner: Appreciate that.

I appreciate it.

Operator: Our final question is from Vincent Caintic with Stephens. Please proceed.

Our final question is from Vincent <unk> with Stephens. Please proceed.

Vincent Caintic: Hi, good afternoon. Thanks for taking my questions. It's nice to see both the good volume growth as well as the good EBITDA growth as well. If you could talk about your business versus and compare versus the rest of the lending fintechs in the industry, because it's interesting to see your strong growth, your ability to launch several ABS this year so far, as well as sign on and be signing on new bank partners. Whereas it seems like in the industry, the other companies that have reported so far this quarter are talking about banks being conservative, pulling back from their platforms. Some of the marketplace lenders are struggling for volume as well. It's nice to see Pagaya's growth, and I was wondering if you could maybe, from your perspective describe how you're able to have these partnerships succeed. Thank you.

Hi, good afternoon, Thanks for taking my questions and it's nice to see both the good volume growth as well as for good EBITDA growth as well.

And I wanted to if you could.

Kind of talk about your business versus.

And compare versus the the rest of the fin techs to lending fintech in the industry because it's interesting to see your strong growth your ability to launch several ABS. This year, so far as well as sign on.

And be signing on new bank partners, whereas it seems like in the industry. The other companies that have reported so far this quarter or are talking about.

Banks being conservative pulling back from their platform some of the marketplace lenders are struggling for volume as well. So it's nice to see <unk> growth that I was wondering if you could maybe from your perspective describe how you are able to to have these.

These partnerships succeed thank you.

Michael Kurlander: Hey, Vincent, it's Mike. Thanks for the question. Look, I really think it comes back to a little bit of the business model, and we are in a very unique position in the ecosystem. A number of the players that you just spoke about are actually partners of ours. Our business model when we were formed was really to solve the problem of consumers not getting access to credit. We solve that through technology and data, but we do that through partnering with lending institutions. As they look to grow their businesses, whether that be a fintech or a large bank, we're partnering with them and helping them actually grow their underwriting and their lending volumes, and then actually connecting those assets in on the other side with investors who are looking for exposure to the underlying assets.

Okay.

Hey, Ben it's Mike Thanks for the question.

Look I really think it comes back to a little bit of the business model and we are in a very unique position in the ecosystem.

A number of the play.

Players that you just spoke about are actually partners of ours.

Our business model. When we were formed is really to solve the problem of consumers not getting access to credit we solve that through technology and data, but we do that through partnering with lending institutions and so as they look to grow their businesses, whether that be a fintech for a large bank.

We're partnering with them and helping them actually grow their underwriting their lending volumes and then actually connecting those assets and on the other side with investors who are looking for exposure to the underlying assets.

Michael Kurlander: That's very different than the way most other participants play in the market. Most are either on one side or the other side of that equation. What I feel like we've tried to do over our history is really be in the middle, actually complementing what everyone else is doing. That's led to a lot of the growth that you've seen because we have a really unique vantage point in that we're seeing not only all the data science that comes with all the publicly available data that others could get as well, but we're also then seeing the application flow from 25 different lending partners.

That's very different than the way most other participants playing the market. Most of these are on one side or the or the other side of that equation.

And what I feel like we've tried to do over our history is really be in the middle actually complementing what everyone else is doing and that's led to a lot of the growth that you've seen because we have a really unique vantage point and that we're seeing not only.

Data science that comes with all of the publicly available data that others can get as well, but where else hasn't seen the application flow from 25 different lending partners and we feel like that gives us a bit of a.

Michael Kurlander: We feel like that gives us a bit of an edge in terms of applying the data science to that amount of information that we see coming through every day and the core focus of just the actual capability itself as opposed to the other aspects of running a consumer-facing business. We feel like that's actually put us in a really good position to deliver not only for our lending partners an ability to grow their network, their volume, but then also for our investors who are looking for access to these sorts of assets. We feel like our business models allow us to do both sides.

Of an edge in terms of apply.

Applying data science to the amount of information that we see coming through every day and the core focus of just the actual capability itself as opposed to the other aspects of running a consumer facing business, we feel like Thats actually put us in a really good position to to deliver not only.

For our lending partners and ability to grow their network their volume, but then also for our investors who are looking for access to the sorts of assets and we feel like our business model has allowed us to do both right.

Vincent Caintic: That's very helpful. Thanks very much.

That's very helpful. Thanks, so much.

Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to Gal for closing remarks.

We have reached the end of our question and answer session I would like to turn the conference back over to Karl for closing remarks.

Gal Krubiner: Thanks, operator. I'm proud of our accomplishment this quarter, which I believe reflects the strength of our organization we have built. We continue to exceed our short-term goals while advancing our long-term growth strategy to expand our network. Above all, we continue to be driven by our mission of delivering more financial opportunity to more people. Thank you all for joining today, and we look forward to building our partnership with you. Thank you.

Yes.

Thanks, operator.

I am proud of our accomplishment this quarter, which I believe reflects the strength of our organization. We have built we continue to exceed our short term goals, while advancing our long term growth strategy to expand our network and above all we continue to be driven by our mission of delivering more financial totality to more people.

Thank you all for joining today and we look forward to building our partnership with you.

Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Thank you.

This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.

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