Q3 2023 Pagaya Technologies Ltd Earnings Call
Speaker 1: Good day and welcome to PAGAYA's third quarter 2023 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Jensi John , Head of Investor Relations. Please go ahead.
Good day and welcome to Buckeye of strict Potter 2023 earnings call today's call is being recorded.
At this time I would like to turn the call over to Jensen, John head of Investor Relations. Please go ahead.
Speaker 2: Thank you and welcome to Pagaya's third quarter 2023 earnings conference call. Joining me today to talk about our business and results are GAL Provener, Chief Executive Officer of Pagaya and Michael Curlander, our Chief Financial Officer.
Thank you and welcome to the Guy is third quarter 2023 earnings Conference call.
Joining me today to talk about our business and results, our golf Couponer, Chief Executive Officer, and Michael Kurlander, Our Chief Financial Officer.
Speaker 2: You can find the materials that accompany our prepared remarks and a replay of today's webcast on Investor Relations' section of the web site at investor.pagaya.com.
Can find the materials that accompany our prepared remarks and a replay of today's webcast on the Investor Relations section of <unk> website at Investor about the Guy a dot com.
Speaker 2: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts, and involve certain risks and uncertainties.
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.
Speaker 2: 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 2: Our actual results may differ from those contemplated by these forward-looking...
Our actual results may differ from those contemplated by these forward looking statements.
Speaker 2: Factors that could cause these results to differ materially are described in today's press release and filings, and in our Form 20F filed on April 20th, 2023, with the US Securities and Exchange Commission, as well as our subsequent filings made with F.
Factors that could cause these results to differ materially are described in today's press release and filings and in our form 20-F filed on April 20th 2023, with the U S Securities and Exchange Commission as well as our subsequent good with that.
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Speaker 2: 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.
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 2: 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. Reconciliation to the most directly comparable GAAP financial measures are available in our earnings release and other materials, which are posted on our investor relations whatsoever.
Additionally, non-GAAP financial measures, including adjusted EBITDA, adjusted net income and fee revenue less production cost 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, which are posted on our Investor Relations website.
Speaker 2: We encourage you to review the Shareholder Letter, which was furnished with SEC on 16K today, for detailed commentary on our business and performance, in conjunction with the accompanying earning, supplement, and oppressorally.
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 earnings supplement and press release.
Speaker 3: What's that? Let me turn the call over to go. Thank you, Gen. Six. I would like to start off by saying that we are proud to be an Israeli founded company. And our hearts are with all those affected by the terrorist attacks that have occurred immediately.
With that let me turn the call over to Carl.
Thank you Jesse I'd like to start off by saying that we are proud to be an Israeli folded company because our hearts are with all those affected by the terrorist attacks that have occurred in Israel.
Speaker 3: We have taken several measures. First, to ensure the continued safety and well-being of our team. And secondly, to ensure business continuity. We are operating without...
We have taken several measures.
First to ensure the continued safety and wellbeing of our team.
Secondly to ensure business continuity.
We are operating without any disruption to our business.
Speaker 3: And I continue to be inspired by the resilience of our people. And more than that, I'm confident they will continue to deliver for our employees, partners, and investors.
And I continue to be inspired by the resilience of our people and more than that I'm confident they will continue to deliver for our employees.
And in Brussels.
Speaker 3: Now, let's move on into the progress we achieved this course.
No.
Let's move on to the progress we achieved this quarter.
Speaker 3: The past few months were game-changing for the guy.
The past few months, where game changing political guy.
Speaker 3: First, the momentum in our business is driving continued strong financial performance.
First the momentum in our business is driving continued strong financial performance.
Speaker 3: In the stealth quarter, we once again exceeded the high end of our guidance across all of our KPMT.
In the third quarter, we once again exceeded the high end of our guidance because all of our Kpis.
Speaker 3: Delivered record metal volume, total revenue, energy.
They leave the room.
Rick will mitigate volume total revenue and adjusted EBITDA.
Speaker 3: We surpassed $2 billion in network volume for the first time this quarter.
We surpassed $2 billion in network volume for the first 90 schools.
Speaker 3: Our recently integrated partnership with NIF financial in Clarner are driving meaningful incremental voting.
Our recently integrated partnership with Exxon and shell and colonial are driving meaningful incremental volume.
Speaker 3: Our product is now integrated with allied network of dealerships in 41 out of 50 states.
Our product is now integrated with a network of dealerships in 41 out of 50 states.
Speaker 3: and our POS application volume doubled sequentially from second quarter 23 and 6x compared to the third quarter of 20.
And our P. O S application volume doubled sequentially from second quarter, a 23, six X compared to the first quarter of 'twenty three.
Speaker 3: Total revenue grew 4% of the Eroville Ero, to $212 million.
Total revenue grew 4% year over year to $212 million.
Speaker 3: A fee revenue left for the production cost grew 29% to 3.4% of metals volume. As we continue to drive attractive unit economics.
Fee revenue less production growth grew 29% to three 4% of muscle volume.
As we continue to drive attractive unit economics.
We are very focused on profitable growth adjusted.
Speaker 3: Adjusted EBDA grew to a record $28 million, heating a major milestone of over $100 million on an annual runway.
Adjusted EBITDA grew to a record $28 million, keeping a major milestone of over 100 million enrolled.
And well run rate base.
Speaker 3: As a result of this strong momentum, we are raising our full year for 2023 out of across all metrics. Mike, we stick to...
As a result of the strong momentum we are raising our full year for 2023 outlook across all metrics.
Mike will speak more on this in a few minutes.
Speaker 3: Our performance is quarter reflects the strengths of our value proposition in the consumer finance.
Our performance this quarter reflect the strength of our value proposition in the consumer finance.
Speaker 3: by using our products, lenders, get growth in origination and revenues without the associated balance sheet.
But using our products lenders get growth in origination and revenues without the associated balance sheet risk.
Speaker 3: Investor on the other hand yet access to billions of dollars of continuous flow of assets generated by our AI credit
Vessel on the other hand, you had access to billions of dollars of continuous flow of assets generated by our AI credit Decisioning technology.
Speaker 3: The demand for our product has enabled us to outperform peers and continue to deliver profitable growth.
The demand for our products has enabled us to outperform peers and continue to deliver profitable growth.
Speaker 3: Our business is also benefiting from two structural macro tailwinds. First, thanks a lot.
Our business is also benefiting from two structural macro tailwind.
First thing so tightening their lending stumbles fully bank on new originations as they face tight liquidity condition and inquisitive regularly regulation.
Speaker 3: pulling bank on new originations as they face tightly-qualified conditions and increasing regular regulations.
Speaker 3: Additionally, private credit is increasingly stepping in the access capital to deploy into additional banking assets.
Additionally, private credit is increasingly stepping in the excess capital to deploy into additional banking efforts.
Speaker 3: Given Pagaya's position in the ecosystem, we can offer an attractive solution to both landing institutions and asset management.
Given for gas position in the ecosystem, we can offer an attractive solution to both lending institutions and asset managers.
Speaker 3: If these trends continue or ends being equal, we expect they will be supported to our growth in the near term. Moving on to talk about
If these trends continue all else being equal we expect they will be supportive to our growth in the newco.
Moving on to talk about our business achievements in the quarter.
Speaker 3: We achieved a step change in our network with the addition of federal transformational partners.
We achieved a step change in our network with the addition of several transformational partnerships.
Speaker 3: We have added three new lenses to our network, in line with our ambition to add two to four landing panels each.
We have added three new lenders to our network in line with our ambition to add two to four lending partners each year.
Speaker 3: I'm pleased to announce that we have integrated our personal loan product with a top five US consumer.
I'm pleased to announce that we have integrated our personal loan product with a top five U S consumer bank.
Speaker 3: This represents our largest climate partnership today by asset size and an incredible achievement by our...
This represents our largest lending partnerships to date by asset size and an incredible achievement by our team.
Speaker 3: From initial discussion to integration, we collaborated closely with the partner, working with multiple bank committees, testing and validating our models, and ensuring rigid compliance with all required regulatory and legal frameworks applicable to a large consumer.
From initial discussion to integration, we collaborated closely with our partner working with multiple bank committees.
And validating our model and ensuring rigid compliance with all required regulatory and legal frameworks applicable to a large consumer bank.
Speaker 3: and fully confident we have a bank credit product that now can be effective and successfully rolled out to other large enterprise cars.
I'm fully confident we have a bank credit products that now can be effective and successfully rolled out to other large enterprise customers.
Speaker 3: In Auto, we integrated our product into the low-nerudination system of two new Auto Lens.
In ortho, we integrated our product into the loan origination system of two new ultra linear.
Speaker 3: First, West Lake Financial. The country's leading sub-tribe auto-lander with a network of over 50,000 franchise and independent dealers.
First.
Westlake financial the country's leading subprime ultra Linda with a network of over 50000 franchise and independent dealerships.
Speaker 3: The second, our first OEM, also kept the final company ranked number four in the US by new vehicle safety.
The second our first OEM auto captive Finance company ranked number four in the U S by new vehicle sales.
Speaker 3: Our product is now integrated with over 10 m.
Our older product is now integrated with over 10 Mendoza.
Speaker 3: giving us broad geographic coverage across thousands of dealers.
Giving us broad geographic coverage across thousands of dealerships.
Speaker 3: These new partnerships will increase our access to independent dealerships as well as give us a foothold in both yield and musical.
These new partnerships will increase our access to independent dealerships as well as give us a foothold in both used and new vehicle sales.
Speaker 3: Overall, we expect our integration with electron and shell, Westlag, and this new captive will significantly expand our auto volume over the next few years.
Overall, we expect our integration with elephant NGL Westlake and these new captive will significantly expand our total volume over the next few years.
Speaker 3: a critical growth driver as we march towards our 25 billion dollar of net growth volume condition.
Critical growth driver as we March towards our $25 billion of network volume conviction.
Speaker 3: Finally, we announced the integration of our rental product with three major commercial partners.
Finally, we announced the integration of our rental product with three major commercial partnerships.
Speaker 3: Bolivar will be the Dental, my community home, a KKR backed company and William Kapital Court.
Blvd was essential my community homes at KKR based company and rhythm Capital Corp.
Speaker 3: These living real estate investment firms are now utilizing Dowell's premier and to end offering for the management of the homes in their respective portfolios.
These leading real estate investment firms I'll now utilizing downwards from your end to end offering for the management of the homes in their respective portfolios.
Speaker 3: These partnerships have significantly increased the size of the Dowing platform, which will now have approximately 13,000 homes under many.
These partnerships have significantly increased the size of down platform, which we now have approximately 13000 homes under management.
Speaker 3: making Darwin a top 10 SFL operators in the US.
Making Darwin at top 10, <unk> operators in the U S.
Speaker 3: When our rental B2B2C platform is still in its early stages.
While our rental b to B to C platform is still in its early stages.
Speaker 3: These partnerships reflect the future potential of our rental product and we are excited about the massive market opportunity ahead of us with the unique taking capabilities that Darwin has.
Those ships reflects the future potential of our rental product and we are excited about the massive market opportunity ahead of us with the unique capabilities that Darwin.
Speaker 3: Looking ahead, this wins reinforced our confidence in our medium-term ambition to reach $25 billion in net worth volume, $1 billion in FRLPC, and $500 million in adjusted EBITDA, annual.
Looking ahead these wins reinforce our confidence in our medium term ambition to reach $25 billion in network volume 1 billion.
Our LPC and $500 million in adjusted EBITDA annually.
Speaker 3: To achieve this target, we are executing three key strategic initiatives.
To achieve these targets we are executing three key strategic initiatives.
Speaker 3: The first, extending our integration to more landers to include application volume.
The first <unk>.
Spending our integration to more lenders to increase application volume.
Speaker 3: The second, structurally improving our converging rate of applications with second AI model enhancement, and the third, delivering high quality and efficient financial products at scale to invest.
The second structurally improving our conversion rate of applications with <unk> AI model enhancements and the third delivering high quality and efficient financial product at scale to investors.
Speaker 3: Our growth strategy is outlined in significantly more detail in our shareholder lateral, but I will spend a few minutes discussing it at a high level here.
Our growth strategy is outline a significantly more detail in our shareholder letter, but I will spend a few minutes discussing it at a high level here.
Starting with expansion of our product we are focused on deepening our product integration with existing and new partners, while also integrating new lenders.
Speaker 3: We are focused on deepening our product integration with existing learning partners while also integrating new lens.
Speaker 3: To put it into context, the lenders we added in 2022 are expected to deliver approximately $1 billion in net worth volume.
To put it into context the lenders we added in 2022 are expected to deliver approximately $1 billion in network volume this year.
Speaker 3: The recent edition of three large strategic partnerships. West Lake, the top five banks.
The recent addition of three large strategic partnerships Westlake the top five banks in the <unk> captive.
Speaker 3: have the potential to deliver significant incremental volume over the next year to two guys.
Have the potential to deliver significant incremental volume over the next year or two per gallon.
Speaker 3: This is the third year in a row. We have added at least two pounds to our next.
This is the third year in a row, we have added at least two fiber to our network.
Speaker 3: So, actually, our ability to convert large meaningful partners in our pipeline interviews.
Excluding our ability to convert large meaningful partners in our pipeline in the future.
Speaker 3: Looking at our pipeline and consistent with our threat records, we are confident we can integrate two to four new partners and yours.
Looking at our pipeline and consistent with our track record. We are confident we can integrate two to four new partners annually.
Speaker 3: We are in discussion with 80% of the top 25 banks in the country by asset tax.
We are in discussion with 80% of the top 25 banks in the country by asset size.
Speaker 3: We have more than 10 opportunities across banks and auto-capities that we consider big fun.
We have more than 10 opportunities across banks and auto captives that we consider deep fund them.
Speaker 3: With the latest stage of punctuality expected to deliver billions in network volume annually, one fully rent.
With the latest stage opportunities expected to deliver billions in network volume annually once fully ramped.
Speaker 3: We can also drive growth by increasing our conversion rate of application into loans.
We can also drive growth by increasing our conversion rate of applications into loans.
Speaker 3: by continuously enhancing our modern and technology as we see more data over time.
By continuously enhancing our modems and technology as we see more data over time.
Speaker 3: We recently launched new improvements in both our personal own and auto-loan model.
We recently launched new improvements in both our personal alone and ultra low end models.
Speaker 3: that we believe will drive improved predictive power, which will drive higher S3 term and a higher conversion rate.
That we believe will drive improved predictive power, which will drive higher returns and a higher conversion rate.
Speaker 3: Driving our conversion rate higher from its current sub 1% to 11 can mean a significant boost to network voltage.
Driving our conversion rate higher.
Tom It's Colin sub 1% level.
A significant boost to network volume.
Speaker 3: Every 10 days this point increases our conversion rate on our existing application flow, translates to an additional of $800 million in network volume.
Every 10 basis point increase in our conversion rate on our existing application flow.
<unk> to an additional $800 million in network volume.
Speaker 3: On the other side of our network, our growing data advantage and proprietary technology enable us to offer institutional investors high...
On the other side of our network, our growing data advantage and proprietary technology enable us to offer an institutional investor.
High quality financial products.
Speaker 3: We're focused on innovative structuring and issuing an increased scale.
With a focus on innovative structuring in issuing its increased scale.
Speaker 3: We can know the cost of capital, making our product even more attractive to it.
We can lower the cost of capital, making our products, even more attractive to investors.
Speaker 3: This is reflected by the consistent growth of our funding net.
This is reflected by the consistent growth of our funding network.
Speaker 3: We issued $1.8 billion across 4 ABS deals in the third floor.
We issued $1 8 billion across four ABS deal in the third quarter.
Speaker 3: amounting to $5 billion issued here today.
And mounting to $5 billion issued to date.
Speaker 3: We were once again the top personal loan ABS issuer in the U.S. this quarter.
We were once again, the top personal loan ABS issuer in the U S. This quarter.
Speaker 3: As we grew in auto issuance, we are tapping into the rated auto market, which also helps reduce the cost of capital.
As we grew in OCA issuance, we are putting into the rated ultra market, which also helps reduce the cost of capital.
And our Investor base is growing and diversifying.
Speaker 3: We attracted 16 investors since August to the platform for a total of 93 unique investment firms.
We attracted 16 vessels since August to the platform for a total of 93 unique investment firms, including a talk to your whole life insurance company.
Speaker 3: including a top tier whole life insurance company.
Speaker 3: the strengths of our product offering to lend us any investors and the wealth of data flowing through our network. Set us.
The strength of our product offering to lenders and investors and the wealth of data flowing through our network.
Set us up for future revenue diversification flow.
Speaker 3: by monetizing our product in new innovative ways.
By monetizing our product in new innovative ways.
We can also auxiliary services such as the recent launch of our servicing optimization products, which improved collection for our lending partners.
Speaker 3: such as the recent launch of our servicing optimization product, which improves connection.
Speaker 3: a product that has the potential to add millions of dollars of incremental profit every year.
A product that has the potential to add millions of dollars of incremental profit every year.
Speaker 3: In summary, we have achieved a step function change in Pagaya's road projects.
In summary, we.
We have achieved a step function change in <unk> growth trajectory.
Speaker 3: We delivered a record financial reformer's discloser.
We delivered a record financial performance this quarter.
Speaker 3: Integrated our product with multiple transformational power.
Integrated our product with multiple transformational partnerships.
Speaker 3: Edited new investors in our funding network and launch new monetization opportunities and enabled by our connectivity.
Is it new investors in our funding network and lounge, new monetization opportunities enabled by our connectivity.
Speaker 3: We have better positioned than ever before to partner with financial institution as a cross-the-consumer financial ecosystem to deliver more opportunities for US consumers.
We are better positioned than ever before to partner with financial institutions across the consumer finance ecosystem to deliver more opportunities for U S consumers.
Speaker 3: With that, let me pass it to my to discuss our financial results in more details.
With that let me pass it to Mike to discuss our financial results in more detail.
Speaker 4: Thanks, Skull. In the third quarter, we delivered record performance across all of our key financial metrics.
Thanks, Carl in the third quarter, we delivered record performance across all of our key financial metrics.
Speaker 4: This was driven by further expansion of our network, higher net fees on our lender product, and managing our call space prudently to deliver sustainable, profitable growth.
This was driven by further expansion of our network higher net fees on our lender product and managing our cost base prudently to deliver sustainable profitable growth.
Speaker 4: We delivered our highest ever quarterly network volume at $2.1 billion, representing growth of 10% year-over-year.
We delivered our highest ever quarterly network volume at $2 1 billion.
Representing growth of 10% year over year.
Speaker 4: We sell volume increases year-to-year across our auto, point of sale, and rental products during the quarter as we diversify outside of our most mature personal loan product.
We saw volume increases year over year across our auto point of sale and rental products during the quarter as we diversify outside of our most mature personal loan product.
Speaker 4: Total application volume amount to do $180 billion this quarter from our lending partners while a conversion rate stayed below 1%.
Total application volume amount to do $180 billion this quarter from our lending partners, while our conversion rates stayed below 1%.
Speaker 4: As we grow network volume, we remain focused on driving increased monetization of our network. Our fee revenue, which makes up 95% of our total revenue, grew by 9% year-over-year to $201 million, resulting in a record, $212 million in total revenue, which grew by 4% compared to the prior year.
As we grow network volume, we remain focused on driving increased monetization of our network our fee revenue, which makes up 95% of our total revenue grew by 9% year over year to $201 million, resulting in a record $212 million in total revenue, which grew by four <unk>.
<unk> compared to the prior year.
Speaker 4: Our take rate defined as V revenue as a percentage of network volume remains stable compared to third quarter 2022 at 9.5%.
Our take rate defined as fee revenue as a percentage of network volume remained stable compared to third quarter of 2022 at nine 5%.
Speaker 4: Production costs were 6.1% of network volume this quarter, representing a decline of 61 basis points year-over-year.
Production costs were six 1% of network volume this quarter, representing a decline of 61 basis points year over year.
Speaker 4: As a result, C Revenue's rest production costs were FRLPC with $73 million in Q3, an increase of 29% or $16 million compared to the third quarter of 2022.
As a result fee revenues less production costs wherever LPG was $73 million in Q3, an increase of 29% or $16 million compared to the third quarter of 2022.
Speaker 4: As a percentage of volume, FRLPC improved by 50 basis points year over year to 3.4% of network volume, our highest level and five quarters and within our target range of three to four percent.
As a percentage of volume fr LPC improved by 50 basis points year over year to three 4% of network volume, our highest level in five quarters and within our target range of 3% to 4%.
Speaker 4: As a reminder, our FRLPC is composed of earning fees on both sides of our network. On the lending side and the investor side.
As a reminder, our FRE LPC, it's composed of earning fees on both sides of our network on the lending side and the investor side.
Speaker 4: We continue to drive increased monetization of our lender product as our value proposition to our lending partners grows in a constrained credit environment.
We continue to drive increased monetization of our lender product as our value proposition to our lending partners grows in a constrained credit environment.
Speaker 4: These one are lender product made up approximately 60% of our FRLPC margin in the third quarter, up from 25% in the third quarter of 2022 and 58% sequentially.
These on our lender products made up approximately 60% of our fr LPC margin in the third quarter.
Up from 25% in the third quarter of 2022 and 58% sequentially.
Speaker 4: Net AI integrations these grew substantially to $46 million this quarter compared to 16 million in the prior year.
Net AI integration fees grew substantially to $46 million this quarter compared to $16 million in the prior year.
Speaker 4: These on the investor side of the network made up approximately 40% of our FRRPC margin in the third quarter and remained low due to continued high cost of funds.
These on the Investor side of the network made up approximately 40% of our fr RPC margin in the third quarter and remained low due to continued high cost of funding.
Speaker 4: Capital markets execution fees were $10 million this quarter compared to $21 million in the prior year while contract and other fees were $17 million this quarter.
Capital markets execution fees were $10 million this quarter compared to $21 million in the prior year, while contract and other fees were $17 million this quarter.
Moving on to operating expenses.
Speaker 4: Total core op-X, excluding stock-based compensation, depreciation, and one-time expenses, has now declined for four-strait quarters to $52 million, representing a record low of 25% of our total revenue.
Total core opex, excluding stock based compensation depreciation and one time expenses has now declined for four straight quarters to $52 million.
Representing a record low of 25% of our total revenue.
Speaker 4: Our reduction in expenses this year has been broad across both compensation and non-compensation mine items. And we have now surpassed the $50 million in run rate savings we've announced in our Q1 call.
A reduction in expenses. This year has been broad across both compensation and non compensation line items and we have now surpassed the $50 million in run rate savings, we had announced in our Q1 call.
Speaker 4: This is in the context of delivering record volumes and revenues this quarter. Demonstrating the inherent operating leverage in our business, which we anticipate can continue even with the large new partners recently announced.
This is in the context of delivering record volumes and revenues this quarter demonstrating the inherent operating leverage in our business, which we anticipate can continue even with the large new partners recently announced.
Speaker 4: Improving unit economics combined with continued cost efficiency drove us to a record adjusted EBITDA delivery this quarter of twenty eight million dollars.
Improving unit economics, combined with continued cost efficiency drove us to a record adjusted EBITDA delivery this quarter.
$28 million.
Speaker 4: This was also our first quarter delivering positive operating income since becoming a public company, as well as our second consecutive quarter of positive adjusted net income.
This was also our first quarter delivering positive operating income since becoming a public company as.
As well as our second consecutive quarter of positive adjusted net income.
Speaker 4: Our Gap NetLoss shrank to $22 million, an improvement of 53 million year-over-year.
Our GAAP net loss shrank to $22 million, an improvement of $53 million year over year.
Speaker 4: As a result of the strong momentum in our business, we are raising our fiscal year outlook across all of our key metrics. Our outlook for the remainder of the year represents the
Yeah.
As a result of the strong momentum in our business, we are raising our fiscal year outlook across all of our key metrics.
Our outlook for the remainder of the year represents a few assumptions.
Speaker 4: First, while we expect to see continued strong application flow from our lending partners, we also expect to remain prudent in our conversion rate in the near time.
While we expect to see continued strong application flow from our lending partners. We also expect to remain prudent in our conversion rate in the near term.
Speaker 4: Disreflected discipline focus on consistently delivering for both lenders and invests.
This reflects a disciplined focus on consistently delivering for both lenders and investors.
Speaker 4: Second, we continue to target FRLPC as a percentage of network volume of 3 to 4%.
Second we continue to target fr LPG as a percentage of network volume of 3% to 4%.
Speaker 4: While we expect net fees earned on our partner products to remain strong, we are not factoring in any material improvements in financial markets, which can impact the level of fees we earn on the impact in the investor's side of the network.
While we expect net fees earned on our partner products to remain strong we are not factoring in any material improvement in financial markets, which can impact the level of fees, we earn on the impact in the investor side of the network.
Speaker 4: Finally, we will continue to drive cost discipline and operating leverage, while remaining nimble to strategically invest in the growth of our business as we navigate an evolving external environment.
Finally, we will continue to drive cost discipline and operating leverage while remaining nimble to strategically invest in the growth of our business as we navigate an evolving external environment.
Speaker 4: For the four year 2023, we expect network volume to range between $8.2 billion.
For the full year 2023, we expect network volume to range between eight and $8 2 billion.
Speaker 4: Total revenue and other income to range between $800 million and $825 million and adjusted EBITDA to range between $65 and $75 million. With that, let me turn it back to the...
Total revenue and other income to range between $800 million and $825 million and adjusted EBITDA to range between 65 and $75 million.
With that let me turn it back to the operator for Q&A.
Speaker 1: North and Southern
Secondly, we will now be Glenn begin the question and answer session.
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Speaker 1: The first question comes from my colleague from benchmark. Please go ahead.
The first question comes from Mike <unk> from benchmark. Please go ahead.
Speaker 5: Thanks guys, congratulations on a great quarter on the tough period of the environment. Can you give us a little viewpoint on where you see the consumer today?
Thanks, guys congratulations on a great quarter in a tough period.
But can.
Can you give us a little viewpoint on where you see the consumer today and.
Speaker 5: You know, if you conversion rate below one, what you're looking at from, you know, that capacity of the consumer and how that all plays into your AI. And then just a second piece, can you give us a breakout on what percentage of revenue came from personal loans and the other sectors?
With the conversion rate below one what youre looking at from a debt capacity gives the consumer and how that all plays into your NII and then just a second piece can you give us a breakout.
What percentage of revenue came from personal loans and the other sectors.
Speaker 3: Terrible Michael, thank you very much for joining us today. So let me start with the first one and then Michael take the second one.
Sure Michael.
Very much for joining us today.
So let me let me start with the first one and then Mike will take the second one.
Speaker 6: From a consumer perspective, and as you can imagine, Pagaya has a very unique point of view because we are connecting to over 28 different landals, seeing day-to-day flow applications, actually what's there, landals are pricing. So we have a very robust way to look on the consumer.
From a consumer perspective, and as you can imagine for Guy has a very unique point of view because we are connecting to over 28 different lenders seeing day to day flow applications actually what's the Mendoza pricing.
So we havent very robust way.
The way to look on the consumer and to be able to assess it in.
Speaker 6: In a nutshell, we'll say that from the stability and the strength of the U.S. consumer, as for now, the situation is very good. You can see that mainly in the...
In a nutshell I will say this from from the stability and the strength of the U S consumer.
As for now the situation is very good you can see that mainly in the <unk>.
Speaker 6: the peak use or the 30 days past view loans that we have on the vintage that actually was.
<unk> use or days 30 days past due loans that we have on the vintages that actually was.
Speaker 6: originated in 2023. You can see that in the supplement.
Originated in 2023, you can see that in the supplement.
Speaker 6: And what you will experience, and you will see, there was a decline of these numbers from the heights of 21 and up until 23, which if I need to find statement to say for 23, it's stability. We are experiencing stability.
And what you would experience and you will see there was a decline of these numbers from the heights of 'twenty, one and up <unk> 23, which is tiny to find statement to say for 'twenty three stability, we are experiencing stability.
Speaker 6: So the inflation wave, the did impact part of the consumers seems to be behind us.
So the inflation wave the DD impact part off.
The consumer seems to be behind us.
Speaker 6: and we're seeing the consumer boats on the Oto Long product and on the first round of the product actually stabilizing very well over time.
And we're seeing the consumer votes on the auto loan products and on the personal loan product actually stabilizing very well over time.
Okay.
Speaker 4: So that's all we think from that. So the second question might you, I think it. Yeah, Michael, thanks for the question.
So that's what we think from that sort of second question, Mike do you want to take it Yeah, Hey, Michael Thanks for the question.
Speaker 4: You would ask about what percentage of the revenues are coming from different products that are particularly in personal loans. Personal loans continues to be our largest and most mature products. We're roughly 65% of our volumes in so-called revenues are from the personal loans way.
Yes, you had asked about what percentage of the revenues are coming from different product set and particularly in personal loans personal loans continues to be our largest and most mature products were roughly 60% 60, 65% of our volumes and associated revenues are from the personal loan space.
Speaker 4: I will say that in terms of volume, we actually saw larger growth this quarter in our other product verticals, which shows a little bit more of the diversification that we've been striving for. So auto.
Sure.
I will say, though in terms of volume, we actually saw larger growth this quarter in our other product verticals, which shows a little bit more of a diversification that we've been striving for so auto.
Speaker 4: and is the second biggest in terms of contribution.
And is the second biggest in terms of contribution.
Speaker 4: We have significant momentum there with some of the recent announcements and then our SFR business, our rental product.
We have significant momentum there with some of the recent announcements and then our <unk> business. Our rental product is actually something we're excited about growing in the future not a material impact as of yet, but it's something that with the recent announcements where we.
Speaker 4: is actually something we're excited about growing in the future. Not a material impact as of yet, but something that with the recent announcements we're excited about.
We're excited about.
Speaker 4: As that translates to FRLPC or our gross margin, we're most mature right now still with the personal loan, and we feel like there's opportunities as we get more mature in those other product lines to grow our FRLPC with those products and new partners. Great.
As that translates to.
Fr LPT or our gross margin, where most mature right now still with the personal loan and we feel like there's opportunities as we get more mature in those other product lines to grow RF for LTC.
With those with those products and new partners.
Great. Thank you and congratulations on a great quarter.
Yeah.
Yes.
Speaker 1: The next question comes from Joseph Buffy from Canacardine Generity, please go ahead.
The next question comes from Joseph <unk> from Canaccord Genuity. Please go ahead.
Speaker 7: The guys, good morning, terrific progress here in the business and congrats on those new logo wins. Maybe we just focus on those new logo wins for a minute. I mean, they're very large, which is great. I'm just trying to get a feel for margin potential on these new logos and potentially other large ones if they have the same potential unit economic
Okay.
Hey, guys. Good morning, terrific progress here in the business and congrats on on those new logo wins, maybe we just focus on those new logo wins for a minute I mean, they are very large.
Which is great.
Trying to get a feel for margin potential on.
These new logos and potentially other large ones if they have.
At the same potential economic.
Speaker 7: profile is perhaps some of your smaller ones now a quick follow up.
Profile as perhaps some of your smaller ones and then I'll have a quick follow up.
Okay.
Speaker 6: Hi Joe, it's Galio. Thank you so much for the comments. So maybe before we go into the question of the margin, let me take a step back and give a little bit of color on how does the integration like that look like, and I would think about it in Pagaya, and then we follow up with a discussion on the margin.
Hi, Joe It's got here. Thank you so much for the comments.
So maybe before we go into the into the question of the margin. Let me, let me take a step back and give a little bit of color on how does the integration like that look like and how we think about the team for Gaiam and then Mike.
Follow up with a discussion on the margin.
Speaker 6: So as you mentioned, the two new additions are very big clients.
So as you mentioned the two new additions are very big clients.
Speaker 6: We are talking about top five banks in the U.S. It's something that we are very excited about, which is an OEM, but as you can imagine, is opening for us new type of clients that we can bring into the network because our product is now suit for them too.
We are talking about top five banking in the U S.
Something that we are very excited about which is an OEM because as you can imagine is opening for us.
New types of clients that we can bring into the network because our product is now suite for them too.
Speaker 6: The way we think about the cycle of a new partner is the first you have, obviously, the sales cycle. And when the sales cycle ends, actually, the real work begins.
The way, we think about the cycle of.
A new policy scenario is.
The first you have obviously the sales cycle and when the sales cycle and actually the real work begins.
Speaker 6: And then we have three different stages, what we call a post-integration that we are focusing on.
And then we have three different stages than what we call. Our post integration that we are focusing on.
Speaker 6: We divided by years mainly. The first year or 12 months, if you will, is really the integration. Making sure everything is working properly that we see all the flow that we need. We are learning the flow. We are starting to ramp up to tweak our models and to be able to be as precise as possible for the partner needs and to the flow that is coming, the new flow that is coming through this channel.
We divided by yields mainly the first yield 12 months, if you will.
He is really the integration, making sure everything is working properly that we see all the flow that we need we are mailing to flow. We are starting to ramp up to tweak our model is going to be able to be as precise as possible for the partner needs and two the flow that is coming.
The new flow that is coming through these channels.
Speaker 6: The second layer is what we call the ramp up view. Then we have
Second area is what we call the ramp of appeal than we have.
Speaker 6: enough information for the models to the AI to start to kick in for the credit enhancement in the models to be able to be effective and to be able to actually produce meaningful volumes for the client, for the partner in the different areas we are operating with. And you can imagine that a lot of that is in a constant dialogue with the partner and learning more of their needs and what needs to be
Enough information for the model to the AI to start to kick in for the credit enhancement in the model is to be able to be effective and to be able to actually produce in meaningful volumes.
For decline in Florida files now in the different areas. We are operating with and you can imagine there's a lot of that using a constant dialogue with the <unk> and learning more of their needs and what needs to be <unk>.
Speaker 6: develop and adopt from a product perspective to be able to provide the full suite of solutions.
Developed in adult from a product perspective to be able to provide the full suite of solutions and then you had the third deal and that's what I would say that the margin is coming into play the third deal we'll call it expansion yield.
Speaker 6: And then you have the third year, and that's where I would say that the margin is coming into play. The third year, we'll call it the expansion year.
Speaker 6: And then there is already a very good understanding of how the assets perform and what is the scale and the size of what we can deliver and what is the materiality of the impact on the PNN of the pile of no size.
And then there is already a very good understanding of how the assets perform and what is the scale and the size of what we can deliver and what is the materiality of the impact on the P&L of the positive side and Thats, where usually we see an uptick in margin and really the ability to drive it home.
Speaker 6: And that's where usually we see an uptick in margin and really the ability to drive it home. In some cases, all of these things could happen quicker because of the acceleration of the teams and the work. So it doesn't have to be three years, but it's definitely three stages that you can think about each stage in between 6 to 12.
In some cases all of these things could happen quicker because of the acceleration in both of the teams and the work. So it doesn't have to be three years, but it's definitely three stages that you can think about each stage and between six to 12 months.
Speaker 4: And then Joe, from a unit economics and a margin perspective, these new partners we do anticipate following the same structure we have with our other partners. Having said that, typically what you see is as you get into that integration year, that year one, as I'll refer to it,
And then Joe from a unit economics, and a margin perspective.
New partners, we do enter.
It's paid following the same structure, we have with our other partners, having said that typically what you see is in.
As you get into that integration year that year, one as <unk> referred to it.
Speaker 4: Typically, new partners start at the lower end or low as it relates to the 3% to 4% target that we set for overall FRLPC.
Typically new partners start at the lower end or low as it relates to the 3% to 4% target that we've set for overall fr LPC.
Speaker 4: And then what happens, and we've demonstrated this now over the last couple of years, is as we get into that ramp year and the expansion year, we start to bring them more in line because that's when the volume is really starting to scale, that's when the product is really starting to demonstrate significant value to those partners.
And then what happens and we've demonstrated this now over the last couple of years is as we get into that ramp year and the expansion year, we start to bring them more in line because thats. When the volume is really starting to scale thats when the product is really starting to.
To demonstrate the significant value to those partners.
Speaker 4: and some of those newer partners that we're starting to see some of the existing partners now that we've demonstrated that with or now even above that 4%
And some of those newer partners that we're sorry excuse me some of those existing partners now that we've demonstrated that with are now even above that 4% top of the range and so that's how to think about it is it ends up being a big portfolio effect, where the newer partners tend to be on the lower end of that scale in the first year and then grow into year, two and three and then the existing.
Speaker 4: top of the range and so that's how to think about it is it ends up being a big portfolio effect where the newer partners tend to be on the lower end of that scale in the first year and then grow into year two and three and then the existing portfolio is only up and ended at range to average altogether to the 3 to 4% target that we shoot for.
Portfolio is on the upper end of that range to average altogether two to three years to 4% target that we shoot for.
Speaker 7: Great, that's great color. And then just one quick follow up on the collections product if we could go into that in a little more deep.
Great. That's great color and then just one quick follow up on the collections product. If we could go into that in a little more detail.
Speaker 7: Is that used in conjunction with the loans underwritten with your ALGO or does it have a larger opportunity outside of that? Thanks a lot.
Is that using conjunction with with the loans underwritten with your algo or does it have a larger opportunity outside of that thanks a lot.
Speaker 6: Sure, let me take that, Joe. So let's look at it holistically. The real power of PGAIA and what we're trying to build here is a network that is connected to as many lenders as possible in the US.
Sure, let me take that Joe so so so.
Let's look at it holistically.
The real power of what we're trying to build he leaves a network that is connected to as many lenders as possible in the U S.
Speaker 6: Now, when you get to the achievement of being able to work with 28 plus lenders, and let's hope that in the next few years we're going to reach to 30, 40, 50 different lenders, part of which are the biggest partners in the U.S. So when we think about that, we are really asking the question of what are the other products that we
Now, let me get to the achievement of being able to work with the 28, plus lenders and let's hope.
In the next in the next few years, we're going to reach to.
30, 40, 50 different lenders both of which are the biggest pulp mills.
In the U S. So so when we think about that we are really asking the question of what are the other products that we.
<unk>.
Speaker 6: as Pagaya could bring to the table and do remember that we have the data of over 25 different polynomials and understanding of how the collection is working in the different parts. And on top of that, we have a very strong tech capabilities. So we are starting to invest in the
As for Guyana could bring to the table and do remember.
We have the data of over 25 different power mills and understanding of how the collection is working in the different parts and on top of that we had a very strong tech capabilities. So we are starting to.
Invest in diverge some of the resources to be able to build products that are in a very strong demand with our clients. We are in constant discussion with our partners and asking them what are the things that they would like to see.
Speaker 6: some of the resources to be able to build products that are in a very strong need with our clients. We are in a constant discussion with our partners and asking them what are the things that they would like to see.
Speaker 6: above and beyond our main type of product, which exists in the three different markets, which is the expansion of the actual approvals. And it happens to be that collection, servicing management, to some extent,
Above and beyond our main type of product, which exist in the three different markets, which is the expansion of the actual of the ex U.
Proven and happens to be that debt collection.
Servicing management to some extend.
Speaker 6: are actually things that are in very interest for our partners.
We're actually seeing this in very interest for our policy.
Speaker 6: So what we did in this quarter, we landed one of them where we are deploying rather unique technology to be able to optimize these type of collections and to help the partners to collect more with our technology.
So what we did in this quarter, we landed one of date, where we are deploying rather unique technology to be able to.
To optimize these type of collections and to have the Pos nose to collect more with our technology.
Speaker 6: And we do expect that in the future, call it 2024 and onwards, we are going, we are going to be able to provide these type of tools. So just to sum it up, think about it as technology tools that we are providing to them. It's not that we are doing the service in all the collections. It's actually capabilities that we are developing in our space on them.
And we do expect that in the future quarterly 2024 and onwards.
We are going we are going to be able to provide these type of tools. So just to sum it up I think about it as technology tools that we are providing to them. It's not that we are doing the servicing of the collections.
Actually capabilities that we are developing in house based on demand.
Speaker 6: and data that we have in doing that. And maybe a last point, and you'll see it in the show a little later, we have just hired.
And data that we have been doing that and maybe a last point and you'll see it in the shareholder letter.
We have just hired a new chief product officer, and he's going to bring a lot of that effort into a real roadmap.
Speaker 6: and you, Chief Product Officer, is going to bring a lot of that effort into a real roadmap.
Speaker 6: perfect product and understanding what other things we can deliver.
Product and understanding what are the things we can deliver as we are thinking about the future growth targeting to have more diversified source of revenues, which part of that will be.
Speaker 6: as we are thinking about the future growth targeting to have more diversity.
Speaker 7: So the phrase is which part of that will be fee on the technology that we are selling. Great, thanks for that great answer.
On technology that we are setting.
Great. Thanks for that great answer thanks for the detailed call.
Thank you.
The next question comes from David Scharf from JMP Securities. Please go ahead.
Speaker 8: from GMP Securities. Please go ahead. Thank you and good morning. Thanks for taking my questions. A lot have been asked already.
Thank you.
Thanks for taking my questions.
A lot has been asked already but.
I did want to ask a couple on auto which.
Obviously as an asset class it for personal loans.
So, particularly interested.
On the new OEM captives.
I know when open lending signed up a couple of Oems.
<unk>.
Yeah.