Q4 2023 Pagaya Technologies Ltd Earnings Call

Operator: Greetings and welcome to the Pagaya Q4 2023 earnings call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the Buckeye off Q4, 2023 earnings call.

At this time all participants are in a listen only mode brief.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please raise the star, then zero, on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, JNC John. Thank you.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded it is not my pleasure to introduce your host Jane C. John. Thank you you may begin.

JNC John: You may begin. Thank you, and welcome to Pagaya's fourth quarter and full year 2023 earnings conference. Joining me today to talk about our business and results are Gaul Kruvener, Chief Executive Officer of Pagaya, Sanjeev Das, President, and Evangelos Peros, Chief Financial Officer. You can find the materials that accompany our prepared remarks and a replay of today's webinar on the Investor Relations section of our website at

Thank you and welcome to the Guy is fourth quarter and full year 2023 earnings conference call. Joining me today to talk about our business and results of golf, driven our chief Executive Officer for Gaia.

Does president and Evangelists Perez 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 not polka Dot com.

JNC John: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve certain risks and implications. 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, including our financial outlook for the first quarter and full year 2020. Our actual results may differ from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and filings, and in our Form 20-F, filed on April 20, 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.

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, including our financial outlook for the first quarter and full year 2020 for our actual results may differ from those contemplated by these forward looking statements.

Factors that could cause these results to differ materially are described in today's press release and 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 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.

JNC John: Additionally, non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Fee, Revenue, and Less Production Costs, or FRLPC, FRLPC Margin, and Core Operating Expenses, will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available, to the extent available without unreasonable efforts, in our earnings release and other materials which We encourage you to review the shareholder letter, which was filed with the SEC on Form 6K today, for detailed commentary on our business and performance in conjunction with our company earnings, supplement, and... With that, let me turn the call over to Gau. Thank you.

Additionally, non-GAAP financial measures, including adjusted EBITDA adjusted EBITDA margin adjusted net income be revenue loss production costs or F. L. P. C. F. L. P C margin and core operating expenses will be discussed on this call reconciliations to the most directly comparable GAAP financial measures are available to the extent available without unreasonable effort.

In our earnings release, and other materials, which are posted on our Investor Relations website.

Courage you to preview this 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 with that let me turn the call over to Paul.

Thanks Jesse.

Gaul Kruvener: Before I begin, I'm pleased to note that joining me today on our call is Evangelos Peros, or Ipi, our newly announced Permanent CFO, and Sanjiv Das, who joined us a few months ago as our President. These two leaders have decades of experience in financial services and consumer lending between them. E.P.

Before I begin I am pleased to note. The joining me today on our call evangelists payrolls or E. P. Our newly announced permanent CFO and sundry does who joined US a few months ago as our president.

These two leaders have decades of experience in financial services and consumer lending between them.

Gaul Kruvener: He previously held senior roles in finance and investment banking at J.P. Morgan Chase and most recently was a managing director and head of business planning and analytics at the Polo. He started at Pagaya about two years ago and has been instrumental in taking our company to a new level of profitability and disciplined financial executives. Sanjiv brings with him deep experience in consumer lending and capital markets, having served as the CEO of Citi Mortgage Division, and in senior roles at Morgan Stanley, American Express, and Bank of America, and most recently, as the CEO of Caliber Home Leverage. They will share today their perspectives on the opportunities ahead of Pagaya, which will inform their respective priorities in 2024 and beyond. I'm proud of the talent we have brought into this organization, and I'm confident that these two leaders will take our company to the next level. Moving on, to discuss our results in 2020. 2023 was a record year in Pagaya's history.

He previously held senior roles in finance and investment banking at Jpmorgan Chase and most recently was the managing director and head of business planning and analytics at Apollo.

He started with a guy about two years ago and has been instrumental in taking our company to a new level of profitability and disciplined financial execution.

Sanjay brings with it deep experience in consumer lending and capital markets, having served as the CEO of CP mortgage division and in senior roles at Morgan Stanley American Express and Bank of America, and most recently the CEO of caliber home loans.

They would share today their perspectives on the opportunities ahead of Bulgaria, which will inform their respective probably always even in 'twenty 'twenty four and beyond.

I'm proud of the talent, we have brought into the organization and I'm confident that these two leaders will take our company to the next level.

Moving on to discuss our results in 2023.

2023 was a record year in <unk> history.

Gaul Kruvener: We far exceeded the target we set at the start of the year, with full-year network volume of $8.3 billion, total revenue of $812 million, and adjusted EBITDA of $82 million. We are delivering sustainable profitability with an improvement in adjusted EBITDA now for four quarters in a row, reaching an annualized run rate of over $135 million based on the fourth quarter. Network volume grew 33% in Q4, also growing from the past four consecutive quarters.

We far exceeded the targets we set at the start of this week.

With Formula network volume of $8 3 billion.

Total revenue of 812 million.

Adjusted EBITDA of $82 million.

We are delivering sustainable profitability with an improvement in adjusted EBITDA now for four quarters in a row.

Reaching an annualized run rates of over $135 million based on the fourth quarter.

Network volume grew 33% in Q4 also really from the past four consecutive quarters.

Gaul Kruvener: We increased monetization of our Lightning Network, with our personal load vertical now generating an average FRLPC of five and a half, and some of our top partners generating SRLpc at both... We reported our second consecutive quarter of positive gap operating income and positive cash flow from operations. The integration of our 2023 cohort of lending partners is progressing well. Our product with U.S. Bank is already delivering a 2x activation rate compared to our personal loan product. In Oto, our extension with three leading national Oto lenses gives us access to thousands of new dealerships across the U.S. And so far, Darwin, our tech-enabled property management platform, is now catering to some of the country's largest institutional clients, and we are on track to managing 13,000 homes on the platform by the first half of 2021.

We increased monetization of our lending that works with our personal loan <unk> now generating an average for RPC.

5.5% and some of our top ball mill generating S. R. L. P C.

6%.

We reported our second consecutive quarter of positive GAAP operating income and positive cash flow from operations.

The integration of our 2020, if we'd go hold of lending partners. He is progressing well.

Our product with U S Bank is already delivering a two X activation rates compared to our personal loan product.

In auto expansion with three leading national Ultra lenses gives us access to thousands of new dealerships across the U S.

And then it's a far Darwin our tech enabled property management platform. He's now catering to some of the country's largest institutional clients and we are on track to managing 13000 homes on the platform by the first half of 2024.

Gaul Kruvener: Our pre-funded model enabled us to effectively optimize for growth throughout 2022. We solidified our leadership as the number one personal loan ABS issuer in the country, issuing $6.6 billion across 15 deals and growing our investor branch by 31 new firms. We continue the momentum with the addition of 11 new investors in just January this year, reflecting continued strong demand for our financial products by achieving a step change in our network in 2020. We believe 2024 will be a year of momentum.

Our pre funded model enabled us to effectively optimize for growth throughout 2023.

We solidified our leadership has been number one personal loan ABS issuer in the country issuing six below $6 billion across 15 deals and growing our own vessel branch by 31 new firms.

We continue the momentum with the addition of 11 new investors in just general read this year.

Reflecting continued strong demand for our financial products.

By achieving a step change in our network in 2023, we believe 2024 will be a uniform rental.

Gaul Kruvener: We aim to accelerate our growth as a product and partner-centric company. Since our inception in 2016, our vision was to use technology to enable the financial services industry to provide more Americans with customers with access to credit after scaling our second stage re-evaluation program. We developed an enterprise-grade lending product that could meet the needs of the largest financial institutions in the country. This led to the onboarding of lenders like Ally Financial, Klarna, U.S. Bank, Westlake, a top five auto captive, and Exxon.

We aim to accelerate our growth as a product and partner centric company.

Since our inception in 2016, our vision was to use technology to enable the financial services industry to provide more Americas customers with.

With access to correct.

After the scaling our flagship product our second stage Reevaluation program, we developed an enterprise grade lending products that could meet the needs of the largest financial institutions in the country.

This led to the Onboarding of lenses like ally financial Kalana U S Bank Westlake.

Five ultra captive and Zika.

Gaul Kruvener: Our integration with larger-scale lenders is helping us understand how to be a true partner in achieving their growth objectives. The rays of integration with each of our partners can be utilized to cross-sell more products and broaden the reach into new customers. This will form the basis of our 2024 product and partner strategy, paving the path for Pagaya to become the trusted lending technology partner for the country's largest financial institution, as we march towards becoming a $25 billion network volume company. Our 2024 strategy consists of three key elements. Number one, spending on a product for new enterprise lenders.

Our integration with larger scale and it is helping us understand how to be a true partner in achieving their growth objectives.

The raise of integration with each of our partners can be utilized to cross sell more products.

Expanding to new verticals and broadening the reach into new customer segments.

This will form the basis of our 2024 product in parallel strategy.

Paving the path for <unk> to become the trusted lending technology partner for the country's largest financial institutions.

As we March towards becoming a $25 billion of network morning Company.

Our 2024 strategy consists of three key elements.

Number one expanding on the product to new enterprise and then number two deepening existing partnerships and enhancing network monetization.

Gaul Kruvener: Number two, deepening existing partnerships and enhancing network monetization. And number three, building out the roadmap to expand our product. First, we plan to expand our product to new large-scale enterprise vendors across markets. Last week, in collaboration with U.S. banks, we announced our exciting new partnership in our personal loan vertical. With a top-five bank, we now have four enterprise-level lenders, including Ally Financial, SoFi, and a top-five auto-captive in our lending technology.

Number three building out the roadmap to expand our product ecosystem.

First we plan to expand our product to new large scale enterprise lenders across markets.

Last week in collaboration with U S Bank, we announced our exciting new partnership in our personal loan vertical.

With a top five bank, we now have four enterprise level lenders, including ally financial sulfite and a top five auto captive in our lending technology ecosystem.

Gaul Kruvener: That means our flagship product not only meets the advanced technology needs of large lenders but the rigid regulatory and compliance standards of the U.S. consumer. Our recent conversations with other marquee lenders, both in and outside of our current pipeline, give me confidence that our flagship product is in high demand. And we will be able to add more banks, auto captives, and other large U.S. lenders to our network in this new. The addition of each enterprise lender means connecting to millions of new customers, the opportunity to extend across multiple products, and tens of millions of dollars to our bottom line once fully paid. Check-in.

That means our flagship product not only meet the advanced technology needs of larger lenders, but the rigid regulatory and compliance tons out of the U S consumer banks.

Our recent conversations with other marquee lenders, both in and outside of our calling pipeline gives me confidence that our flagship products using the high demands.

And we will be able to add more banks auto captives and other large U S led them to our network in the near term.

The addition of each enterprise lender means connecting to millions of new customers the opportunity to extend across multiple products and.

And tens of millions of dollars to our bottom line once fully ramped.

Second.

Gaul Kruvener: We will aim to deepen existing partnerships and enhance network monetization by accelerating volume growth with our new apartment. We believe we can bring economics more in line with our immature past, who are currently earning FRLPC above 5%. EP will speak more about this in a moment. Third, and what excites me the most about Pagaya's future, is that we will build more products for the lenders in our economy. Bang!

We will aim to deepen existing partnerships and enhanced network monetization.

By accelerating volume growth with our new partners. We believe we can bring economy more in line with our mature pump.

Well currently earning LPC above 5%.

EP will speak more to this in a moment.

Third and what excites me the most about the guy whose future is.

Is that we will build more products for the lenders in our ecosystem.

Thanks.

Gaul Kruvener: Banks are in a race to transform the customer experience as well as their internal systems with technology; our experience partnering with the country's leading fintechs over the last few years means that we are uniquely positioned to help banks connect with their customers through online channels, bringing them one step closer to their customers. An example of products that are in high demand for banks are point-of-sale solutions and online pre-qualification marketing that are delivered in and rewards These examples are just scratching the surface of what our technology, product infrastructure, and funding capabilities can achieve as we expand our product ecosystem. Pagaya is well positioned to become the country's go-to lending technology partner.

In the race to transform the customer experience as well as the internal systems with technology.

Our experience.

With the country's leading fintech over the last few years.

Means that we are uniquely positioned to help banks connect with their customers.

Through online channels.

Bringing them whilst at close to their customers.

Example of products that are in high demand for banks, our point of sale solutions and online Prequalification marketing products.

The lizard in App and rewards.

Existing customers with additional credit opportunities on a push basis.

These examples are just scratching the surface of what our technology product infrastructure and funding capabilities can achieve.

As we expand our product ecosystem <unk> is well positioned to become the countries go to lending technology partner.

Gaul Kruvener: The success of our 2024 growth will rely on a disciplined and balanced approach to volume growth, profitability, and capital allocation, as we aim to move from delivering positive cash flow from operating activities to total net cash flow positive by early 2020. Ipi will discuss this in more detail in a few moments.

The success of our 2024 Grossman will rely on the disciplined and balanced approach to volume growth profitability and capital allocation as we aim to move from delivering positive cash flow from operating activities to total net cash flow.

The team by early 2025.

<unk> will discuss in more detail in a few moments.

To close I believe per guy out using a strong position to transform the consumer final ecosystems at scale.

Gaul Kruvener: I believe Pagaya is in a strong position to transform the consumer finance ecosystem at scale; our differentiated product and efficient funding strategy have positioned us to lend transformative lending funds and deliver record financial performance. We expect to capitalize on this momentum as we execute in 2020. With that, let me pass it over to Sandeep to discuss his views on the company's evolution. Thank you, guys. I want to start by sharing why I chose to come to Pagaya.

Our differentiated product and efficient funding strategy has positioned us to lend transformational lending partners and deliver record financial performance.

We expect to capitalize on this momentum as we execute in 2024.

With that let me pass it over to Sandeep to discuss his views on the company's evolution from here.

Well thank you Paul.

I wanted to start by sharing why I chose to come to forgot it.

Sanjeev Das: I joined because of its unique value proposition in the network between consumer lenders and capital providers who seek exposure in this asset class. I believe the decisions Pagaya has made over the past two years, focusing on banks as part of the whole, and in scaling and diversifying its funding base were absolutely the right ones. Banks need Pagaya's products more than ever.

I joined because of its unique value proposition and the network between consumer lenders and capital providers boutique exposure in this asset class.

Yeah.

I believe the decision Mcgwire has made over the past two years.

Focus on banks as partners.

And then scaling and diversifying its funding base were absolutely the right one.

Banks need mobile products more than ever.

Sanjeev Das: The current interest rate environment and regulatory conditions have resulted in a broader trend in the tightening of credit. But, at the same time, there is significant amounts of private capital waiting to be deployed into quality consumer assets, specifically those underwritten by high-quality data-driven AI models. These trends create a unique opportunity to capture the full value we can provide to lenders by partnering with them through products that are complementary and deeply integrated into their lending ecosystem. Building this institutionalized capability will be our focus in 2021.

Yeah.

The current interest rate environment and regulatory conditions have resulted in a broader trend in the tightening of credit.

While at the same time, there is significant amount of private capital waiting to be deployed into quality consumer assets.

Definitely those underwritten by high quality data driven AI models.

These trends create a unique opportunity to capture the full value. We can provide to lender by partnering with them to products that are complementary and deeply integrated in their lending ecosystem.

Okay.

Building this institutionalized capability will be a focus in 2024.

Sanjeev Das: We are now developing a clear product roadmap that we expect to expand our footprint to new lenders and deepen our current relationships while creating new monetization opportunities for Pagaya. We are exploring more capital-efficient products that could enhance our firepower as we ramp up network volume from recent fossil fuels. We will continue to optimize capital allocation in a very disciplined way as we strengthen our funding network while prioritizing financial flexibility and risk management. Critical to our success in the long term is an organization that is laser focused on disciplined execution to achieve our mission. The organization that we initially built laid the foundation to deliver a single product to lenders.

We are now developing a product roadmap that we expect to expand our footprint with new lenders.

And deepen our client relationships, while creating new monetization opportunities for <unk>.

We are exploring more capital efficient products that could enhance our firepower.

The ramp up network volume from recent partnerships.

We will continue to optimize capital allocation.

A very disciplined way as we strengthen our funding network, while prioritizing financial flexibility and risk management.

Critical to our success in the long term with an organization that is laser focused on disciplined execution to achieve our mission.

The organization that we initially built lays the foundation to deliver a single products to lenders.

Sanjeev Das: We are now evolving to become a multi-product company. Our execution will be governed by a strong focus on enhancing margins and capital efficiency as we grow. We are only at the beginning of a continued evolution, and I'm excited for what the future holds. Thank you for your time today.

We are now evolving to become a multi product enterprise.

Our execution will be governed by a strong focus on enhancing margins and capital efficiency as we grow.

We are only at the beginning.

Continued evolution.

And I'm excited for what the future holds.

Thank you for your time today I'll now pass to our CFO.

Evangelos Peros: I will now pass this to our CFO, VP, to discuss our financial results in more detail. Thank you, Sanjeev. I'm honored to join all of you today on my first earnings call as CFO of Pagaya. I'm looking forward to working with our leadership team as we execute on our vision and building long-term partnerships with all of you in our investment community. As Gal mentioned, we believe our business is well-positioned to execute in 2024 in light of the micro-backlash. Over the past two years, we have made significant strides to become a profitable growth company. We grew prudently in a tough market environment, prioritizing unit economics, cost efficiency, and disciplined capital allocation and risk management.

To discuss our financial results in more detail.

Thank you <unk>.

I'm honored to join all of you today on my first earnings call as CFO of <unk>.

I'm looking forward to working with our leadership team as we execute on our vision and building long term partnerships with all of you our investment community.

As Gavin mentioned, we believe our business is well positioned to execute in 2024 in light of the macro backdrop.

Over the past two years, we have made significant strides to become a profitable growth company.

We grew prudently in a tough market environment prioritizing unit economics cost efficiency and disciplined capital allocation and risk management.

Evangelos Peros: In 2023, we delivered record network volume, total revenue, and adjusted EBITDA, exiting the year with positive quarterly cash flow from operating activities, operating income, and adjusted net income. We expect to build on this momentum in 2024 with a focus on progressing the next two financial milestones of our company. One, positive total cash flow generation by early 2025, and two, saving the way to gap net income profitability. We are taking action to deepen the monetization of our network while scaling in an efficient way to drive operating leverage. We will continue to execute a disciplined capital allocation strategy focused on balancing profitable growth and financial flexibility.

In 2023, we delivered record network boardroom, both on revenue and adjusted EBITDA exiting the year with positive quarterly cash flow from operating activities operating income and adjusted net income.

We expect to build on this momentum in 2024 with a focus on progressing the next to financial milestones of our company one positive total cash flow generation by early 2025, and two paving the way to GAAP net income profitability.

We are taking action to deepen their monetization apartment network, while scaling in an efficient way to drive operating leverage.

We will continue to execute a disciplined capital allocation strategy focused on balancing profitable growth and financial flexibility.

Evangelos Peros: With these actions, we expect to continue to successfully navigate the evolving macro environment to deliver our plan for 2024. Additionally, we are committed to increasing transparency with our shareholders and taking action to increase stock market ability and drive shareholder value creation. As we announced, we will be electing to file on U.S. domestic issuer forms beginning with our Q1 results in May. Moreover, we expect to effect the reverse stock split within the first two weeks of March with a final ratio of 1 for 12.

With these actions we expect to continue to successfully navigate the evolving macro environment to deliver our plans for 2024.

Additionally, we are committed to increasing transparency with our shareholders and taking action to increase stock market ability and drive shareholder value creation.

As we announced we will be electing to file on U S. Domestic issuer forms beginning with our Q1 results in may.

Moreover, we expect to affect a reverse stock split within the first two weeks of March with the final ratio of one four trends.

Evangelos Peros: I encourage you to read our shareholder letter and earnings supplement materials, which contain details on our financial performance. Turning to our fourth quarter results, we achieved record network volume of $2.4 billion in the quarter, up 33% year-over-year, with growth primarily driven by the ramp-up of new partnerships in point-of-sale and single-family rental. Total application flow was 183 billion in the fourth quarter, up 7% year-over-year.

I encourage you to read our shareholder letter and earnings supplement materials, which contains details on our financial performance.

Turning to our fourth quarter results.

We achieved record network volume of $2 4 billion in the quarter up 33% year over year with growth, primarily driven by the ramp up of new partnerships and point of sale and single family rental.

Total application flow was 183 billion in the fourth quarter up 7% year over year.

Evangelos Peros: Our average conversion ratio was 0.8% in the quarter as we continue to optimize for investor returns in the higher rate environment. Total revenue grew 13% to a record $218 million in 4Q23 compared to the same quarter in 2022, driven by an 18% increase in fee revenue, which represented 97% of total revenue. Interest and investment income declined year over year due to a shift in the timing of interest income accruals related to a change in our ABS structure.

Hi, Robert its conversion ratio was 0.8% in the quarter as we continued to optimize for reimbursed certain terms in the higher rate environment.

Total revenue grew 13% were a record $218 million and <unk> 23, compared to the same quarter in 2022, driven by an 18% increase in fee revenue, which represented 97% of total revenue.

Interest and investment income declined year over year due to the shift in timing of interest income accruals related to a change in our ABS structures.

Evangelos Peros: Fee Revenues Less Production Costs, or FRLPC, grew by 42% in Q4 to a record $76 million, more than offsetting the 19% decline in capital markets. This is a testament to the recurring and sustainable earnings power of our feed-generating business. FRLPC margin increased 20 basis points year-over-year to 3.2% in the fourth quarter, within our target range of 3-4%.

Fee revenues less production costs or fr LPC grew by 42% in Q4 to a record 76 million.

Trees from our lending product amounted to 63% of total if our APC compared to 32% in the same for 2022.

More than offsetting the 19% decline in capital markets execution fees.

This is a testament to the recurring and sustainable earnings power of our fee generating business.

Our foreign APC margin increased 20 basis points year over year to three 2% in the fourth quarter within our target range of 3% to 4%.

Evangelos Peros: We see meaningful opportunity for further improvement. For example, our personal loan business, our most mature vertical, generated an FRLPC margin of 5.5%, with some of our top partners delivering margins above 6%. Our auto vertical continues to be below the blended average with an FRLPC margin of 3%. Additionally, our SFR vertical, which remains immaterial to our overall financial results, was diluted to our FRLPC percent margin in the quarter due to the integration of a larger number of homes into our Darwin platform.

We see meaningful opportunity for further improvement.

Our personal loan business, our most mature vertical generated and therefore, MPC margin or five 5% with some of our top partners delivering margins are above 6%.

Our auto vertical continues to be below the blended average with an FRE APC margin of 3%.

Additionally, our <unk> vertical which remains immaterial to our overall financial results was dilutive to our FRE APC percent margin in the quarter due to the integration of a larger number of homes to our Darwin platform.

Evangelos Peros: While our FIPC margin may continue to be impacted by the onboarding of new partners and growth of less mature verticals, we have a very clear playbook to elevate economics over time. Higher FRLPC is translating directly to our bottom line with the benefit of the operating leverage inherent in our business. In the fourth quarter, we delivered record-adjusted EBITDA of $34 million with an adjusted EBITDA margin of 16%. This was our second consecutive quarter of positive GAAP operating income, which was $11 million in the quarter. Our core operating expenses, which exclude stock-based compensation, depreciation, and one-time expenses, declined by 19% year-over-year to $51 million. Share-based compensation expense of $14 million declined by $5 million, primarily driven by lower headcount and the timing of vesting of equity awards.

While RFID PC margin may continue to be impacted by the onboarding of new partners and growth of less mature verticals, we have a very clear payable to elevate economics over time.

Higher if our MPC is translating directly to our bottom line with a benefit of the operating leverage inherent in our business.

In the fourth quarter, we delivered record adjusted EBITDA of 34 million with an adjusted EBITDA margin of 16%.

This is our second consecutive quarter of positive GAAP operating income, which was $11 million in the quarter.

Our core operating expenses, which excludes stock based compensation depreciation and one time expenses declined by 19% year over year to $51 million.

Share based compensation expense of $14 million declined by $5 million, primarily driven by lower share count and the timing of vesting of equity awards.

Evangelos Peros: The net loss attributable to Pagaya was $14 million in the fourth quarter, an improvement of $20 million from the prior year, primarily due to our strong operating results. Other income amounted to negative $26 million, primarily impacted by a fair value adjustment on investment in loans and securities. After accounting for non-controlling interest, the net fair value adjustment attributable to Pagaya was negative $13 million.

Net loss attributable to <unk> was $14 million in the fourth quarter, an improvement of $20 million from the prior year, primarily due to our strong operating results.

Other income amounted to negative $26 million, primarily impacted by a fair value adjustment on investments in loans and securities.

After accounting for non controlling interest and net fair value adjustment attributable to poor Guy Yeah was negative $13 million.

Evangelos Peros: The interest expense of $11 million in the fourth quarter was primarily related to our secured borrowings, which are used to finance our risk retention requirements, reflecting the higher rate environment and the change in composition of the underlying collateral. We reported our third consecutive quarter of positive adjusted net income of $12 million, which excludes share-based compensation and other non-cash items, such as fair value adjustment, an improvement of $16 million compared to the prior year. We reported our second consecutive quarter of positive cash flow from operating activities of $19 million, with full-year operating cash flow of $10 million. We believe this is an important milestone toward achieving total net cash flow generation as we scale. Moving now to discuss our approach to capital allocation and risk management.

Interest expense of $11 million in the fourth quarter was primarily related to our secured borrowing which are used to finance a risk retention requirements, reflecting the higher rate environment and the change in composition of the underlying collateral.

We reported our third consecutive quarter of positive adjusted net income of 12 million, which excludes share based compensation and other noncash items, such as fair value adjustments and improvement of $16 million compared to the prior year, we reported our second consecutive quarter of positive cash flow from operating active.

<unk> of $19 million with full year operating cash flow of $10 million. We believe this is an important milestone towards achieving both of them have cash flow generation as we scale.

Shifting now to discuss our approach to capital allocation and risk management, we operate our business to optimize growth profitability and liquidity.

Evangelos Peros: We operate our business to optimize growth, profitability, and liquidity. Our ability to deliver growth in this environment is supported by our unique funding models. By raising capital before assets are originated, compared to traditional funding models, we are able to avoid warehousing assets that require months of seasoning, allowing us to generate over $8 billion in network volume last year without significant use of our balance.

Our ability to deliver growth in this environment is supported by our unique funding model by raising capital before us that originated compared to traditional funding models. We are able to avoid warehousing assets required months of seasoning, allowing us to generate over $8 billion in network volume last year without significant use of our balance sheet.

Evangelos Peros: This flexibility means we have multiple levers at our disposal in the way we allocate capital to support the growth of the fee-generating side of our business. We also view this as an effective strategy to attract new investors to our network and strengthen our long-term funding capability. This is demonstrated by the 31 new institutional investors we added to the network in 2023 and the $6.6 billion in new funding raised across 15 ABS transformations. And in 2024, we are beginning to see signs of improving demand and risk appetite from investors, which we anticipate will translate to lower corporate risk participation in our deals, a strong competitor to combat BMEs. And the scale and reputation we have achieved, combined with stabilizing asset performance in 2023, have become a key differentiator in our abilities to explore new capital. Our net holdings in investment in loans and securities, after accounting for non-controlling interest, amounted to $611 million as of December 31, reflecting risk retention holdings for deals completed between 2019 and 2023. To put this in context, this reflects a ratio of approximately 3% of over $20 billion Net of non-controlling interests, the total fair value impact on our net holdings was negative $16 million, of which $13 million impacted other income, and $4 million impacted other comprehensive income and loss on shareholders' equity.

This flexibility means we have multiple levers at our disposal with the way, we allocate capital to support the growth of the fee generating side of our business.

We also view this as an effective strategy to attract new investors to our network and strengthen our long term funding capabilities.

As demonstrated by the 31, new institutional investors to be added to the network in 2023, and the $6 6 billion in new funding raised across 15 ABS transaction.

And in 2024, we're beginning to see signs of improving demand in risk appetite from investors, which we anticipate will translate to lower corporate participation in our deals.

The scale and reputation we have achieved combined with stabilizing asset performance in 2023 have become a key differentiator in our ability to explore new capital efficient structuring alternatives.

Our net holdings and investment in loans and securities after accounting for non controlling interest amounted to $611 million as of December 31, reflecting risk retention holdings for deals completed between 2019 and 2023.

To put this in context. This reflects the ratio of approximately 3% of over 20 billion in total funding raised over this time.

Net of Noncontrolling interest the total fair value impact through our net holdings was negative 16 million of which $13 million impacted other income and $4 million impacted other comprehensive income and loss in shareholders' equity.

Evangelos Peros: I'm very pleased with the recent step change we achieved with the announcement of our $280 million credit facility in February, which was subsequently upsized to $290 million. The transaction was led by BlackRock and in partnership with UBS and a syndicate of our relationship banks, including JPMorgan Chase. We believe this transaction represents a strong vote of confidence from leading financial institutions following months of extensive due diligence on the company's financial strength and future cash flow generating power. After repaying outstanding borrowings under our existing credit facility, the incremental liquidity will help us invest in product development and network expansion. Moreover, from a risk management perspective, it eliminates refinancing risk by extending our corporate debt maturity from 2025 to 2029.

I am very pleased with our recent step change we achieved with the announcement of our $280 million credit facility in February which was subsequently upsized to $290 million.

Jackson was led by Blackrock and preferential with UBS and syndicate of our relationship banks, including Jpmorgan Chase.

We believe this transaction represents a strong vote of confidence from leading financial institutions. Following months of extensive due diligence on the company's financial strength and future cash flow generating power.

After repaying outstanding borrowings under our existing credit facility, the incremental liquidity would have us invest in product development and network expansion.

Moreover, from a risk management perspective, it eliminates refinancing risk by extending our corporate debt maturity from 2025 and 2029.

With these achievements, we are well positioned to deliver our 2024 financial plan, which we believe will get us closer to our goal of achieving positive total net cash flow by early 2025, and pave the path to future GAAP net income profitability.

Evangelos Peros: With these achievements, we are well positioned to deliver our 2024 financial plan, which we believe will get us closer to our goal of achieving positive total net cash flow by early 2025 and pave the path to future gap net income profitability. First, we are focused on deepening the monetization of our lending products to drive FRLPC growth, and we have demonstrated our ability to increase monetization of our most mature lending channels. We are in discussions or have already executed improved fee-sharing agreements with other lending partners, which we expect to have a positive impact on FRLPC later this year. Second, we'll continue to focus on prudently managing our expenses to drive more flow-through of FRLPC growth to the bottom line. This year, we expect to realize the full year benefit from cost savings initiatives implemented throughout 2023, and we expect to fund 2024 investments without meaningfully increasing our core operating expenses.

First we are focused on deepening the monetization of our lending product to drive FRE adequacy growth.

We have demonstrated our ability to increase monetization of our most mature lending channels. We are in discussions or have already executed improved fee sharing agreements with other lending partners, which we expect to have a positive impact on their part APC later this year.

Second we'll continue to focus on prudently managing our expenses to drive more flow through a 500 MPC growth to the bottom line. This.

This year, we expect to realize the full year benefit from cost savings initiatives implemented throughout 2023, and we expect to fund 2024 investments without meaningfully increasing our core operating expense base.

Our goal is to reach total net cash flow positive by early 2025, assuming no material change in the macroeconomic conditions from what we see today first as we scale our network with deeper monetization and the benefit of operating leverage we expect continued growth in cash flow from operating activities. We also expect.

Evangelos Peros: Our goal is to reach total net cash flow positive by early 2025, assuming no material change in macroeconomic conditions from what we see today. First, as we scale our network with deeper monetization and the benefit of operating leverage, we expect continued growth in cash flow from operating activity. We also expect to minimize the combined net cash outflow from investing and financing activities by shifting to more efficient funding and capital structures, supported by our recent strong funding execution and stabilizing asset performance.

To minimize the combined net cash outflow from investing and financing activities by shifting to more efficient funding and capital structures supported by our recent strong funding execution and stabilizing asset performance.

Now, let me switch to our 2024 financial outlook our guidance reflects a few key assumptions in terms of network volume, we expect to remain prudent with our conversion rate of application volume, while optimizing network volume to our more mature and profitable lending channels.

Network volume contribution from our 2023 partner cohort.

Evangelos Peros: Now, let me switch to our 2024 Financial Outlook. Our guidance reflects a few key assumptions. In terms of network volume, we expect to remain prudent with our conversion rate of application volume while optimizing network volume to our more mature and profitable lending channels. Network volume contributions from our 2023 partner cohorts are expected to more meaningfully materialize in the second half of 2024, and we expect minimal contribution from any new partnerships onboarded within the year. Finally, we expect continued growth of our single-family rental value as a result of new partnerships with our Darwin Club. We expect growth in total revenue and other income in FRLPC as we continue to deepen monetization of our lending product, which we expect to continue to offset lower capital market execution.

<unk> to more meaningfully materialize in the second half of 'twenty 'twenty, four and we expect minimal contribution from any new partnerships for imported within the year.

Finally, we expect continued growth of our single family rental growth to come as a result of new partnerships with our Darwin platform.

We expect growth in total revenue and other income and therefore LPC as we continued to deepen monetization of our lending products, which we expect to continue to offset lower capital market execution fees.

Combined with disciplined cost management to improve operating efficiency, we expect continued growth in adjusted EBITDA.

In the first quarter of 2024, we expect network volume to range between two two and $2 4 billion total revenue and other income to range between 225, and $240 million and adjusted EBITDA to range between 32 and $38 million.

In full year 'twenty 'twenty four we expect network volume to range between $9 billion, and 10 and a half billion dollars total revenue and other income to range between $925 million and $1 5 billion and adjusted EBITDA to range between 150 and $190 million.

Evangelos Peros: Combined with disciplined cost management to improve operating efficiency, we expect continued growth in adjusted EBIT. For example, in the first quarter of 2024, we expect network volume to range between $2.2 and $2.4 billion, total revenue and other income to range between $225 and $240 million, and adjusted EBITDA to range between $32 and $38 million. In full year 2024, we expect network volume to range between $9 billion and $10.5 billion, total revenue and other income to range between $925 million and $1.05 billion, and adjusted EBITDA to range between $150 million and $190 million. With that, let me reiterate how excited I am to be partnering with you on our journey, and then I will turn it back to the operator for Q&A. Thank you.

Yeah.

With that let me reiterate how excited I am to be partnering with you on our Jordan and let me turn it back to the operator for Q&A.

Okay.

Thank you we will now be conducting a question and answer session.

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The first question, we have is from Joseph coffee of Canaccord Genuity. Please go ahead.

Hey, everyone. Good morning, nice results and congrats on the new roles book to send to you than to E&P, just maybe just a few on some of the operating metrics looking at 2024.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. The confirmation tone will indicate you're live in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using Speak, click. It may be necessary to pick up your handset before pressing the star key.

On the.

On the Investor side on.

The execution fees and then also on conversion rate I mean, obviously fed funds rates, probably one of the key things for us to be looking at there in terms of.

Operator: We also request that you just keep it to one question and one follow-up question. The first question we have is from Joseph Spaffy of Canaccord Genuity. Please go ahead. Hey, everyone. Good morning.

Potentially higher conversion rate and execution fees is there anything else, we should be looking at.

Relative to providing upside on those metrics.

And then I'll have a quick follow up.

Hi, Joe It's got here. Thank you so much for your question.

Gaul Kruvener: Nice results. And congrats on the new roles, both to Sanjeev and to EP. Just maybe just a few on some of the operating metrics looking at 2024 on the, you know, investor side, on the execution fees, and then also on the conversion rate. I mean, obviously, Fed funds rates are probably one of the key things for us to be looking at there in terms of, you know, potentially higher conversion rates and execution fees. Is there anything else we should be looking at relative to, you know, providing upside on those metrics? And now, a quick follow-up. Hi Joe. It's Garth here.

<unk>.

So let me start with the second phase.

As we think about where we are standing today, obviously, the 2024 is a much more constructive here is that we will put it this way.

When you think about capital markets and the very strong performance that we had in 2023.

Most of the assets and the ability to actually raise the capital.

We have a strong momentum as we go into 2024 as you know one of the biggest the biggest they'll stand alone.

Israeli and <unk>. So when we think about 2024, we are taking into our plan still the concept of being very prudent.

Gaul Kruvener: Thank you so much for your question. It's great to see you. So, let me start with the second piece. As we think about where we are standing today, obviously, 2024 is a much more constructive year, as I will put it this way. When you think about capital markets and the very strong performance that we had in 2023, both on the assets and the ability to actually raise capital, we have strong momentum as we go to 2024. As you know, we are one of the biggest personal loan issuers in ABS this year. So when we think about 2024, we are still taking into our plan the concept of being very prudent, and we are managing and guiding the street to what we think is doable given everything stays the way it is.

And we are managing and guiding discrete to what we think is doable given everything stay the way. It is now to your point.

The fed might be in the peak of the cycle and therefore, there is potential ways to be more.

More constructive and better outcomes as we think about the 2024 <unk> by the way, we think about <unk>, we need to see that actually transforming into a real outcome, although a few quarters and therefore reactive to that so to the bottom of your question.

The 2024 plan is subject to we believe that the environment is going to stay entities right now which is better than 2023.

And as we think about the future and how different macroeconomic trends will play is to the positive will definitely allow us to have some more room to play there.

Great. Thanks for that and then maybe just one for Sanjiv are again, congrats on the new role.

Gaul Kruvener: Now to your point, the Fed might be at its peak of the cycle, and therefore there are potential ways to be more constructive even and better outcomes as we think about 2024. It's just that by the way we think about it, we need to see that actually transforming into a real outcome over a few quarters and therefore reacting to that.

Are there a few things that are you.

Think that youre going to be focusing on here in 2024.

Relative to <unk>.

You've seen a lot I think so far.

Are there a couple of things that really stand out for you as opportunities and things are you going to focus on.

Sanjeev Das: So, to the bottom of your question, the 2024 plan is subject to, we believe, the environment going to stay as it is right now, which is better than 2023. And as we think about the future and how different macroeconomical trends will play out, if to the positive, will definitely allow us to have some more room to play there. Great. Thanks for that, Gal. And then maybe just one for Sanjeev.

Here this year, thanks, a lot guys.

Sure. Thank you for the question, Joe and thank you for the vicious I'm excited to be here.

As you know, Joe and sort of mentioned this before.

As a former CEO of Citi.

City's largest business city.

Some pretty tough times.

And so we're turning that around.

<unk>.

Come to <unk> with tons of consumer banking experience and sort of know the space extremely well.

Sanjeev Das: Again, congrats on the new role. Are there a few things that you think that you're going to be focusing on here in 2024 relative to, you know, I mean, you've seen a lot, I think, so far. You know, are there a couple things that really stand out for you as opportunities and things for you to focus on here this year? Thanks a lot, guys.

And so when I stepped in to provide and submit.

Our clients and partners, including.

Several of the major banks.

And when I talked to the Ceos of let's say U S banks consumer business or cities consumer business, many of whom are former trusted colleagues who sort of scene.

Sanjeev Das: Thank you for the question, Joe, and thank you for the wishes. I'm excited to be here. You know, as you know Joe, and I sort of mentioned this before, as the former CEO of Citi's largest business, and sort of turning that around, I have come to Pagaya with tons of consumer banking experience and sort of know the space extremely well. And so when I stepped into Pagaya and met our clients and partners, including several of the major banks, And when I talk to the CEOs of, let's say, U.S. banks' consumer business or cities' consumer business, many of whom are former trusted colleagues who have sort of seen how we have built things in a highly regulatory compliant way,

We have built things in a highly regulatory compliant way.

I'm actually very pleased to see what we have seen in <unk> execution in terms of building, a very regulatory really robust product and it actually meets the need for banks in a very strategic way.

And the more I understand <unk> has a second stage fee valuation products, which is sort of what I inherited.

Really pleased to see that how well integrated into the bank's ecosystem.

The consumer ecosystem frankly.

Fiber back to my previous job as CEO. So this mortgage business I would sign up for <unk> solution instantaneously I know, if we call those things non QM and stuff like that but those are I mean, it's done in such a seamless way that I'm really enthused about it.

Sanjeev Das: I'm actually very pleased to see what we've seen in Pagaya's execution in terms of building a very regulatoryly robust product, and it actually meets the need for banks in a very strategic way. And so the more I understand Pagaya's second stage fee valuation product, which is sort of what I inherited. I'm really pleased to see how well integrated it is into the bank ecosystem and the consumer ecosystem. Frankly, you know, if I were back in my previous job as CEO of Citi's mortgage business, I would sign up for Pagaya's solution instantaneously. I know we call those things non-QM and stuff like that, but it's done in such a seamless way that I'm really enthused about it. So, in summary, I feel like the foundation of what we've laid out so far is really good, and it allows us to now focus on multiple products and deepen the ecosystem of the franchises that we have already deepened. So, I'm super excited about that.

So I feel like in summary, I feel like the foundation of what we've laid out so far is really good and it allows us to now focus on multiple products and deepening into the ecosystem of the franchises that we already deep into.

So super excited about that.

Okay.

The next question, we have is from Michael <unk> of the benchmark company. Please go ahead.

Thanks, Congratulations on a great quarter guys too.

Two questions. One can you just talk about your viewpoint on the consumer debt burden.

Yep.

Kris for consumer and how that impacts the longer term model and then second.

And that 10 to 15 possible new properties in the pipeline with the 12 to 15 months.

Lead time on some of them the U S Bank when you sign them up you know obviously that was a longer lead time can we read anything into the size of these new partners based upon the lead time you mentioned.

Gaul Kruvener: The next question we have is from Michael Legg of The Benchmark Company. Please go ahead. Thanks. Congratulations on a great quarter, guys. Two questions. One, can you just talk about the lead time on some of them? The U.S. Bank, when you signed them up, you know, obviously that was a longer lead time. Can we read anything into the size of these new partners based upon the lead time you mentioned? Thank you. I might, definitely.

Okay.

Okay.

Hi, Mike definitely so let's start with the first one.

<unk>.

So.

So I think from from a consumer has perspective.

I will need to correct rise 2023, I will call it deal of stability.

So I think too many many ways to.

Two major phenomenon have happened.

On the one hand side different banks and lenders has become more scrutiny on the ability to provide credit and therefore credit availability went down.

Gaul Kruvener: So let me start with the first one. So I think from a consumer health perspective, if I need to characterize 2023, I will call it the year of stability. So I think in many, many ways. Two major phenomena have happened. On the one hand, different banks and lenders have become more scrutinized on the ability to provide credit, and therefore, credit availability went down. And on the other side, as we look back on 2023, it is obvious for us because of our unique network data advantage. It was obvious, even in 2023. But the consumer is in a steady place.

And on the other side as we now looking back on 2023. It is obvious for us because of our unique network data advantage towards Lvs.

Even in 2023.

But the consumer is in a steady place.

Yes.

The big Rush of like the inflation that happened in 'twenty, one and 'twenty, two which drove underperforming vintages for the consumer credit in general.

He is starting to stabilize especially in the areas, where we are where we all focus on.

Gaul Kruvener: The big rush of the inflation that happened in 21 and 22, which drove underperforming vintages for the consumer credit in general, is starting to stabilize, especially in the areas where we are focused on, which is the side frame, near frame, whatever you want to call it. So as we think about the future, and given that there is now a trajectory of, how we are going to balance in between the reduction of the interest rate while still having a strong economy, while we are prudent and cautious, we do see the consumer behaving more or less as we expect. So that to that level, and I think that if you think about it.

Which is the subprime near prime whatever you want to quote.

So as we think about the future and given that he is now a trajectory of <unk>.

How we are going to balance between the reduction of the interest rate, while still having a strong economy.

While we are prudent and cautious we do see the consumer behavior.

More or less as we expect.

So with that to that level and I think that if you think about it.

From a future perspective, we expect 2024.

To be a year, where we are transforming the stability into momentum because usually what happens is when investors and capital markets.

Gaul Kruvener: From a future perspective, we expect 2024 to be a year where we are transforming stability into momentum, because usually what happens is when investors and capital markets are kind of seeing the stability coming through, it allows you to have better execution, better outcomes, and quite frankly, a cheaper cost of capital on the full capital stack. That's how all of that is related to us as a business. Now to your second question, which relates to how you think about the onboarding of new partners, especially at the enterprise grade level. So I want to give you my own personal perspective on that. As you know, I'm one of the founders of Pagaya and started here in 2016.

He is kind of like seeing that stability is coming through.

We used to have better execution.

And quite frankly cheaper cost of capital on a full capital stack. So that's how all of that is related to us as a business now to your second question.

Which relates to how you think about the onboarding of the new policy.

Especially on the enterprise grade level.

So I.

I wanted to give you my own personal perspective over that.

As you know I'm one of the founders of <unk> started here in 2016.

Gaul Kruvener: And every one or two years, we have a major jump that makes Pagaya a different organization and a different company. The first one was the first flagship product that we had; after that, we started tapping into the capital markets in major deals. After that, were the first auto land deals that we onboarded, and it was kind of like having our product modified to the second piece. When I think about all of them... getting integrated to enterprise-level banks such as U.S. Bank, which this quarter has become public, is potentially the biggest milestone change that we have made so far. It opened up a variety of positive momentums for Pagaya, which I want to lay out here for you to appreciate these pieces.

In Italy, one or two years, we have like a major jump that make it.

A different organization in different company.

The first one was the first flagship product that we had.

Up until that was tapping into the capital markets in major deals.

After that we're the first out.

So lenders that we on boarded in kind of like having our products modify to the second piece.

When I think about all of them.

Getting integrated to an enterprise level banks, such as U S Bank debt this quarter has become.

Public is potentially the biggest milestone change since we have been.

So it.

<unk> open up a variety of.

Positive momentum for <unk>, which I want to lay out here for you to appreciate these pieces. So the first one is.

Gaul Kruvener: So the first one is, when there is a top five bank that is, as you can imagine, very heavily regulated, putting their name out there and saying, this is helping our customers, and we did all the checks and balances in order to make it our product, it gives a lot of confidence for other banks to follow. So to your question about the deep 15 funnel, it's not something that we say that there are 15 actives that are going to be translated into 15 clients in 18 months. But it's 50 names that we know that, if played well and subject to our 2 to 4 players a year, are definitely the next wave of banks or enterprise-level grade banks that are coming into our network. Now, why is that so important? Because now it's starting to become more of a rinse and repeat.

When there is a top five bank debt.

You can imagine very heavily regulated putting their name out there and saying this is helping our customers and we did all the checks and balances in order to make it as our product. It gives a lot of confidence for other banks to follow so to your question about the deep 15 funding, it's not something that we say that they are 15.

Active that are going to 18 months be translating to 50 clients.

But it's a 50 names that we know the displayed well and subject to our two to four <unk>.

<unk> going to be definitely the next wave of banks, so enterprise level grades that are coming into into the into our network. Now why is that so important because now it's starting to become as more rinse and repeat we have cracked the code.

Gaul Kruvener: We have cracked the code, we have perfected the product, and now it's really about having the right conversation. And as you heard from Sanjiv, our leadership team is very well connected in this industry and will be able to make it happen. So we are not obsessed about time.

We are perfect the product and now it's really about having the right conversation and as you heard from Sanjiv.

Our leadership team is very well connected into this industry and we'll be able to make it happen. So we are not obsessed about time it doesn't matter for us if it happens in 612 or 18 months, what matters to us and tapping rightfully and in the right scale and Thats, where we are driving towards the last point I would add before we close that question.

Gaul Kruvener: It doesn't matter to us if it happens in 6, 12, or 18 months. What matters to us is that it happens rightfully and on the right scale. And that's what we are driving towards. The last point I will add before we close that question is think about the opportunities and the unique value proposition and the additional product, again, as Sanjeev mentioned, that one could drive with big partners like U.S. banks and others. We see that happening in action, and we are getting more requests for more technology pieces that they would like us to do with them. So it's opened up not just deepening the current flagship product that we have, which is a re-evaluation second stage product, but it's opening up for us the ability to think about more products down the road for them, marketing products such as prequalifications, in-app offers, and so many more ways So from that perspective, you can think about Pagaya as we are trying to become the technology lending partner for the biggest institutional clients in the U.S., and I think that funnel is expressing a lot. The next question we have is from David Karpf of Citizens JMP. Please go ahead. Hi, good morning.

He is thinking about the opportunities and the unique value proposition and the additional product again as Sanjiv mentioned.

One food drive with Big partners like <unk>, and others, we see that happening in action and we're getting more requests of more technology pieces that they would like us to do with them. So it's open up not just deepening the current flagship product that we have which is under evaluation.

<unk> second stage product, but it is opening for us the ability to think about more products down the road for them.

Marketing products, such as Prequalification in App offers.

And so many more ways to serve the customer as to the standard that they would like to have so from that perspective, you can think about <unk> is it.

We are trying to become the technology lending policy now or the biggest institutional clients in the U S.

Think that funding is representing.

Yeah.

The next question, we have is from David scarf.

<unk> JMP. Please go ahead.

Hi, good morning.

Thanks for taking my questions and.

Welcome aboard as well to TEP and Sanjiv.

Maybe.

Two questions maybe on each side of the marketplace.

The first just focusing on.

Evangelos Peros: Thanks for taking my questions and, uh... Maybe two questions, maybe on each side of the market. You know, the first just focusing on the economic model on the products side. You know, I don't want to get too far ahead, I know you just rolled out some of the markets. The auto industry is so much larger, and still remains, how Point of Sale evolved. As you think about the product, you know, going out in a few years, does that change the target margin, the FLRPC margin? I mean, clearly, personal loans have the highest take rate of five. I'm wondering how we should think about the product mix and whether that, Thank you, David. That's a great question.

The economic model on <unk>.

Demand side, specifically at the product side.

I don't want to get too far ahead, I know I know you just rolled out 2024 guide.

But just given the relative size.

Of some of the markets specifically auto was so much larger than personal loan.

Still remains to be seen kind of how point of sale evolved as you think about the product mix.

Going out in a few years.

Does that change the target margin DSLR RPC margin I mean clearly the.

Personal loans have the highest take rate of five 5% right now.

Right.

Just wondering how we should think about the product mix and whether that impacts the margin structure going forward.

Thank you David that's a great question.

Evangelos Peros: So the way to think about it is, obviously, every vertical in our product is somewhat unique in terms of its unit economics. But the way to think about it is, within each vertical, we have mature partners and sort of less mature partners, right? And it takes about 12, call it 6 to 12 months, to ramp up some of the newer partners that get added to the network. And the more mature partners obviously enjoy a higher FRLPC margin.

So the way to think about it is obviously every vertical.

In our products.

Someone who you would make in terms of its unit economics, but the way to think about it is with him enterprise will have mature partners in sort of less mature partners right and.

It takes about 12 call. It six to 12 months to ramp up some of the newer partners either get added to the network and a more mature market is obviously enjoy a higher.

100% margin and we'll have a very clear playbook on how to pay for the newer partners and elevate them to the same economics as the more mature partners.

Evangelos Peros: And we have a very clear playbook on how to take the newer partners and elevate them to the same economics as the more mature partners. So as you think about the future in 2024 and beyond, there is always going to be a mix between that dynamic of mature partners where we're earning higher FRLPC margins and the newer partners that are coming in and getting elevated over time. The auto industry is obviously an area that is growing very fast.

So as you think about the future.

And beyond that is always going to be a mix between that dynamic of mature partners, where we're earning higher FRE margin and the newer partners that are coming in.

Get elevated overtime.

Auto is obviously an area that is growing very fast today, there are approximately 3% of how you're going to see margin and as we continue to invest into that vertical we expect obviously more volume coming in from the newer partners. While we continue to elevate the economics over time.

Evangelos Peros: Today, they're at approximately 3% FIPC margin. And as we continue to invest in that vertical, we expect obviously more volume coming in from the newer partners while we continue to improve their economics over time. So that's how you think about the mix.

So that's how to think about the mix and ultimately when you take that all to the bottom line. This is what drives our overall guidance of approximately 3% to 4% FRE margin at any point in time.

Evangelos Peros: And ultimately, when you take that all to the bottom line, this is what drives our overall guidance of approximately 3% to 4% FRLPC margin at any point in time. Yeah, I got it. That's helpful. So it sounds like his auto-scan.

Got it got it that's helpful. So it sounds like as auto scales and matures, we will see margin expansion just like we have overtime with personal loans great.

Evangelos Peros: Great. And maybe just a follow-up on the funding side. Um... Can you maybe provide some guidelines?

Great and maybe just a follow up on the funding side.

Can you.

Maybe provide some guide posts.

Evangelos Peros: Think about network value, underwriting, maybe what level of risk retention... year, or, you know, up from the 611, and put that into context. Credit Facility. Oh, sure. As you might have seen in our shareholder letter, I'll go back to one of our key milestones, which is to plan to get to a positive total cash flow by early 2025. We're in a very strong position today to support our plan for profitable growth. And that is very heavily supported by our access to alternative sources of capital and other funding alternatives, which is evident by the recent term loan and our very strong funding execution in 2023. And obviously, in 2023, we had to, and we chose to lean in more in line with the current market environment. But when you take all of this into consideration, and given the signs of improvement that we see for 2024, even with the risk participation requirements, we expect to get to cash flow positive by early 2025. The next question we have is from John Hecht of Jeffries. Please go ahead. Yeah, good morning.

As we think about network volume growth.

Just the pace at which you're.

Youre underwriting.

Maybe what level of risk retention.

We should be thinking about.

For for year end 24 up from the 611 and.

Maybe put that into context with kind of your credit facility and borrowing.

Borrowing capacity.

Sure.

And you might have seen in our shareholder letter.

Ill go back into our one of our key milestones, which is to plan to get to.

Positive thoughts on cash flow by early 2009 to five with in a very strong position today.

Fourth our plan for profitable growth.

And that is very heavily supported by our access to alternative sources of capital and other funding alternatives, which is evidenced by the recent term loan and our very strong funding execution in 2023, and obviously in 2023, we had to we chose to lean more.

In line with the current market environment, but when you take all of this into consideration and given the signs of improvement that we see for 2024, even with sort of there is participation requirements, we expect to get to cash flow positive by early 2025.

The next question we have is from John Hecht of Jefferies. Please go ahead.

Yes, good morning.

Gaul Kruvener: Congratulations on a great quarter. We look forward to working with you guys and congratulations. I guess, dovetailing a little bit on David's last question, you guys mentioned more optimal funding. 24.

Congratulations on a great quarter, thank even look.

Look forward to working with you guys and congratulations.

I guess dovetailing a little bit on David's last question you talked to you guys mentioned more optimal funding.

Gaul Kruvener: You also talked about the evolution of a lot more private credit, the type of VASTA class. You know, for 24, are there other options to think about in terms of capital markets? standard ABS, maybe like a flow agreement.

24, you also talked about the evolution of a lot more private credit interest in this type of asset class I'm wondering.

For 24 are there other options to think about in terms of capital markets executions outside of a standard ABS, maybe like a flow agreement or something and is that something you guys would be considering at this point in time as you think about funding through 'twenty four.

Gaul Kruvener: Is that something you guys would be considering? Alright, about funding. Yes, John, it's Gal here.

Gaul Kruvener: Thank you. Thank you for joining us. I think it's your first dining call, so exciting.

Yes, John it's Scott here.

Thank you for joining us I think it's your first earning call so exciting.

Gaul Kruvener: Yes, so that's exactly right. When we are thinking about 2024, and with the dry powder we have, and the financial stability, and the BlackRock credit facility or the term loan, and as we think about the production that we need to originate and fund as we think about the year, on the back of the very strong performance that we had in 2023, we do see more private credit coming in and taking the ability to have full stock risk off and other places where you can actually partner up and provide the ability to So when we think about that and the plan, we are in the belief that that's going to be a part that we are going to grow through 2024. And we are already in different discussions about these things, and we think they're going to materialize as we think about the year coming along. Thanks.

Yes, so that's it.

Exactly right when we're thinking about 2024.

And with the dry powder, we have and the financial stability and the Blackrock credit facility or the term loan and as we think about the production that we need to originate and fund as we think about the yield on.

On the back of the very strong performance that we have in 2023, we do see more private credit coming in.

And taking the ability to have.

Full stock of and other places, where you can actually files near up and provide the ability to have diversification of different funding, which is not just like on the pure.

ABS as we know it today, so when we think about about that in the plan.

We are in the belief that that's going to be.

Hey, Paul that we are going to grow through 2024.

And we are already in a different discussions.

About these things and we think it's going to materialize as.

As we think about the ear coming along.

Okay. That's helpful. Thanks, and second question.

Evangelos Peros: And second question, the last several quarters you've had more optimal and more efficient ops-ed, down in the dollar, quarter last year. How do we think about that through this year? Are you at a point where you've kind of optimized that? Flattish going forward, or do you need to add to that given the growth? Just wondering from a modeling perspective... Sure, thank you for the question.

The last several quarters you've had.

More optimal in a more efficient opex.

I think it's down on a dollar basis each quarter.

Last year, how do we think about that through this year are you at a point, where you kind of optimize that and it should it should it should be it should be more flattish going forward or do you need to add to that given the growth anticipation just wondering from a modeling perspective.

Sure. Thank you for the question, yes, so you're right. If you look back in late 2022, we had a more elevated operating expense base as a result of our continued investment back into that <unk> to support our public company readiness and investment in other areas, we will have taken action over it.

Evangelos Peros: Yeah, so you're right, like if you look back in late 2022, we had a more elevated operating expense base as a result of our continued investment back then to support our public company readiness and investment in other areas. We have taken action over the course of the last few quarters to bring the expense base to a more rationalized level, and we feel the current expense base is at the right level to support our 2024 plan and beyond. We can always obviously have places where we can put a little bit more improvement and investment into it that can be supported by additional savings, which are reflected in our 2024 plan. The next question we have is from Hal Gritch of O'Reilly Securities. Please go ahead.

The course of the last few quarters to bring the expense base to a more rationalized level.

And we've seen that current explain saves expense base is that the right level to support our 2024 plan and beyond.

We can always obviously be have places, where we can partner with more improvement and investment.

Aimed at.

That can be supported by additional savings, which are reflected in our 2024 plan.

Alright, Thank you guys very much.

Yeah.

Our next question. We have is from how quick of Beeline Securities. Please go ahead.

Evangelos Peros: Good morning, everyone, and thanks for the call. My question is about the application flow and the conversion rate. In the fourth quarter and most of 2023, the conversion rate tailed off to less than 1%, and it might have been materially higher maybe in 2021, but you might say that wasn't a normalized period. Could you just discuss some of the swing factors? In the current environment that is keeping it pinned at this level, what is the art of the possible for this to move from there? Sub 1 to 1 or 1.1 or 1.2, something modest that would have a material change in volume on a similar application flow. Would you discuss that for us, please?

Hey, good morning, everyone and thanks for the call. My question is on the application flow and the conversion rate and.

<unk> fourth quarter, and most of 2023, the conversion rate tail off to less than 1%.

<unk> been materially higher maybe in 2021, but you might say that wasn't a normalized period.

Could you just discuss some of the swing factors.

In the current environment that they're keeping it pinned at this level what is the art of the possible for this to move from.

Sub one to one on one 101 point to something modest.

That would have a material change in volume on on a somewhat application flow.

Could you discuss that for us please thanks.

Evangelos Peros: Sure, thank you for the question. Obviously, we try to optimize for growth, profitability, and liquidity. And as we keep on adding new partners to our network, application flow is expected to increase. And it has, year over year, by about 7%.

Sure. Thank you for the question so what I would say it was obviously, we'll try to optimize for growth.

Our profitability and liquidity and as we keep on adding new partners to our network application flow is expected to increase and it has a year over year by about 7% given the current environment as we are optimizing as I said for liquidity and also investor return.

Evangelos Peros: Given the current environment, as we're optimizing, as I said, for liquidity and also investor returns, we are being prudent about our convention ratio. And as we look at our plan going forward, obviously, we see some improvement overall, but we are assuming we're going to continue to be prudent and maintain that conversion ratio at those levels. And as we think about the cohort of new partners that were added in 2023 and 2024, they will obviously continue to add to the application flow, but we don't expect meaningful contribution from a volume perspective to the plan. Yeah, I just want to double down on that and add a little bit more color.

We are being prudent about our convention ratio.

And as we look about now.

Our plan going forward, obviously, we'll see some improvement overall.

But we are assuming we're going to continue to be prudent and maintain that conversion ratio at those levels.

And as we think about cohort of new partners that were added in 'twenty, three and 'twenty four there will obviously continue to add with the application flow, but we don't expect meaningful.

Contribution from volume perspective into the plan.

Yes.

<unk> doubled down on that and add a little bit more color. The way. We should think about it is for guy has two types of businesses right like the one business, which is the main business.

Gaul Kruvener: The way you should think about it is Pagaya has two types of businesses, right? Like the one business, which is the main business, the fee-generation business that needs to grow as we add partners. And that's why we are giving so much clarity about the application. That has all the metrics of an over-the-cycle, growing type of business. And you should expect, again, given a quarter here, a quarter there, that over the years, that should go higher and higher, both in the quality of applications, and sometimes it's less stable, that's easy to just demonstrate, and in the total quantum.

Fee generating business that needs to grow as we add partners and that's why we are giving so much clarity on the application.

That has all the metrics as of over the cycle and growing.

That if a business and you should expect again, given a quarter here quarter to nail.

But over the yield that should go higher and higher both in the quality of applications, sometimes it's less ability.

Thats easy to just demonstrate and in the total quantum of it.

Gaul Kruvener: Now, on the other side, which is the so-called capital business that sometimes we need to do more or less, is really kind of like the thing you should think about the conversion rate that we're trying to be as prudent as possible in balancing the needs of all of them to cooperate with our partners. So that is a little bit more of a cyclical, if you will, discussion, but the network, both the fees and the application, is really what we're driving towards and where we believe there is a very different business model in Pagaya versus other companies. Thank you. Well, thank you. I just want to ask one follow-up question. Well, let's just say, like, you know... I imagine, you know, with U.S. banks, you're making more conforming laws that are under 36%. Is that right?

Now to the auto side, which is the so called capital basis that in sometimes.

We need to do more or less is really kind of like the thing you should think about the conversion rates that we're trying to be as prudent as possible to.

Two balancing between the needs of all of them to nikko operate through our pockets.

So that is a little bit more cyclical if you will discussion, but the network both fees and application is really what we're driving towards.

And while we believe that Lisa.

Very different business model <unk> versus any other companies in this space there.

Okay.

Well. Thank you I just want to ask one follow up let's just say like you know.

No.

I imagine with U S Bank Youre, making more conforming loans are under 36% is that right.

Gaul Kruvener: personal loan. All of our loans. Yeah, all of our loans are under $30.

Personal auto far lower yes, all of our loans.

Gaul Kruvener: Absolutely. So, with, you know, maybe the risk-free rate, and the risk premiums being elevated in this current environment, if those were to back off, so many more loans could be made at 36%. So I'm just trying to figure out what some of the macro forces that have impacted the ability to even make loans in this environment. You know, that's kind of my question.

Absolutely so.

Maybe the risk free rate risk premiums being elevated in this current environment, if those were to back off.

So many more loans to be made at 36%. So I'm just trying to figure out what what are some of the macro forces.

Factors that have impacted the ability to make loans in this environment.

That's kind of my question.

Gaul Kruvener: Is it easing the financial conditions that actually makes more loans acceptable? And that's kind of where I'm going at it. So your own point, that there is one person who every one or two months says what he thinks about the world and how he's going to taper in or taper out the interest rate. And that person is influencing the ability to approve different loans. The 36% is one of the reasons.

Easing the financial conditions actually makes more loans approvable.

Kind of where I'm going at it.

I just wanted to add.

Your own point, there is one person that one person.

One or two months says what he thinks about the world and how he's going to $10 billion to tiptoe out the interest rate.

<unk>.

Influencing how ability to approve different loans, 36% as one of the reasons. There are a few others, which is meeting and vessel threshold retailers et cetera.

Gaul Kruvener: There are a few others, which are meeting investor threshold returns, et cetera. But yes, you are absolutely right that given we're going to go out of that super restrictive environment, there is definitely a better ability to provide more loans to more people. Yes, thank you. There are no further questions at this time. I would like to send the floor back over to Gael Grubiner for closing remarks. Please go ahead.

But yes, youre absolutely right that given we're going to go out of that Super restrictive environment.

Definitely better ability to provide more loans to more people.

Yes. Thank you.

Okay.

There are no further questions at this time.

Now please turn the floor back over to Doug <unk> for closing remarks. Please go ahead.

Gaul Kruvener: Thank you, Iran. So, Pagaya is in a very strong position, as all of you have heard, to continue and execute on our mission to deliver more financial opportunities to more people, more often. We have scaled our flagship credit product to almost 30 lenders, including transformational enterprise-level lenders, increased our funding base to over 100 institutional investment firms, and delivered a record financial performance. We will capitalize on this momentum as we execute in 2024 and enter the new phase of our journey to become a more product and partner-centric company under the leadership of Stangev and EPS. Thank you for your time today and your continued partnership and support in Pagaya. Have a great day! Ladies and gentlemen, this concludes today's conference. Thank you for joining us. You may now disconnect your lines. www.agilent.com

Thank you and so the guys in a very strong position as all of you have heard to continue and execute on our mission to deliver more financial opportunity to more people more often.

We have scaled our flagship credit product to almost 30 lenders, including transformational enterprise level windows.

Increased our funding base to over 100 institutional investment firms and delivered a record financial performance, we will capitalize on this momentum as we execute in 2024 and enter the new phase of our journey to become a more products and Pablo centric company with the leadership of <unk>.

<unk> and EP.

Thank you for your time today, and your continued partnership and support even for Gaiam integrating.

Okay.

Ladies and gentlemen. This concludes today's conference. Thank you for joining US you may now disconnect your lines.

Yeah.

Yeah.

Yeah.

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