Q1 2025 Pagaya Technologies Ltd Earnings Call
Speaker Change: Mistry, Gareth, Josh and стро, Nat, Michael Staken Chlod, Owen Jung, Anatole Szczepan, Jelena SterakIwa cynical ATHFEST2012, Where am I, pure & pure & Killmonger I'll be dead soon, all the running around gonna be gone soon, all the running around
Speaker Change: Greetings and welcome to Pagaya Technologies Q1 2025 earnings conference call.
Speaker Change: At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad As a reminder, this conference is being recorded It is now my pleasure to introduce your host, Mr. Josh Fagen, Head of Investor Relations Thank you Mr. Fagen, you may begin Thank you Mr. Fagen, thank you Mr. Fagen, thank you Mr.
Speaker Change: Thank you and welcome to Pagaya's first quarter, 2025 Earnings Conference Call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer Pagaya, Sanjiv Das.
Speaker Change: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts, with respect to you, among other things, operations of financial performance.
Speaker Change: including our financial outlook to the second quarter and full year of 2025. Our actual results made differ materially from those contemplated by these fully looking statements.
Speaker Change: Factors that could cause these results to differ materially from our expectations include, but are not limited to, those risks described in today's press release, and are filings with the U.S. Securities and Exchange Commission.
Speaker Change: We undertake no obligation to update any forward looking statements as a result of new information or future events.
Speaker Change: Please refer to the documents we follow from time to time with the SEC, including our 10K, 10Q and other reports for more detailed discussions of these factors.
Speaker Change: Additionally, non-GAAP financial measures including Adjocity Bada, Adjocity Bada Margin, Adjocity net income, fee revenue less production costs, or FRLPC.
Speaker Change: FRLPC percentage of network volume and core operating expenses will be discussed on the call. Reconciliation to the most directly comparable GAAP financial measures are available.
Speaker Change: In our Ernst release and other materials which are posted on our Investor Relations website.
Speaker Change: We encourage you to review the Shareholder Letter which was furnished with the SEC on form 8K today for detailed commentary on our business and performance in conjunction with the accompanying earning supplement and press release. With that, let me turn the call over to Gal.
Gal Krubiner: Thank you for joining us today for a discussion of our first quarter 2025 results as well as an update on our business.
I really think that the result speaks for themselves very well.
Gal Krubiner: and they demonstrate our execution against the commitment we have provided.
In fact,
We have exceeded expectations on key metrics [inaudible]
and particularly on the gap net income profitability.
which we have delivered one quarter earlier.
This is, and will remain.
A crucial metric for our management team moving forward.
Gal Krubiner: Perhaps more importantly is the fact that we deliver these results in the face of heightened macro uncertainty.
Speaking to our balanced and increasingly diversified growth focus
Combined with our efficient operations and structure.
Gal Krubiner: We grew revenue by 18% year-over-year, reaching an annualized run rate of nearly $1.2 billion.
Gal Krubiner: Free revenue, less production cost, or FRLPC, grew by 26% and reached an annualized run rate of over 460 million dollars.
Gal Krubiner: And with our extremely efficient operating cost structure, these results drove 100% growth in our adjusted to an annualized equivalent of approximately 320 million dollars.
Gal Krubiner: Importantly, we achieved positive gap net income of $8 million this quarter.
Gal Krubiner: Ahead of our second portal guidance in the first time as a public company.
Gal Krubiner: I could not be proud of the team and the world that has been done to get us to this point.
Gal Krubiner: We are truly delivering on our mission and value proposition but now at scale.
Because of pagaya,
More deserving Americans are getting more financial opportunities in the future.
Gal Krubiner: And as we transform the financially ecosystem, our lending partners win and we win with them.
Gal Krubiner: As important as the result is a diversified manner in which we have achieved those results.
which handles scores the durability of our business model.
We have more lending partners, contributing meaningfully to our volume.
In fact, [inaudible]
Gal Krubiner: Two times as many lenders represented at least $100 billion of volume this quarter versus just a year ago.
Gal Krubiner: Loan types and product selection are increasing as Sanjiv will discuss in further detail soon.
Gal Krubiner: And we found these volumes in the most efficient end-of-vacified manner to date.
Gal Krubiner: including the recent announced Forward Flow Agreement with Blue Hour Capital to purchase up to $2.4 billion in loans over 24 months in addition to the previously announced Forward Flow
Gal Krubiner: We have also built a capital structure with ample liquidity to self-fund our business even with increasing uncertainty.
Gal Krubiner: Therefore, we do not need no-do-we plan to raise equity capital in the foreseeable future.
Gal Krubiner: Combined with our prudent growth strategy and operating efficiencies, we have built a business model for all cycles.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed the video. If you did, please give it a thumbs up and subscribe to the channel. I'll see you in the next video.
Gal Krubiner: I would like to spend a moment on the macro and the geopolitical uncertainty.
Gal Krubiner: We understand this is an important topic to investors and this is an important topic to us as well.
when we provided our guidance for 2025.
Gal Krubiner: We communicated that we were taking a prudent and balanced approach to growth.
Gal Krubiner: We understood there, where unknowns and accordingly, while consumer credit behaviour was and still steady.
We took a cautious approach towards growth.
Gal Krubiner: We noted that our growth would be profitable and responsible, and indeed
This is what we reported today.
We are clearly not complacent, no we will be.
Gal Krubiner: We are building a business for the long term to navigate all cycles.
Gal Krubiner: We are best positioned to react to continued uncertainty and potential changes to consumer health and credit performance if they will arise.
Gal Krubiner: Our Risk Management is prudent and reflect lessons learned during the post-tondemic period.
Our funding mechanism is the most diversified in our history.
Gal Krubiner: These factors enable us to stay nimble to navigate any environment that we can experience.
Gal Krubiner: Before passing the call to Sanjiv, I would like to talk about the commitment that we have made so far.
Gal Krubiner: We have now committed to our landing partners, our funding partners and our shareholders.
Gal Krubiner: We are now at the point where we are delivering clearly against all of this.
Gal Krubiner: For our landing partners, we are now increasing the value of the Pagaya Network to them, even in parallel with the introduction of our proactive pre-screen products.
Gal Krubiner: The acceptance of our solution is only getting stronger among lending partners as we have helped many of the industry's strongest brands to better self-customers with more access to credits and without straining their balance sheets.
Gal Krubiner: For our funding partners, we have committed to provide high volume of credit.
with stringent underwriting.
Gal Krubiner: Look no further than the $800 million raised in April alone.
Gal Krubiner: for our personal loan and auto loan ABS programs, as an evidence for the benefits of what we are delivering to our funding partners.
For our shareholders, we are delivering consistent durable ropes.
with a keen focus.
on Long-Term Profitability.
In fact,
Speaker Change: We have raised our gap net income guidance for the full ear, which EPI will discuss later in the call.
with that
Speaker Change: I would like to hand it off to our president Sanjiv.
Sanjiv Das: Thank you, Gal. I'd like to start by reinforcing what Gal noted on the importance of responsible and profitable growth.
Sanjiv Das: We are committed to building an outstanding franchise for the long term and we are not and will not maximize top line volume growth just for the sake of short term results.
Sanjiv Das: We are building a business designed to grow through all cycles with a focus on leveraging our unique data advantage and investments in products that will add huge value to our
[inaudible]
Sanjay Sakhrani, David Scharf,
Speaker Change: While we strive to consistently drive strong results, we are just as focused on our progress in building the foundations of a long term enterprise.
Speaker Change: As our quarterly results underscore, our focus on profitable growth and our ongoing investments to deliver this consistently over the long term is crucial to our proven management team.
Speaker Change: As Gal noted, we are fully aware of the heightened state of volatility in the markets at the moment.
Speaker Change: However, while we carefully monitor events and trends, it is important that we remain focused on the building blocks of a long-term growth strategy.
Speaker Change: I will provide an update on our growth priorities which center around creating value for our partners through our products.
Speaker Change: In personal loans, our ability to deliver a significant new customer growth while driving customer retention and lifetime value has become a game changer in our core value proposition for our partners.
in Otto Lohn
Speaker Change: We provide landers a very significant competitive advantage when they grow their dealership distribution.
Speaker Change: For lenders such as Klorna and Elevon, this is a huge advantage when driving new merchant adoption.
Speaker Change: Now I'll provide a quick overview of our key accomplishments achieved in the first quarter.
Starting with the largest and most mature category, Personal Loans [inaudible]
Speaker Change: Here we are working to enhance the value proposition we provide to our lending partners by way of new customer growth.
Greater retention, [inaudible]
Speaker Change: Two initiatives I'd like to discuss that we are especially investing in.
or the following.
Pagaya's pre-screen solution.
Speaker Change: and Pagaya's Marketing Acquisition Engine, which we deliver through affiliates such as credit karma,
Starting with free screen.
Speaker Change: A product that we have been developing over the course of the past two years.
Speaker Change: Pre-screen adds the ability to proactively engage with customers to deliver credit using vast amounts of data and offering loans in a frictionless, pre-screened way.
Speaker Change: Pre-screen is optimized for campaign management through direct mail and email channels and helps partners not only gain new customers, but to increase engagement and monetization with
Using our Advanced Data Analytics
Speaker Change: Lending partners can leverage a tech-enabled personal loan product solution to drive incremental value with very low acquisition costs.
, Rita Invaluable Deposits,
Speaker Change: Drive-down churn and drive up lifetime value of those customers.
In terms of our Marketing Acquisition Engine,
Speaker Change: Pagaya is working to leverage mainstream affiliate channels to drive new customers to lending partners.
Speaker Change: Turning to auto lending, Pagaya is benefiting from several factors including improved risk-modeling, efficiency in our funding mechanism, continued expansion of our partner network and improving vehicle costs.
David Scharf, David Scharf, David Scharf,
Speaker Change: This follows an uncertain macroeconomic backdrop in 2024, which drove the team to reduce volumes while focusing on improved credit underwriting and funding efficiency.
Speaker Change: On the heels of significant improvement in funding execution and credit underwriting, we are now in a very different place.
With first quarter auto volumes up nearly 50% sequentially.
Speaker Change: In fact, our auto volumes equated to more than $1.1 billion on an analyzed run rate.
Speaker Change: In point of sale lending, our newest and fastest growing category, demand remains extremely robust and we could not be more encouraged.
Speaker Change: We are positioned to ramp with existing partners including Clairner and Elevon [inaudible]
as they grow their merch networks and loan demand.
Speaker Change: We continue to evolve and build our funding mechanism and capacity to support the growth of this very exciting segment.
Speaker Change: Before handing the call to EP, I want to emphasize to investors that Pagaya has reached the level where the value we provide to current and prospective customers franchises is at an institutional scale.
Speaker Change: We are demonstrating the benefits of years of investment in differentiated data and technology as well as underwriting and capital market skills.
Speaker Change: We are helping partners not only strengthen the value of their existing customer bases.
Speaker Change: We are proactively identifying additional credit solutions for deserving customers both inside and outside of their footprints.
Speaker Change: When consumers are served better, our partners win and when our partners win, Pagaya wins with a focus on responsible and disciplined growth.
with that I'll hand the call to EP.
E.P.: Thank you, Sanjiv. We committed to deliver positive gap net income, which we have now reported as head of schedule.
Speaker Change: This is the result of our execution against all pillars of our financial strategy.
E.P.: Improving unit economics, driving operating leverage, increasing capital efficiency, and optimizing our balance sheet.
Speaker Change: These achievements are the result of making the right decision for the business, even if they brought near term dislocation.
Speaker Change: I'm extremely proud of the team's relentless execution and focus on our long-term priorities and commitments to our shareholders and our partners.
Speaker Change: We have also underscored that our focus will be on growing partner volumes to drive profitable growth with stringent underwriting and the results of this quarter are in line with that strategy.
Speaker Change: Network volume was in line with a year-old levels of 2.4 billion. This was slightly below our guidance range of 2.5 to 2.7 billion, primarily due to lower SFR volume, as we continue to be laser-focused on profitable growth.
Speaker Change: Excluding the impact of SFR, volume grew by 26% versus a year ago period and was up 6% sequentially.
Speaker Change: Peter Results was in line with our plan for prudent growth. Our largest business, personal loans, so volume growth of 17% from year-go levels, while conversion of applications remains stable at approximately 1% in line with the results of the past multiple quarters.
Speaker Change: Importantly, we continue to target similar conversion levels in the near curve.
Speaker Change: Revenue another income increased by 18% with a record of 290 million, with revenue from fees up 19% to 283 million.
Speaker Change: This was a result of higher personal loan and auto lending fees.
Speaker Change: The revenue less production costs, or FRLPC, of 116 million, grew by 26% from year-to-go levels. As a percent of network volume, FRLPC rose 100 basis points here over here to 4.8%.
Speaker Change: Excluding SFR's impact, FRLPC as a percent of volume was 5.2%
Speaker Change: The contribution of FFRLPC continues to move toward lending product fees, a positive trend that supports durability of our monetization.
Speaker Change: In fact, lending product is of 77% in the quarter compared to 63% one year ago and 43% two years ago.
Speaker Change: Ajusted, David, more than doubled year over year to a record 80 million in the first quarter with margins up more than 10 percentage points to 27%.
Speaker Change: Likewise, operating income of 48 million was up more than 5 times year over year.
Speaker Change: Turning to our profitability, we delivered gubernating income of positive 8 million for the quarter, our first quarter of guap profitability as a public company. This reflects an improvement of 29 million from the year ago period with 18% revenue growth and lower operating expenses.
Speaker Change: We look forward to demonstrating even greater levels of value generation going forward as we build on these key inflection points and continue to demonstrate the earnings power of our business.
Speaker Change: David Scharf, David Scharf, David Scharf,
Speaker Change: Net credit-related losses reported another expense net, amounted to a loss of 24 million in the quarter, versus 229 million in the prior quarter, driven by our 2024 vintages
Speaker Change: In addition, there was a $6 million of whole loan impairment recognized in GNA expenses in line with the prior quarter.
Speaker Change: The interest expense of $21 million is down approximately $5 million sequentially, and down an annualized $25 million since peak third quarter 24 levels, as a result of the balance of subsidization actions we executed last quarter.
Speaker Change: Adjustment income was positive at 53 million, which excludes share-based compensation and other non-cash items, such as fair value adjustment.
Speaker Change: Credit performance in the quarter reflected the continued stability of over 24 months with notable improvement from peak loss levels. Our 2023 vintage cumulative net losses were approximately 20-40% lower than peak levels in the fourth quarter of 2021.
Speaker Change: Autolome CNLs through 2023 Vintages are trending approximately 30% to 50% lower than here earlier levels.
Speaker Change: We are closely monitoring macro and policy-related uncertainty and the impact it may have on the consumer and our outlook. It is important to know that our prior full-year outlook reflected uncertainty in volatility and you can see how we managed our business in the first quarter accordingly.
Speaker Change: Still, we expect this volatility to persist further and we are ready to react as needed.
Speaker Change: On the funding front, we continue to see the benefits of substantial improvement in capital efficiency.
Speaker Change: We've enhanced the structure of our ABS programs, achieving a lower cost of capital across the tax while significantly diversifying our funding base.
Speaker Change: We issued 1.4 billion in ABS across three transactions in the quarter distributed throughout our growing network of 135 institutional funding partners.
Speaker Change: While we anticipate net risk retention requirements to remain in the 4-5% range of our personal loan ABS issues, we actively manage retention levels with a goal of enhancing profitability.
Speaker Change: by lowering both our cost of capital and any potential future credit-related losses.
Speaker Change: Our ability to raise approximately 800 million through ABS transactions in recent weeks despite heightened market volatility speaks to the consistency of our underwriting and the all-going demand of our asset.
Speaker Change: As we announced earlier this year, in the first quarter, we finalized a four-flow agreement with Blue Owl capital to purchase after 2.4 billion in loans over 24 months.
Speaker Change: In total, we have raised prospective capital of nearly 3.7 billion between our forward, low and
Speaker Change: We expect non-ABS funding channels to contribute 25-50% of our funding in 2025, driving total net risk retention requirements lower with further solidifies our ability to generate cash for further growth.
Speaker Change: Finally, based on the current outlook, our business plan is self-funded. We do not need nor do we plan to raise equity capital in the foreseeable future.
Speaker Change: As of March 3rd, our balance sheet was anchored by 230 million in cash and cash equivalent and 760 million in investment in loans and securities.
Speaker Change: Over the past 12 months, we have meaningfully enhanced the quality and composition of these assets, bolstering our access to liquidity and reflecting the deliberate work we've undertaken to build a business that is resilient to market dislocation.
Speaker Change: We will continue to proactively evaluate our balance sheet for further optimization opportunities, particularly in light of broader market dynamics.
These adjustments were primarily tied to post-2023 buildings in the church of Sanjay Sakhrani, David Scharf,
Speaker Change: During the quarter, we also added 35 million in new investments, loans and securities, net of pay-downs from existing positions.
David Scharf, David Scharf, David Scharf,
Speaker Change: Turning to our outlook. Our full year and second quarter outlook reflect both the momentum and resilience in our business today. At the same time, our outlook takes into consideration market volatility which we expect to persist and is reflected in the lower end of the
Speaker Change: Notable drivers include similar levels of production in personal loan and continued growth in auto and POS products, observed by AD Chris in SFR volume.
Speaker Change: As a reminder, SFR still has an immaterial impact on our overall financial performance.
Speaker Change: We expect FRLPC to grow through our focus on our most profitable and growing vertical. As a result of our newly targeted volume mix, we expect FRLPC to range between 4% and 5% in 2025.
Speaker Change: Expensive Reflect, Continued Discipline, and Operating Leverage, while we expect credit-related impairment if any, to be in line with our scenarios in our supplement.
Speaker Change: Interest Expans is assumed to remain a similar level as in the first quarter, driven by continuous paydown of more expensive borrowing, offset by higher variable interest exchange and opportunistic actions to optimize capital efficiency and lower cost of capital.
Speaker Change: Stop-based camp is expected to range between 15 and 20 million in the following quarter.
Speaker Change: For the second quarter of 2025, we expect network volume in the range of 2.3 to 2.5 billion total revenue and another income in the range of 2.90 and 3.10 million and adjusted in beta in the range of 75 to 90 million.
Speaker Change: For the full year, we expect network volume in the range of 9.5 to 11 billion and are increasing total revenue in another income of 1.175 to 1.3 billion and adjusted EBDA in the range
Speaker Change: We are increasing our gabnet income for the year in the range of 10 million to positive 45 million.
Speaker Change: With that, let me turn it back to the operator for Q&A.
Speaker Change: Thank you, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may best start, too, if you would like to remove your questions from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys.
One moment please, I'll be poll for questions.
Speaker Change: The first question comes on the line of John Hecht with Jeff Lee's Peace Goethe [inaudible]
John Hecht: Maureen guys, thanks for taking my questions and really appreciate the focus done.
You know, operating efficiencies and profitability. So, thanks.
John Hecht: So first question is, there's a lot of economic, and you guys talked about this in the call, but there's a lot of economic uncertainty with a variety of potential outcomes, and I know you guys are sensitized for some of those.
John Hecht: Potential Outcomes, but I guess how do you position your business for that variability in outcomes at the product level?
John Hecht: Hi, John . Thank you for the live for it. I will take this question Thank you for the live for it.
John Hecht: So, what do you think about Pagaya? Obviously, first and foremost, we're building a lot of things and when you're building a lot of business we rely on the profitability and the capability of your products.
John Hecht: For us, it's normal to see the unordered. If you recall what was said in the call, when we came into 2025, we assumed a lot of uncertainty.
Because so...
John Hecht: We guided you not to very aggressive growth because we are balancing growth and profitability moving forward and
John Hecht: Automatic economy that could drive you to do mistakes all the long term. So the word for us is
John Hecht: The right set of growth which is aligning with the long term growth is what we are asking Now specifically to your question, let me ask let me start with an answer of the statements We do not see today in the data [inaudible]
John Hecht: Any impact whatsoever from any discussion about power rich, macro and the resilience that we see in the consumer is purely stable.
Having said that...
John Hecht: Cologne's point of sale and personal loan which could give you very specific view on spending, specific view on lending and specific view about consumer behavior.
John Hecht: The way we think about so-called downsides scenario is we'll come, although we don't see any right now, we think about it in a split case scenario, which there are two main things that could happen, higher inflation or higher unemployment.
John Hecht: The key to be able to thrive for hire, and therefore, even if you experience a hire of delicacies or CNL, you will have enough spread to actually compensate for that group to try things through increase of the coupons to the bowels.
John Hecht: And putting the specific risk management aside, I want to take you a step higher to remind you the changes that Pagaya had been through the last few quarters on both funding and credit. So, from a funding perspective, we are at the most diversified point in time, we have ever been full of loads and opportunities for that in other programs that we have on our hands. So, if we were at full ABS shop, just...
John Hecht: You've got those ago, today we're much more balanced in that perspective and targeting 25% to 50% to be known to the ABS, which provide a little bit more stability [inaudible]
John Hecht: On the other side of the factual changes are a lot of the...
John Hecht: A lot of activities we did last year regarding our balance sheet, strengthening it, bringing more liquidity and capital that is giving us enough and liquidity that even if we be a little bit softer capital markets, our ability to react and to hold different pieces are definitely too open from our perspective.
John Hecht: The last two pieces are the risk management that obviously after 2022 and 23 we have very strong discipline to put that in place and to be able to react very quickly and lastly I want to remind you that from our perspective
John Hecht: The way we think about the business model of Pagaya is even if we enter into one of these types of environments, more likely than not, other types of lenders will close their credit box, and therefore we see more flow running into our systems, and this is a very good balancing mechanism that makes the Pagaya business model to be more, I would say,
John Hecht: David, whose side is and through uncertainty when they material. So, all in all the full diversification in between funding partners in between different markets are giving us a very strong confidence that even if it will be some kind of a downturn, it will be inside the guidance that we have provided and nothing that is more severe than anything.
That's very helpful. Thank you. Thank you so much, Gal.
and many more. Thank you. Thank you.
Speaker Change: Thank you. Next question comes on the line of Pete Christiansen with City, Please Goethe Please Goethe, David Scharf, David Scharf, David Scharf, David Scharf,
Pete Christensen: Good morning. Thanks for the question. Nice result. I have two questions. First, I know we talked about priest reading in the past.
You know, not really representing too much of volumes [inaudible]
Speaker Change: But it seems like this is a really interesting opportunity going forward. How should we think about
Speaker Change: That product scaling across your partners, your existing business over the next, I don't know, it's called 12 to 18 months.
Speaker Change: And then my second question is for EP. I know I'm the last call there was
Speaker Change: A scenario contemplated for Fair Valley Marks for the year, I think somewhere around 150 million. Are we still in that range? Should we still continue with that assumption? Thank you both.
Sanjiv Das: Peter, this is Sanjiv. Let me take the first part of the question, and obviously, if you will take the second. With respect to pre-screen and affiliate, those are two very specific initiatives of products, as we call them at Pagaya, that we have invested very heavily over the last two years.
Speaker Change: and the initial proofs of concept that we have done so far have been extremely encouraging. Conceptually, what these two initiatives do,
Deepi: is that they essentially help our lending partners grow their customers in a very, very meaningful way, both existing customers and prospect, and prospectively new customers. And what they do [inaudible]
Deepi: We have the Pagaya models that we apply on the huge amount of data that our partners provide on their existing customers and we are able to harvest this data.
Deepi: Implement the Pagaya Model, as you know, is our core, core, core strength.
across vast amounts of data.
Deepi: and provide loans to customers, unsecured loans to customers in a completely frictionless way, which allows our partners to not only grow more customers, but also enable existing customers to get more credit in a frictionless way.
Deepi: So this is a huge part of how Pagaya will grow its PL business, personal loans business and as you know we are embedded already in 31 partners and so think about it as a massive line extension.
in addition to what we've done so far.
Deepi: The Tam is almost 60 million customers with our existing partners, but the whole idea is to help them grow, help our lending partners grow, and we grow when they grow, and the three proofs of concept we've done so far have been exciting and super encouraging.
Deepi: and aggregated platforms. What Pagaya has now done is we have started integrating our models onto our lending partners that are on these platforms.
Deepi: and has started to show scale and sophistication in acquiring more customers through these aggregator platforms in a way that we can help our lending partners across the spectrum of sophistication to leverage these platforms to acquire new and incremental customers.
Deepi: That again is a very, very significant way to help our lending partners grow their businesses on platforms that they use using Pagaya's capabilities in terms of our modeling and data analytics capabilities which as you know are very, very huge.
Deepi: So in our personal loans, this is a very important growth path [inaudible]
Deepi: in terms of how we grow from where we are embedded already.
into helping our partners grow in a very meaningful way.
Deepi: and I called it earlier a line extension or a product extension as we would typically call them where we already embedded in our partners. So net net, this is how we will grow in our personal loans business in a very significant way.
AP: A proof such concept has so far have been very successful, we expect to roll it out in the second half That let me pass this over to EP [inaudible] Thank you very much for your time
Speaker Change: David, thanks for joining us. Yeah, I think what we put in the compliment should be sort of your guidepost for potential losses if any, in the future, think about that rolling forward over the next four quarters.
Speaker Change: You see how the losses came in this quarter which we consider normalized levels and things that you would expect in any business that's in the consumer living space.
David Scharf, David Scharf, David Scharf,
Thank you, Bob, super helpful.
Speaker Change: Thank you. Next question comes to the line of Raina Kumar to open him, please go ahead.
David Scharf, David Scharf, David Scharf,
Speaker Change: Hi, this is Jay Coiman on Farena Kumar. Thank you for taking our questions. So firstly, I was just hoping you could please talk about some of the key drivers behind your three addressable markets of personal loans, auto and POS. And then just as a follow-up, I was hoping you could talk about what you're seeing out there within capital markets, specifically if you're seeing any changes in pricing. Thank you.
Speaker Change: So Ajay, so let me start taking it from a value proposition perspective and then EP will supplement that with a little bit drivils on the business financial outcome if that's okay, bye you.
So, from… from…
Speaker Change: From about a four position, think about the Pagaya Network as a way to enable lenders to have...
Speaker Change: Bigger, better business for themselves. And then the question is, what does that entail in each of the different markets as we think about a person alone, auto-loan and the point of sight?
Speaker Change: Two parts of the business, not the one, is a big marketing spend that they are putting out that you know to increase the number of customers that are going through their bread and channel and lending facilities.
Speaker Change: Our valuable position there is to have them to require more customers through the online marketing channels, let's see the affiliates as we spoke and many others, permutations of that.
Speaker Change: The second piece in the post on the loan is once you already have customers, there are many of them that actually didn't take loans from your income or the engagement level with them is rather low. So, as a company as a bank, as a big lender when you're thinking about, including your customer experience, including your customer certification, what you're trying to do is to provide more...
Speaker Change: Loans and credits these folks. So the pro-active, the pro-active, the pro-active, and every ending engine that goes through the portfolio of customers that each lender bank has, and asking the question, who could we provide them a pro-active approach to do that? So we moved from just helping lenders to a more customer...
Books
Speaker Change: on their book, when they are coming through the door, to a two very big initiative product, attempting them in order to bring more customers, proactively, or to engage with them as they see things.
Speaker Change: Guiding the offers to be relevant for different consumers and when you're thinking about serving these dealerships at the best way, there are two main factors.
And the first factor is to have highest approval rate.
Speaker Change: to be able to get the highest amount of application approved through them. And the second one is a scene that's experienced.
Speaker Change: So it would be easy for them to move, so it would be that they don't need to submit a lot of documents And for my father's proposition, that's exactly where we are coming We are hacking these auto landers to provide us [inaudible]
Speaker Change: Higher amount of activation or more applications that are being approved for the dealerships and doing it in a way which is easier for them, friction that and therefore they are pushing more flow.
to the authorities that are not connected to the Pagaya Network. So if you think about it, there is a propel.
Thank you very much.
Thank you very much.
Sanjiv Das: Sanjiv Das, Jency John, Evangelos Perros, Sanjiv Das, Jency John, Evangelos Perros, Sanjiv
A profitable growth, executing with a very disciplined capital allocation.
Thank you. Thank you. Thank you.
Great. Thank you. Appreciate the details.
Sanjiv Das: and many more. Thank you for watching. I hope you enjoyed the video. If you did, please give it a thumbs up and subscribe to my channel. I'll see you in the next video.
Speaker Change: Thank you. Next question comes on the line of Joseph Vafi, with Canacot Generity, please go ahead.
David Scharf, David Scharf, David Scharf,
Speaker Change: Hey guys, good morning, great results and nice to see the outlook here for 2025. Just circling back to the pre-screen product, just wondering if that's a driver of FRLPC.
Expansion, it feels like, you know...
I heard...
Speaker Change: It feels like it should be a kind of lower cost opportunity.
I'm wondering how that may affect FRLPC over time and then...
Speaker Change: Secondly, you know, without kind of providing any guidance or anything.
Speaker Change: Just wondering when the implementation of some of the forward flow agreements here into your funding mix.
Speaker Change: May start to make their way into us being able to see some changes in fair value adjustments moving forward. Thanks a lot.
David Scharf, David Scharf, David Scharf,
Sanjiv Das: This is Sanjiv again, I'll take the question, the first half of the question I'll pass it on to
EP: Essentially free screen will have the impact of significantly lowering the acquisition cost for our partners.
EP: at a significantly lower acquisition cost. Now that's a proven model we all know that that's what pre-screen campaigns tend to do. How we think about the economics of those relative to us.
EP: and how it strengthens our authority. See, we definitely think that it will have a positive impact.
Gal Krubiner: And the fact that we are making it, again as Gal pointed out, there are two parts to this. One is that it's three-screened and the other part is that it is frictionless.
Gal Krubiner: and so that will think about the really successful 10 techs in the consumer lending business that have been really successful are those that have made the process completely frictionless from the point of sale or point of purchase to the point of getting the loan, that whole process is completely frictionless so we expect.
Gal Krubiner: that it will have very positive impact on the Ironings and FIAPC, EP, if you want to ask this.
Thank you.
and Arrange for the Year.
Great, thanks guys.
Speaker Change: Thank you. Next question comes from the line of David Scharf, the citizens capital markets, please go ahead.
David Scharf: Good morning. Thanks for taking my questions. I'll echo the congrats on all of the achievements this far.
Speaker Change: Hey, two questions for EP. The first just focusing on expense levels. Obviously the operating leverage has been coming in.
Considerably stronger than expected.
Speaker Change: You know, when I look at just the core op-x, I think it was in the mid-40s, this quarter, I mean, that's a full 20% lower.
Speaker Change: then just, you know, the last two or three quarters. Is there anything that's artificially suppressing it in this Q-1, or is that actually?
Speaker Change: Even with all the investments you're making a pretty sustainable level.
Speaker Change: Yeah, thanks for the question. No, I think the current levels are sustainable. You should continue to see.
Speaker Change: Some of that percent improvement coming through the business laws and the top line and expenses are health reasonably flat.
Speaker Change: You should continue to see that improvement. What I would point out is the great thing about the business and differentiator is great in leverage.
Speaker Change: I want to focus on the fact that we are now in a position to grow the business by twice as much, let's say, relative to the current level because we have already built out the infrastructure associated with our ability to do that and also the deployment of the capital allocation. The mix also comes through the fact that as we're changing a little bit the funding mix and structure funding mix. Let's see what you got there.
Speaker Change: See, lower overall ABS setup costs, so that's what you see some of the benefits it's stretching in even this quarter.
Speaker Change: Got it, no, that's helpful. And just follow up on unfunding, you know, notwithstanding the diversification and increase flow partners. You know, maybe if you can just get a little...
Speaker Change: April update or post April second update on the ABS markets and specifically, I know you got a few large deals done, our understanding is that spreads are probably widened about 60-70 basis points.
Speaker Change: since all the tariff noise began. But notwithstanding the slightly wider spreads, has there been any change in the market for residuals? Like, have...
You've been required in April to retain maybe more...
First of all, I would say that [inaudible]
Sanjiv Das: You know, Perpagaya is, you know, one of the meetings is going to be a leading Indian curatizer in the space. We were, those ones who opened the also-known market, we were the first ones who opened, first of all, no market, so bye.
Speaker Change: He's some destination for Gaya, he's the market, he doesn't respect it [inaudible]
Speaker Change: The phenomenon of the very short short term, like the two weeks after things like that.
Announcement, Big Vegan Officer in the Mato Happens.
Speaker Change: It takes time for Martin to find his place, so the DCCC's 70 base points that you have just mentioned, are a good line with what happened, but could go very quickly back to 25, 30, 30 base points.
Speaker Change: And then I think it really made the question of how much uncertainty the real environment and what we call people with rights for quality. In any way, for Pagaya, these type of changes because we are doing the ABSD before we actually...
and Torsten Lindquist.
Speaker Change: You might don't want to sell that in that moment, but it means nothing up to a few months where performance is kicking in. People could see the production is as expected.
Speaker Change: And so I would think about it more as a top form rather than a capability because there are a lot of people that are looking to who.
Speaker Change: Who's money to work, and they just want to get a little bit more reassurance from these types of positive children. But it is there is no big way that are happening around the thumbnail, which will be good about it.
Speaker Change: Got it. No, it's very helpful, Gal. Thank you and congrats again.
Thank you.
Speaker Change: Due to time constraints, ladies and gentlemen, we have reached the end of the question on our session. I would now like to turn the floor over to Gal Krubiner for closing comments.
Karl Krubiner: So, in closing, I obviously felt I want to thank all of you for your time and opportunity to talk about not only our results but also our vision and product strategy.
and the team.
Karl Krubiner: and all the work that we have put inside to make these days possible.
Karl Krubiner: And it's really truly demonstrating the earning power of our assets and our model. We want to live in vessels with a simple message. We have built a business.
Karl Krubiner: for the long term that is profitable and will skate profitability over time thanks to our nimble and unique modern. I also want to underscore what Pagaya is in the long term journey.
Karl Krubiner: And it's easy to focus sometimes on the shoulder and sometimes to miss the big picture. We have everything we need.
Karl Krubiner: to reach our long-term aspirations, which is to add every possible landing card into our network and to help them to fully leverage the value of the Pagaya network to grow their businesses and better serve their customers.
Karl Krubiner: We are positioned with the best possible team assets and technology to win in the market with a massive time to drive strong results over the next decade. That will bring the gap between Wall Street and Main Street to become smaller.
Karl Krubiner: I am fully confident that Pagaya and what we have achieved in the past will be just a belief of what we are going to achieve in the next decade. Thank you very much and we
Speaker Change: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: David Scharf, Peter Christiansen, David Scharf, Mark Palmer, Michael Legg