Pagaya Technologies Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 12 speakers on the call.

Operator

And welcome to Pagaya Second Quarter 2023 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Jensy John, Head of Investor Relations.

Speaker 1

Thank you, and welcome to Pagaya's Q2 2023 earnings conference call. To you. Joining me today to talk about our business and results are Gal Kuviner, Chief Executive Officer of Pagaya and Michael Kurlander, our Chief Financial Officer. To you. 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.

Speaker 1

Pigaya.com. To our speakers. Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve certain risks and uncertainties. To our Chief Financial Officer. These statements include, but are not limited to, our competitive advantages and strategy, macroeconomic conditions and outlook, to future products and services and future business and financial performance.

Speaker 1

Our actual results may differ from those contemplated by these forward looking statements. To you. Factors that could cause these results to differ materially are described in today's press release and in our Form 20 F filed on April 20, 2023, with the U. S. Securities and Exchange Commission as well as our subsequent filings made with the SEC.

Speaker 1

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. To the operator. Additionally, non GAAP financial measures, including adjusted EBITDA, adjusted net income and fee revenue less production costs, or FRLPC, will be discussed on the call. To you. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release and other materials, which are posted on our Investor Relations website.

Speaker 1

To our speakers. Before we begin our prepared remarks, we want to note that this quarter we published our inaugural shareholder letter in lieu of our usual earnings presentation. To the company. We encourage you to review the shareholder letter, which was furnished with the SEC on Form 6 ks today for detailed commentary on our business and performance to you in conjunction with the accompanying earnings supplement and press release. All documents are available on our Investor Relations website.

Speaker 1

To

Speaker 2

Gal. Thanks, Jensy. At Pagaya, we strive for continuous improvement. To As mentioned, we are committed to providing our existing and future shareholders communication that is transparent and comprehensive. To our shareholder letter is a reflection of this commitment and you can expect to see more of that in the future.

Speaker 2

To our operator. We had a strong second quarter, exceeding the high end of our guidance across all our KPIs, to network volume, total revenue and adjusted EBITDA. Our performance reflects our ability to consistently deliver to the lenders and investors on our network. We delivered record network volume in the Q2 of approximately $2,000,000,000 to despite an historical low conversion rate in light of the current macro environment. To our lending partners are sending more applications our way as they tighten their own credit boxes to investors continue to come to us to invest their capital.

Speaker 2

The demand is high for our products on both sides of the network. To Total revenue grew by 8% year over year to $196,000,000 to We are earning more fees on our lending platform product as demand grows. That resulting to the operator. In growth in our fee revenue less production costs, both year over year and compared to Q1 2023. To Adjusted EBITDA grew to $17,500,000 more than triple the prior year period to Lucas Foldifullion, which Mike will speak to more in a minute.

Speaker 2

To now let me spend a few minutes discussing our business for those of you who are new to our story. To you. I encourage all of you to read our shareholder letter index, which discuss our product offering and platform in more detail. To Pagaya is designed to solve a critical problem in consumer credit. To an estimated 42% of Americans are denied access to credit or don't get as much credit to the company as they would like under traditional underwriting systems.

Speaker 2

Our mission is to unlock that opportunity with technology to help more people get access to more credit. To address this problem, to We created a 2 sided tech enabled network that connects the lenders who originate loans to investors who want to purchase those assets. Lenders who integrate with Pagaya's network originate more loans, to gain new customers and earn more revenues and all of this without taking any incremental risk. To On the other side of our network, institutional investors get access to diversified and high yielding asset pools to At scale, we have pioneered a network comprised of 2 distinct products, a lending product to our Investor Product. We believe this model gives Pagaya an edge over other structures.

Speaker 2

To We are proud of the organization we built, housing best in class lending technology and asset distribution capabilities on one platform. To We hired leading experts in the respective fields, lending and financial market industry veterans and world class engineers. To you. As a result, Pagaya offers a value proposition to lenders and investors that we don't believe is replicated to anywhere else today and will be difficult to build organically at this scale. To On the lender side of the network, our product suite provides access to fully automated credit decisioning technology, to secured debt exchange and analytics and real time funding of any loan originated.

Speaker 2

The product is deeply embedded to each lender's loan origination system via customized seamless APIs. To Once integrated, our product allows for smarter and faster credit evaluation to our ability to evaluate and price alone in less than half a second. All of this results in a sticky product, to Evident by the fact that we have grown to over 25 lending partners. And since inception, no lender has left our network. To institutional investors on the other side of the network connect to a distribution platform that delivers to a continuous flow of 1,000,000,000 of dollars of assets across multiple markets, including personal loans, auto and point of sale.

Speaker 2

To In the first half of the year, we raised $3,100,000,000 across 7 different ABS deals to and just closed on our most recent $800,000,000 personal loan deal in July. To We were once again the number one personal loan ABS issuer in the 2nd quarter. To our reputation as a benchmark issuer and our performance track record continue to draw new investors to our network. To We continue to see improving trends in asset performance. Early stage delinquencies to For recent personal loan and onto vintages, our 2 largest markets continue to decline, to the operator.

Speaker 2

While the weighted average coupon remains stable, this translates to improving returns for investors to the operator. The flywheel effect to is fueled by hundreds of millions of data points that flow through our network, which enables better outcomes to both existing and future network participants. The real impact is that over $7,000,000,000 of assets were created last year to the consumer finance ecosystem that would not have been created if it were not for Pagaya. To The strength of our product offering reinforce my confidence in our ability to grow existing partners, to add new ones and attract new investors. With the pipeline we have today, we believe we can grow our network significantly over the next few years.

Speaker 2

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

Speaker 3

To Thanks, Kyle. We exceeded all of our performance targets this quarter, reflecting the momentum of the business and our focus on profitable growth. To our shareholders. While macro headwinds continue, we remain focused on what we can control. Lenders are sending more applications our way as they tighten their own credit boxes, to Enabling us to deliver our highest ever network volume, while managing to a historically low conversion rate.

Speaker 3

On the investor side of the network, to the operator. We're starting to see some green shoots with market liquidity starting to recover from the significant volatility we saw last year. To Investor sentiment appears to be improving with consumer unsecured ABS issuances higher this quarter than the prior 2 sequential quarters, to supporting our ability to continue to raise capital to fund new loan origination. We continue to improve unit economics as we scale. To our operator.

Speaker 3

Total revenue and other income grew 8% year over year to $196,000,000 Revenue from fees, which made up to the operator. 95% of total revenue in the 2nd quarter grew by 14% year over year. Our take rate, to the operator. Defined as revenue from fees as a percentage of network volume grew by 110 basis points year over year to 9.5% to the operator and remain stable sequentially. Production costs grew by 15% year over year and amounted to 6.2% of network volume in the 2nd quarter, to 80 basis points above Q2 2022 and a decline of 60 basis points sequentially versus 1Q 2023.

Speaker 3

To the operator. The net result is that our FR LPC, our measure of gross profit grew by 12% year over year and 30% sequentially, to the operator, amounting to 3.3 percent of network volume, which is within our target range of 3% to 4%. To our shareholders. As you can see in our shareholder letter, on Page 7 of our earnings supplement, this growth is primarily a function of the evolving composition of our feed, to our operator and product mix. As a reminder, we earn margin on both sides of our network, on both our partner product and our investor product.

Speaker 3

To our shareholders. In today's environment, we see increased reliance on our lending partner product as our lending partners tighten their own credit standards to the company

Speaker 4

and face more challenging funding markets.

Speaker 3

As a result, we are earning higher margin on the lending side of the network. To this is helping to offset the lower fees we're currently earning on the investor product in today's higher cost of funding environment. To the operator. The resulting growth in FR LPC was the key driver of our EBITDA delivery this quarter, demonstrating the ability of our 2 sided network to deliver consistent results. Moving on to operating expenses.

Speaker 3

To our total research and development, sales and marketing and general and administrative expenses were approximately $85,000,000 in Q2, to the operator. Down significantly from the prior year quarter, which was impacted by one time stock based compensation expenses related to our transition to becoming a public company. To you. As we said in Q1, our goal this year is to deliver $50,000,000 in annualized cost savings, excluding the impact of our recent Darwin acquisition. To our shareholders.

Speaker 3

We delivered on this target earlier than our original expectations by accelerating our cost savings initiatives, which included actions to reduce to both compensation and non compensation expenses. Core operating expenses, excluding stock based comp, to the operator. Depreciation and one time expenses declined by $12,000,000 versus the Q4 of 2022 or roughly $50,000,000 in run rate savings. To the operator. The resulting operating leverage enabled our FR LPC expansion to drop straight to the bottom line.

Speaker 3

To our operator. We delivered adjusted EBITDA of $17,500,000 compared to $5,000,000 in the Q2 of 2022. To Steve. We believe we are on track to continue to deliver sustainable profitability over the long term, supported by the strengthening of our value add to our partners and investors to the operating leverage embedded in our business model. Given the strong momentum of our business in the first half of the year, to our financial results.

Speaker 3

We are raising our full year outlook ranges for network volume and adjusted EBITDA. Our outlook for the Q3 fiscal year 2023 to a few assumptions. First, we expect to remain prudent in our conversion rate of application volume in light of the ongoing macro uncertainty. To our next question. 2nd, we continue to target FR LPC as a percentage of network volume of 3% to 4% to our network grows and we strengthen our value proposition to both our partners and investors.

Speaker 3

While economics on our partner product have been improving, to We are not factoring in any material improvements in financial markets, which can impact the level of capital markets execution fees we earn. To the operator. Finally, we will continue to focus on cost discipline and driving operating leverage. In the Q3 to For 2023, we expect network volume to range between $1,900,000,000 $2,000,000,000 total revenue and other income to range between 190,000,000 to $200,000,000 and adjusted EBITDA to range between $10,000,000 $20,000,000 For the full year 2023, to our operator. We expect network volume to range between $7,600,000,000 $8,100,000,000 total revenue and other income to range between 775,000,000 to an $825,000,000 and adjusted EBITDA to range between $40,000,000 $50,000,000 to you.

Speaker 3

With that, let me turn it back to the operator for Q and A.

Operator

Thank you. To to remove your question from the queue. Our first question is from Eugene Simoni with MoffettNathanson. Please proceed.

Speaker 5

To Hi, guys. Congrats on a strong quarter. I wanted to start with network volume trends, so good to see it to exceed the expectations. So can you talk a little bit more detail about what allowed network volume to be as strong as it was, to maybe the attribution across better than expected macro environment, better than expected demand from your existing customers to a higher level of success with onboarding new customers. That would be very helpful.

Speaker 3

To. Hey, Eugene, it's Mike. Thanks for the question. You're right. We did see network volume hit a record level this quarter.

Speaker 3

To Tim. And really what that was driven by to start with was really strong demand from both sides of the network. To On the partner side, we had 20% increase in application flow and that's really the core driver and we also saw to increased demand on the investor side as well and that led to the network volume. Now within that actually, actually see that, the macro headwinds were to still with us. And one of the things that we control on our side is the conversion ratio of that increased application flow.

Speaker 3

To We kept our conversion ratio very, very low this quarter and that's really a function of us being very prudent to the existing macro. Our core one of our core responsibilities, of course, is to create returns the right returns for our investors. And so Even though we had higher demand from our lending partners, we kept the conversion ratio really tight. And yet within that, We delivered record network volume. And so that gives us a lot of encouragement around where we think we can go in the future and the embedded growth that's within the network when we can pull that to conversion ratio a little bit higher.

Speaker 5

Got it. That's very helpful. And then just to follow-up on that. Can you talk a bit about your success with capturing and onboarding new customers, especially large to larger U. S.

Speaker 5

Banks.

Speaker 4

Hi, Eugene. This is Gara. I'm going to take this one. To So when we're speaking about where we are spending in the pipeline, we feel very confident in our pipeline today. To We actually think we can land another big bank partner over the next 12 months.

Speaker 4

And we are actually in conversation with many of the top 25 banks as to They are seeing the unique product that we are offering to the landlords. Part of the context to For that, some headwinds in the banking industry that liquidity might be more constrained. And therefore, the fact to something that they are very much like and therefore is giving us a lot of tailwind for that ability. We did work in the last year,

Speaker 2

to you, if you remember

Speaker 4

a little bit about or invested, not a little bit, about moving our product to become more AAA for to Thanks. And we are feeling very strongly that our offering right now is in the level and the stage that is relevant. And therefore, we to We expect to see more conversions coming through based on the Ally and Cloudera success that we had in the past.

Speaker 5

Got it. Okay. Thank you.

Operator

To our next question is from Rayna Kumar with UBS. Please proceed.

Speaker 6

Hi, good evening. Thanks for taking my question. To just want to start with your Q3 guidance. I noticed that the midpoint of your 3Q guide implies 120 basis point to quarter over quarter decline in adjusted EBITDA margin. Just curious if that's seasonality or if there's any other underlying drivers there?

Speaker 3

To Hey, Brittney, it's Mike. I'll take that one. Thanks for the question. Let me maybe take a step back for a second and just to you. You mentioned that we're definitely pleased with the gains that we've been able to put through in terms of our profitability this year.

Speaker 3

I know your to Q3, but when you think about the full year, we're now expecting to be $40,000,000 to $50,000,000 That's 10x where we were last year. We've been able to do that because we took our we've been able to increase our FR LPC margin and really that's all dropped to the bottom line. So the core driver is our gross margin increasing and that operating leverage that's really been able to drop all the way down to the bottom line. To Now to your question, and as a reminder, we are still a growth company. And so as we move forward, we do to expect to see opportunities to invest in our growth.

Speaker 3

And that's really all going to be driven just by a long term focus on the company expanding and growing. To And as we expand the network, we're going to continue to invest in our product, but continue to trend the profitability that you've seen so far this year.

Speaker 2

To you.

Speaker 6

Got it. It's very helpful. And then just another question on conversion rates. Of course, the macro environment still to remain very fluid. But with more talk of a soft landing, Harris, if the Fed were to pivot, how would you manage conversion rates?

Speaker 6

Would this be a signal to begin lifting conversion rates and would it be an immediate transition or would there be a few quarter lag before you become more constructive on it?

Speaker 3

To Yes. Here's the way we think about it, Rayna. Really, rates are a bit of an indirect impact to us because we're not a direct lender. To And our job is really to manage the investor returns holistically in terms of whatever is driving their investor returns and their hurdles. To So the way we think about it is we will lift our conversion rates when we feel comfortable to do so that it meets our investor return threshold.

Speaker 3

To Obviously, those hurdles will come down and should come down when the macro becomes more stable. And from a response time perspective, I think one of the things that we're really proud of around to what we built here is that our responses is in real time. And I can go back to late 2021 when we started to see trends to As consumer behavior deteriorating, we responded in real time. And on the other side, when we see the environment improving, we also expect to respond in real time. To Now with all of that said, we've definitely, as I said before, are going to maintain prudence with the conversion rate in light of the continued macro.

Speaker 3

To And within that, we were able to produce record volume, and we'll look forward to improving that conversion ratio as soon as we feel comfortable that the macro is stabilizing.

Speaker 6

To Got it. Thank you.

Operator

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

Speaker 7

Good afternoon. Nice to see good solid to demand from both sides of the network. Maybe we just start, I know application to It does feel like application flow was also growing, not just network volume. I know you didn't really disclose that, but to Wanted to get a feel if there's a kind of a range or a band that you wanted to throw out on what application flow growth might to Ben. And then also, I know you said that conversion rate was also muted, but Was wondering if you dialed that down at all in the quarter or was it kind of more flattish sequentially?

Speaker 7

And then I'll have a follow-up. To

Speaker 3

Hey, Joe, it's Mike. Yes, our application flow this quarter was up 20% sequentially over the prior quarter. So the top of the funnel for us is really healthy. We're really excited to see that growth come through. Now If you think about that, in the range of how that translates into network volume, the application flow to times our conversion rate is ultimately what drives our network volume.

Speaker 3

We see we saw roughly $200,000,000,000 in additional application flow this quarter. And so think about that in terms of our conversion ratio. We can produce in order of to 20% higher network volume to the extent we can produce 20% higher in the conversion ratio. That's the way we think about it is we're managing to a pretty low conversion ratio right now, to slightly below 2%. And there's a lot of embedded growth in that as we can grow the conversion ratio from there.

Speaker 3

Does that answer your question?

Speaker 7

To Yes, that makes sense. That makes sense. And obviously, I think with that kind of sequential growth and to Clearly, you got to filter that down and be prudent. So that makes total sense. To Just wanted to dig down also into FRLPC margin or as a percentage to network volume and kind of connect that back to your commentary on investor to the side of the network fees being a little muted.

Speaker 7

And that margin was up, I guess, to 3.3% here in this quarter versus 3 a year ago. And I know that the lender side is doing well. I'm just trying to get a feel for to Would you say that margin year over year on FR LPC as a percentage of network volume is Down on the investor side or do you think it's flat year over year and then the gain was coming to From the lender side, if that question makes sense. Thanks.

Speaker 3

Sure. Really the gain that we've seen is really on the to partner products. The demand on the partner product side has been very strong as our partners are relying on us more for to growing their business and actually converting more of their application flow. Now when you think about that overall, to What we're really pleased about is the evolution of our FRO and PC by product. So we talked you remember, we talked last quarter about some of the new to the initiatives we had for economics unit growing our unit economics on the partner product side.

Speaker 3

This quarter going to 3.3%, you're seeing the full quarter impact to of those taking hold. Now as you said, we're actually seeing lower contribution from Ever LTC to on the investor side. Now we expect that will come back when with market liquidity. But right now, to Tom. If you think about where we were a year ago versus today, what we're really excited about is we now have a much more balanced to approach or a much more balanced mix of our FRPC between the partner side and the investor side.

Speaker 3

And I'd actually encourage you to look, there was a slide we put into the to the financial supplement that actually breaks this out going over the last few quarters. And so you can see that in the investor deck.

Speaker 7

To Awesome. Thanks. Very helpful. Thanks, guys.

Operator

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

Speaker 8

Thanks. Great quarter, guys. Can you talk a little bit about the ABS funds raised, the performance of how those funds have done and how it impacts current raises? To And then kind of relate that a little bit to your exposure to your investments in that. And then further how if that to Limits your capacity, the ability to raise those funds or is that you're obviously the largest one that may be asking you raise as much as you want?

Speaker 8

To And then by the amount of ways how that impacts your decisions on your conversion rate? Thanks. To

Speaker 4

Hi, Mike. It's Gar here. So I will take the first part and then Mike will chime in. So from a funding perspective, to We definitely see an improvement in market conditions. I think both from the terms of the liquidity in the market, to Q4 both on and since then we see an improved liquidity.

Speaker 4

And in that capacity, I think like what we're to Tim very clearly. These are the repeatable strong issuers like ourselves are getting enough traction, but smaller shelves, etcetera, are not really managing to close So it's like kind of like talking to the scale and the importance of scale building these things in motion. Just to give you one example, in July, we upsized the deal, to Maybe a deal from $600,000,000 to $800,000,000 At the peak of the order book, we had $2,000,000,000 of orders. So that speaks to the strength and the ability of the team to deliver that capabilities into funding strategies that are to becoming very material for our ability to perform

Speaker 2

in different market conditions. Now to

Speaker 4

the side of the investment, Mike, do you want to take it?

Speaker 3

To Yes. From a balance sheet perspective, actually quite manageable and I'll explain why. As you know, we don't to actually put loans on our balance sheet. And so really our only asset on the balance sheet is the risk retention, which comes from issuing ABS and the to 5% mandatory holdings that we have to put on the balance sheet. And so if you think about that 5% to And the fact that every quarter we're actually receiving cash flows from our private prior investments, actually we had material to cash flow this quarter from prior investments around $65,000,000 and the fact that we've been able to grow and diversify our funding facilities for the investments in loan to Jotin.

Speaker 3

That means that the actual net outflow from a cash flow perspective is in the 2% to 3% range. And so that gives us to actually a long runway to be able to continue to grow the business. Obviously, long term, we'll diversify and actually to supplement the ABS distribution mechanism with other funding products that don't have the same balance sheet requirements. But in the near term, we feel really

Speaker 8

to Great. Congrats on the quarter. Nice job.

Operator

Our next question is from Hal Gooch with D. Riley Financial. Please proceed.

Speaker 9

Hey, could you give us a perspective of this application flow, dollars 200,000,000,000 in the quarter is to staggering some money, only about $2,000,000,000 of it is actually closed on 1%. And That's a huge number, very selective process. Could you to Tell us more about that and also maybe the mix of this application for how much of it is coming from auto to different private loans and also what was it a year ago on Application 12? Thank you. To

Speaker 4

Sure. So, it's Gal here. To From the level of application flow, I think the important piece to share is the importance of to seeing this flow even if a conversion is happening or not. Because part of that is the data that we are collecting and the ability to reach to bigger and better parts of the American consumer parts. We are choosing actively to both because of the prudentness and some other advance that you need to do on the modeling side to be focused on small population of that to be able to deliver that.

Speaker 4

But when you think about the network itself as a product or as a connectivity from that perspective, I think we are now seeing something like almost $1,000,000,000 of application yield. And therefore, you can imagine that the ability to to create a lot of value and to monetize that over time. We'll not end up in the 102% as such, and we'll find more and better ways to be able to do that. From a growth perspective on the network side, again, rough numbers, I would say. To It's like over 100% over the last year or so.

Speaker 4

And then from that perspective, I would say that to Majority are coming from auto loans and the PL. On the PL side, it was more flow from partners. And on the auto, it was to new partner that we have that they are bringing up. A last example that I will leave it with you to Is that, for example, application on point of sale, that like a year ago, we didn't have our partner Klarna. And this time around, we are to We're seeing a lot of applications through that.

Speaker 4

It's a total new space that our network was not exposed to. And now we're starting to ramp up that, collect the data and obviously creating to a better model. The last piece, I would say, is like internally, we believe that like AI capabilities could improve the ability to convert by 30% year over year, 20% to 30%. To that extent, different macro situations could to change that over the short term period. But like what we're building here and seeing that is how we monetize that piece out of the network and connectivity that I shared.

Speaker 4

And

Speaker 9

to

Operator

to questions. Our next question is from David Scharf with JMP to Securities. Please proceed.

Speaker 10

Hi, good afternoon. Thanks for taking my questions. I appreciate all the color on sort of the current to sort of cyclical backdrop. Maybe you can focus a couple of questions on just future to new business and secular growth. First is, I'm curious on the personal loan side, to The bulk of the volume is still originated by sort of legacy branch based companies to like the One Mains, Mariners, World Acceptance, Lendmark and so forth.

Speaker 10

Obviously, your partners are digital lenders. To I'm curious, are any of these sort of legacy non prime, near prime personal lenders exploring to Using 3rd party services like yours for handling turndowns?

Speaker 4

Yes, definitely. So to To my comment in the earlier of the Q and A, we are speaking with top 25 banks. Part of the compensation over there are personal loans. To We actually have 2 very two prospects that we are in deep discussions on these pieces and are very relevant. To So I would say definitely.

Speaker 4

I think if I take a step back, the banking industry is really interested in 3 main products, to The personal loan, the auto and the point of sale. Point of sale, obviously, is something that is a little bit more new that people are trying to get their hands around and to market share. And then from an auto perspective, there is a lot of to Maturity in that space is, and it's just a matter of like getting into that. We are a little bit more relevant to the supply side rather than the supply side. So banks are going to the super primal benefit for us.

Speaker 4

And with the PM, it's more a complementary product that usually banks wants to offer to their customer base. To And that's where we see the biggest success for our PM prospecting on the traditional brands.

Speaker 10

Okay. Maybe that's a good to segue to my next question, which was to get a little better understanding on maybe what products you'd be involved in with the large banks. I to The companies I just rattled off were non bank financials and specifically it's because large banks historically have just not cared that much about personal loans. To it's been sort of an afterthought of asset class they dabble in here or there. So recognizing that and then on the to subprime auto side, you already have really good penetration with a lot of leading subprime auto lenders based on who's in your securitizations.

Speaker 10

To So as it relates to asset class with a large bank, is it on the card side point of sale? To Because once again, we kind of know that personal loans is not a real big ceiling Within the banking community, is card or revolving credit something that they're interested in exploring with you?

Operator

As long as you keep it on the counter by you, you'd be fine.

Speaker 4

To Sure. So I'm not sure who was there. I think, but like to your question, to I think if you look on the full growth strategy of the company, the answer is all of them. To the capabilities that Pagaya has is really divided into 2, right? Through the further connectivity to the banks becoming to banks, lenders becoming very embedded in their loan origination systems and different parts of the system that needs to be able to maintain that in a seamless to API Integrator.

Speaker 4

The second piece is the ability to take all of that data and to create from AI the ability to approve more bowels. And then the to 3rd piece is the distribution of these assets into the investment community. So when you think about that, the same flow works in to Personal loan, auto loan, POS and credit card. And then when you're asking yourself what is the growth strategy that you wanted to sway, You're asking the question of opportunity versus effort versus capability. So when we started from the PL space, to your comment, PL is definitely much smaller than credit cards.

Speaker 4

But because we have so much knowledge And capabilities in that, it's very natural for us to continue to explore that with banks even if it's not the biggest pie to their books. And on the very high second side of the discussion, to You have the credit card, which is by far the biggest opportunities with banks, but we don't have a full yet mature credit card to Actually, on the credit card part, we have a partnership with Visa to be able to that we signed a year ago to be able to persuade it and to bring that to capabilities and offering and product to the banks, which is in motion and it works. And I would describe POS as the new merger to the DC has definitely started to become much more interesting that most of the banks we are speaking with having internal initiatives, which we are kind of like to connecting into that platform. So I hope that gave you the color you're looking for.

Speaker 10

Yes. No, very much thank you and congrats just terrific results today.

Speaker 8

To our operator.

Speaker 2

Appreciate it.

Operator

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

Speaker 11

Hi, good afternoon. Thanks for taking my questions. And it's nice to see both the good volume growth as well as the good EBITDA growth as well. And I wanted to, if you could, kind of talk about your business versus to compare versus the rest of the Fintechs, the lending Fintechs in the industry because to It's interesting to see your strong growth, your ability to launch several ABS this to year so far as well as sign on and be signing on new bank partners, whereas it seems like in the industry, the other to companies that have reported so far this quarter are talking about banks being conservative, pulling back from their platforms. To some of the marketplace lenders are struggling for volume as well.

Speaker 11

So it's nice to see Pagaya's growth. And I was wondering if you could maybe from your perspective, to describe how you're able to have these partnerships succeed? Thank you.

Speaker 3

To Hey Vincent, it's Mike. Thanks for the question. Look, I really think it comes back to a little bit of the business model to And we are in a very unique position in the ecosystem. A number of the players that you just spoke about are actually partners of ours. To Our business model when we were formed is really to solve the problem of consumers not getting access to credit.

Speaker 3

We solve that through technology and data, But we do that through partnering with lending institutions. And so as they look to grow their businesses, whether that be a fintech or a large bank, to We're partnering with them and helping them actually grow their underwriting and their lending volumes and then actually connecting those assets in on the other side to investors who are looking for exposure to the underlying assets. That's very different than the way most other to participants playing the market. Most are either on one side or the other side of that equation. And what I feel like we've tried to do over our history to is really be in the middle, actually complementing what everyone else is doing.

Speaker 3

And that's led to to a lot of the growth that you've seen because we have a really unique vantage point in that we're seeing not only to All the data science that comes with all the publicly available data that others could get as well, but we're also then seeing the application flow to 25 different lending partners. And we feel like that gives us a bit of an edge in terms of applying that the data science to that to the amount of information that we see coming through every day and the core focus of just the to the actual capability itself as opposed to the other aspects of running a consumer facing business. We feel like that's actually put us in a really good position to deliver to Not only, for our lending partners and ability to grow their network, their volume, but then also for our investors who are looking for to access these sorts of assets and we feel like our business model has allowed us to do both sides.

Speaker 11

To Gal. That's very helpful. Thanks very much.

Speaker 4

We have

Operator

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

Speaker 4

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

Speaker 4

To you. Thank you.

Operator

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

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Earnings Conference Call
Pagaya Technologies Q2 2023
00:00 / 00:00