Figure Technology Solutions Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2026

Key Takeaways

  • Positive Sentiment: Figure delivered a very strong Q1 with adjusted net revenue up 92% year over year to $167 million, adjusted EBITDA up 190% to $83 million, and a 50% adjusted EBITDA margin. Management said the company is operating at a “rule of 140” level, well above the traditional rule-of-40 benchmark.
  • Positive Sentiment: Consumer loan marketplace volume more than doubled to about $2.9 billion, with March crossing $1 billion in monthly volume for the first time. The company also raised its Q2 volume guidance to $3.8 billion-$4.1 billion, signaling continued momentum.
  • Positive Sentiment: Figure Connect is becoming a bigger part of the business, accounting for 56% of Q1 volume, and the company added 80 new partners, its most ever. Management highlighted growing traction with large “whale” partners, depositories, and the recent addition of Flagstar Bank.
  • Positive Sentiment: Blockchain-based products continued to scale, with YLDS and Democratized Prime balances each growing roughly 80% sequentially. The company also emphasized new distribution and protocol expansion, including Hastra launches on Solana and Ethereum and third-party borrower additions such as Agora Data and Credibly.
  • Neutral Sentiment: Management said it is investing heavily in a broader blockchain-native capital markets ecosystem spanning debt, equity, and DeFi, including OPEN and Forge. While the opportunity could be large, executives stressed that this is a multi-year build and that some of the economics and revenue potential are still early-stage.
AI Generated. May Contain Errors.
Earnings Conference Call
Figure Technology Solutions Q1 2026
00:00 / 00:00

There are 13 speakers on the call.

Speaker 8

Welcome to the Figure Technology Solutions first quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you'd like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To get to as many questions as time permits, we ask you kindly limit yourself to 1 question and 1 follow-up. That others can hear your questions clearly, we ask you pick up your handset for best sound quality. Lastly, today's call is being recorded. I would like to now turn the call over to Brian Michalek, Head of Investor Relations. Please go ahead.

Operator

Good morning. Welcome to Figure's first quarter 2026 earnings call. My name is Brian Michalek, Head of Investor Relations here at Figure. Joining me on today's call are Mike Cagney, Executive Chairman, Co-founder of Figure, Michael Tannenbaum, our Chief Executive Officer, and Macrina Kgil, our Chief Financial Officer. Before we begin today, I'd like to briefly note that in today's call, we will refer to certain non-GAAP measures. These measures have been reconciled to their GAAP equivalents in the earnings release we issued today or yesterday, as well as in appendix to our supplemental slide presentation posted to our website. As a reminder, non-GAAP measures are not intended to be a substitute for GAAP results. I'd also highlight that certain comments made today may be considered forward-looking statements under federal securities law.

Operator

The company cautions you that forward-looking statements involve substantial risks and uncertainties, a number of factors, many of which are very beyond the company's control, can cause actual results, events, or circumstances to differ materially from those described in the statements. For more information, please refer to the risk factors we've identified in our most recent Form 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law. With that, I'll turn the call over to Mike Cagney. Mike, please go ahead.

Speaker 7

Thanks. I want to thank everyone for taking the time to join us on the call today. We've got a lot to cover and a very strong quarter. Before we kick off, I know there were some questions about my absence from the earnings call last quarter. I want to set expectations. In my role as Executive Chairman, I'm tasked with long-term strategy of Figure. I'll join these calls when we're spending time on that topic, like today. You should expect to hear from me about every other call, that will vary based on what's happening with the business. I understand that for an investor looking at Figure for the first time, there's a lot to take in, and often leads investors to take the easy path, assuming Figure's a HELOC company. Figure is not a HELOC company.

Speaker 7

Figure is a company building a capital market ecosystem native to blockchain. This is a total overhaul of the existing market. To kick off this call, I'd like to lay out the ecosystem we're building, how we plan to scale it, and why it matters. Figure's ecosystem has 3 verticals: debt and structured finance, equity and non-debt digital assets, and capital and financing markets. Yield is the currency that ties these verticals together. With debt and structured finance, our first launch into that vertical was through our own retail HELOC production back in 2018. We quickly evolved that into a B2B debt business, and today the vast majority of our mortgage production on the platform comes from our 380-plus third-party partners. Further, over half of that production trades on Connect, our whole loan marketplace.

Speaker 7

With Connect, we pioneered what we believe to be the only liquid private credit capital BSEs, which are only quasi-private. This capital market, not the origination technology, is our moat in this business and our primary revenue driver for loans in our ecosystem. Last year, we began to bring our digital assets over to DeFi for financing. That introduced a problem germane to all real-world assets on blockchain. DeFi is asset-based lending. The premise is that the collateral backing the loan is liquid. What are the collateral as a whole loan? Given an LTV breach, how does a lender take a fractional position in the whole loan? Even if they could, where would they sell it? This is where our platform Forge comes in. We built Forge to transform whole loans into small single-dollar liquid participation units.

Speaker 7

Loans get pledged or sold into a bankruptcy remote container. That container issues participation units against the loans. These units have a natural market. If they get expensive, entities will buy loans on Connect and pledge them to the container, then sell participation units in the market. If they get cheap, Figure and others will buy them, swap them to loans, and securitize them. This two-way arbitrage supports a liquid marketplace. With liquidity, the units work as collateral in DeFi. Lenders can see market liquidity, volatility, and advance rate to decide on whether to participate, as they would with Bitcoin or other crypto assets. Forge acts as a critical intermediary between on-chain loans and DeFi.

Speaker 7

We were excited to announce Agora in Q1 as the first Forge third-party partner, and are building a pipeline to many other issuers across consumer mortgage receivables, SMB, and other loan categories, with the goal of bringing these issuers onto blockchain into Connect and via Forge to DeFi. Michael will talk more about the economic model for this and the other two verticals, but essentially, we make money running the marketplace, which is Connect, the bridge to DeFi, which is Forge and DART, DeFi itself, which today is Democratized Prime, and the arbitrage from participating in the token market. For equity and non-digital assets, in Q1, Figure launched the On-chain Public Equity Network, or OPEN. With OPEN, we are capturing the blockchain value proposition, transactional efficiency, liquidity, and DeFi through public equities native on-chain. On OPEN, stock is registered on the blockchain, not DTCC.

Speaker 7

Stocks trade on our ATS, which functions like a decentralized exchange. It's self-custody, self-clearing. The ATS supports direct WalletConnect, eliminating the need for introducing brokers. Through self-custody, stockholders can access DeFi to lend and borrow. OPEN delivers important value to companies and investors. First, companies can do proxy and other outreach and distributions directly to wallet holders, eliminating the cost of these services from firms like DTCC. Second, the combination of 24/7 trading and WalletConnect opens up access to trading to a global investor base. A most important value proposition lies in DeFi. With OPEN, shareholders can put their stock up as collateral to borrow in DeFi markets at potentially better advance in interest rates that can cross-collateralize, combining stock with Bitcoin, for example, to borrow against both. Most importantly, they control stock loan.

Speaker 7

Rather than the prime broker sitting in between a stock lender and borrower in an opaque market, the shareholder can put their stock out or borrow directly on a lit limit order book. This redirects the money that primes make today to the shareholder. It also creates an interesting mitigant to high short interest when the underlying stock is on special. With the shareholder getting the full stock loan benefit, the company creates a countervailing force to own a heavily shorted stock, a high coupon from the stock loan. OPEN is unique in that the stock is native on-chain, not a DTC copy or an SPV interest. Shareholders have full rights. The stock can trade in the limit order book. Competing efforts suffer from limiting access. SPVs aren't available to U.S. investors, for example.

Speaker 7

Limited liquidity, DTC copies can't trade in the limit order book because of Reg NMS and best execution, or limited utility, so copies of assets generally won't work in DeFi protocols. In addition to OPEN, we also support marketplaces for other non-debt digital assets, including crypto. While we're not actively trying to grow these markets today, they provide an important laboratory for testing and product and technology ideas. Again, Michael will talk about the unit economics, but with OPEN, we earn listing fees, trading fees, but the bulk of the economics come from DeFi. On capital and financing markets, the common thread across the debt and equity verticals and the biggest value from blockchain is the DeFi. Last year, Figure stood up a self-custody bilateral marketplace called Democratized Prime. As the name implies, we weren't trying to hide our ambitions into this effort.

Speaker 7

We're building a competing venue for financing digital assets on blockchain. Democratized Prime currently supports markets across whole loans, loan participations, crypto, and equity. Democratized Prime is native to the Provenance Blockchain, our primary layer one chain. Last year, the Provenance Blockchain Foundation launched Hastra, a DeFi protocol that swaps wrapped yields for a Prime token. The Hastra protocol unwraps the yield, stakes the yields to Democratized Prime, and passes on the interest, less a fee, to the Prime token holder. There are liquid markets for Prime tokens and active DeFi protocols away from Provenance Blockchain that provide leverage, called looping, for Prime token holders, boosting returns from mid-single digits to mid-teens. Hastra acts as middleware from third-party layer one blockchains to Democratized Prime. It launched on Solana in Q4 using Kamino for financing and Raydium for liquid.

Speaker 7

The Prime token was the fastest-growing token in Kamino's history and is the largest actively deployed real-world asset token per DeFiLlama in the entire DeFi ecosystem across any blockchain. Last week, Hastra announced its launch on the Morpho protocol on Ethereum, opening up an even larger addressable DeFi market on blockchain today. Michael will talk in detail about the economics, but the primary driver here is a spread we earn between lenders and borrowers, with some protocol fees from Hastra eventually paid back to Figure. In terms of what we're trying to do to scale these verticals, we're pursuing a set of discrete strategies to build out our blockchain-native capital market ecosystem. First, we're working on growing the first lien market via HELOC on Connect. The first lien market is upwards of 25 times larger than the second lien space.

Speaker 7

We've been pushing an innovative solution of using HELOC and first lien position, dramatically lowering origination costs relative to traditional mortgages, are beginning to establish dominance in the sub $300,000 first lien loan marketplace. Second, we're focused on bringing USDC, USDT utility to yields. While yields is peer-to-peer transferable, as a security, it still requires a transfer agent to know the name and address of each holder. We're advocating both to the SEC and via Clarity to satisfy transfer agent requirements with wallet address. This would bring identical utility to yields afforded to any GENIUS Act coin, with the added feature that yields pays interest. We see this as a significant unlock for applications from DeFi to payments.

Speaker 7

Third, we're working to build proof of claim of the borrow benefit to shareholders on Open. We've been working with some of our largest shareholders to migrate their stock positions from Nasdaq to Open. We believe this will cause a tipping point where borrow for shorts must happen on-chain. Once we've established this proof point, we'll make a concerted go-to-market push for more listings. Fourth, we're bringing third-party borrow onto Democratized Prime. In order for us to scale significantly, we need to make bolder bets in terms of the types of companies that we partner with and the structure in which we do.

Speaker 7

The team has done a nice job of adding 380-plus partners in our tokenized mortgage marketplace. We are exploring ways to add additional assets and change the capital markets at scale. In fact, we'll talk about adding SMB as part of Michael's comments. Fifth, to accommodate this expected increase in volume, we're working to bring TradFi capital onto Democratized Prime. The DeFi ecosystem is still nascent in size relative to TradFi wholesale capital markets. To get DeFi to scale, we need TradFi dollars from retail investors and institutional asset managers to begin to use protocols like Democratized Prime to earn yield. We're working with multiple partners on this, including ensuring security perfection of collateral and helping third parties launch dedicated DeFi yield funds where they have guaranteed access to certain Democratized Prime pools.

Speaker 7

Finally, we're beginning to allocate resources into existential problems for blockchain, the wallet-centric experience. Firms like Coinbase, Robinhood, and SoFi are building super apps, a one-stop shop where the firm controls the customer data, custody, transactions, and experience. Blockchain affords a different user-centric approach. Notably, with self-custody wallets and distributed applications, entities can control their data, pick their own transaction venues, and maintain a consistent user experience. Blockchain today is a very small pond. The only way to make it a lake, then an ocean, is to deliver an experience that both retail and institutional TradFi customers can embrace. You'll hear more from us on this topic over the coming months. A blockchain ecosystem is a multi-year endeavor with massive upside. I know public companies look quarter to quarter, but we want to set expectations on timing.

Speaker 7

It took us several years to drive mainstream adoption in HELOCs. It wasn't an easy path. We expect the same as we build into additional credit, equity, and yields. We believe the payoff is worth the effort. To help explain the upside and to provide a recap of the quarter, I'm handing it off to Michael.

Speaker 6

Thanks, Mike. I'll kick it off by covering our strong performance this quarter. Q1 2026 continued our impressive financial performance with again over 110% consumer loan marketplace growth and roughly 50% adjusted EBITDA margins, putting us at a rule of 140 versus benchmark of 40. Revenue was up 92% and adjusted EBITDA margin at 50% as we continued to see the benefits of our capital-light marketplace, Figure Connect, in the financials. Figure Connect grew to 56% of volume, up from 54% last quarter. In terms of volume, we saw growth across all channels, most notably new partners, depository activity, business purpose, and partner growth via Figure Connect. I'll walk through each now. We added 80 new partners, the most ever, and launched partners including the 7th-largest mortgage lender in the country.

Speaker 6

Our business purpose product, highlighted by the SMB channel, continued its very rapid expansion with volume at almost $60 million this quarter. We've also seen a significant acceleration of depository activity within our pipeline, reflecting a clear and growing demand for Figure's loan products from this important market segment. Highlighting this is the recent onboarding of Flagstar Bank, a large regional depository, and now the largest bank originator on our marketplace to date. This validates our platform's institutional grade and our ability to support complex, large-scale banking operations. We're currently in the final stages of implementation. We believe this momentum will only be amplified by proposed regulatory shifts. Specifically, Fed guidance regarding reduced risk weightings for mortgage assets and home equity loans serves as a substantial tailwind, further incentivizing depositories to leverage our platform and optimize their balance sheets.

Speaker 6

The business channel progress coincides with growth we are seeing in DSCR and residential transition loans. These two products, often used by real estate investment businesses, represent a roughly $100 billion addressable annual origination market. DSCR loans focus on rental housing and are one of the fastest-growing pockets of residential lending, and residential transition loans are an attractive category for us on Democratized Prime due to their short-term nature. In Q1, we saw 70% growth from both of these products, and we expect this to be a focus going forward. Last quarter, I dubbed 2026 the year of the first lien. Today, I'm pleased to share first lien volume now accounts for 20% of our total, up from 19% last quarter.

Speaker 6

We compete there primarily in the small balance loans, where our 1K average cost to originate versus industry average of $11,500 is most differentiated because the cost savings makes the largest difference on smaller loans. The standardization and liquidity that we are bringing to the mortgage industry is showing up in our strong results, our volume growth, and our execution in the face of complex geopolitical and macroeconomic environments. In a recent meeting with a major potential partner, an executive shared that their company sees 2 existential threats. The first I expected, AI disrupting the value chain such that their company's cost advantage erodes. The second was that Figure becomes the default capital market and that they're late to partner with us. That company is one we've called on for years, and the posture shift was notable.

Speaker 6

Macrina will cover take rate in more detail, but we achieved 3.8 this quarter, in line with the guidance we provided. Reminder that in connection with the outline Mike just gave, our economic model for Figure Connect and the consumer loan marketplace more broadly is take rate by volume. On this quarter's take rate, we see this result as impressive, especially in light of the volatility in interest rate expectations experienced throughout Q1. As we indicated last quarter, while our take rate is lower on first lien volume, the total revenue, contribution margin, and EBITDA we earn on each first lien loan is higher as balances are significantly larger.

Speaker 6

For example, we would rather earn a 2% take rate on a $300,000 first lien loan or $6,000 than a 4% take rate on a $60,000 second lien loan or $2,400, as the cost to originate are the same. Any decrease in take rate is not a reflection on our competitive differentiation or demand for our platform. Having just recently crossed the $1 billion monthly marketplace origination mark, we see a clear path to $2 billion. On the acquisition side, we benefit from what we refer to as whales, which can do $50 million-plus per month at scale. We've been adding at least one of these per quarter consistently. One of the whales we added in late Q3, for example, did over $150 million this quarter.

Speaker 6

While smaller partners contribute less, we have also been adding conservatively around 50 per quarter, with the wide-open TAMs in SMB and depositories, we see lots of opportunity. We have growth from existing partners, which continues to exceed expectations. This is fueled by improvements we make to the product as well as the incentives that drive volume on Figure Connect. Think of Figure Connect as the baleen for these whales. It's the specialized infrastructure that allows them to swim through the capital market and efficiently ingest vast amounts of volume. Just as baleen filters everything a whale takes in, Connect standardizes and filters their originations into AAA quality assets for our capital markets. Three examples. One, product improvements we made in Q3, such as expanding the underwriting automation to business bank accounts, now account for almost 10% of our monthly volume.

Speaker 6

2, for Connect, on average, we see over 2 times monthly volume on a same partner basis 6 months after launching on Connect. 3, in Q1, we saw, for example, 5x monthly volume growth from Mutual of Omaha, a Fortune 300 financial institution, after upselling to Connect. Ultimately, we see a very clear path forward to continuing to double the business from here. Turning to the blockchain ecosystem, we continue to see rapid growth with YLDS and Democratized Prime balances both growing roughly 80% quarter-over-quarter. With YLDS, Democratized Prime participants are staking YLDS via the Hastra protocol as a way to earn yield. Growth also came via a major milestone with an OCC chartered bank keeping YLDS on its balance sheet for treasury purposes. Lastly, we are working with a large regional bank on a sweep arrangement that we expect to drive significant balances.

Speaker 6

The economic model of yields is a captured spread over SOFR, which is roughly 35 basis points multiplied by the yields balance outstanding. Democratized Prime saw the launch of Agora Auto Assets, with $24 million borrowed as of the end of last month. Third-party borrowers are the immediate focus of Democratized Prime, and this quarter we have already added three more, including a DSCR originator and Credibly, a fintech lender for small and medium-sized businesses. Credibly highlights the traction we've made in the SMB space, as well as the opportunity to build new tokenized capital markets rails. In 2026, we planned to add a total of 8-10 third-party originators, although we are on our way to exceeding that goal. Adding third-party borrow volume on Democratized Prime is important because 1, it's currently the bottleneck to growth, and 2, because our revenue model earns economics from the borrower.

Speaker 6

50 basis points has been the baseline, but with the value of Forge, as Mike mentioned earlier, we see upside to that number. On the lend side of the marketplace, the staked yields prime token is now the 1 by TVL on the Kamino marketplace, and we recently announced an extension into Ethereum. Even though third-party borrow is the current limiter on growth in the marketplace, we maintain robust efforts to diversify our lender mix as well. I mention this because to echo Mike earlier, Figure has ambitions for Democratized Prime to be much larger, and we are seeking to bring entire asset classes on chain. While the take rate of Democratized Prime is lower than our consumer loan marketplace, the TAM is much larger, and the inbound interest we have from borrowers joining the platform is significant.

Speaker 6

We see a medium-term world where Democratized Prime balances are measured in the $10 billion-$100 billion. In terms of OPEN, our On-chain Public Equity Network, we maintain a robust pipeline of issuers, with Open World Ltd. being the second issuer to publicly file a registration statement with the SEC with the intent to use OPEN. Mike outlined a lot of the why with OPEN, but from an economic perspective, we see a number of fee opportunities here. Listing fees and trading fees are endemic to the equity capital markets, but the broader prime brokerage activity with the same monetization model we see for debt and Democratized Prime is the largest opportunity by total addressable market. Before turning it over to Macrina, I want to quickly cover private credit before ending on AI.

Speaker 6

In terms of the capital markets, our platform was resilient despite the industry's concerns around retail investor-driven redemptions from private credit funds. In March 26 alone, when private credit concerns were heightened, over $1.15 billion of whole loan sales were executed on Figure's marketplace. In April 2026, a BWIC, bid wanted in competition, or a loan auction, was completed on Figure's platform that resulted in a record low spread to the applicable risk-free rate, reflecting strong institutional investor demand for our assets. In fact, we're seeing increased interest in Figure assets as investors rotate out of leveraged loans where there are more concerns and into the high-quality, diversified consumer assets on our marketplace. As a reminder, the credit performance of loans in our marketplace reflects a borrower base with strong fundamentals.

Speaker 6

Turning to AI and building off our discussion from last quarter, we believe rapid AI adoption represents a massive tailwind for blockchain-native companies like Figure, and I'll continue to detail our efforts here regularly. Capital markets are undergoing a simultaneous shift from blockchain and AI, and Figure is building the system that connects them. Here we say AI is the brain, blockchain is the nervous system. Our custom AI platform operates on a structured, time-stamped, on-chain financial data set that is directly tied to actual transactions, trained on real outcomes, and helps with execution within our marketplace. This is a key point of differentiation, and I can't emphasize it enough. Many organizations today are building AI-enabled features or experimenting with agents, but moving capital markets requires an underlying system that is optimized for reliability, control, and compliance. As I repeatedly say, you can't AI your way into AAA.

Speaker 6

To lead this next phase of execution, we've recently welcomed back Rod Alfulya as our head of AI. Under his leadership, we're developing agentic workflow systems on top of our platform that handle tasks like data onboarding, document validation, underwriting checks, and exception handling. Everything we do is an attempt to systematically reduce friction in areas where automation, complemented by human oversight when necessary, delivers the most value. Three specific examples I'll cover are, 1, our use of AI in building product, 2, our use of AI in customer support, and 3, our use of AI in adapting Agora's third-party auto assets to Democratized Prime. In the last year, we've seen a 25% increase year-over-year in what we call story completion, which is essentially engineering projects delivered on flat headcount. In chat containment, we've seen 70% and are now implementing voice AI.

Speaker 6

Most significantly, with Agora and now other third-party Democratized Prime assets, we introduced an AI-enabled validation workflow that compares third-party assets against the underwriting criteria those assets were intended to satisfy at origination. The initial results have been encouraging and are helping us build a more scalable workflow and control framework for onboarding third-party assets. Now, I'll turn it over to Macrina for financials.

Speaker 5

Thank you, Michael. Good morning, everyone. As Michael highlighted, the first quarter of 2026 was a period of both significant growth and strategic diversification of our partner network and product offerings for Figure. We are operating at a rule of 140, a best-in-class standard we've achieved through 92% year-over-year adjusted net revenue growth, combined with an adjusted EBITDA margin of 50%. To put that in perspective, we are performing at more than triple the traditional rule-of-40 industry benchmark. Our consumer loan marketplace volume grew over 110% year over year. This brings our Q1 '26 volume to approximately $2.9 billion, compared to $1.4 billion in Q1 of 2025.

Speaker 5

As momentum accelerated coming out of the winter months this quarter, in March, for the first time as a company, we crossed above $1 billion of CLM volume at $1.2 billion. To highlight the scale, March volume alone represented 85% of all of Q1 2025. This momentum has continued into Q2, with our published April volumes continuing to accelerate both sequentially and year-over-year. Our volume on Figure Connect accounted for 56% of overall Q1 volume, suggesting enhanced capital efficiency given the balance sheet light dynamic of Figure Connect. Democratized Prime ended the quarter with matched offer balances of $368 million, and meanwhile YLDS ended at $598 million, reflecting continued adoption following the Prime token's expansion onto Solana and our broader real-world assets consortium initiatives adding distribution for these products.

Speaker 5

Our adjusted net revenue for Q1 2026 was $167 million, an increase of 92% over the prior-year quarter. Adjusted net revenue benefited from higher consumer loan marketplace volume alongside servicing and interest income, which are asset-based, asset balance-based revenue lines. Adjusted net revenue directly correlated to consumer loan marketplace volume grew 109% year-over-year, while servicing and interest income combined grew by 42%. Our net take rate for the quarter was 3.8%, which is in line with our previous guidance between 3.5%-4%. We continue to see more first lien volume, which reached 20% of our total volume this quarter, up from 14% in Q1 of 2025.

Speaker 5

As we've mentioned, there are a number of inputs to take rate, which is why we do not really view it as the core North Star metric for the business. Mix shift is one factor, and over time, you should expect some of our key growth areas, including first lien on Figure Connect impact towards lower take rates than junior lien volume. These businesses are attractive because they are less capital-intensive, operating much larger markets, and generate strong contribution margins and profitability for the company. When we evaluate performance, we are much more focused on contribution profit, EBITDA, and the absolute dollar economics of the business than on just take rate. In this quarter specifically, some of the inputs to take rate were net positive based on normal market variability, including interest rate-related dynamics in some of the higher take rate portions of the business.

Speaker 5

More broadly, as we continue leaning into larger opportunities like first lien, which is roughly 25 times the size of the junior lien market, we believe that is the right trade-off for long-term growth and profitability. To touch on loan sale execution on Figure Connect, it has held quite steady in Q1 2026 and into April 2026, despite the macro and geopolitical environment. Since the beginning of the year, we have priced five securitizations with an aggregate notional value of nearly $1.9 billion and are continuing to see our pools priced competitively within new issue markets, reflecting a strong market consensus on the quality and resilience of the underlying credit on our marketplace.

Speaker 5

One further point to add in this revenue discussion section is that we are strategically retaining a portion of our loans, as reflected by the approximately $350 million on our balance sheet at quarter end, longer than we normally do, which was a deliberate decision to support the build-out of our Democratized Prime DeFi marketplace, as I had indicated during the Q4 earnings call. During our IPO roadshow and recent earnings calls, we have highlighted the importance of using our own inventory to build this marketplace. Lenders on blockchain are showing significant appetite as we see continued interest and growth in lender supply coming into Democratized Prime, and Figure-originated loans are supporting this supply to match offers. This translated to higher interest expense of approximately $2 million quarter-over-quarter.

Speaker 5

Our adjusted EBITDA margin was impacted as a result by approximately 1.4%, with a larger revenue denominator for lower margin interest revenue. With more lenders and asset classes coming online into Democratized Prime over the next quarters, as Michael announced today, we expect this interest income expense and loan balance trend to diminish. As Mike Cagney noted in his remarks, and also has noted a number of times in past remarks, building out marketplaces requires upfront investments. With that, the scale comes quickly and handsomely, as with Democratized Prime, where we are already seeing scale benefits into prevailing re-lending rates, which will flatter margins going forward. I will cover this further in the balance sheet and liquidity section. Moving to profitability and adjusted EBITDA, our GAAP net income for this quarter was $45 million, including a tax benefit of $7 million.

Speaker 5

Following the post-IPO lock-up expiration, we saw a one-time tax benefit from option exercises. While equity activity can continue to create periodic tax benefits, we view the magnitude of the Q1 benefit as elevated and not indicative of the full year expected tax rate. Assuming no additional material tax benefits from option exercises, we currently expect the full year effective tax rate to be closer to the 20% range. Adjusted EBITDA was $83 million, up approximately 190% year-over-year, and adjusted EBITDA margin was 50% compared to 33% in the prior year period. In addition to the interest income and interest expense impact to our margin, as I discussed earlier from a variable cost efficiency perspective, we are making further investments to utilize AI and automate our operations.

Speaker 5

Our technology platform has proved to be extensible, and even as we have been adding a number of enhancements to the mortgage product, such as support for new income types and property ownership models, there has not been a material increase in these costs. Operations and processing costs declined 20% from 93 basis points to 74 basis points as a percent of volume as our CLM volume more than doubled from Q1 2025 to Q1 2026. This is the power of our AI-driven efficiency roadmap. Near term, we expect operations and processing costs to remain relatively flat as a percent of volume as we continue these initiatives, with AI-driven improvements expected to impact further in the second half of 2026. Moving to our balance sheet and liquidity, we ended the quarter with approximately $1.5 billion in cash and cash equivalents.

Speaker 5

Loans held for sale was approximately $500 million at quarter end, an increase of $100 million since year-end and on par with a year ago. Our loans held for sale balance typically reflect the periodic timing of loan sale and securitization programs, as we generally only hold these for a few weeks. I mentioned earlier, as we scale Democratized Prime and utilize Figure loans for collateral to meet lender supply, we extended the time we hold certain loans on our balance sheet for this quarter. Available lender supply was 0.9 times borrower demand at the end of the year. This is now 1.2 times at the end of this quarter. More third-party borrower demand comes onto the platform, such as Agora Data, as well as Credibly, which we announced this May, we expect these balances to normalize back to historical trends.

Speaker 5

As more lender supply comes in from Ethereum, we expect to add more lender supply and also bring down costs to borrowers on Democratized Prime marketplace. I wanted to provide some color on changes to adjusted net revenue. As YLDS in circulation continues to grow, we are updating our definition of adjusted net revenue to deduct YLDS-related interest expense while holders of YLDS earn, which today is SOFR minus 35 basis points. This better reflects the true spread take rate on YLDS as part of adjusted net revenue. As our CLM volume continues to grow, we are holding more marketable securities on our balance sheet as a regulatory requirement to hold at least 5% of Figure-sponsored securitizations. We are adjusting net revenue and adjusted EBITDA for unrealized P&L volatility from these securities.

Speaker 5

Note that securitizations issued by our guarantor do not have a risk retention requirement. Finally, starting this quarter, we are introducing quarterly guidance for our consumer loan marketplace volume. Looking ahead, we are establishing our Q2 2026 CLM volume guidance in the range of $3.8 billion-$4.1 billion. This marks the first quarter in which we are providing formal volume guidance. We believe this is the appropriate inflection point to do so as the increased data transparency from our blockchain integration, combined with more predictable scaling patterns, provides us with the requisite visibility to forecast with a high degree of confidence. Our outlook is supported by a robust start to the year. Following a strong Q1, April delivered another record-breaking volume month. That momentum has carried into May, where we continue to see strong activity levels ahead of normal holiday-related trends later in the quarter.

Speaker 5

As Michael noted earlier, our strategy remains focused on onboarding high-volume whale partners. In our guidance, we have been intentionally conservative regarding the ramp-up of larger accounts onboarded in Q4 and Q1 using a three to six months timeline. While we have seen partners integrate faster, we believe it is prudent to provide a range that accommodates a more measured ramp-up. This approach ensures our guidance remains grounded as we continue to scale these enterprise-level relationships. Thank you. We will now open up the queue for questions.

Speaker 8

Thank you. The floor is now open for questions. Again, we kindly ask you limit yourself to one question and one follow-up and pick up your handset when posing your question. Thank you. We'll take our first question from Dan Dolev with Mizuho. Please go ahead. Your line is open.

Speaker 1

Hey, guys. Excellent results out there. Very, very strong. I just had a question about DSCR. Looks really promising. Can you talk about the market opportunity compared to traditional HELOCs and how we think about it into the future? Thank you.

Speaker 6

Thanks, Dan. We talked both about residential transition loans and DSCR, which is debt service covenant ratio, and both of those are targeted towards traditionally investment orientation in the business case, so people using a loan for business purposes, often renovation or fix and flip. You're seeing product traction there in markets that have historically been pretty manual, fragmented, operationally intensive. These capital markets have also been really slow, with legacy processes and loan-by-loan sales. We think this creates an opportunity for modernization on chain. These greenfield opportunities come in that broader business market that I was mentioning, which we see as another avenue to attack that $35 trillion of home equity outstanding.

Speaker 6

I mentioned this in the prepared remarks, but for residential transition loans in particular, we see that as a really nice fit with Democratized Prime because the loans are relatively high rate, they're collateralized by a home, but they're also short term. It's almost a perfect fit there.

Speaker 1

Thank you, and congrats again.

Speaker 8

Thank you. We'll take our next question from James Yarrow with Goldman Sachs. Please go ahead.

Speaker 3

Good morning, and thanks for taking the question. Michael, I wanted to touch on your comments on potentially lower bank risk weights for mortgages. I guess I would think that those could make banks more incentivized to hold assets on balance sheet. You talked about how you expect this to support volumes. I'd just love to get a little bit more from you, just how you think that could drive even more activity on Figure.

Speaker 6

There's 2 ways. There's the origination, and there's the capital market. From an origination perspective, if banks are looking to have the flexibility and reenter the mortgage space, as you likely know, it's generally a non-bank market today, then Figure is the easiest way for them to get up and running. It also provides the most flexibility from a capital market perspective because they can make and hold some portion, and they can also even hold just for CRA eligible, for example. We've seen a lot of interest from banks and depositories in doing so. More broadly, in the event that bank balance sheets actually become a strong long-term opportunity for holding mortgages, which today is not the case, right? Many banks participate in Fannie Mae securitizations even though they have the balance sheet.

Speaker 6

If that were to change, we think Figure Connect would be the ultimate rails and pipeline to help those banks aggregate mortgages because they're not gonna overnight become large originators of this asset class.

Speaker 3

That's super clear. Thank you. Can I just ask 1 follow-up here? I'd love to just get your sense or your aspirations in the first lien purchase mortgage market. I guess, is this a goal for you to add to the platform? And what do you think you need to build before you could start to tap that obviously very sizable TAM?

Speaker 6

It's a medium-term goal for sure. We think that it's obviously a large addressable market. We have great relationships across partners. We think as we look to ultimately take the entire capital market on chain, purchase mortgage is a part of that. For us, we are currently contemplating with some of our larger partners, some of those whales we've mentioned, who have actually come inbound and asked for that. We're currently developing that in connection with some of those partners.

Speaker 3

That's great. Thanks a lot, Michael.

Speaker 8

Thank you. We'll take our next question from Patrick Moloney with Piper Sandler. Please go ahead. Your line is open.

Speaker 12

Hey, guys. Good morning. This is Will Kopf on for Patrick Moloney. Thanks for the question. Earlier in the call, you mentioned upselling Mutual of Omaha to Figure Connect. Can you talk a little bit more about the upselling process to Connect, some of the sticking points, if any, and the pace at which you expect non-Connect volume to switch to Connect over time? Thanks.

Speaker 6

Thanks for the question. Process generally is a volume-based one. The incentives are naturally aligned. As a reminder, when people move to Figure Connect, they ultimately earn more of the economics, and then Figure goes to be increasingly balance sheet light and earns a higher EBITDA margin as a result. Generally around $5 million-$10 million of monthly volume is when conversations start regarding Figure Connect. We've made it as easy as possible by building a large ecosystem of products, including Democratized Prime, which is a way that people can finance assets as they aggregate to then ultimately securitize.

Speaker 6

Everything that we do, Figure Forge, as Mike was mentioning, all this tooling that we provide in this broader ecosystem ultimately greases the wheels of Figure Connect, and that's why you're seeing 60% of volume and why folks like Mutual of Omaha are flocking to this and also increasing their volume by such amounts when they do so.

Speaker 12

Thanks again.

Speaker 8

Thank you. We'll take our next question from Ryan Tomasello with KBW. Please go ahead.

Speaker 11

Thanks. Nice to see the addition of Flagstar. I know you've already given some prepared remarks on it, but wanted to double-click on the traction you're seeing with traditional depositories, you know, particularly for Flagstar. What drove that win? In general, how that sales motion differs versus going to your traditional, more common IMB and Fintech partners, you know, beyond some of these regulatory dynamics, Michael, you know, what's driving the unlock of those conversations? Thanks.

Speaker 6

The drive towards depositories is personal for me. I was an investment banker covering regional banks right out of school, so I've been really focused on this space since I got here, and Mike Cagney is also as a way with regional banks. For both of us, it's been a big focus, and we have yet, until recently, to make really significant traction. I think the turning point has been, one, just the scale of what we're doing. At some point now, you know, in the past quarter, we crossed over $1 billion a month of volume, which is really significant. I think us being a profitable public company makes banks more likely to work with us.

Speaker 6

I think the years in business, frankly, is another thing I hear, and of all those years, being really careful not to cross-sell and not to cross-market, which is really important to banks who spent, in many cases, centuries, you know, protecting their brand. I'd also add that banks, in particular, are not as well equipped to the boom and bust cycles that the rate environment has brought more recently. As people look to outsource with a simpler, faster on-chain solution like Figure, we're a natural choice. Furthermore, as people look to the smaller balance first lien loans in particular, those we make profitable, which are historically unprofitable. Banks, unlike others, can't turn their existing customers down. They support all their depositors, or at least try to. These are all reasons why banks are increasingly interested.

Speaker 6

Flagstar, in particular, has been a partner, and Mike, feel free to elaborate 'cause it's been a partnership dating back to when it was New York Community Bank. We have known them, and we have been a deposit customer, but it was only until recently that we were able to turn that long-standing relationship into a origination one. We think that is going to be a major deal as we go and seek to get the rest of those 5,000 banks and 5,000 credit unions that currently aren't working with Figure.

Speaker 7

Yeah. I think just to build on that to reemphasize the ability for us to offer competitive product in the sub 300,000 first lien category is an enormous opportunity. Both I think all three of us have commented on the fact that first lien's a 25 times larger market than the second lien space where HELOCs traditionally been used. You know, we see the banks in particular as wanting to lean in. Going back to what Michael said earlier and reemphasizing, our big partners have been coming to us proactively asking for first lien, not just refi, but purchase. I think it's a testament to how effective the technology is, and in particular, the benefit of the marketplace that those loans can go into.

Speaker 11

Great. Appreciate that. Just a quick follow-up for Macrina. Can you just talk about the near-term outlook for expenses? You're obviously reiterating the midterm EBITDA target of 60%, which is nice to see. Any color on the expense trajectory coming out of 1Q as we think about modeling for the rest of 2026 would be helpful. Thanks.

Speaker 5

Sure. Ryan, thanks for joining the call. We've talked about how our expenses are bifurcated into fixed expenses and variable expenses. As you know, variable expenses will grow as a percentage of volume. Sales and marketing, ops and processing, those you'll tend to see they are gonna be larger compared to where we were in the past because volumes are just growing naturally as well. Fixed expenses, we do anticipate them to be pretty stable. I think we were pretty stable versus Q1 for both of those accounts, which is tech and product and G&A. We expect that trend to continue into the following quarters as well. Then interest expense, as we bring down our own loans on Democratized Prime over the coming quarters, we do expect that to come down as well.

Speaker 11

Great. Thank you.

Speaker 8

Thank you. We'll take our next question from Rob Wildhack with Autonomous Research. Please go ahead.

Speaker 10

Morning, guys. Just on the volume outlook for the second quarter. You've got the $4 billion roughly at the midpoint, and I think you called out $1.3 billion in April. That kinda suggests May and June on average will be about the same as April. That's a little bit different from the more, you know, the pattern of sequential growth we've seen through this year. Is there anything to read into there? Because my instinct would've been for more sequential growth given the huge opportunity this seasonally strong spring months in home lending and all the new products you've been highlighting.

Speaker 5

Sure. I've also mentioned in my prepared remarks, you know, we wanna make sure that we look at our whales that have been coming through for Q4 and Q1. They tend to ramp in a 3 to 6-month timeline.

Speaker 7

When we're providing guidance and where we think we're gonna end up for Q2, we really wanna take a balanced approach as we think about where it could come out. We could be a little bit on the conservative side just looking at trends, but I do think we need to be looking at this on the right pace and that's where we think we're gonna end up.

Speaker 10

Okay. Thanks. Just one on the take rate. Mike Tannenbaum, you called out some interest rate volatility in the quarter. You have that. You have the faster growth in some of the lower take rate products. I would think both of those would be negatives from a take rate perspective. Is there any specific offset that led to the flat take rate sequentially? Just any other color you'd have there would be great.

Speaker 6

Take rate is an output of lots of inputs. We have, for example, mix shift to Figure Connect, we have mix shift to first lien, we have shifts from DTC to B2B, and then you have the actual take rates that are coming partner by partner as people expand volume tiers, for example. You also have take rates that are coming from the overall execution and gain on sale. All of those things collectively create the take rate for the quarter. That take rate is ultimately, as we've said, it's an output metric. Our view is that the activity for this quarter, the puts and takes of all that ended up at 3.8, which is something that we think is strong.

Speaker 6

As you noted, particularly in light of the volatility that happened towards the end of the quarter. That said, you know, that broader range that we provided, we maintain because of all the variability in these inputs. I'll just restate the example that I gave in the prepared remarks, which is the focus on first lien and on product diversification are ultimately strengths of the platform in terms of both EBITDA and contribution margin. That's where we're focused in terms of our execution.

Speaker 8

Thank you. We'll take our next question from Randy Benner with Texas Capital. Please go ahead. Your line is open.

Speaker 9

Hey, thanks. The obviously the overall volume trend is good per the guide. For HELOC, just the HELOC market in particular, do you feel that you're gaining share there? You know, there's more banks because of the lock-in effect who are offering HELOC products. SoFi had an announcement that got some investor reactions. Just, you know, can you give us a sense where you kind of, you know, almost halfway through the year, do you think you're gaining share? Where are you fitting in the overall kinda HELOC competitive market in the U.S.?

Speaker 6

Thanks for the question. We've said this before, which is that we don't actually consider the HELOC market to be relevant to what we do. One, because so much of what we do is greenfield. Two, because so many of our partners don't consider themselves mortgage companies or participants in the HELOC market. Three, because of so much of what we do is first lien, which would have historically been the purview of a traditional mortgage. For us, HELOC is a way to approach not only that $35 trillion of home equity, but also that $2 trillion of annual mortgage origination.

Speaker 6

Kind of the announcements of SoFi and others, right, those are welcome to kind of emphasize the value of the space, but ultimately, those are not part of our consideration set when we look at the addressable market for Figure.

Speaker 9

Oh, okay. Well, thanks for that clarification. I guess I would maybe shift the question to say, for your addressable set, how would you characterize your share gain?

Speaker 6

I'd characterize our share gain as a combination of new partner growth. We see the opportunities there as not only the existing first lien origination market, right? Call it people like banks, credit unions, and independent mortgage banks that originate mortgages, but also fintechs and home improvement companies that historically don't consider themselves in this space, but look to tap home equity as places where we're gaining share, both in terms of net new customers. Also, very importantly, as I mentioned in the prepared remarks, as gaining share versus ultimately Fannie Mae and Freddie Mac's market, right? If you look at Mutual of Omaha as something cited in the quarter, that 5x quarter-over-quarter growth that we saw didn't just come from an overall 5x growth at Mutual of Omaha, right? That came at the expense of Fannie Mae and Freddie Mac market share.

Speaker 6

That's where we see ultimately our competition, that combination of, call it the Ellie Mae, ICE, and Fannie Mae and Freddie Mac, complex.

Speaker 7

Just to build on that, I think it's important to emphasize that that sub $300,000 first lien category is a loan that wasn't done before. It's not that we're taking the share from anybody. It's that no one was originating that asset. I think Anthony Hsieh talked about this in his earnings remarks at loanDepot last week, and referenced his partnership with Figures opening up this market for them in a market they couldn't address before. A lot of what we're doing isn't competing amongst an existing pie. It's greenfield. We're making bigger pies.

Speaker 9

All right. That's helpful. Thank you.

Speaker 8

Thank you. We'll take our next question from Dan Fannon with Jefferies. Please go ahead. Your line is open.

Speaker 2

Great. Thanks. Good morning. I was hoping you could expand upon your comments on the outlook for new partners. Obviously, a lot of momentum in that in the numbers we saw this quarter. You know, how does that compare to, say, at the beginning of the year? Also, the 3-6 months of ramping that you highlighted for your larger customers. I would also just be curious about how that compared to, say, a year ago. Is that 3-6 months shorter than maybe what you saw previous as customers have become, you know, more comfortable with the platform or you've grown in your size and scale?

Speaker 6

Dan, the future is bright. We see the pipeline the same today as it has been. In fact, I feel Mike has said to me, you know, we can't double forever, but so far we are doubling forever. We feel really good about where we are. We also feel that if anything, the implementations that we're doing in terms of AI and onboarding and examples like I gave of Mutual of Omaha are being helped by tooling technology and the more visibility that we have being a public market company. We don't see any extension of timelines for partner onboarding, nor do we see any reduction in pipeline.

Speaker 2

Great. Thank you.

Speaker 8

Thank you. We'll take our next question from Kyle Peterson with Needham. Please go ahead.

Speaker 4

Hey, good morning. Thank you for taking my questions and nice results. Wanted to touch on, you know, the funding partner mix. Really helpful how you guys kinda split that out in slides. You know, wanted to follow up a little bit more on the asset manager slice. You know, maybe if you guys could give some direction or color even qualitatively on kinda what of that is backed by kinda longer duration institutional capital versus kinda some of these more semi-liquid, you know, retail products like BDCs or interval funds. Any color or direction there would be great?

Speaker 6

We broke that out in terms of the types of funds in particular. As I mentioned in the prepared remarks, we have seen somewhat of a rotation into the Figure and the consumer loan space given some of the weakness in the software and overall private credit. From our standpoint, I mentioned some of those executions we saw both in late March as well as early April, and I think that reflects the rotation that I'm sharing about.

Speaker 4

Okay. You know, maybe just a follow-up to, you know, the take rate and mix and kinda what you guys are seeing in April. You know, it seems like at least the macro has gotten a little less favorable for first lien, more favorable for HELOCs and probably some other products. I know you guys are scaling this off of kind of really small bases as Mike referred to, like, creating new pies. I guess how should we think about the mix? Like, you know, have you guys seen any change in April that to reflect, you know, rates kinda spiking back up?

Speaker 6

Our platform is strong because it is able to be successful and create bigger pies regardless of the rate environment. When we have rates moving up like they have been in the near term, you have that $35 trillion of home equity opportunity we talk about. I'd also point out that, you know, from our marketplace, about 20% of loans are used to pay off higher interest rate debt, so credit cards, student loans, auto loans, and the like. As a result, you know, that opportunity goes up as those rates tend to go up more than the prevailing mortgage and home equity rates. Separately, as you know, we're creating just larger pies through the greenfield nature of what we do.

Speaker 6

Given borrowing against your home tends to be the lowest cost option for anyone who has home equity, which includes that $35 trillion and the 40% of homeowners who own their home free and clear, it creates a really nice opportunity and a tailwind for us. I think what you've seen in the SMB space, in particular, where partners are using our ability to access home equity to fuel their business, their business lending franchises is a great example.

Speaker 7

Just to build on that again, I think, you know, you don't have the same price elasticity in these sub $300,000 first lien products because, again, they just weren't offered before. The fact that we're unlocking that market, there's less rate sensitivity there and more, you know, just being able to access the credit. While we are barbelled in the sense that higher rates push us towards second lien, lower rates push us towards first lien, we have both products. This first lien space is so greenfield, it just doesn't have the same rate elasticity that you'd expect in a normal mortgage.

Speaker 4

Great. That's very helpful. Thank you.

Speaker 8

Thank you. There are no additional questions at this time. This will conclude today's Figure Technology Solutions first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful day.

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