Pagaya Technologies Q2 2026 Earnings Report

Pagaya Technologies EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.32
• Beat/Miss: N/A
• One Year Ago EPS: $0.20

Pagaya Technologies Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $356.53 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Pagaya Technologies Announcement Details

• Quarter: Q2 2026
• Date: 7/30/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, July 30, 2026
• Conference Call Time: 8:30AM ET

Pagaya Technologies (NASDAQ:PGY) is a financial technology company that applies artificial intelligence and machine learning to the credit and asset management industries. Through its proprietary data-driven platform, Pagaya analyzes vast datasets from consumer credit portfolios to build predictive risk models, enabling institutional investors to gain access to alternative credit products. The company’s solutions streamline underwriting, optimize portfolio construction and facilitate the efficient securitization of consumer loans, credit card receivables and other asset classes.

Founded in 2016 and headquartered in New York, Pagaya has expanded its operations to serve financial institutions and asset managers primarily in the United States. The company provides software-as-a-service tools and an electronic marketplace where lenders can source and distribute credit assets, while investors receive enhanced transparency into loan performance metrics. Pagaya’s approach focuses on combining nontraditional data sources, advanced analytics and automated workflows to improve risk assessment and capitalize on underserved segments of the credit market.

Under the leadership of co-founder and Chief Executive Officer Gal Krubiner, Pagaya has grown from a startup incubating machine-learning algorithms to a publicly traded company. Its management team comprises professionals with deep experience in data science, financial engineering and capital markets. By leveraging AI-powered insights, Pagaya continues to refine its investment strategies and expand partnerships with banks, credit originators and institutional investors seeking to diversify credit exposure and enhance risk-adjusted returns.

Pagaya Technologies Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Pagaya reported record Q2 results, with network volume up 33% year over year to $3.5 billion, revenue up 19% to $387 million, adjusted EBITDA up 43% to $124 million, and GAAP EPS reaching a record $0.49.
• Positive Sentiment: Auto was the primary growth driver, supported by dynamic offer optimization, multiple financing options, and access to additional partner flow. Management said these tools are improving dealer conversion and helping lenders compete for more transactions.
• Positive Sentiment: The company raised full-year 2026 GAAP net income guidance by approximately 25% at the midpoint to $155 million-$180 million, while maintaining expectations for $12.5 billion-$13.25 billion of network volume and $460 million-$490 million of adjusted EBITDA.
• Positive Sentiment: Pagaya emphasized significant operating leverage: core operating expenses declined 6% year over year and have remained broadly flat for roughly 18 months. Management believes the existing platform can support substantially more volume and partners with limited additional investment.
• Negative Sentiment: FRLPC margin declined sequentially to 4.2% due to product and partner mix and elevated benchmark rates, with management expecting a 4%-5% range for the remainder of 2026. Point-of-sale volume is also expected to fall in late Q3 and Q4 as one partner rolls off, although the company said the impact on margin should be limited.

Presentation

[Operator]

Greetings. Welcome to the Pagaya second quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Craig Smyth, Head of Investor Relations at Pagaya Technologies. Thank you, Craig. You may begin.

[Craig Smyth, Head of Investor Relations at Pagaya Technologies]

Thank you. Welcome to Pagaya's second quarter 2026 earnings conference call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya, Sanjiv Das, President, and Jon Dobres, Chief Financial Officer. You can find the materials that accompany our prepared remarks in a replay of today's webcast on the investor relations section of our website at investor.pagaya.com. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts with respect to, among other things, our operations and financial performance, including our financial outlook for the third quarter and the full year of 2026. Our actual results may differ materially from those contemplated by these forward-looking statements.

[Craig Smyth, Head of Investor Relations at Pagaya Technologies]

Factors that could cause these results to differ materially from our expectations include, but are not limited to, those risks described in our press release today in our filings with the U.S. Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements as a result of new information or future events. Please refer to the documents we file from time to time with the SEC, including our 10-K, 10-Q, and other reports, for more detailed discussion of these factors. Additionally, non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, Fee Revenue Less Production Costs, or FRLPC as a percentage of network volume, core operating expenses and core operating expenses as a percentage of FRLPC will be discussed on the call and included in the accompanying materials. We also provide an outlook for the third quarter of full year 2026 on a non-GAAP basis.

[Craig Smyth, Head of Investor Relations at Pagaya Technologies]

Reconciliations to the most directly comparable GAAP financial measures are available to the extent available without unreasonable efforts in our earnings release and other materials, which are posted on our investor relations website. We encourage you to review the shareholder letter, which was furnished to the SEC on Form 8-K today for more detailed commentary on our business and performance in conjunction with the accompanying earnings supplement and press release. With that, let me turn the call over to Gal.

[Gal Krubiner, CEO at Pagaya Technologies]

Hi everyone, thank you very much for joining. I'm really proud of our Q2 performance. The business had very strong growth. This growth was not by chance. It was the outcome of a partner-focused strategy that we have. From an EPS perspective, Q2 reached $0.49, which is a record for us. As a result, we are raising our net income guidance by almost 25%. Today, I want to drive home a few key messages. First, our unique profit engine. Second is that growth is accelerating, driven by repeatable products and partner expansion. Third, the Pagaya embedded B2B integration powers a unique consumer data moat at scale. Let me start with reminding ourselves of our business model. Our model is simple.

[Gal Krubiner, CEO at Pagaya Technologies]

Partners send us volume, which our proprietary technology turns a portion of that volume into loans. Our capital markets funds these loans with over 170 of the largest asset managers, insurance companies, and pension funds in the world. With each transaction, we earn high-margin cash fees. This quarter, every part of that engine set a record. Network volume, FRLPC, Adjusted EBITDA, and EPS. Personal loan reached an all-time high, and auto set a record by a wide margin. All of this while keeping costs flat, which means all of it went to the bottom line. Auto was the standout this quarter and showed a step function growth. The driver behind it is that our network calibrates now every aspect of the offer, the amount, the rate, the duration, and the document requested. Why this is so important?

[Gal Krubiner, CEO at Pagaya Technologies]

It pushes our lenders to win more deals with their crucial dealer networks. In turn, every offer strengthens our value proposition. This data drives the perpetual learning that improves our proprietary technology. This is the auto flywheel running. We are still in the early days. The bigger picture, though, that keeps me excited is that the total addressable market in consumer credit is almost $1 trillion of origination per year. Today, we are only at a run rate of $14 billion of origination per year. To take advantage of this opportunity, Pagaya continue to develop two distinct capabilities. The first, a B2B embedded platform, where our product enable our partners to be a full-spectrum lender. The second, a data moat engine for consumer lending, where every application sharpens the next decision.

[Gal Krubiner, CEO at Pagaya Technologies]

This combination, the data moat plus the embedded distribution, sets Pagaya on track for years of profitable growth. To summarize, costs are largely flat. Volume is growing. Operational leverage is high. That combines to compound EPS, it is just getting started. With that, I will turn it over to Sanjiv.

[Sanjiv Das, President at Pagaya Technologies]

Thanks, Gal. Big picture, this was another strong quarter of disciplined execution. We stayed focused on profitable volume growth and on diversifying across asset classes, partners, and channels. What's driving this is our product-led growth playbook, which we keep rolling out partner by partner to unlock growth. Let's start with the headline. This quarter, we achieved the highest network volume in Pagaya's history at $3.5 billion, which is a 33% increase year-over-year. We did it with no change to our credit posture, with a steady conversion at roughly 1% and almost no incremental OPEX. Auto alone was more than 3/4 of our year-on-year growth in network volume. In fact, this quarter, application volume grew 29% year-on-year. Our auto approach remained focused on the indirect auto industry and the relationship between the dealer and the lender.

[Sanjiv Das, President at Pagaya Technologies]

We believe that the dealer will continue to be where most of the auto transactions will eventually take place. About 83% of auto loans close at the dealer's desk, the dealer is the gateway to the loan, with Pagaya connected to more than 40% of the U.S. market. Let me break down what we are actually optimizing in auto to solve critical dealer needs, and thereby enabling our partners to become full-spectrum lenders. First, we optimize our lender's capabilities. When a partner can't make an offer or their terms just aren't going to convert, we step in with an approval or a counter, they stay relevant right there at the dealer's desk. This means that our lenders stay in deals they'd otherwise lose. Second, we optimize for the borrower.

[Sanjiv Das, President at Pagaya Technologies]

We adjust the down payment, the APR, the loan-to-value, the term, all in real time to find the structure that the borrower can actually close on, and that's the key. The goal isn't the offer that looks best on paper, it's the one that the borrower actually says yes to. Third, last, but certainly not the least, we optimize for the market because the dealer is seeing multiple offers at the same time. We look at what the other lenders are putting in front of them, and we make sure ours is the most compelling one in that lineup. Not just approvable, but win-worthy. You put those together and you get a self-reinforcing flywheel. We deliver a seamless dealer experience, we let our lenders make competitive offers, and that earns us more application referrals.

[Sanjiv Das, President at Pagaya Technologies]

We expand full-spectrum approvals and capture more flow, approval rates and application volumes both rise, which makes our partners the preferred lending provider for the dealers, pulls even more flow into the top of the funnel for them, and feeds the next turn of the cycle. Here's our real structural advantage. Our embeddedness in our partner's business is driving our unique customer data moat. That combination, the B2B integration on one side and the data on the other side, is what makes this so hard to replicate. Now on to PL, or personal loans. This quarter alone, the Affiliate Optimizer Engine, our flagship personal loans product, contributed more than 1 billion in network volume.

[Sanjiv Das, President at Pagaya Technologies]

Last quarter, we onboarded one of our leading personal loans partners into Experian Activate, and we are on track to add a few more personal loans partners to that platform this year with a line of sight to two more next year. In the second half of this year, we expect to go live with a few more new partners, including regional banks. The important part. Every new partner comes on through our pre-built product integration, which makes scaling additional products far more seamless and capital efficient. Finally, our point-of-sale business has the same story, a robust, diversified pipeline across verticals and ticket sizes. It runs from retail solutions like Sezzle to Upgrade's travel-focused BNPL product, Flex Pay, up to large ticket POS providers in onboarding right now. Part of the play here is enabling our existing personal loan partners to grow their POS business.

[Sanjiv Das, President at Pagaya Technologies]

Flex Pay is a great example. We have another large ticket partner in the pipeline. Beyond what's live today, we are building new solutions like pre-qual to keep pushing the POS offering forward. On the funding side, the institutional demand for Pagaya's assets stays strong, and we keep optimizing our cost of capital and our access to liquidity. This was our largest funding quarter ever, with $3.7 billion, and we closed six ABS transactions, including our largest auto securitization ever at $600 million. Demand was strong enough that we grew our investor network by 11 to a total of 174 investors, and we upsized our last three securitizations this quarter. Jon will talk more about it. To step back, this quarter reflects the repeatability and scalability of the model.

[Sanjiv Das, President at Pagaya Technologies]

By staying disciplined in underwriting, deepening our partner relationships, and executing methodically against the playbook, we are building a more diversified multi-product platform. With every turn, the flywheel gets stronger. Each new partner and each new product compounds the value of the last, which is exactly what makes this mix, prudent risk management plus relentless execution, so powerful. It sets us up to deliver profitable, sustainable growth and to keep creating value for our partners, our funding network, and you, our shareholders. With that, I'll hand this over to Jon.

[Jon Dobres, CFO at Pagaya Technologies]

Thank you, Sanjiv. I met Pagaya initially as an investor in 2020 before joining in 2021. I was drawn to its unique value proposition for lenders and data-driven competitive mode, as well as a highly scalable operating model. Our results since then, including our current net income run rate of over $180 million, substantiates that initial confidence. Let's get to the specifics on a highly successful quarter. Network volume grew 33% year-over-year to a record of $3.5 billion, driven by strength in auto and personal loans. Application to volume conversion remained at roughly 1%. Total revenue grew 19% year-over-year to a record $387 million. Interest in investment income doubled to $22 million, as we continue to orient our investment portfolio toward cash interest bonds. This now comprises approximately 50% of our overall investments versus less than 30% in 2025.

[Jon Dobres, CFO at Pagaya Technologies]

FRLPC grew 16% to $147 million, a record. FRLPC as a percent of network volume contracted about 60 basis points sequentially to 4.2%. Two drivers affected the FRLPC percentage this quarter. The first is product and partner mix. By design, new products and partners initially enter the portfolio at lower margins. Consistent with our existing legacy products, as volume grows, margin follows. The second is the rate environment. Benchmark rates remain elevated, which compresses the margin we earn from the funding side of our network, even with interest in our funding vehicles at an all-time high. Importantly, over the course of 2026, we've priced ABS transactions with more conservative loss assumptions. That trades lower day one revenue for more stable vintage performance with a larger loss buffer. Turning to GAAP profitability, this is where our business model really shows its strength.

[Jon Dobres, CFO at Pagaya Technologies]

Operating income reached $106 million, up 87% year-over-year. Adjusted EBITDA increased 43% to $124 million, with a margin of 32%, up five points over last year. Core operating expenses were actually lower sequentially and declined 6% year-over-year. As a percentage of FRLPC, core OPEX hit a record low of 31%, an eight-point improvement versus last year. This deserves a second mention. We increased volume 33% and increased profits nearly 200%, but core OPEX has not increased in a year and a half. That is unique and could only be accomplished by a software-like business model that requires virtually no marketing spend to generate volume. Quarterly GAAP EPS was a record $0.49, with overall GAAP net income increasing $29 million to $45 million. That was driven primarily by 19% growth in total revenue alongside lower operating expenses and interest expense from our more efficient balance sheet.

[Jon Dobres, CFO at Pagaya Technologies]

Net income margin reached 12% compared to 5% last year. On credit performance, all asset classes are performing in line with underwriting expectations. 2025 and 2026 vintages continue to reflect consistent performance with cost of capital down approximately 200-400 basis points versus 2024 and earlier, despite higher benchmark rates. Our funding diversification strategy, including more forms of longer-term committed capital, has received strong receptivity by our investor network. We combine pre-funded ABS, seasoned ABS with committed long-term revolving structures and forward flow. Turning to the balance sheet. As of June 30, we held $249 million in unrestricted cash and cash equivalents and $1.04 billion of investments in loans and securities. Our investments have consistently improved in quality and mix over the past 15 months, with now approximately 50% in bond tranches with highly attractive yields.

[Jon Dobres, CFO at Pagaya Technologies]

As we have discussed in the past, there is widely available funding against these bonds, and our ability to sell them as they season provides additional optionality. On fair value, the investment portfolio was adjusted downward by $42 million in the quarter, in line with expectations. We added $118 million of new investments net of paydowns from prior deals. Now turning to guidance. Based on a strong quarter and visibility on the remainder of 2026, we are raising our full year net income guidance by about 25% at the midpoint. We expect network volume growth to be driven by deeper engagement with existing partners, primarily in auto, contributions from new partners, and new product initiatives. This will be partially offset by lower point-of-sale volume.

[Jon Dobres, CFO at Pagaya Technologies]

FRLPC percent is expected to be between 4%-5% for the remainder of the year. We assume that benchmark rates remain elevated for the rest of the year. For the third quarter 2026, we expect network volume between $3.425 billion and $3.625 billion, total revenue and other income in the range of $370 million-$390 million, and Adjusted EBITDA between $120 million and $130 million. We expect GAAP net income for the quarter of $42 million-$52 million. For the full year 2026, we're expecting network volume between $12.5 billion and $13.25 billion, total revenue in the range of $1.425 billion-$1.525 billion, Adjusted EBITDA between $460 million and $490 million, and GAAP net income between $155 million-$180 million. Let me turn it over to the operator for Q&A.

[Operator]

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from John Hecht with Jefferies LLC. Please proceed with your question.

[John Hecht, Analyst at Jefferies LLC]

Morning, guys. Thanks for taking my questions, and congrats on a good quarter and good guide. It seems like there's a lot of strength in auto. You mentioned lower point-of-sale volumes. Maybe talk about your pipeline and the competitive situation and what's causing the auto to grow so fast relative to the other segments.

[Sanjiv Das, President at Pagaya Technologies]

Hi, John. This is Sanjiv. I'll take the call. I'll take the question, rather. Thank you for the compliment on the performance. I will say that a large part of our auto growth came in as a result of a lot of the hard work that had been going on for the last six to nine months on the auto product. We had spent a lot of time essentially working on what we call the dynamic offer optimization, which was essentially improving the conversion rate at the dealer level in order to make our offers more win-worthy. When a customer applies for a loan, we didn't give just one offer, we gave multiple offers and multiple choices. It was dynamically optimized at the point of sale for the dealer. This led to a significantly higher flow that came into our lenders because they were able to approve more loans.

[Sanjiv Das, President at Pagaya Technologies]

The other thing was a very strong effort that we had made in terms of product market alignment over the last few months. If you recall, in the last quarter, we had talked about updated terms and updated ticket sizes to meet market levels. There was a much greater product market alignment. Last, and certainly not the least, in fact, it's something that I would like to double-click on, was that we got access to substantially new flow from our partners, which was essentially driven by this new construct of what we call counters, where our underwriting models provide sometimes more optimized volumes of offers or loan approvals for the customer. The lenders often prefer to provide Pagaya's approval as opposed to their own because it's sort of more fuller in terms of the loan amount and the approvals.

[Sanjiv Das, President at Pagaya Technologies]

This is really important because our partners are now giving us new flow that they used to keep for themselves. There are three things. There's the product as a result of the optimization of the offer, there's greater alignment with the market in terms of the ticket size and the market levels, and of course, access to new flow. All of this effectively led to the growth in the auto business. Perhaps Gal can give some more color on that.

[Gal Krubiner, CEO at Pagaya Technologies]

Yeah. John, hi. Good to hear from you. I think the one sentence I would add on top of all what Sanjiv said, which was exactly the point, is the unique power that we have because we have many lenders and what we perceive to be our partner product growth engine is really that when we are unlocking some product, in this case, was understanding in one of our partners that actually the decline flow is less where it's interesting, but much more the what if we sell all the applications that are actually being sent back to the dealers with cutbacks and recognizing that the probability for them to convert is much lower and changing the full product of how Pagaya works to be able actually to receive it in an output and instead of that, sending our offer instead.

[Gal Krubiner, CEO at Pagaya Technologies]

That has driven a very major growth with that partner. More interesting than that, we took that concept of kind of like meeting more what are the needs of the customer in the dealership moment through activating the best offer that could show to the customer, in this case, through reducing the amount of counter, and we took it to another few lenders. What you see is really the product partner growth in action, specifically in auto, where one product solution is happening to one is actually pushing to be deployed and sold across the platform. Therefore, you see that meaningful change in rather short period of time to be able to drive meaningful growth. It should remain the same in the future.

[John Hecht, Analyst at Jefferies LLC]

Okay. If you think about the momentum of the different products and then the pipeline, how should we think about product mix on a volume perspective in 2027?

[Sanjiv Das, President at Pagaya Technologies]

Yeah. Basically, we are experiencing a very strong pipeline. In fact, in the last quarter, we had announced that in the last six months actually, there are about seven new partners that we are in the process of onboarding. Some of them are in the personal loan side, some of them are in auto, and a couple in POS. We expect that the mix will roughly remain the same because PL continues to be our flagship product. Auto is showing significant growth. At POS, we continue to grow and diversify. In terms of our pipeline, we are now seeing a shift in the mix, which is very interesting. In personal loans, we are seeing much more traction with the regional banks. In fact, there are a couple of banks that we've signed term sheets with, in the final contract stages with them.

[Sanjiv Das, President at Pagaya Technologies]

It's interesting to see that in the U.S., banks are now starting to look into personal loans and are looking at fee income as a major source of growth. Auto, we are also seeing a lot of interest from the banks, although we have started moving interest in the direction of OEMs and some of the enterprise-grade dealers. We will announce some of these in the forthcoming quarters. In POS, we continue to have very important discussions with our existing partners who are now starting to branch into different forms of POS, like purchase finance. Yeah. We expect the mix to remain pretty similar.

[Sanjiv Das, President at Pagaya Technologies]

I will remind you that we had exponential growth in our partner onboarding from the last couple of quarters, and we expect the momentum to continue over the next few quarters with a very substantial mix in the three asset classes that we operate in today.

[John Hecht, Analyst at Jefferies LLC]

Great. Thank you so much.

[Operator]

Our next question is from Sanjay Sakhrani with KBW. Please proceed with your question.

[Sanjay Sakhrani, Analyst at KBW]

Is that -$23 million this quarter run right now, or can that become more severe as you bring on incrementally more volume in the back half of the year? Are you guys seeing any changes in demand from asset managers, or is there still some repricing there? Thank you.

[Jon Dobres, CFO at Pagaya Technologies]

I apologize. I think the first part of your question got cut off.

[Sanjay Sakhrani, Analyst at KBW]

Sorry.

[Jon Dobres, CFO at Pagaya Technologies]

When it cut into the call, it was yeah.

[Sanjay Sakhrani, Analyst at KBW]

Yeah. You guys were expecting some of that pressure on the capital markets line item. That negative $23 million that we saw this quarter, I guess, is that run rate now? Or can that potentially increase as you guys kind of lean into volume growth in the back half of the year?

[Jon Dobres, CFO at Pagaya Technologies]

Thanks for the question. This is Jon. We don't view that as a run rate. However, we still see, as we said, benchmark rates remaining elevated. You should think about our FRLPC margin as 4%-5%. It reflects our self-funded business model, and it's a range we remain very confident in. As benchmark rates remain elevated, as we expect, you will continue to see some pressure from the funding side of the FRLPC contribution. I wouldn't think of it as something that's going to necessarily increase much from where it is today.

[Operator]

Our next question is from Kyle Joseph with Stephens Inc. Please proceed with your question.

[Kyle Joseph, Analyst at Stephens Inc]

Hey, good morning, guys. Yeah, let me echo John's congratulations on a good quarter. Just want to get your posture on underwriting. I know you guys tightened coming into the year, and obviously it looks like the growth is re-accelerating there, and I just want to kind of see if anything's changed on the underwriting front, or is that really just a function of new products and new partners?

[Gal Krubiner, CEO at Pagaya Technologies]

Hi there. It's Gal here. As you can tell, there are. Actually, we spoke about it many times, but we'll share again. There are two sides to it. Let me start with the bottom line. The bottom line is the posture in underwriting is not changed. The way we think about how do we bring together growth and at the same time the concept of being more prudent in risk measures as we have been, we are, and we will be, is really looking on the growth engine that is coming from new partners and from new products. A lot of the growth that you have seen in this specific quarter has came from new products that have been deployed in our major partners in the auto.

[Gal Krubiner, CEO at Pagaya Technologies]

You should continue to expect that as we bring new auto partners to see much more growth from that front through the embedness of these products into them. The concept of growing through embedding more product into more partners, which is the B2B concept of Pagaya, which we're taking the unique capabilities that we have on the consumer credit side and kind of allowing different lenders to become full spectrum through this, is really what drives more applications to come through to our way, and what is driving the ability at the end of the day to present a very impressive growth number as we saw this quarter.

[Gal Krubiner, CEO at Pagaya Technologies]

On the other side of it, you have the disciplined B2C side because we are talking about credit and we are taking credit risk. We are constantly looking for the areas and pockets that are actually slightly softer or areas that we feel that we are not pricing well, and constantly on a biweekly basis are changing and adapting to the different population into the different places.

[Gal Krubiner, CEO at Pagaya Technologies]

As I said in the beginning, for now, we don't see any shift. Therefore, the posture for us is unchanged as the U.S. economy is in a very good spot. There is a lot of investment coming in. Unemployment is low, and these are really the major driver for specifically our borrower, which is rather a healthy borrower, and Sanjiv will give few comments on that in a second. Allowing us to stay very much on course without any major changes to the credit posture. I don't know, Sanjiv, if you want to add anything to that?

[Sanjiv Das, President at Pagaya Technologies]

Sure. Actually, I do want to double down on what Gal just said. In the last quarter when we said we were anticipating that there were shifts going on in the market because of inflationary pressures and all the kinds of stuff that people were talking about, the economy at the time, I will repeat what we said last quarter, we took a prudent credit posture by cutting out the highest risks because we were anticipating that some consumers will be under pressure. Now, I must stress that when you show growth, you say, "Okay, I'm going to grow by basically shifting the mix that we have in the business flow that comes in through to Pagaya." There's one major misconception in the market, which is that we are a decline-only lender, which is not true.

[Sanjiv Das, President at Pagaya Technologies]

We have used decline as a mechanism to get into the loan origination system of about 36 odd partners, which is a very big deal. Once you do that, then you start moving upstream, up the funnel with our partners, which is what we have demonstrated we have done with pre-screen, with affiliate marketing, with counter flows, that is now starting to become a very large part of our flow. In fact, about I'd say greater than 45% of our flow comes from non-decline types of flow. I think that's a very important point for everybody to understand. Product-led growth, which is what we've been calling this, has been really important in shifting the positioning of Pagaya from a decline-only partner to using decline to leverage the embeddedness within our partner and grow up the funnel. That's really an important point.

[Sanjiv Das, President at Pagaya Technologies]

The second point is as a consequence of this is another misconception that we would like to straighten out, is that I don't think people understand that as a result of moving up the funnel, we've actually significantly shifted the profile of the borrower that comes into Pagaya. The average borrower income is now about $120,000. The average FICO is about 680. 37% of them are homeowners, and they have an average DTI of about 28%. To me, that looks like Middle America or Mass America. As you know, Middle America is not the bottom of the spectrum. Middle America manages its finances quite responsibly, and we've seen that across credit cards and other unsecured products through some of the other lenders. That's kind of how we are growing right now. We're growing through product.

[Sanjiv Das, President at Pagaya Technologies]

We're growing through top of the funnel, that is starting to be evidenced both in our auto business as well as in our personal loans business, and soon in our POS business.

[Kyle Joseph, Analyst at Stephens Inc]

Great. Really helpful. Just one follow-up from me. In terms of point-of-sale, obviously some moving parts there in terms of your partners adding some, losing one. Just kind of talk about your expectations for volumes from point-of-sale specifically given what's going on there. Thank you.

[Jon Dobres, CFO at Pagaya Technologies]

Thanks. Yeah. When you think about point-of-sale through the rest of the year, you'll see some volume decrease there from the roll-off of one of our POS partners. That being said, that partner represents very little in terms of FRLPC margin. While it might have an effect on late Q3, Q4 volume, has really no effect on FRLPC. Obviously, as we get into next year, toward the end of this year and next year, as we scale new POS partners, you'll begin to see that volume ramp again.

[Kyle Joseph, Analyst at Stephens Inc]

Very helpful. Thanks for taking my questions.

[Sanjiv Das, President at Pagaya Technologies]

Can I just add one little thing to what Jon just said? Jon rightly pointed out the rolling off of one of our partners and we continue to grow in partners like Sezzle, partners like Flex Pay, with existing partners like Upgrade. We are in pretty intense discussions with our existing partners who want to grow into areas like home improvement loans, purchase finance and so on. Loans that have structures very similar to our personal loans business, which we understand quite well. I know that in some of the earnings calls that you've had with some of our lending partners in the last few days, they're all talking about growth in other areas of the P&L. We are right alongside them in our growth across that particular asset class.

[Operator]

Our next question is from David Scharf with Citizens Capital Markets. Please go ahead with your question.

[David Scharf, Analyst at Citizens Capital Markets]

Hi, good morning, thanks for taking my questions. Hey, wanted to ask about a couple drivers of further operating leverage. One is on just the OpEx side. As you noted, remarkably it's been flat for about 18 months, despite the amount of growth you've seen. Just based on the portfolio of products that you've introduced now, should we pretty much for the next 18 months expect that core OpEx figure to be in a pretty tight range? I mean, is most of the heavy lifting of investment spending behind you, or is there another step function somewhere down the line that you foresee?

[Jon Dobres, CFO at Pagaya Technologies]

Thanks for the question. Obviously we don't guide into 2027. As we've said many times, our core OpEx, we believe, is right-sized today for significant growth in our three major asset classes. I don't think you should model much growth there at all.

[David Scharf, Analyst at Citizens Capital Markets]

Got it. Good clarification.

[Gal Krubiner, CEO at Pagaya Technologies]

I think maybe it's another point. I think there is another clarification there. As you think about the core business and the things we have right now, which is the POS, the auto, the P&L, the platform that we are operating and building that is repeatable, scalable, and actually at this point even predictable, about adding new partners. Just to put things in perspective of how much we think about ourself as an enterprise-grade type of organization, the average contribution margin of a customer to us is $8 million. To that core business and the platform that we have built and just now rolling out more of the products to more of our partners and to be able to bring more partners from the 35, 40 that we have now, hopefully to the 80 or the 100, there is very minimal investment that is needed.

[Gal Krubiner, CEO at Pagaya Technologies]

It might be that in the future, because of the very heavy operational leverage that we have and the earning power and the profits that we are starting to gain and to get, we will look for more avenues to accelerate even growth further or to invest in new initiatives of where the world work goes, maybe in other areas. The core business as it stands right now needs very limited, if any, investment to be able to handle twice the volume, three times the volume, twice or three times the partner, and rolling out all of our amazing products to the partners that we enjoy so much supporting.

[David Scharf, Analyst at Citizens Capital Markets]

Got it. No, that's great feedback, Gal. Notwithstanding all the margin expansion at the bottom line you've experienced so far, it sounds like there's even more operating leverage to come.

[Gal Krubiner, CEO at Pagaya Technologies]

That's how we think about the earning power of the business, that the margins are going to continue to go up and the scale is going to continue to go up. That's how you should think. Again, while we're not giving guidance for the next three years, but you can just illustrate the next three years with that trajectory and ability to drive all of that value through a rather stable OpEx to get to a very interesting number that are the enterprise capability.

[David Scharf, Analyst at Citizens Capital Markets]

Got it. Just a quick follow-up, more on the consumer and credit side. Notwithstanding all of the kind of quarter-to-quarter commentary, the conversion rate has been holding around 1% for really several years now. Is there anything, whether it's kind of inflation, unemployment. I mean, just trying to get a sense for if there's anything out there that you keep an eye on or are looking for that would notably change that? Or maybe what might also be helpful is to understand not so much the conversion rate, but your approval rate. Has that actually been holding steady as well?

[Sanjiv Das, President at Pagaya Technologies]

I mean, David, let me take this. Look, I think you're absolutely right. The environment keeps shifting. As I said before, we feel pretty good about the shift that we have made in the consumer to essentially the shift in our business model to the more top of the funnel. We think that we understand this consumer quite well. Having said that, for those of us that have gone through several cycles in the market, we are extremely humble about what it is that we don't know. Which is why in the last quarter, in anticipation of a potentially shifting market, we took out our highest risk tiers, and we have the ability to do that.

[Sanjiv Das, President at Pagaya Technologies]

When you get $1 trillion worth of flow coming in and you're only issuing 1% of that, you in some ways have a lot of the ability to be fairly discerning, which is what we constantly watch. Now, one other thing is that across 36 odd partners, you constantly watch credit performance of the flow that's coming in, and you can fine-tune your performance to optimize for best performance that comes into the system. That's kind of how we think about it. Obviously, we are very tuned into things like inflation and unemployment and what it does to the discretionary spending power of our consumers. We work very closely with our primary lenders to make sure that we are seeing what they are seeing. We work very closely with them.

[Sanjiv Das, President at Pagaya Technologies]

The good news in all of this is that the credit box of our primary lenders has stayed stable. We expect it to continue to remain stable. As you know, in situations like this, the flow increases because they spend more in marketing, and they keep their credit box stable. Our outlook for ourselves, in terms of the stability of the flow and the discretionary ability to manage underwriting carefully, continues to remain pretty good. We feel pretty good about where we are at right now. That's Gal or Jon will add something in.

[Jon Dobres, CFO at Pagaya Technologies]

Just keep in mind one interesting stat from this quarter. For the first time, we had over $300 billion of applications coming in. We have the ability to be selective and to keep that conversion rate that Sanjiv described while still growing the business quite nicely.

[David Scharf, Analyst at Citizens Capital Markets]

Right. Got it. Thank you very much.

[Operator]

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

[Joseph Vafi, Analyst at Canaccord Genuity]

Hey, guys. Good morning. Great results. Great operating leverage. Really nice to see. Maybe we start, can we get an update on the forward flow market? I know that there were some moving parts there, a couple of quarters ago. Wondering how you're viewing that market. Then a quick follow-up. Thanks.

[Jon Dobres, CFO at Pagaya Technologies]

Thanks, Joe. This is Jon. I'll take that one. The way I'll answer it is how we think about funding generally, and I think how you should think about it when it comes to Pagaya. Our funding channels are more committed and diversified than ever. Today, about 40% of our flow comes from the non-pre-funded ABS product. Funding diversification remains a core strategy and focus. This doesn't just mean ABS and forward flow, right? We think of it as different forms of long-term committed capital. The market demand for our securitizations, as you can see just from the last couple of weeks and the last quarter, is extremely high, even with elevated benchmark rates. Just throwing out some numbers, last quarter, Q2 rather, we have $3.7 billion raised with 12 new investors. Our full investor base right now is around 175.

[Jon Dobres, CFO at Pagaya Technologies]

The last three deals were upsized in both paid and RPM. Our pre-funded ABS, which is sort of our core and historical product, provides committed clarity for kind of going forward, looking a quarter. Forward flow, where we remain active, we've announced new forward flows this year, you'll continue to hear from us, provides additional clarity for a 6 to 12-month period. Importantly, beyond that, we've executed longer-term, one-to-two-year committed revolving structures and are in process with several other agreements with large asset managers as well as bank partners. All in all, we see Pagaya as an evolving, committed, funded sort of suite of funding solutions where forward flow remains an important one, but it's just one of several.

[Joseph Vafi, Analyst at Canaccord Genuity]

Great. That's helpful. Thanks, Jon. Then, with all the operating leverage emerging, and I appreciate the kind of fixed transaction processing side of OpEx, just wondering if there are areas of say, marketing spend that you see at this point that could have attractive ROIs and put some of this emerging operating leverage back to work in the business. Thanks.

[Gal Krubiner, CEO at Pagaya Technologies]

Actually, I will take it. It's Gal here. Again, I want to just emphasize what I said before. The platform and the way it's been operating doesn't require any more investment from that perspective in the business models that we are. Directly to your question, no. There is no marketing dollar or other pieces that will need to be ramped up and therefore could erode the operational leverage in the future. We are looking in areas of ROI and places where you can bring specific knowledge that could help our ability to even sharpen further our product and value proposition and offering, but it's nothing in the magnitude that you will see as a major expense item.

[Gal Krubiner, CEO at Pagaya Technologies]

The last piece I would say, and we don't talk about it a lot because this is a little bit embedded in the way we operate, but the agentic world kind of like revolution and company like ours, that all of us are either computer science and data science engineers or on the other hand side, financial leaders. We are very much enjoying from that leap of growth.

[Gal Krubiner, CEO at Pagaya Technologies]

Get access and do many of the tasks that once in the past have needed to be relied upon many analysts now to be much more driven by the agentic world, by our ability to have the data that we have in a such organized manner. As we think about the future productivity for our business, we actually think about doing more with the same rather than the other way around.

[Joseph Vafi, Analyst at Canaccord Genuity]

Great. Thanks for that color. Much appreciated. Thanks. Bye.

[Operator]

Our next question is from Hal Goetsch with B. Riley Securities. Please go ahead with your question.

[Hal Goetsch, Analyst at B. Riley Securities]

Hey, thanks guys, congratulations on a great quarter and start to the first half of the year. My question is back to the auto. You mentioned that 83% of loans close at the dealer desk and you're making more competitive offers at that point-of-sale, essentially at the dealer channel. I think you mentioned, Sanjiv, you might have mentioned that you're using information to find out what the other offers might be. I'm just trying to figure how you get access or how you triangulated the competition to make a better offer that's accepted by the car buyer. Can you elaborate on how you maybe formulated this information that gets a better offer to the car buyer?

[Sanjiv Das, President at Pagaya Technologies]

Hi, Hal. How are you? Thank you again. Good to hear your voice. Hal, a couple of things. One is I'll take it back a little bit. In the past, what used to happen was there's an app that comes, an application that comes in through the lender to us. We made essentially what I would call a static point in time, one-dimensional offer to the consumer. Now what happens is, we have access through our lenders to essentially the interaction that they have with the dealer, in terms of essentially what the dealer comments are, what the dealer is saying in terms of what will make the application work or not work. We leverage that information essentially to build in as input into our underwriting decisioning process. Instead of giving one static approval, we are now able to give multiple choices.

[Sanjiv Das, President at Pagaya Technologies]

What if you reduced your down payment, what if you increased your down payment? What if you got a higher backend approval? What if you got this? We offer across various dimensions and across various options. How do we do it? Which is the core question that you're asking, is we get it because we are now able to leverage the information between the dealer and the consumer through our lender much, much more than we ever did before.

[Hal Goetsch, Analyst at B. Riley Securities]

Okay. All right. Thank you very much.

[Sanjiv Das, President at Pagaya Technologies]

Sure.

[Operator]

Once again, if you would like to ask any question, please press star one on your telephone keypad. Our next question is from Rayna Kumar with Oppenheimer & Co Inc. Please go ahead with your question.

[Guru Sidaarth, Analyst at Oppenheimer & Co Inc]

Hi. This is Guru on for Rayna, thanks a lot for taking our question. We were just wondering if you can comment on your current capital allocation priorities here, if there are any updated thoughts on your appetite for acquisitions going forward. Thanks.

[Jon Dobres, CFO at Pagaya Technologies]

Thanks for the question. We're always calculating sort of the best use of the net incremental dollar that we spend. We find, for example, our bond purchases that we've added to our balance sheet. Our balance sheet's now, I think, as you know, 50% bonds, extremely strong as an attractive use of capital. On the M&A topic, we have nothing significant planned right now, but we're always looking at opportunities and always considering things there. In terms of our guidance and looking over the near term, we have no anticipated M&A.

[Gal Krubiner, CEO at Pagaya Technologies]

Since we don't have any more questions, we really want to thank everyone for joining us today. We delivered a record quarter that I'm very and extremely proud of the team and the execution behind these results. Importantly, I want to leave investors with few clear messages. Pagaya is a materially different company today than it has been in the last few years. There are four fundamental small misperceptions about our business that I want to address directly before we close the call. First is that our product portfolio is broader than ever, and it is the effective growth engine that we are pushing towards and should expect in the future. Secondly, the Pagaya borrower that has $120,000 on the P&L product is materially stronger than market assumes and is rather resilient to any inflation pressure.

[Gal Krubiner, CEO at Pagaya Technologies]

The third one is that the earning power that you are seeing and that our network is actually building is very strong, mainly because of the operational power, because our platform is already ready to use and it's only the starting days of that earning power growth. Lastly, thanks to all of that, the acceleration of the strengthening of our balance sheet and funding engine is something that we are focusing on and did major changes in the last year. With all these factors, it makes me much more confident in the business as we think about our growth trajectory and as we think about how Pagaya's 10th next year looking for after having celebration the Pagaya's 10th year this year. Thank you very much everyone for joining, and we are looking forward to discuss with you more in the future.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Craig Smyth, Head of Investor Relations
• Gal Krubiner, CEO
• Sanjiv Das, President
• Jon Dobres, CFO

Analysts

• John Hecht, Analyst at Jefferies LLC
• Sanjay Sakhrani, Analyst at KBW
• Kyle Joseph, Analyst at Stephens Inc
• David Scharf, Analyst at Citizens Capital Markets
• Joseph Vafi, Analyst at Canaccord Genuity
• Hal Goetsch, Analyst at B. Riley Securities
• Guru Sidaarth, Analyst at Oppenheimer & Co Inc