Pagaya Technologies Ltd. Q3 FY2024 earnings call

• Gal Krubiner highlighted that Pagaya achieved an approximate annual rate of $1 billion in revenue, $400 million in fee revenue less production costs, and $220 million in adjusted EBITDA. Growth is driven by increasing demand for products, improved funding efficiency, and economies of scale.
• Sanjiv Das discussed a strong pipeline with high demand for POS products and regional banks. Existing partners saw growth in POS (volume up 67% YOY and 51% sequentially) and personal loans. The partnership with Klarna is expected to ramp up volume, and Elavon is contributing to results.
• Evangelos Perros detailed third quarter results, including network volume growth, FRLPC increase, operating leverage, and adjusted EBITDA growth. Mentioned expected GAAP profitability in 2025, with plans to book remaining fair value adjustments on 2023 vintages in Q4 2024.

Network volume for the third quarter was $2.4 billion, growing 11% year-over-year. The personal loan and point-of-sale (POS) businesses showed strong growth, with personal loans up 15% YOY and POS up 67% YOY. Fee revenue less production cost (FRLPC) was $100 million, a 38% year-over-year increase, representing 4.3% of network volume, a record. The largest and most mature vertical, personal loans, generated an FRLPC of 6.6% of volume. ABS accounts for approximately 60-70% of network volume, while alternative funding sources like pass-throughs, forward flows, and privately managed funds make up the remaining 30-40%.

• Full-year 2024 network volume is expected to range between $9.5 billion and $9.7 billion.
• Total revenue and other income are projected to be between $1.01 billion and $1.025 billion.
• Adjusted EBITDA is expected to be between $195 million and $205 million.
• Pagaya expects to achieve GAAP net income profitability in 2025.

• Regulatory changes that could impact the operating environment.
• Market conditions affecting funding costs and availability.
• Credit impairments related to older ABS transactions and vintage securities, particularly from 2023 vintages.

Q: Joseph Vafi asked about funding sources and allocation of network volume across funding sources.

A: Evangelos Perros responded that ABS accounts for approximately 60-70% of network volume, with alternative funding sources like pass-throughs, forward flows, and privately managed funds making up the remaining 30-40%.

Q: Mark Palmer asked about regulatory expectations under new administration.

A: Gal Krubiner mentioned a supportive regulatory environment and a tailwind for technology integration into banks.

Q: John Hecht asked about conversion rate and credit impairment.

A: Evangelos Perros discussed conversion rate improvement and credit impairments related to 2023 vintages, expecting an increase in conversion ratio as relations with newer partners mature.

Q: Steven Kwok asked about credit impairment in 4Q.

A: Gal Krubiner stated the 2023 portfolio stands at approximately $275 million and expects the majority of remaining impairments to be taken in Q4 2024.

Q: David Scharf asked about FLRPC outlook and asset class mix.

A: Gal Krubiner and Sanjiv Das discussed convergence of asset class financial performance and growth potential across personal loans, auto, and POS.

Q: Hal Goetsch asked about fair value marks and risks.

A: Gal Krubiner discussed structural changes reducing risk retention and expected GAAP profitability in 2025, with lower potential impairment losses in future cycles.