Pagaya Technologies Ltd. Q4 FY2025 earnings call

• 2025 was a hallmark year with GAAP net income and cash flow positive. Full year revenues grew 26% y/y, adjusted EBITDA up 76% y/y, and GAAP net income up $483 million. • Disciplined in business operations, proactively adjusted production in Q4 due to consumer uncertainty, pulling back from higher risk and less profitable credit deals. • Business is highly scalable with robust partner list and healthy funding position, data moat, leadership, and commercial momentum. • Focus on long-term stakeholder outcomes, avoiding tail risks. • With existing partners, innovated across products like direct marketing engine and affiliate optimizer engine, entered long-term agreements. • Diversified funding sources, expanding forward flow arrangements across core asset classes and introducing revolving ABS structures.

For the full year 2025, Pagaya Technologies Ltd. achieved revenues of $1.3 billion, up 26% year over year. Adjusted EBITDA was $371 million, up 76% year over year, and GAAP net income was $81 million. In the fourth quarter, revenue was $335 million, adjusted EBITDA was $98 million with a 29% margin, and GAAP net income was $34 million. Network volume was $2.7 billion in the fourth quarter, up 3% year over year, with personal loans making up approximately 65% of total volume, growing 10% year over year. Auto and POS represented 19% and 16% of quarterly network volume respectively. For the full year, network volume was $10.5 billion, up 9%.

• 2026 outlook is cautious in near term due to macro and credit uncertainty. Volume growth expected from new application flow, new partners, and product penetration. • FR LPC margin expected to be between 4 - 5% for the year. • Credit-related impairments guidance is $100 to $150 million. • 2026 network volume expected in the range of $2.5 to $2.7 billion, total revenue and other income in the range of $315 million to $335 million, adjusted EBITDA in the range of $80 million to $95 million. GAAP net income for the quarter expected $15 million to $35 million. • Full year 2026 network volume expected in the range of $11.25 to $13 billion, total revenue and other income in the range of $1.4 billion to $1.575 billion, adjusted EBITDA in the range of $410 million to $460 million. GAAP net income for the year expected $100 million to $150 million.

Factors that could cause actual results to differ materially from forward-looking statements include risks described in SEC filings, such as consumer uncertainty, market volatility, shifts in private credit sentiment which could lead to material differences in results from expectations.

Q: Good morning, guys, and thanks for taking my questions. Maybe just go a little deeper, you know, in this concept of moving away from variable outcomes. Is it pricing in the market? Are you seeing something change with respect to payment trends? Or is this, you know, is it related to certain channel partners or certain types of products?

A: Definitely, John. Appreciate the question. So before I'm going into the market dynamics, I want just to start with reiterating that that message that we gave from Pagaya Technologies Ltd.'s perspective has been the same for the last year. That we will always prioritize prudent risk management over short-term growth. And that principle that we have it you drew call it a year, a year and a half back, is now fully embedded in the way we run the company. Now the main reason for that is that we are a different type of animal. And we are not like many consumer finance platforms, that rely on marketing spend to generate volume. We don't need to grow at any cost to justify our expense base. And this structural advantage is obviously giving us more flexibility to be disciplined, especially when we see early signs of different market softness. Now when you think about that and the data we collect, it's really come to the core strengths of our platform, which is the ability to remove what we describe as tail risk or the reliability outcomes, as you pointed out, in real-time. Through the fact that we see signals across 30 plus different three asset classes, that are a lot of data that allows us to be proactive rather than to be reactive. Now the first point I would point out to your question is the market dynamics. So from a market perspective, there is just a lot of volatility. You don't need to look very hard to see that in the last period, mainly since Q4, the amount of volatility and declining rationality that we have seen has just reached a new level. Financial markets are demonstrating much volatility driven by geopolitical, private credit. You see notable shifts in sentiment. And despite the fact that the consumer performance in our production remains strong, and the ABS market are functioning well, it's definitely giving you a pause as a risk manager to ask the question of, like, what's your risk appetite and where you wanna be? Now, as I mentioned, the consumer behavior data front, we don't see a deterioration, so nothing on the CNL or the CPR. And, therefore, our 2026 outlook of the impact of credit-related impairments, if any, is in line with our 2025 guide, which is the $100 to $150 million. We did see a clear shift in our partner behavior. Several partners have moved away from expansion to cautious as they have progressed. And the early signal is exactly what our operating model is designed to capture. If you will talk with our lenders, call it Q1, Q2 last year, everyone will tell you that yeah, this is a year of going very strongly, aggressively growing 40, 50%, When you spoke with the same folks, by the end of the year, the posture the understanding of the situation was much more balanced. And as we saw that, we decide to take even one step further and to be what we call ahead of the curve. Now the way we operate and the way we do it, we do it very quickly and swiftly. Because of the technology agile advantage that we have, the fact that we can do these things real-time, so literally a decision in the middle to late of Q4, can be related to all of that, and that's becoming our basis as we think about 2026. And EP will talk a little bit more about how we think about the guidance in that respect. I think before we close the question, I just wanna emphasize that from an enterprise progression, execution perspective, what the team has done and is planning for 2026 is really exceptional. We And we are becoming a better Pagaya Technologies Ltd., not just a bigger one. So think about it that only in Q4, we added forward flow in two new asset classes, included the revolver capacity in personal loan, and onboarded two more partners. So when I think about it, from a CEO perspective, and frankly, I think you should think about it too, is that I'm very pleased with the team outcome despite the short-term reduction in risk decision that is trying very hard to avoid with any potential of downside because of a tail risk. And when I'm looking ahead on 2026, remain very focused about executing on the things we can influence in our long-term structure which is expanding our partner network, deepening our existing relationships, and proactively cutting off tail risk rather than chasing short-term volume. So to end that part, I just wanna leave you with two small nits. The first one, the fact that we have been more conservative is obviously retaining our ability to scale quickly, which is why our guide range is intentionally wide. And the second is that even in what we describe as volatile environment, the we don't wanna be over risk on, we expect to deliver a meaningful GAAP net income profitability of over $100 million in 2026. So in other words, our entire 2026 guidance range especially assume current uncertainty persists, and lead to consumer and performance deterioration that we are kind of, like, taking as part of our plan. So if uncertainty recedes, we will definitely adjust accordingly and swiftly.

Q: Hey, good morning, guys. Thanks for taking my questions. Been a lot of headlines on private credit and the alts recently. Just wanted to get you guys gave an update on the funding side, of business, but, you know, how you're thinking about funding in into your 'twenty-six outlook given all the headlines we've seen in that world recently?

A: Yes. Thanks, Kyle. Thanks for the question. I'll take it. I mean, look, the demand for our product and production is very robust. Look at Q4, a couple of the things that we announced, you know, a new deal with twenty-six North, which combined with the post deals generates more than $3 billion of capacity across these two products from in in from the revolver structure of these, the sale of the certificate in auto, new forward flows in auto, and POS, the sale of the certificate that we set on OWS. So generally very strong demand and validated by the execution that we're delivering for our investors. What I would say is if you step back, 2025 was a year where you had the very frothy sort of private credit market deploying capital. And now it's becoming a little bit more normal and much more disciplined and we're actually benefiting from that. I take it I would take it a step further and say that some of the actions that we took is actually fueling more demand for our product and production You look at the last ABS deal that we did a few days ago, market with $600 million of size. And it got upsized, by 30% and still oversubscribed. So I think what you see is the platforms that have a very robust and very diversified set of investors, working that they work with, like Pagaya Technologies Ltd., we're benefiting from all of this. We'll continue to obviously, continue to try and diversify our funding further. I know that is on our pipeline. So I think we feel very good about the funding environment relative to our positioning in the marketplace.

Q: Hey. Thank you, guys. Got a question. Yeah. It's it's a bit counterintuitive given the macro trends we've seen. Over the year with falling inflation. Rates coming down, job market generally good, And I think EP mentioned, hey. You know? Your action in the last quarter was based on increased uncertainty not an increase in in credit losses. So just wanted to you know, could you give us any more qualitative or quantitative color on what you saw your partners doing in in in your in your response. It it just seemed a little counterintuitive. It seems like things are going in the consumer's direction to be better credits. And this is just a little bit it's a little bit need a little more flushing out. Thanks.

A: Hello. Hi. I think it's a it's a great observation. In fact, those are some of the countervailing forces that we had in our mind as well. At the end of Q4. On one hand, the macro was what it was in terms of inflation and rates coming down. As you pointed out, on the other hand, we're observing very specifically from our 31 lending partner platform was some of the partners that had been talking about credit expansion in the middle of the year were feeling less certain about credit expansion by the third, fourth, fourth, so the the sheer uncertainty in the market. And by that, as Gal outlined in his his opening comments, there's clearly know, geopolitical uncertainty, which was causing some uncertainty in the financial markets. There was there was some stuff going on at the at the tail end of certain certain businesses. Certain markets. And so we felt that the most responsible thing for us to do, and and that's the beauty of being a B2B2C market is that in some ways, we are shielded from the c. The b that's between the c and us responds or gives us signals that based on which we were able to take actions at what we thought would be the most marginal risk tier in the business. And it is this theme of uncertainty in the potent potential uncertainty in the credit markets that drives us to think, that we should be responsible and prudent rather than aggressive And but, you know, having said that, our ability to scale and be nimble is extremely high. So if things change in the market, which could change I mean, rates could change, the market could change by the second half of the year, But we all we need to do is basically prudently turn that back on And that's just the reason why our guidance range is is wide. But having said that, we as a management team have very, very high conviction that we will deliver profitable volumes, which is why our gas net income number, it will get. Don't even add anything to it. Or It's it's Q: Good morning. Thanks for taking my question. Could you just talk about like where you started to pull back? Like, was it a particular asset class, or was the actual taken across the board?

A: Hi, Reyna. It's primarily across like the entire portfolio. With a little bit more focus on the personal and auto side, because of the secular growth that we see in POS. And that was obviously the later part of the quarter, And, effectively, that's why you see that sort of as an exit rate change into 2026.

Q: Hi, good morning. Thanks for taking my questions. Maybe just to sort of dive in a little more to Hal's question and and perhaps what your kind of behavior you're you're seeing from lending partners. You know, that this was you know, so far, an earning season where a lot of lenders you know, pretty much said, things are stable. There are no certainly no rush to widen their credit boxes, but there there certainly weren't indications that things were tightening either. You know, just just so we understand, did you start to see by the end of the quarter you know, more evidence of of turndowns, of of loan application by your partners that may have been approved by your partners six months earlier? Is that how we should sort of interpret the behavioral changes you're seeing?

A: I think the best way to look on it is many more expansion that were in play. Or in plan became not in play. So it's not to say that people are not saying, hey, we are going to continue to grow, but it has been shifted much more towards how do we do more asset classes, how do we get more to our customers rather than oh, the pricing are high and just wanna make it more aggressive. Or the losses are too low, and therefore, we're approve more type of population. So you definitely see a difference And and by the way, I think you will see on the gross numbers of all of the reporting companies. We talked about that the growth going forward from top line is not what it used to be. Last year, especially on the personal loan and other side of the business.