Pagaya Technologies Ltd. Q3 FY2026 earnings call

• Strategic Shift to Banks: Pagaya is transitioning into an infrastructure provider for major banks, evidenced by new partnerships with Citizens Financial Group and FNBO. This shift allows banks to offer credit products without balance sheet expansion, helping them retain deposits and grow fee income.
• Partner Pipeline Growth: The company entered Q4 with the largest partner pipeline in its history, driven by demand from large money-center and regional banks. New partners bring diverse product offerings, widening Pagaya's data moat and improving decisioning capabilities.
• Product Innovation & Efficiency: Key growth drivers include the Affiliate Optimizer engine, which boosts issued volume by ~60% for partners, and the Auto Flywheel strategy enhancing dealer engagement. Direct marketing campaigns are on track to achieve $0.5 billion in annualized volume.
• Funding Diversification: Investor demand remains robust, with $3 billion raised in ABS this quarter. Pagaya successfully executed non-traditional funding structures, including forward flows, revolving structures, and variable funding notes, increasing investor count to over 180.
• Credit Discipline: Credit performance remains strong and in line with expectations. KBRA surveillance reports showed 63 upgrades and zero downgrades. Application-to-conversion rates hold steady at approximately 1%, indicating disciplined underwriting despite higher volumes.

Pagaya reported record financial performance in Q3 2026. Network volume grew 29% year-over-year to $3.6 billion, driven by personal loans and auto segments. Revenue and other income increased 12% to $390 million. Fee revenue reached $362 million (up 7%), while interest and investment income more than doubled due to a growing bond portfolio. FRLPC (Fee Revenue Less Production Costs) grew 5% to $146 million, representing 4.1% of network volume. Adjusted EBITDA rose 22% to $130 million with a 33% margin. GAAP net income hit a record $50 million, up 121% from the prior year quarter.

• Q4 2026 Outlook: Management expects seasonally lower volume compared to Q3, primarily due to the absence of Klarna and typical seasonal trends. Ex-Klarna, the decline is expected to be milder (~5-6%) than in 2025 (~9%).
• FRLPC Margin: Expected to remain near the low end of the 4%-5% range in Q4, beginning to rise toward the midpoint as APR increases taken in Sept/Oct flow through.
• Full Year 2026 Guidance (Raised):
  • Network Volume: $12.725 billion to $13.025 billion.
  • Total Revenue and Other Income: $1.45 billion to $1.5 billion.
  • Adjusted EBITDA: $465 million to $485 million.
  • GAAP Net Income: $162 million to $182 million.
• Long-Term Vision: Pagaya aims to generate $172 million in GAAP net income in 2026 and sets a path for a record year in 2027, leveraging operating leverage and expanding bank partnerships.

• Interest Rate Sensitivity: Higher Treasury rates compress FRLPC margins in the short term. However, management has mitigated this by raising APRs (100 bps in personal loans, 140 bps in auto), demonstrating pricing power without significant drops in application conversion.
• New Partner Ramp-Up Risk: Onboarding new bank partners may initially dilute FRLPC percentages and slightly lower conversion rates as credit profiles are validated. Management emphasizes a prudent, slow ramp-up over 12 months to ensure credit quality.
• Market Competition: While Pagaya benefits from banks' need for technology solutions, competition exists among FinTech lenders and traditional banks rebuilding internal capabilities. Success depends on maintaining superior unit economics and integration speed.

Q: Analyst asked about the drivers behind new bank partnerships (Citizens, FNBO) and the state of the pipeline. / A: CEO Gal Krubiner explained that banks are partnering with Pagaya to rapidly launch credit products (personal loans, point-of-sale) to retain deposits and grow fee income without balance sheet strain. This 'partner vs. build' dynamic is accelerating, leading to the strongest pipeline in company history, dominated by large money-center banks seeking scalable infrastructure.

Q: Analyst inquired about the sustainability of operating leverage and whether cost base investments are needed as volume grows. / A: President Sanjiv Das confirmed that core operating expenses have remained flat for seven quarters. The business model is highly scalable; onboarding new partners and deepening existing relationships does not require proportional increases in headcount or tech costs. Management expects this high operating leverage to persist as long as momentum continues.

Q: Analyst asked if tighter spreads in recent ABS deals signal improved credit or market dynamics, and how this impacts future funding costs. / A: CFO Jon Dobres noted that credit performance is excellent (63 KBRA upgrades, zero downgrades). More importantly, Pagaya’s strategic diversification into non-traditional funding (forward flows, warehouses) has attracted diverse investors, tightening spreads. This reduces the cost of capital, allowing Pagaya to compete more effectively and improve FRLPC margins.

Q: Analyst questioned the impact of recent APR increases on consumer uptake and credit quality. / A: CEO Krubiner stated there has been no negative impact on conversion rates or delinquencies. The target demographic (high-income borrowers) retains strong purchasing power. Management believes the market moves together on rate hikes, and consumers continue to value access to credit at responsible rates, validating Pagaya’s pricing power.

Q: Analyst asked about the potential disintermediation of affiliate channels like Credit Karma due to AI agent marketing. / A: CEO Krubiner responded that Pagaya’s strategy is channel-agnostic infrastructure. Whether applications come from agents, affiliates, or direct web traffic, Pagaya provides the lending engine. The company is prepared to integrate with emerging agent models quickly, viewing the specific acquisition channel as less critical than the underlying technology and funding capability.