Pagaya Technologies Ltd. Class A Ordinary Shares 2026 Q3 Earnings Call

Thank you, and welcome to Pagaya's third 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 fourth quarter and full year 2026. Our actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause these results to differ materially from our expectations include, but are not limited to, those risks described in today's press release 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-Ks, 10-Qs and other reports, for a more detailed discussion on 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 fourth quarter and full year 2026 on a non-GAAP basis.

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 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.

Thank you everyone for joining us today. We had another outstanding quarter. We delivered a record GAAP net income of $50 million. We grew network volume by 29%. We held costs flat, driving nearly 100% to the bottom line. Today, I want to discuss the key drivers of the quarter, and then to discuss the progress we have made on our partner and product strategy that led us to become a profitable company in 2025, put Pagaya on a path to generate $172 million of GAAP net income in 2026, and set us up for a record year in 2027. Higher rates increased our cost of capital in Q3, and therefore reduced our FRLPC margin, driving us to a lower end of our 4%-5% range.

We have taken action by raising APRs in September and October, and this will result in a higher FRLPC percentage as we close out Q4 and enter into 2027. On credit, our performance is strong and in line with expectation in both auto and personal loans. We have been laser-focused on credit performance through market cycles, as reflected in the profile of the borrowers we underwrite, and that continues to pay off. Funding availability is very robust. In fact, it is stronger than ever. We raised $3 billion in ABS this quarter to support our network production, and we are using that availability to strengthen our long-term funding stability. We also executed on the funding diversity we discussed last quarter, with a focus on long-term committed capital. More of our funding now comes through revolving structures that can be drawn, repaid, and reused.

That capacity carry forward, so it does not have to be rebuilt every quarter, and it gives us more stability across market environments. Now to what excites me most, 2027 and the long-term vision behind it. Pagaya is really becoming an important part of the infrastructure for lenders. To gain and retain valuable deposit customers, banks need to meet product demand. Multi-year lead time for product development or conflicting balance sheet strategies is no longer an excuse to forgo that path to deposit growth. We are that solution. We are this partner that gives banks the product, the decisioning, and the capital network to move faster. This is precisely the demand that is reflecting in our pipeline. Citizens and FNBO are the latest proof points of this momentum. These two banks joined the network this quarter, bringing our new partners count to six this year.

Their integration is a signal that we are becoming a utility for financial institutions. More partners and more products bring more applications. More applications data widens our moat and improve decisioning. Better results deepen those relationships and bring more volume back into the network. And with the operational expenses held flat, that growth increasingly reaches the bottom line. We enter the fourth quarter with the largest partner pipeline in Pagaya's history, and we are still in the early innings of enabling lending outside of the bank balance sheets. Consumer credit in the U.S. represents nearly $1 trillion in annual originations, compared with our current annualized volume of about $14 billion. We have substantial room to grow. Banks can count on our infrastructure through every part of the cycle, and that infrastructure only gets stronger as we grow in scale. Thank you to our team for executing this quarter.

The result definitely belongs to them.

Thanks, Gal. We delivered another quarter of disciplined execution. We stayed focused on our three growth pillars, signing new partners, expanding flow from existing ones, and deepening product adoption across the network. By staying focused on these fundamentals, we drove 29% network volume growth year-over-year and reached our highest profit ever. We also kept our credit posture strong, with application to conversion holding steady at approximately 1%. This is the network growth strategy we've been talking about, and it is now compounding as a repeatable playbook rather than a series of one-off wins. I want to start by talking about our bank and partner adoption. This quarter, we are pleased to welcome two new bank partners, Citizens Financial Group for personal loans and FNBO for home improvement point-of-sale financing.

That brings us to six new partners onboardings over the past three quarters, well above our annual target of two to four. Our pipeline remains strong, and we expect to announce more significant partnerships in the coming quarters. Offering personal loans and other credit products helps banks deepen customer relationships. It improves deposit retention and drives adoption of additional products, which supports higher customer lifetime value. This matters even more when banks face capital constraints on growing their lending programs. That is the main reason banks are leaning into our network at record levels, particularly in personal loans and auto. It's driving the strongest bank pipeline in Pagaya's history. Importantly, we are also deepening product adoption among current partners. Our flagship personal loans business keeps delivering strong, stable performance. We use a selective multi-product approach to capture stronger applications higher up the funnel.

The Affiliate Optimizer Engine remains a key growth driver. We onboarded two new partners into Experian and Credit Karma this quarter. We also keep equipping partners with tools and insights to perform better in these channels. On average, partners that launch in Pagaya's Affiliate Optimizer see a 60% increase in issued volume compared to the prior year. With demand strong and more partners in the pipeline, we expect further launches in the coming quarters. Our Direct Marketing Engine continues to perform exceptionally well. To date, we have executed approximately 70 campaigns, and we remain on track to achieve our half a billion annualized volume goal by the end of the year. These campaigns have enabled partners to add more than 20,000 customers to their ecosystems. This demonstrates our ability to advance further up the application funnel while supporting partners in acquiring and cross-selling customers. Now turning to auto. Last quarter, we introduced Pagaya's auto flywheel.

By continuously improving our auto product and features, we enhance the dealer experience with our lending partners. Higher dealer engagement drives more application volume and expands Pagaya's flow. That volume fuels further product innovation and reinforces our data moat. This self-sustaining loop drives steady, disciplined growth. We saw a 40% increase in top-of-funnel application volume year-over-year. As our partners become dealers' first choice, our application mix and origination profile keep getting stronger. In auto, we are strengthening our Counter Offer and Dual Look product. They help lenders convert more dealer applications into approvals. Our internal analysis shows these products help partners meet customers' full requested amount 70% of the time. They expand approval opportunities and deliver tailored offers so our lending partners compete better and generate higher loan volume.

As a result, Pagaya's issuance mix is evolving, with a growing share of applications coming from higher up the funnel. Additionally, we are in the process of building a real-time optimization product that allows dealers to simulate loan terms without resubmitting applications. Our data shows that deals with multiple submissions convert at a significantly higher rate compared to single submissions. Next on point-of-sale. Sezzle and FlexPay continue to scale nicely. We remain committed to building out and scaling our point-of-sale business, including cross-selling to existing partners. We also see significant upside in using our core personal loan funding capabilities to fund larger, longer term, purpose-driven loans. Finally, I want to touch on our funding this quarter. Our funding engine remains exceptionally strong. That strength has become a competitive advantage, and it's attracting new bank partners.