Pagaya Technologies Ltd.

Good day and welcome to the Begaya's second quarter 2022 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Today's call is being recorded. At this time, I would like to turn the call over to Jensi John, Head of Investor Relations. Thank you. Please go ahead.

Thank you and good morning. Welcome to Pagaya's second quarter 2022 earnings conference call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya, and Michael Kurlander, our Chief Financial Officer. You can find the presentation that accompanies our prepared remarks, our earnings release, and 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 and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantages and strategy, macroeconomic conditions and outlook, future products and services, and future business and financial performance. Our actual results may differ from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and in our most recent Form 6K, as filed with the U.S. Securities and Exchange Commission, as well as our subsequent filings made with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and in the appendix to the earnings presentation. which are posted on our investor relations website. With that, let me turn the call over to Gal.

Thank you, Jensi, and welcome to our second quarter 2022 results, our first as a public company. My name is Gal Krubiner, and I'm the co-founder and CEO of Pagaya Technologies. Pagaya is a financial technology company built by innovative research team and led by an experienced team of executives. with a vision to increase access to financial products and services through the use of technology. We have seen an incredible growth trajectory since our start in 2016, delivering consistent network volume and total revenue growth. The second quarter was a record quarter, with nearly $2 billion in volume and over $118 million in total revenues. Before we discuss the agenda of our call today, I want to make a moment to thank our incredible team for the dedication and hard work to get us to the point in our journey. As this is our first learning call, I would like to spend some time sharing with you an overview of Formation, the business model, before discussing our results for the second quarter. Then I will hand it over to our CFO, Mike Wollander, who will discuss our financial and outlook in more detail. We will then take your questions. Let me begin with some context on the problem we set out to solve. Throughout history, there have always been consumers locked out of access to the global financial system due to factors like demographics, socioeconomic status, or lack of credit history. Market conditions today are worsening that problem, putting pressure on consumers who need to find basic needs like buying groceries and getting to work. My co-founders and I recognize the limitation of legacy underwriting systems and so an opportunity to innovate financial systems with our data-rich proprietary technology. We founded a company with a mission to improve lives by partnering with financial services providers to make financial opportunity more accessible. To do this, we built a platform designed to deliver consistent value for financial institutions and institutional investors through macro cycles, which ultimately leads to better outcomes for consumers. Let me spend some time describing our business model and how it all works. First and foremost, Pagaya is not a lender or a servicer. We are a B2B2C platform, sitting in the middle between partners and institutional investors. We enable our partners to provide enhanced access to financial products to consumers and facilitate the deployment of capital on behalf of our investors. When our partners and investors grow, we grow too. Here is how it works in practice. First, a consumer submits an application to one of our partners, seeking approval for a loan. Our partners, which include banks, fintechs, and other financial service providers, send the application to Pagaya via an API plug-in to our AI network. As part of the partner's underwriting process, we provide a fully automated recommendation in real time. The partner then services the loans for the customer. After origination of the loan by the partner, Pagaya facilitates the placement of the loan with our long-term institutional investors, who have already provided upfront funding for access to that asset. Now let me walk through the value proposition across our ecosystem. We think about our value proposition as a win-win-win for our partners, our partners' customers, and investors. Our partners win because they capture more customers. This means incremental fees and revenue streams with limit capital requirements or incremental risks. Since inception, not a single partner has left our network. Our partner customers win, too, through access to financial products. They benefit from choice of financial institutions rather than having to seek out higher cost of alternative elsewhere. Since 2019, we have enabled our partners to originate $10 billion plus in loans to consumers across the country. Finally, our investors win too. As they diversify their investments and gain access to unique asset flow to deploy at scale, while optimizing for their return profile. As a B2B2C, our main focus is on improving our AI to better evaluate consumer behavior. We have built an entire ecosystem to do this. Our core AI technology is data rich with approximately 63 million applications evaluated since 2019, spanning multiple channels and utilizing over 16 million trading data points. It's fully automated, which enables all 260 world-class data scientists to spot trends early and recalibrate in real time. Now I would like to turn to our financial results for the quarter. We are very proud of our second quarter financial results. We have achieved network volume and total revenue growth every quarter since inception. In the second quarter, we delivered a roughly 80% growth year-over-year in both network volume and total revenue and another quarter of positive adjusted EBITDA. This was driven by faster growth in our newer products, including auto loans, credit cards, and single-family residentials, and continued strong growth in our personal loan products. In terms of partnerships, growth was mostly driven by expansion of existing partner relationships. Now let me turn to our operating highlights for the quarter. Our business continued to demonstrate very strong momentum with continued strong application flow and expansion of existing partnerships with new programs. We are also pleased to announce that we onboarded a large US bank in the second quarter with over $100 billion in assets as a major partner for our auto products. On the funding side, despite increasingly challenging macro conditions, we raised approximately $1.8 billion in capital across diverse funding sources. I'm also happy to highlight the latest addition to our leadership team. Our new president, Ashok Vesani, former CEO of Barclays Bank UK and former CEO of Citigroup Asia, bringing over 30 years of financial services experience. Last but not least, we successfully completed our public listing on the NASDAQ in June. This was a critical milestone in our company journey, but it's only the beginning. The transition created $290 million of net profits, giving us the capacity to scale for future growth. I would like to spend time now illustrating why our business model positioned us to drive stable growth over time. First, we have a differentiated funding model that limits balance sheet utilization. Second, our fully automated data-rich AI network is able to better evaluate consumer behavior, enabling us to spot trends early and react quickly. Third, our AI capabilities allow us to drive growth for our partners through macro cycles. For example, when credit conditions are tight, we see increased application flow for our partners. Allow me now to double-click into each of these factors. First, our funding model. We believe that our upfront funding model is more capital efficient than traditional models. To illustrate, here is how it works, a step-by-step. First step, Pagaya raises cash in a financing vehicle. So cash proceeds sits in a vehicle waiting for Pagaya AI's selected network volume to be acquired based on the vehicle criteria. Second step, Pagaya AI enables our partners to originate the loan through our network. Finally, which is step three, Pagaya facilitates the placement of the loan into the financing vehicle. Important to note that given the construction of our funding model, Pagaya has limited inventory risk. defined as having two inventory loans on our balance sheet. Throughout this process, Pagaya sits in the middle as a neutral player, without direct exposure to the assets acquired through our network. Our partners service the borrowers, our investors own the underlying assets. This allows Pagaya to operate with a minimal balance sheet, further protecting us from the impact of macro volatility. Moving to slide 14, On the left-hand side, you will see that we have been able to consistently raise capital over the past several years. We raised over $10 billion since the beginning of 2020 across a diverse set of funding sources, including public capital market through AVS and our private managed funds. On the right-hand side, you can see our funding model at work using an illustrated $1.2 billion transaction. What you see is at T plus zero in January, There is cash sitting in a vehicle. Loans are then being placed into the financing vehicle over the course of five months. By raising funding upfront, we can optimize returns for our investors by having flexibility and control over go-to-market deployment timing across different channels. For example, in the market environment today, we can offer investors a way to access capital markets to capture very unique opportunities. Some of our more recent transactions speak to the resilience of our funding model and the trust our technology capability. We issued $1.6 billion of ABS in the second quarter in challenging conditions and recently priced a $1 billion transaction in July, which was upside from a $400 million due to the strong investor demand. As I mentioned earlier, our AI technology evaluates consumer behavior better than traditional models. Additionally, our key differentiator is our unique vantage point. Our connectivity to multiple channels across the lending ecosystem enabled us to spot trends early and to adapt quickly. A prime example of this occurred in the fall of 2021, when our models were able to pick up on changing macro and consumer indicators in the personal loan market. The graph at the bottom left illustrates personal loan 30-plus-day delinquencies for monthly cohorts of Pagaya production from October 2021 to March 2022. Each line represents a monthly cohort of production. We optimized our models in the fall of 2021, which resulted in a decline of over 130 basis points in delinquencies in the three months after origination. On a relative basis, the graph on the right represents Pagaya production versus a market-level unsecured consumer benchmark. There are two main takeaways from this graph. OGAIA's technology has and continues to demonstrate an edge versus the market during both good and bad times of credit performance. Second, our ability to realize trends early and adapt quickly versus the market can be seen as a growing deviation of the liquidity trends beginning in Q4 2021. Now on the partner side. I would like to walk you through a quick case study on how we enable growth through macro cycles given our technology and funding capabilities. In the third quarter, at the height of the COVID pandemic, liquidity dried up and many originators shrank their credit books. In this example, we grew from 2% to 33% of the partner's originations. Furthermore, in 2021, when the liquidity constraint eased, we dropped 37% of the partner originations. This is a testimony to the strengthening of our partnership over time as we demonstrate our value through cycles. In today's environment, we increased market volatility in the first half of 2022. There was an acceleration of application flow through Pagaya's network. As you can see, we experienced 60% growth in application flow from our top three partners year over year as the second quarter of 2022. Now let's put all of it together. We have built a business model that consistently adds value in both stable time and challenging time. through the benefits of AI intelligence and a unique funding structure. In our business, stable and challenging times are typically defined as differences in market liquidity. The graph on slide 17 illustrates Pagaya's network volume, conversion ratio, and community of application received over three different periods, two defined by liquidity constraints and one without. Application flow consistently grew. while conversion rates fluctuate depending on market conditions, resulting in a growing network volume over time. As you've shown, when credit conditions are tight and liquidity is constrained, our product is in even greater demand by our partners, who typically increase the amount of applications sent to Pagaya. This allows for an even greater ability to be more selective in terms of risk-reward thresholds while maintaining network volume growth. In stable times, we benefit from more favorable credit and liquidity conditions that support further scaling of partnerships and products, resulting in accelerated growth in network volume. Now let me talk a bit about our future growth trajectory. We have a massive one-way ahead of us, and almost all of our efforts across the organization are focused on execution. First, the total addressable market across personal loans, auto loans, Credit card and real estate is in trillions. We have added one new market every year since 2018, but we are capturing less than 1% of the total opportunity today. We have significantly scaled our personal loan business since 2018, now making up roughly two-thirds of our annual volume. Our other products are seeing rapid growth, growing strong double digits in the second quarter. We are driving continued momentum with our existing partners, expanding into new channels. The program launched in the first half of the year contributed roughly 7% of our network volume in the first half. That being said, the most substantial opportunity ahead of us is partnership with big banks in the United States. The top 25 largest banks in the U.S. represent over $650 billion in annual volume. By capturing even a small slice of this opportunity, we can reach our medium-term growth ambitions. Let me now hand it over to Mike, who will discuss our second quarter results and our 2022 and medium-term outlook. Mike?