Pagaya Technologies Ltd.

Good day, and welcome to Pagaya's Q3 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jen C. John, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to Pagaya's third 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, 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 thank you for all of you for joining us today to discuss our Sales Quotas 2022 results. So today's agenda, I will discuss financial and operational highlights from the third quarter and provide an update on how we continue to expand our network and financial infrastructure, before handing it over to our CFO, Mike Kullender, to discuss our financial results and 2022 outlook in more detail. We will then take your questions. In Q3, we continue to progress on our three key strategic objectives. expanding our network, raising capital, and strengthening our financial infrastructure. Starting with growing our network, we continue to scale existing partners while onboarding new partners and driving product expansion. Existing partners' monthly application flow grew by approximately 20% from January to September. This is a reflection of the values Pagaya Network can provide. In tough macro cycles, partners can continue to grow their businesses with limited incremental risk or capital requirements. Within our POS product, we are excited to announce that we have recently onboarded a top-tier point-of-sale provider to our network. This partnership is an important milestone in our continued expansion across the U.S. financial ecosystem. In a few minutes, we will share more details about expansion of our autoload products. Our dealership penetration through our auto partners now cover over 70% of all US franchise dealerships. Our ability to consistently raise capital allowed us to continue powering our network partners. Despite challenging market conditions, we raised over $2 billion in funding in the third quarter, a reflection of the strength of our funding model and investor relationships in both public and private capital markets. We continue to strengthen our infrastructure, Growing application flows through our network is improving our decision feedback loop. We have evaluated over 77 million applications since 2019 and 41 million applications in the first nine months of 2022, representing 120% growth versus the same period last year. We are pleased with our result this quarter. We delivered a $1.9 billion in network volume, which grew 26% versus the third quarter of 2021, Our total revenue and other income grew by 49%, reaching a record of $204 million. This continues our track record of delivering top-line growth every quarter since inception, reflecting ongoing expansion of existing partnerships and accelerated growth in our newer product, particularly credit card and auto. Our adjusted EBITDA in the third quarter was negative $5.2 million. reflecting lower margin in our newer program, financial market volatility, and ongoing investment in our future business. Mike will discuss our financial and outlook in more detail in a few minutes. Our company was founded with a mission to improve lives by partnering with financial services providers to make financial opportunity more accessible, leveraging our data-rich proprietary technology. Our business model is a B2B2C platform, sitting in the middle between partners and institutional investors. As a reminder, Pagaya is not a lender or a servicer. We enable our partners to provide enhanced access to financial products and services and facilitate the deployment of capital on behalf of investors. You can see how our network works in practice on slide seven. Partners join our network because of the power of our infrastructure. which converts partners' funnel more efficiently and effectively, thereby enabling them to improve access to financial products for their customers. Onboarding a partner to our network typically takes six to nine months. We spend hundreds of hours working with employees at all levels of the partners' organizations to ensure we are delivering the right level of service, seamless integration, and customized capabilities to meet the unique needs of each partner. This enables us to build significant trust and a deep knowledge of our partners' current and future priorities. As a reflection of this trust and value we can deliver since inception, no partner has left our network, demonstrating the stickiness of our network connectivity once established. After our network is integrated into our partner system, our proprietary technology, seamless customer experience, and flexible solution help partners achieve more satisfied customers. This, in turn, drives incremental revenue and reduced customer acquisition costs. At the same time, partners see higher brand affinity, which leads to increased lifetime value. Through our network connectivity to institutional investors on the other side, partners can grow their businesses with limited incremental capital, resulting in a higher return on investments. Today, our network serves 25-plus partners across more than 50 channels in five different products. Personal loan, auto, credit card, point of sale, and real estate. Our infrastructure is informed by over 16 million training data sets, analyzed by over 250 data scientists, and processes nearly $600 billion of application volume that flows through our network annually. As you see on the right side of the slide, our network has been growing exponentially with a total 77 million applications evaluated since 2019. At the root of our network is the infrastructure we are building to power the real economy, helping U.S. financial institutions grow their businesses. in turn enabling them to better serve their customers. Our network currently spends dozens of partners across multiple products across the country. This breadth of connectivity is critical to the power of our network, giving us enhanced insights on changing economy, demographic, and consumer behavior trends across the U.S. Every new partner we onboard, new channel we open, and existing partner we scale further add to this data set. making our models smarter and allowing us to better serve all partners and investors on our network. This is the essence of the Pagaya Flywheel and all comes back to our key asset, the network RAIS, which we have created that connect the partners, investors and consumers through our ecosystem. It is truly one of a kind since inception, nearly trillion dollars of application volume has been processed through our network. Supporting this infrastructure is a sophisticated, differentiated data engine that plugs into the lending origination systems of financial institutions across the U.S. Connecting the Pagaya infrastructure to each partner's own network, including dealerships, merchants, and consumers. Pagaya has more than 2,000 partners that sell customers in different regions, across products, and with different BOR profiles. These partners also offer their customers a range of services, including marketing origination, servicing and collections. Our decision layer is continuously collecting information from applications across partners' network, amounting to nearly $1 trillion in application volume process since our inception. That information, covering nearly 300 million unique customer consumer data points, feeds into our data layer, which engineers the data to continuously train our AI. In addition, our enrichment layer brings in real-time information from other sources, such as CRA, Census Bureau, and other public and private sources. This combination of high volume, velocity, and variety of data gives us a unique vantage point and trains our AI to be more proactive and accurate, as well as to rapidly adjust to evolving market conditions. Those insights are also helping optimize our partners' businesses in ways that will be difficult for them to achieve on their own. For example, our network can detect fraudulent activity quicker than any single partner. We can track instances of similar characteristics or behaviors across the flow of multiple channels. In fact, in 2021, we identified similar anomalies in application requests across platforms. While other non-network originators were impacted, we were able to notify those on our network, allowing them to act quickly. Institutional investors also benefit from joining our platform. Unlike other market players, we provide a one-stop shop for access to multiple financial originators, providing diverse exposure to consumer assets. Our network infrastructure enables us to help grow our partner business even in significant market dislocations. Last quarter, we showed you a case study of the partnership during and immediately after the COVID-19 pandemic. We grew from a 2% to a 33% of the partners' origination in the environment of shrinking credit boxes and tight liquidity, and continuing to grow to 37% in 2021, reflecting the stickiness of our value proposition. We are seeing the same trend among our partners today. we are now seeing accelerated demand from our partners in the current market dislocation as they tighten their own credit boxes. As you can see on the right-hand side of slide 14, we enabled a seven-point uplift to a partner's origination from the first quarter to the third quarter this year, further strengthening our network connectivity to our partner. The structure of our business model and our advanced AI capabilities enable us to efficiently navigate macroeconomical cycles and deliver consistent growth for both partners and investors. As a completely complementary solution to our partners, it is not surprising that application flow grows over time and even faster in tight credit markets as lenders tighten their credit boxes. Our partners rely on Pagaya even more to continue growing their businesses in these days. In the first nine months of 2022, we have seen application flow accelerate, growing at 120% versus the same period in 2021. At the same time, we are constantly adjusting our model real-time to optimize the risk-return balance on behalf of our investors. This ability to dynamically adapt production through cycle is only possible because of the infrastructure we have built. In the current environment, we are reacting quickly by lowering our conversion rate by 45% in September 2022 versus September 2021. As we shift to more resilient Bower profiles to optimize investor returns, we remain focused on standing by our partners, helping them grow their customer base and generate new revenue streams, and by our investors, consistently offering them unique opportunities for investment through cycles. Now, let me pivot to discuss the next stage of the expansion of our networks, auto and POS. Bagaya Auto Business was created in 2019. With the idea that the network rails we connected in the personal loan market could be replicated to help transform the auto financing market. As with our personal loan partners, we offer auto origination a fully complementary solution to enhance their ability to better serve dealerships. Over the last few years, we have been focused on onboarding and signing new auto partners across the country to the Pagaya network. Exclusively through our 10 plus auto partners, we have built our distribution into over 12,000 franchise dealerships, representing nearly 70% of all US franchise dealerships. However, while we have greatly expanded our presence, we are just beginning to capture the potential volume opportunity. We evaluated approximately $25 billion in auto loan applications in the third quarter, growing over 300% since the fourth quarter of 2020. Since we launched Auto in 2019, we have evaluated nearly $140 billion in net worth volume. The large auto lender we onboarded in the second quarter of this year has helped step change our auto growth. allowing us to penetrate thousands of dealerships across 29 states. Capital deployed monthly to purchase auto loans has doubled from January to September, and application flow through our network has accelerated. We remain focused on our strategy to scale our network, partner by partner, unlocking unique distribution channels, in this case dealerships, through our embedded technology. This is the framework of how we think about scaling all of our product offerings. Our network connectivity enables us to replicate the value we provide to investors in our personal loan products across other products too. On slide 19, you can see the performance of Pagaya auto production versus a market level benchmark. The chart details 30 plus day pass due delinquent rate over time for loans at 10 months on book. Our AI infrastructure enables lower volatility with better relative performance versus traditional underwriting methods. even as we have rapidly scaled the product. Leveraging our experience in personal loan and auto, we are now expanding into point-of-sale markets with a similar go-to-market strategy. Our goal is to partner with leading POS payments providers to help them increase conversion rates at the point of sale, helping grow the retail partners' businesses. We are in the early days of scaling our point-of-sale penetration, but believe our network infrastructure and connectivity can support even faster role of these products. It is estimated that there are over $50 billion of point-of-sale sales in the U.S. annually, with rapid expected growth as the digitalization of payment continues to accelerate. Leveraging our installment loan experience, we can provide value to our partners across numerous in-market offerings and penetrate new merchants' relationships through our partners. We are excited to have onboarded a top-tier point-of-sale platform. This represents a key milestone to accelerate our point-of-sale product, powering a national merchant community. This lender has a fast-growing U.S. presence. serving approximately 30 million U.S. consumers across 10,000 U.S. retails. This represents a meaningful step change in our pace of growth. Onboarding a leading lender as one of our first partners in point of sale is a clear example of how the power of our infrastructures grow over time. We are excited to work closely with this partner to expand their U.S. businesses while helping them to build a new stream of services and performance data to further enhance their lending capabilities. Let me now hand it over to Mike, who will discuss our financials and 2022 outlook in more detail. Mike?