Pagaya Technologies Ltd.

Good day and welcome to the PAGAIA Q4 and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Jen C. John, Head of Investor Relations. Thank you. You may begin.

Thank you and welcome to Pagaya's fourth quarter and full year 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 furnished 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.

Thanks, Jensi. Thank you all for joining us today to discuss our fourth quarter and full year 2022 results. Today, I will discuss financial and operational highlights from the fourth quarter and full year 2022, review our business model and differentiated value proposition, and provide an update on expansion of our network infrastructure. I will then hand it over to our CFO, Mike Kullender, to discuss our financials and 2023 outlook. We will then take your questions. This was an incredible year of growth for our company. We delivered $7.3 billion in network volume, which grew 49% year over year and was approximately five times higher than our volume in 2020. We achieved total revenue and other income of $749 million, which grew 58% and was above the high end of our 2022 guidance. Financial markets were highly volatile with higher cost of funding, driven by multiple interest rate hikes and widening spreads. Our AI network, powered by millions of data points on consumer behavior, enabled us to react quickly and adjust our models to drive better relative performance. Even with significantly higher cost of capital, we delivered near break-even adjusted EBITDA of negative $4.8 million in full year 2022. Our results in the fourth quarter reflect the resiliency of our business. We delivered $1.8 billion in network volume, growing 10% year over year. Total revenue and other income grew 25% to $183 million. Adjusted EBITDA was negative $9 million. Mike will discuss our financials in more detail in a few minutes. This year has exceeded my expectations. We achieved major milestones while learning how to be agile in rapidly shifting external conditions. We are a different company than we were a year ago. In 2022, we made significant progress on our key strategic objective, expanding and monetizing our network infrastructure. We successfully transitioned to a public company, giving us the fuel to drive future expansion. We delivered record top-line results and added industry leaders to our management team. creating a bench with decades of expertise across both tech and financial services. We onboarded six new partners to our network in 2022, including Visa, Klarna, and a top three auto lender. We evaluated twice as many applications in 2022 compared to 2021 and raised more than $7 billion in funding. I'm proud to announce we also completed our first-ever M&A transaction, taking advantage of the current market dislocation to position our business for the future. We acquired Darwin Home, elevating our SFR offering into a premier end-to-end solution. We also received our first AAA rating from Moody's and DBRS on a single-family rental securitization. With these achievements, we are entering 2023 with a strong momentum. The exceptional growth we have seen in the past few years is a testament to the strength of our network infrastructure. In just three years, we grew from $100 million of revenues to $750 million of a business, helping our partners originate over $7 billion in assets annually and providing access to unique investment opportunities for our institutional investors. I want to take a few minutes to go over the basic fundamentals of our business model. Pagaya is a B2B2C platform founded with a mission to make financial opportunities more accessible by innovating legacy underwriting systems with AI technology and data science. Pagaya is not a lender or a servicer. We partner with financial institutions who originate assets with the assistance of our technology. At the same time, we connect partners to institutional investors who want exposure to these assets, allowing partners to grow with limited incremental risk or capital. We employ a unique upfront funding model that enables better optimization of investor returns by locking in the cost of funding first before sourcing assets that meet required return thresholds. Finally, our network is diverse across five products in consumer credit and real estate with an addressable market opportunity in the trillions. We believe these attributes make our business scalable, resilient, and positioned for the long-term growth. The network infrastructure we are building is getting stronger with time, as we onboard new partners, scan new products, and open new channels. We are connecting more than 25 financial institutions across five products to hundreds of investors across the country, powering the real economy by facilitating billions of dollars of asset creation annually. Since inception, approximately $1.1 trillion in application volume has come through our network, an incredible amount of data and consumer behavior insights that continuously make our models smarter as we grow. We have been able to deliver consistent value creation over time for our partners and investors. Network volume is driven by two factors, the application flow we see from our partners and the rate at which that application flow is converted to network assets. Application flow, as you can see on slide 10, grows consistently over time. In 2022, we saw application flow grow nearly 100% versus the prior year, driven by growth from new partners and as we scale newer products such as Auto. As macro conditions evolve, we can optimize for investor returns through our conversion rate. When facing tighter market liquidity conditions or more challenging credit environments, we can reduce our conversion rate to improve asset returns. Our conversion rate declined by nearly 50% in Q4 2022 compared to the prior year as we shifted the portfolio to a more resilient borrower archetype. Partners see immediately value creation when they join our network. On average, partners have seen 3x growth in origination that are enabled by our network between the third and twelfth months of onboarding. In 2022, approximately $650 million of network volume was generated by new partners and channels on our platform. Institutional investors connected to our network get one-stop shop access to short-duration high-earning consumer credit and real estate assets. AI analytics and data-driven insight enable relative outperformance of assets originated by our partners versus the broader market. On slide 12, we show the credit performance of our personal loan portfolio from Q1 2021 to Q3 2022 at three months on book. Our portfolio has consistently outperformed the comparable market benchmark. This is a result of our ability to dynamically adapt to optimize returns as market conditions evolve. We show an example of this on slide 13 of our presentation. In the fourth quarter of 2021, we spotted credit deterioration in certain cohorts in the personal loan borrower population market-wide. We reacted quickly to adjust the weighting of our portfolio across several attributes, including borrower annual income, loan term, and direct payment. As of December 2022, approximately 70% of our personal loan book was weighted to borrowers with greater than $70,000 in annual income, compared to only 55% in January 2022. We adjusted the duration of the portfolio to reflect a larger proportion of 60-month loans versus 36 months. We saw that a significant portion of borrowers seeking shorter-term loans were looking to refinance following the expiration of the government stimulus. Lastly, we reduced exposure to borrowers who do not opt into AutoPay at origination, improving the consistency and stability of payments. Let me shift now to give an update on two of our newer products, Auto and Single Family Rental. Auto is our second largest product after personal loan. We launched Auto in 2019 and have seen the product grew to approximately $110 billion of application volume, evaluated annually, eight times the level we saw in 2020. We have 10 plus auto partners, including a top three U.S. auto lender who we onboarded in the second quarter of 2022. We are now connected to approximately 20,000 franchise and independent dealerships through our partners, helping them serve consumers in all 50 states. The power of our network lies in the many cross-application opportunities to apply AI-driven data science and technology. In 2020, we made a decision to apply AI to real estate, recognizing the significant potential for disruption in the SFR market. There are roughly 16 million single-family rental households in the United States with an estimated approximately value of $4 trillion. We believe we can reshape the SFR investment landscape with a truly tech-first solution. Our AI engine, powered by nearly 300 million unique consumer data points, generates insights on evolving credit, demographic, and economic trends. we offer a unique value proposition to investors by leveraging these insights to select, acquire, and operate homes on their behalf. To take our SFR offering to the next level, we recently acquired Darwin Homes, an industry-leading property technology platform led by two founding members of DoorDash. The combination of Pagaya core AI technology and data network with Darwin's proprietary software and operational does three main things. The first, Create a tech-first, fully integrated solution for all participants, including residents, investors, and third-party service providers. Second, elevate the living experience for residents with a mobile app that offers a full spectrum of services, from the application process to rental payment processing to home repairs. Third, enable research and data-driven decision-making to optimize asset performance on behalf of our investors. I am excited about the path forward in SFR. It's another example of the cross-applicability of our AI network in new spaces to create incremental value. While our SFR product is still in its very early stages, the opportunity is significant, and I'm confident in the combined capabilities of the Pagaya-powered by Darwin platform. To summarize, our achievements this year reflect the hard work and dedication of our team and the strength of our business model that can deliver through all environments. Now let me hand it over to Mike Kulander, our CFO, to discuss our financials in 2023 outlook.