Pagaya Technologies Ltd.

Good day and welcome to the Pagaya 1Q 2024 Earnings Conference Call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jen C. John, Head of Investor Relations. Please go ahead.

Thank you and welcome to Pagaya's first quarter 2024 earnings conference call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya, Sanjeev Das, President, and Evangelos Peros, Chief Financial Officer. Thank you so much for having me. 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 filings and in our Form 10-K filed on April 25, 2024, 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, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, fee revenue less production costs, or FRLPC, FRLPC margin, and core operating expenses will be discussed on the call. 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 with the SEC on Form 8K today. for detailed commentary on our business and performance in conjunction with a company earning supplement and press release. With that, let me turn the call over to Gal.

Thanks, Jencie. And good morning, everyone. I'm actually very pleased with our first quarter results. At Pagaya, we are always striving to build a future where more Americans have access to the financial product they deserve through our technology. Our operating performance was strong. We grew fees with our lending partners and raised the record of $2 billion in funding. I'm very proud to announce that this month we added Elevon to our network, a top five global payment company and 18 new funding investors. Our network is now connected to 30 lenders and 116 funding partners. This accomplishment speaks to the power of our business, but I'm especially proud of the progress we're making on our bank enterprise sales strategy. Let's go back to 2022 for one second. When we reported earning for the very first time as a public company, I spoke about one of the key reasons why we decided to go public, which was to execute our enterprise bank sales strategy, partnering with the largest banks in the country. Now, fast forward two years, we now have three of the country's top banks using the Pagaya product and many more in the pipeline. And as I shared, we also added Elephant, U.S. Bank's merchant services and payment solution to our POS vertical. Just one quarter after announcing the addition of U.S. Bank to our personal loan vertical. That speaks to the value of our product. On the financial side, we once again delivered record-breaking financial results, exceeding our outlook with network volume of $2.4 billion total revenues of $245 million, and adjusted EBITDA of $40 million. Peer revenue, less production cost, was up 84% year-over-year to $92 million, and our FRLPC margin expanded 109 basis points year-over-year to 3.8%. That's the highest level we have seen since the beginning of the rate-high cycle in early 2022. This is obviously a clear proof that our strategy is working and that there are more room to increase our unit economies going forward. We delivered a fifth back-to-back quarter of improvement in adjusted EBITDA and positive quarterly gap operating income for a third time of $8 million. We reported our third quarter of positive and growing operating cash flow in a row delivering $20 million of operating cash flow this quarter. We continue to manage credit performance very closely to deliver strong and consistent asset return to our funding partners. We are seeing continued strong performance on our 2023 vintages with delinquencies trending at their lowest level since early 2021. Sanjeev will speak to this in more details in just a moment. As I look ahead, Pagaya is on a path to be connecting infrastructure between all major U.S. loan originating systems and public and private capital markets. Since we started back in 2016, our teams have been working day in and day out, building the right infrastructure and capabilities to put us on this path. The connectivity we build thus far 30 of the country's largest loan originations, and over 100 of the country's largest funding providers is the foundation of the enterprise value of our business. We got here faster than I thought possible. Just three years ago, our business was connected to 10 lending partners and around 20 investors. As you can imagine, each new partner we onboard is adding to our institutional knowledge and capabilities to build better and smarter products for lenders across the country. As we build our product ecosystem, we're making our relationships with our lending partners stickier and increasing the overall pool of economics we can share in. And we are drawing new enterprise-grade lenders to the network, from top five consumer banks to the world's largest payment providers. Now let's talk strategy. From a strategy perspective, we're focused on two simple priorities. First, operating in a smart way to optimize for the current environment. And second, setting the stage for long-term growth. On near-term operational execution, our priorities are maximizing the profitability potential of the business and doing so with efficient use of our capital. we are seeing an increasing ability to earn more fees as we scale. Now on the capital side, our focus is to become more capital efficient as we grow. That means reducing how much upfront capital we use to fund new network volume. In order to achieve this, we are diversifying our funding and financing mechanisms to reduce net risk retention. we landed $100 million secured borrowing facility in the quarter to finance our risk retention needs and a new whole loan sales structure transaction that resulted in a low 1% net risk retention on that deal. We are in advanced conversations now with several counterparties to execute forward flow and whole loan sale arrangements that could exceed $1 billion in total size. Based on our ongoing conversation with new funding and financing counterparties, we can meaningfully reduce net risk retention over the next few quarters. These initiatives are key to our strategy to reach cash flow positive in early 2025. Ipi will speak more to this in a moment. Thinking about our long-term growth plan, we're not taking our foot off the gas in lending new enterprise-grade lending partners. That has been and remains our North Star for our future growth and company potential. That will ensure that we have the raising place to achieve our ambition to become the lending tech partner of choice for the largest banks in the country. Adding Elephone, as I mentioned, this quarter, in our point of sale vertical is a great example and speaks to the power of enterprise sales with large banks. The ability to expand our product across multiple consumer divisions within a single enterprise. Let me spend a minute on point of sale. This is what we believe the next frontier of growth for Pagaya. Point of sale is a fastest growing consumer credit market far outpacing the growth of total consumer credit. Pagaya is a leading white label point of sale solution provider in the market today, allowing payments businesses and banks to offer point of sale financing under their own brand. Now this is super important point. The value prop is very strong. Why give your customer away when you can partner with Pagaya? The power of that value prop is creating momentum for our future pipeline. And as such, we are in discussion with several large payment businesses that we aim to integrate over the next 12 to 18 months. Additionally, discussions with banks in our pipeline are increasingly turning to how Pagaya can help them break into point of sale. As we expand the offering to more industry leaders, We believe we can be a truly disruptive solution in the traditional buy now, pay later universe. The top line opportunity is also huge. We believe our point of sale vertical has the potential to generate billions of dollars in incremental network volume to our business at scale. Now looking at our broader pipeline of prospective lending partners, we are currently in late stage discussion with six large lenders across our main verticals of personal loan, auto, and point of sale. We are advancing our bank pipeline and expect to integrate three new point of sale providers or banks in our point of sale vertical over the next 12 to 18 months. On our existing lending partners, we continue to deepen our relationship with them, which is leading to better unit economies. Our 2023 cohort ramp-up is tracking according to plan while we continue to prioritize our most profitable personal loan partnerships in a continued constrained funding environment. These actions are adding to our bottom line. Our average personal loan FRLPC margin more than doubled year over year to 6%. We are also in late stage talks to expand our personal low product with an existing bank partner. More to come on that later this year. With that, let me pass it over to Sanjeev to discuss our bank enterprise strategy and other operational updates.