Pagaya Technologies Ltd.

Welcome to Pagaya fourth quarter full year 2025 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Josh Fagan, head of investor relations and COO of finance. Thank you. You may begin.

Thank you, and welcome to Pagaya's fourth quarter and full year 2025 earnings conference call. Joining me today to talk about our business and results are Gal Krugner, Chief Executive Officer of Pagaya, Sanjeev Das, President, and Evangelos Perez, Chief Financial Officer. You can find the materials that accompany our prepared remarks 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 with respect to, among other things, our operations and financial performance, including our financial outlook for the first quarter and full year of 2026. Our actual results may differ materially from those contemplated by those 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 and 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-K, 10-Q, and other reports for a more detailed discussion of these factors. Additionally, non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, fee revenue less production costs, or FRLPC, FRLPC percentage of network volume, 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 the accompanying earnings supplement and press release. With that, let me turn the call over to Gal.

Thank you and welcome everyone. 2025 was a hell mark of a year. In Q4, we achieved $34 million of gap net income and $80 million in operating cash flow. In the beginning of 2024, we set the goal to become gap net income and cash flow positive, which we continue to accelerate in the fourth quarter this year. For the full year, we achieved revenues of $1.3 billion, up 26% year-over-year, adjusted EBITDA of $371 million, up 76% year-over-year, and gap net income of $81 million, up $483 million versus 2024, with an EPS of $0.93%. More importantly, these results and achievements were the outcome of growing in diversifying our business across verticals, further expansion into first-look and second-look loans, and optimizing our unit economics and balance sheet. Before discussing our result and outlook, it is important to recall that 2025 was a year of discipline for Pagaya. We fine-tuned the foundations of our business approach towards risk management and underwriting. In turn, this drives further consistency for our investors as we continue to serve our lending partner needs. All of that while building an enterprise focused on sustainable through the cycle growth. This discipline drove us to proactively take action later in the fourth quarter in face of persistent consumer uncertainty and trends. While our data does not indicate consumer deterioration, we have the privilege of being able to pivot our production to focus on prudence and discipline. As such, credit performance across asset classes remain in line with our expectations. However, we pulled back our exposure to higher-risk, albeit profitable, credit tiers, which have potential for higher relative losses in a downside scenario. As we mature as a company, we are shifting more and more of our focus to achieve the best long-term outcomes for our stakeholders and to avoid any downside that could arise from potential tail risks. We have built a business that is highly scalable with key inflection points in our operating and capital structure that results in standalone operating efficiencies. We have a robust list of onboarding partners and a healthy funding position. As important, with our data moat, technological leadership, and commercial momentum, we are positioned to continue to take share in this vast market, a market that that Pagaya creates and one that Pagaya leads and is increasingly profitable manner. Let me now talk about the long-term fundamentals of our business. It is clear that we have momentum and are executing on all aspects of our business. As we have talked about throughout 2025, future growth will continue to come from the combination of recently onboarded partners and deepening our existing relationships. Our pipeline remained robust, a testament to our product suite becoming industry standard. In the latest quarter and the months that followed, we onboarded Achieve, GLS, and a leading fast-growing buy-now-pay-later provider in North America. And we expect to announce additional partner launches in the coming quarters. GLS, or Global Lending Services, is a leading auto finance provider that offers financial solutions to almost 20,000 franchises and independent dealerships nationwide. As I look ahead, I'm excited about more consumer lenders joining the Pagaya Network, further highlighting the potential and value added of our enterprise platform. For our existing partners, we continue to innovate, meeting our partners where they are to drive higher partner usage, certification, and engagement. For instance, LendingClub recently adopted our marketing affiliate offering and became a multi-product partner for us. We expect to end the first quarter with multiple large personal loan partners fully onboarded into our pre-screen offering. our earning power and cash flow generation will become more robust as partners continue maturing into multi-product relationships. At the same time, we continue to institutionalize and diversify our business through long-term agreements with fee and application flow commitments, creating additional partner alignment and business stabilization. This quarter, we entered into long-term agreements with two of our largest partners in auto and personal loans. While we work to continue growing our application volume from new and existing partners, our decision to reduce our exposure is firmly grounded in portfolio optimization rather than growing just for the sake of growth. In fact, We are comfortable having a lower conversion rate when it is appropriate to reduce the likelihood of adverse outcome. As a maturing business, a core pillar of our culture is to deliberately balance long-term growth and profitability against shorter metrics. Our focus, on top of funded growth and expansion, is designed for the future as we prioritize building an enterprise platform for the long term. As a B2B2C enabler, our partner depends on Pagaya to manage the business for long-term strength and stability. And they appreciate our ability and willingness to make such proactive risk-based decisions. Turning to funding. We continue to leverage favorable market dynamics to create longer-term committed capital that enhance our capacity while reducing exposure to funding volatility. This year, and in the months that followed, we made strides in diversifying our funding sources with forward flow arrangements across all three core asset classes, personal loan, auto loans, and point of sale. Building on this momentum, we further enhanced our funding stability with the expansion into revolving ABSs across point of sale and personal loan, creating almost $3 billion of revolving capacity. As we enter 2026, our guidance and business plan are driven first and foremost by this discipline risk framework that we have developed over the years. Our accomplishment in 2024 and 2025 set us up for efficient and durable growth. We stabilized the business as we scaled, we optimized our operating costs and balance sheet, and diversified our sources of revenues and funding. Going forward, we are in the right place for balanced, efficient growth. In 2026, investors should expect more measured volume, thus revenue growth, as we prioritize reducing credit exposure over market share gains at the moment. Our strategy reflects a business that is in control of its long-term growth trajectory while deploying measured risks. With our 10-year anniversary approaching, we believe this strategy reflects a company that is building an enduring platform that maximizes value creation over time. We are building a B2B2C platform that will be cornerstone of the U.S. financial ecosystem that should be embedded within every U.S. consumer lender. Leveraging intelligent AI quant decisioning as its core, our platform will operate wherever our partners are through the cycle while powering products that meet the needs of our customers. The first decade proved our model and secured our place in the market. The next decade is about scaling that foundation with greater ambition, durability, and impact.