Pagaya Technologies .(PGY) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - The company reported Q3 2024 total revenue of $257 million, fee revenue less production cost (FRLPC) of$100 million, and adjusted EBITDA of $56 million [29] - Network volume grew by 11$2.4 billion, with personal loans and point-of-sale (POS) businesses growing 15% and 67% respectively [33] - FRLPC as a percentage of network volume reached a record 4.3%, up 83 basis points year-over-year, driven by higher fees from lending partners [34] - Adjusted EBITDA margin improved by 846 basis points to 21.8%, with adjusted EBITDA growing by $28 million year-over-year [36] - Net loss attributable to the company was$67 million, primarily due to credit-related fair value adjustments of $70 million [37] Business Line Performance - Personal loans, the company's flagship asset class, achieved an FRLPC of 6.6$9.5 billion and $9.7 billion, and adjusted EBITDA between$195 million and $205 million [48] Q&A Session Question: Funding Mechanics and Economics - The company allocates 60%-70% of volume to ABS and 30%-40% to alternative funding sources like forward flow and managed funds [53] - The blended net risk retention is expected to be around 2%-3% of total network volume, with significant demand for pass-through programs [51] Question: Point-of-Sale Growth Potential - POS is expected to grow significantly, potentially matching the size and profitability of the personal loans business, driven by partnerships with major banks and Klarna [54][55] Question: Expense Control vs. Investment - The company has inherent operating leverage, with costs remaining flat while FRLPC grew by 38%, allowing for continued growth without significant incremental investment [58][59] Question: Regulatory Environment Post-Election - Management expects a more constructive regulatory environment under the new administration, which should benefit the company's growth and technology adoption [60] Question: FRLPC Outlook Across Asset Classes - FRLPC margins are expected to converge across asset classes, with auto and POS businesses expected to reach similar profitability levels as personal loans as they mature [74][75] Question: Credit Impairments and Future Outlook - Credit impairments in Q3 were primarily related to 2023 vintages, with the majority of remaining adjustments expected in Q4 2024 [67][69] - The company has optimized funding structures and diversified sources, creating a significant cushion against future impairments [69][86] Question: Private Credit and Approval Rates - The company is seeing increased interest from private credit shops, but approval rates among lending partners remain prudent due to the high-interest-rate environment [80][81] Question: Fair Value Marks and Future Sensitivity - The company has reduced risk retention by 40% compared to 2023, with structural changes making future impairments less likely [86][87]