管理層發言
Good day, everyone, and welcome to today's Pagaya 2Q 2025 Earnings Call. Please note this call is being recorded. It is now my pleasure to turn the conference over to Josh Fagen, Head of IR.
Thank you, and welcome to Pagaya's Second Quarter 2025 Earnings Conference Call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya; Sanjiv Das, President; and Evangelos Perros, 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 third quarter and full year of 2025. 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 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 8-K 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, Josh, and welcome, everyone. This was our second consecutive quarter of positive GAAP net income at a record high of $17 million. Total revenues of $326 million was also a record, as well as our $126 million in revenues from fees less production costs. And lastly, our $86 million of adjusted EBITDA. Our strong results underscore the tremendous work we have done to provide increasing value to our existing partners while building our new partner pipeline. This also reflects our improved funding and operating efficiency with strong unit economics, which the team will walk through in more detail later. Given the sustainability of our growth, unique economic attribution, improving corporate structure, and increasing demand for our product, we are raising our full-year financial outlook. Our unique data advantage and AI underwriting advantage continues to compound, enabling more precise credit decision, fueling model improvements, and enhancing outcomes for our lending partners.
These results are a strong reflection of our execution against several unique attributes delivered by an extremely strong team. Before I discuss our results and our strategy moving forward, I do want to spend a few minutes just to remind the audience what it is that makes our business model and the company so unique. First, it's the way in which we source assets. We are not a direct-to-consumer or a balance sheet lender. We help over 31 different lenders to acquire and retain customers. The benefit of the network to Pagaya is clear, sizable loan flow at almost $250 billion per quarter without spending a single marketing dollar. This allows us to remain highly selective while still profitably growing volumes, underwriting just 1% of applications over the past three years. Second is the value proposition we provide to our lending partners, especially to the banks. With a heavy regulatory burden and stringent capital rules, banks cannot truly respond to opportunities presented to them, leaving good customers and depositors behind.
Pagaya ensures banks can serve such creditworthy customers without taking any credit risk. The third attribute is our ability to produce diversified assets at scale for large pools of capital raised by private capital funding partners such as Blue Owl and Castlelake. Over 150 sophisticated investors look to us to provide this flow in a consistent fashion. Last is the unique economic profile as we monetize this flow. Ours is a fee-based model, generating revenues from both sides of our network. That, coupled with a strong operational leverage, positions us to drive high levels of sustained long-term profitability. Turning back to our second-quarter results. We have continued to diversify several key aspects of our platform. As such, 30% of originations come from point-of-sale and auto lending versus only 9% just a year ago. On the funding side, with our recent forward flow expansion with Castlelake, we have added roughly $5 billion in forward flow capacity since the end of 2024.
This represents 25% of our overall funding mix. The increasing diversification and capacity for our funding sources adds much more resiliency and stability through cycles and better supports our growth and earning power. We have continued to demonstrate strong operational leverage with the second quarter core operating expenses near record lows as a percentage of FRLPC, thanks to the wide usage of technology and automation in our business, driving continued GAAP net income growth. While the operating environment is showing some stabilization and credit performance remains solid, we remain deliberately conservative in managing volumes and credit such that we can respond effectively to any macro shift. Pagaya is targeting strong and sustainable growth through all cycles. While these results were delivered in our second quarter, we continue to execute as we enter the third quarter. We successfully raised $500 million through our first corporate bond issuance.
This was a strong external validation of our business model. Our appeal to an increasing era of capital providers would not have been possible without our relentless focus on the stability and consistency of our business and our disciplined execution on driving towards GAAP profitability. This bond offering is designed to grow our earning power, provide us access to less expensive capital, and evolve our corporate capital structure to one that is more mature, diverse, and sustainable. When I look forward toward the next 18 months of Pagaya, I see a disciplined focus on growing our enterprise. The main objectives of our growth strategy are simple: to land more partners and to offer additional value-added products to support our existing lenders' businesses. Our core technology advantages allow us to further support our partners' growth across the different markets in which we operate. Currently, our core program boosts our partners' ability to reach a large customer base.
Recently, we have started to support our partners' ability to actually increase application flow into their funnels as well as to reduce the friction necessary to fund loans through expedited verification. Initiatives and products such as the Pagaya direct marketing engine, the affiliate optimizer, and the FastPass solutions are crucial parts of our future growth. Sanjiv, my Co-Founder and President, will expand on the way in which product innovation boosts the appeal to our network of lending partners as a growth solution. We are coupling product expansion with our strong and consistent funding network and underwriting capabilities. And it is important to mention that all of these loans, even from the new initiatives, continue to be funded by the Pagaya funding network. We have made great strides in the past 18 months in stabilizing our funding, financing, and operating structure through a disciplined approach.
We will now shift to focus and execute our growth strategy, which we are excited to share more about in the coming quarters. In closing, we continue to demonstrate that our greatest strengths lie in our ability to combine advanced data, AI capabilities, and scaled infrastructure, making us a partner of choice to many leading lenders to drive sustainable, profitable growth.
Thank you, Gal. Our business continues to benefit from robust consumer demand, a healthy consumer, continued improvement of our credit modeling as well as Pagaya's unique data advantage and network benefits. Existing lending partnerships remain the primary source of near-term volume growth. We see very significant expansion potential through our product solutions, given our now proven track record of success and the strong demand from existing partners for incremental growth opportunities. With the credit environment stabilizing, our lending partners are actively pursuing growth opportunities. However, many initiatives are constrained at our lenders due to their limited technology resources and competing internal priorities. Anticipating this challenge, Pagaya began investing nearly 18 months ago to build marketing capabilities designed to accelerate our partners' growth without them taking any incremental risk.
In recent quarters, we successfully piloted Prescreen marketing initiatives as part of our direct marketing engine and have since initiated long-term commercial discussions to scale these programs. Additionally, we are working with leading affiliate platforms to develop plug-and-play solutions that require minimal integration effort, enabling lending partners to launch growth initiatives quickly. Our embeddedness in our partners' technology enables seamless expansion into new product solutions. Pagaya is expanding the way in which it works with its lending partners beyond decline monetization. We are growing our product suite to include marketing products to further accelerate their customer growth. Our direct marketing and affiliate optimizer engines help our lending partners expand their application funnel, which in turn creates a significant growth platform for Pagaya. As we expand our product offerings, we consistently leverage Pagaya's core capabilities, underwriting advantage, and funding efficiency.
Demand also remains robust for new partner additions, a longer-term growth driver. We see continued interest from regional banks and leading FinTechs. With several term sheets signed, we expect a few announcements in the coming quarters. Importantly, all of these current and evolving business drivers remain within our B2B2C core competency and focus. We have no plans to go directly to consumers. And as Gal said, it is something that uniquely differentiates our model in the world of consumer lending.
Thank you, Sanjiv. As always, I will cover our financial and operating results and provide updated guidance for Q3 and full year 2025. But first, I want to take a moment to highlight a pivotal milestone in our journey as a public company, our inaugural corporate credit rating and successful execution of our unsecured notes issuance. This marks a key step in the continued optimization and maturity of our capital structure and serves as a strong validation of our team's execution. Let's revisit the foundation we laid in early 2024 when we introduced our revised financial strategy. At that time, we committed to two core goals: achieving GAAP net income profitability and generating positive cash flow. Having delivered on both with continued momentum, we shift our focus to fully leverage our next-generation product-led financial platform, one that is resilient, increasingly capital efficient, and built to support great scale.
These attributes enable us to drive compounding value for our partners and shareholders, supported by disciplined underwriting, strategic capital deployment, and structural operating leverage. To that end, the successful completion of our $500 million senior unsecured notes offering, supported by all three major credit rating agencies, was a step toward that goal and the evolution of our long-term financial strategy. You can find the details in our shareholder letter, but I want to highlight some of those benefits. First and foremost, we have reduced our cost of debt from approximately 11% to approximately 9% without effectively altering net leverage. Second, we improved GAAP profitability with approximately $12 million in expected annualized interest savings. Third, we enhanced cash flow by an estimated $40 million annually, driven by both interest savings and the retirement of secured debt that would otherwise amortize.
Fourth, we simplified our capital structure by eliminating legacy restrictive covenants, extending debt maturities to 2030, and releasing valuable liquid assets, improving both liquidity and flexibility. Finally, this transaction is an endorsement of our strategy and opens access to the deepest pockets of institutional capital. It elevates our positioning across all of our constituents from funding partners to lending institutions.
Turning to our financial results. We reported record results across all our key metrics, each at or above the high end of our original second quarter guidance. Most importantly, our results underscore the consistency and profitability of our network volume growth. Network volume grew 14% year-over-year to $2.6 billion, above the high end of our guidance. Personal loans were the largest contributor of volume in the quarter, up 23% year-over-year. At the same time, our results are increasingly diversified with POS and auto volumes comprising 30% of total volumes versus 9% one year ago. In line with the past three years, our conversion of applications to funded loans was at approximately 1%. We expect this level to remain steady in the near term as our increasing flow of partner applications enables us to adhere to our stringent underwriting standards and achieve profitable growth through the cycle.
Total revenue and other income was a record $326 million this quarter, up 30% from year-ago levels, with revenue from fees growing by 31%. FRLPC reached a record $126 million, up 30% year-over-year, outpacing network volume growth. Our focus on profitable growth drove FRLPC as a percent of network volume up 61 basis points year-over-year to 4.8%. FRLPC contribution from lending partner fees continues to grow at 81% of total FRLPC in the quarter versus 69% in 2Q '24 and only 1% in 2022. Adjusted EBITDA reached a record $86 million, an increase of 72% from the second quarter of 2024, representing 6 points in margin improvement at 26.4%. This was due to a combination of strong top-line growth and our unique operating leverage with core operating expenses as a percent of FRLPC near the lowest level since going public. In fact, incremental EBITDA margin as a percent of FRLPC topped 100% on a year-over-year basis.
Core operating expenses have risen sequentially in the second quarter due to higher ABS issuance of $2.3 billion versus $1.4 billion last quarter and our inaugural POSH ABS. These excess issuances drove expenses higher, which we expect to normalize next quarter. Excluding ABS setup costs, compensation, and all other non-comp combined as a percent of FRLPC continued to decline, demonstrating the inherent operating leverage of our business. These same factors drove GAAP net income growth of $9 million sequentially and $91 million year-over-year to $17 million. This represents a 5% margin in our second consecutive quarter of GAAP net income profitability versus 3% last quarter and negative 30% a year ago. Credit-related fair value adjustments reported in our other expense net amounted to a loss of $11 million in the quarter versus $24 million in the prior quarter. In addition, there were $4 million in loan-related losses versus $6 million in the prior quarter.
Interest expense was $23 million in the quarter, which is up approximately $2 million but down nearly 16% from third quarter 2024 levels when we undertook a set of balance sheet optimization actions. We expect interest expense to decrease meaningfully going forward following the recent unsecured note issuance. Adjusted net income was $51 million, which excludes share-based compensation and other noncash items such as fair value adjustments. Credit performance remains strong and stable, consistent with the last two years. Starting with personal loans, second half 2023 and first half 2024 vintage cumulative net losses are trending approximately 30% to 40% lower than peak levels in the fourth quarter of 2021 at month on book 11 to 20. For auto loans, CNLs across second half 2023 and first half 2024 vintages are trending approximately 30% to 60% lower than levels during comparable 2022 periods at month on book 11 to 20.
In terms of our funding, we continue to execute at scale, taking advantage of the strong momentum we are experiencing while remaining disciplined in our credit underwriting. During the second quarter, we issued $2.3 billion in our ABS program across six transactions. Our institutional funding network currently stands at 153 unique partners, up from 120 last year. We closed our first AAA-rated auto ABS transaction and maintained our AAA rating on our personal loan ABS. Additionally, we closed our inaugural $300 million AAA-rated point-of-sale ABS transaction. With its revolving feature, as loans are repaid, funds are redeployed into our new loans during the 18 months tenure of the facility, thus equating to over $1 billion in prospective funding capacity over the life, fueling significant growth potential in our POS business. We expect ABS net risk retention requirement levels to continue to range at 4% to 5% of the notional size of our personal loan ABS deals and may opportunistically increase retention levels to the extent it lowers our cost of funding and is accretive to our earnings.
Following the quarter, we announced a new forward flow agreement with Castlelake, a testament to the success of our initial agreement in 2024. The new agreement represents a total of up to $2.5 billion in personal loan purchase commitments over 16 months, a notable change from the 2024 commitment of $1 billion over 12 months. We expect to continue to diversify our funding to favor capital-efficient structures and other strategic funding partnerships. Turning to our balance sheet, as of June 30, we held $242 million in total cash and cash equivalents and $870 million of investments in loans and securities. The quality and composition of our balance sheet have improved materially over the last 12 months, providing enhanced access to liquidity. We will continue to proactively evaluate our balance sheet for further optimization opportunities, particularly within the context of our recent success in the public debt markets and the broader environment.
In the second quarter, the fair value adjustment of the overall investment portfolio and allowances, net of noncontrolling interest and prior to any new additions was $21 million versus $45 million last quarter. We also added $122 million of new investment loans and securities net of paydowns from prior investments, the majority of which was discretionary. This is part of our accretive deployment strategy, which drives our overall cost of funding lower and increases the buffer against any future losses. Turning to our outlook, our full-year and third quarter outlook reflect both the momentum and resilience in our business to date. At the same time, we remain cautious due to the protracted uncertainty. We will continue focusing on driving profitable prudent growth, not chasing any growth at all costs, while monitoring the macro environment closely. Notable drivers include consistent levels of personal loan production and continued growth in auto and point-of-sale products.
We expect FRLPC to continue growing as we focus on our most profitable and growing verticals. We continue to expect FRLPC as a percent of network volume to range between 4% and 5% for the year. Profitability trends will continue, reflecting our scale and operating leverage. We expect credit-related impairments, if any, to be in line with the scenarios laid out in our earnings supplement and already reflected in our guidance. Interest expense is projected to trend lower as a result of our recent refinancing of unsecured notes transactions. Our third quarter and full-year GAAP net income guidance includes the impact of several one-time items, including approximately $24 million in costs associated with the issuance of our corporate bond and costs associated with the early retirement of existing credit lines. Partially offsetting this loss, we expect to record a one-time benefit associated with the resolution of certain tax-related matters.
The combined impact of these items is expected to be a net loss of approximately $5 million to $10 million already reflected in our 3Q and full-year net income guidance. With that in mind, for the third quarter of 2025, we expect network volume in the range of $2.75 billion to $2.95 billion, total revenue and other income in the range of $330 million to $350 million, and adjusted EBITDA in the range of $90 million to $100 million. We expect GAAP net income in the range of $10 million to $20 million, reflecting the aforementioned one-time costs. For the full year, we are increasing our expected network volume range to $10.5 billion to $11.5 billion, total revenue and other income in the range of $1.25 billion to $1.325 billion, and adjusted EBITDA in the range of $345 million to $370 million. We are increasing our GAAP net income for the year in the range of $55 million to $75 million.
分析師問答
We'll take our first question from Peter Christiansen with Citi.
Wow, really impressive results, great execution this quarter, a lot to like. Gal, you mentioned earlier in the call that banks lack the necessary technology, especially regarding point of sale. Could you share some of the discussions you've had with potential new partners in the banking sector? I'm particularly interested in the large card issuers, as it seems logical for them to diversify their offerings and possibly incorporate BNPL capabilities. Are you seeing any momentum or potential new partners in that space?
Pete, thank you for the kind words. So yes, it's Gal. I'm going to take it. So the short answer is yes. I think in general, in the U.S., there is a lot of enthusiasm about buy now, pay later as it relates to the ability to provide customers the option to have additional ways to pay their bills. To your point, banks with significant credit card businesses are looking to stay competitive, and in the last few quarters, there has been enthusiasm for collaborative opportunities with Pagaya. If you've noticed, we mentioned that we signed a few term sheets just in the last quarter and hope to make progress in the coming quarters. To sum it up, the answer is yes. Buy now, pay later is one of them, but we see that across the board in personal loans, buy now, pay later, and auto loan.
That's helpful. And then I certainly want to double tap into the successful oversubscribed bond offering you had in the quarter. It seems like this changes the glide path for capital structure planning as we think forward and certainly provides a reputational benefit here. Just wondering if there's anything you can add there on how you see this deal being transformational for Pagaya.
Sure. Thanks, Pete. This is EP. Yeah, we're obviously very happy with the execution of this transaction, and we laid out all the benefits that we get out of it, which I encourage you to go through because it's truly a transformational transaction for us. Maybe another way to think about it is that this bond effectively is a step function in our evolution and provides the biggest risk reduction in our business and franchise as a whole. When you think about the corporate debt structure that we have in place now in combination with the convert, we have extended it 4 to 5 years and achieved substantial cash savings, returning that back into the business to focus on growth. This transaction also opens up options for capital access in a nondilutive way. So we are very pleased with it, and it provides an extra layer of scrutiny as we engage with the rating agencies.
And yeah, echo congratulations on really strong results. Gal and Sanjiv, you guys talked a lot about your focus on new products in your prepared remarks, whether it's prescreening or affiliate optimization. I'm just thinking about how this impacts your growth profile with the partner model. You had good growth, but it could be fairly lumpy. Is this something where you think about smoothing out results? How are you thinking about kind of the timing and magnitude?
Sure. Thank you, Kyle. This is Sanjiv. Yes, you're right. We have spent a fair amount of our time over the last 18 months investing in our new products. In some ways, we anticipated that our partners in this cycle would be looking for growth. We have invested heavily in the growth initiatives with our partners. The direct marketing engine and the affiliate optimization engine essentially enable us to help our partners grow the personal loan side of their business by reaching out to existing personal loan customers who could take a second loan or those who have paid off their loans and might qualify in the future. Using our analytics, we can select the best customers for our partners to reach out to under their brand, offering them the Pagaya solution for underwriting and funding. This means our partners continue to grow while earning fees. We are working with our partners to connect them to major affiliate programs on the personal loan side to expedite their growth. We've conducted pilots with our top partners and are signing multiple new term sheets to roll this out. We expect this to impact the growth of our personal loan business very soon, particularly in 2026, and smooth out seasonal lumpiness in the franchise.
Just one thing to add, from a P&L perspective and from a network perspective, we are reaching a point of scale where the products we choose require a one-time investment that can then be utilized across many of our partners. The investment in the direct marketing engine, for example, is built once, but it can be leveraged for 6, 7, 10, and up to 31 partners. So while there are costs involved in providing that value, it is very accretive from a P&L perspective. Similarly, as we connect with platforms like Experian and streamline their integration, it will increasingly provide strong value. Overall, both the investment time and the expenses versus the benefits we gain should be very accretive now that we have more than 30 partners.
We've served 2.5 million consumers already, and the total addressable market with our existing partners is about 60 million customers. It presents a massive opportunity, and the investments being made replicate the Pagaya model of using analytics to support partners and provide a funding solution.
Great quarter. Gal, you mentioned your unique model early in your prepared remarks. I'm wondering, do you see others entering? What do you think the market direction is and the competitive dynamics, especially considering your first-mover advantage?
Definitely. Let me try to answer this question from both a product and a company perspective. From a product perspective, we are building an extended platform allowing many lenders in the U.S. to provide more consumer credit offers to their customers. I believe every bank and lender should have a version of this business model. This is the message we have been delivering since we became known in the industry. We recognize that other lenders are building parts of their own extended platform, primarily around funding platforms to fulfill parts of their application processes. We're enthusiastic about this development as it represents a big market opportunity that, as it becomes more mainstream, makes our solution more attractive to lenders. However, what distinguishes us is our direct connectivity to loan origination systems and our established tech stack required for sustainable, efficient growth.
We never rely on one funding partner; we connect to 150 sophisticated investors, ensuring stable funding. This approach has allowed us to deliver results across various asset classes, making us not only unique among FinTechs but also capable in markets that traditionally haven't utilized these methods. We consider Pagaya a potential leader in the market, able to create a syndication market within consumer credit, and we welcome contact from all banks and lenders looking to enhance their customer offerings.
Sure, Sanjay. We have seen strong consumer performance across all our principal asset classes, particularly in personal loans and auto loans. Our consumers continue to make their payments. Although we are carefully monitoring potential external impacts, such as student loans and increasing consumer savings rates. Credit performance remains strong and steady, consistent with the last two years. Our risk management process has tightened, ensuring we approve loans that maintain solid credit quality. With respect to our Auto business, we employ sophisticated models to make the process more friction-free for high-credit quality customers, increasing our volumes while maintaining credit quality.
To address your question on growth capacity, the way we think about growth includes connecting to more lenders and offering more solutions within the channels they rely on. Our capacity can support doubling our volume over the next 18 months. While we have the ability to lend more partners, the challenge lies in the time required for integration and to achieve profitable growth without extended investment periods. Our focus remains on generating higher GAAP net income numbers and having a robust organization to handle potential future challenges.
Great quarter, guys. A quick question on just the affiliate program you mentioned. I just wanted to know more about when you're onboarding a bank partner with limited technical resources, what are some of the workflows and assets you bring to do that? Any color you could give us would be super helpful in understanding what goes into bringing on new partners.
Hi Hal. This is Sanjiv. When we sign a term sheet with a bank, we do not immediately jump into the tech integration. First, we undergo a thorough process ensuring our models meet both our risk management and the bank's compliance standards. This involves detailed analysis to ensure regulatory compliance. Following that, we go through legal steps to qualify the bank as a true lender. This initial phase is crucial to make sure the bank is comfortable, which is why it can take about 6 to 9 months before we can proceed live. We announce partnerships once we reach the onboarding phase with banks.
Thank you, everyone, for being here, and we look forward to updating you again in our next early quarter announcement. Thank you very much.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.