• Total Revenue: $257 million for Q3 2024, up 21% year over year.
• Fee Revenue Less Production Cost (FRLPC): $100 million, representing 4.3% of network volume.
• Adjusted EBITDA: $56 million, with a margin of 21.8%.
• Net Loss (GAAP): $67 million for Q3 2024.
• Adjusted Net Income: $33 million, excluding share-based compensation and other non-cash items.
• Network Volume: $2.4 billion, an 11% increase year over year.
• Personal Loan FRLPC Percentage: 6.6% in Q3 2024.
• Operating Expenses: Core operating expenses down 5% sequentially.
• Interest Expense Reduction: Expected reduction of approximately $13 million from debt paydown.
• ABS Issuance: $4.4 billion year-to-date as of September 30, 2024.
• Full Year 2024 Revenue Guidance: Between $1.01 billion and $1.025 billion.
• Full Year 2024 Adjusted EBITDA Guidance: Between $195 million and $205 million.

• Warning! GuruFocus has detected 3 Warning Signs with PGY.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Pagaya Technologies Ltd (NASDAQ:PGY) reported strong third-quarter results with an approximate annual revenue rate of $1 billion and $220 million in adjusted EBITDA.
• The company is experiencing increasing demand for its products, leading to improved fee generation and funding efficiency.
• Pagaya's network has grown significantly, generating over $24 billion in loans and adding approximately 2 million new customers.
• The company has successfully onboarded a top 5 bank in its point-of-sale vertical and is in advanced discussions with several other top 20 lenders.
• Pagaya has made significant progress in optimizing its ABS structures and diversifying funding sources, resulting in lower funding costs and improved capital efficiency.

Negative Points

• Pagaya Technologies Ltd (NASDAQ:PGY) reported a net loss of $67 million in the third quarter, compared to a net loss of $22 million in the same quarter of 2023.
• The company recognized credit-related fair value adjustments amounting to negative $70 million, impacting its financial results.
• There are concerns about the sensitivity of ABS structures to small changes in credit performance, which led to impairments in 2023.
• Despite improvements, the conversion rate remains low, with less than 1% of application flow being converted into loans.
• The company faces challenges in scaling newer products like auto and point-of-sale loans to achieve the same profitability as its mature personal loan product.

Q & A Highlights

Q: Can you provide more details on how loan volume is allocated across different funding sources and the economics involved? A: Evangelos Perros, CFO: We have optimized our ABS structures, expecting a 4% to 5% range, combined with diversified funding sources like forward flow and pass-through structures. Currently, ABS accounts for 60% to 70% of our volume, with alternative sources covering the remaining 30% to 40%.

Q: How do you see the growth potential of point-of-sale (POS) compared to personal loans? A: Sanjiv Das, President: POS is a new growth area, and we believe it will be as large as personal loans. Our partnerships, like with Klarna, are set to grow substantially, and we expect POS to be equally profitable.

Q: How are you balancing expense control with investments in the platform, and what are the implications for margins? A: Gal Krubiner, CEO: Our infrastructure allows us to manage multiple partners with minimal additional costs. We expect our expenses to remain flat while revenues grow. Evangelos Perros, CFO, added that our operating leverage allows us to grow without significant incremental investments.

Q: What led to the credit impairment this quarter, and can you provide more details on the 2023 vintage? A: Evangelos Perros, CFO: The impairments were related to the 2023 vintages, driven by challenging funding conditions. Our credit performance has improved, and we expect most remaining impairments to be recognized in Q4 2024.

Q: How should we think about the long-term FRLPC margin as the asset class mix evolves? A: Gal Krubiner, CEO: As our asset classes scale, we expect them to converge to similar financial performance. Sanjiv Das, President, added that personal loans still have significant growth potential, and all asset classes will grow, maintaining strong FRLPCs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.