Pagaya Technologies Ltd. Q3 FY2022 Earnings Call

Good day, and welcome to Pagaya's Q3 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jency John, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to Pagaya's third quarter 2022 earnings conference call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya; and Michael Kurlander, Chief Financial Officer. You can find the presentation that accompanies our prepared remarks, our earnings release, 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 and involve risks and uncertainties. These statements include, but are not limited to our competitive advantages and strategy, macroeconomic conditions and outlook, future products and services and future business and financial performance. 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 in our most recent Form 6-K as filed 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 will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and in the appendix to the earnings presentation, which are posted on our Investor Relations website. With that, let me turn the call over to Gal.

Thank you, Jency, and thanks to all of you for joining us today to discuss our third quarter 2022 results. For today’s agenda, I will discuss financial and operational highlights from the third quarter and provide an update on how we continue to expand our network and financial infrastructure before handing it over to our CFO, Mike Kurlander, to discuss our financial results and 2022 outlook in more detail. We will then take your questions. In Q3, we continued to progress on our three key strategic objectives: expanding our network, raising capital, and strengthening our financial infrastructure. Starting with growing our network. We continue to scale existing partners while onboarding new partners and driving product expansion. Existing partners' monthly application flow grew by approximately 20% from January to September. This is a reflection of the value that Pagaya's network can provide. In tough macro cycles, partners can continue to grow their businesses with limited incremental risk or capital requirements. Within our PoS products, we are excited to announce that we have recently onboarded a top-tier point-of-sale provider to our network. This partnership is an important milestone in our continued expansion across the U.S. financial ecosystem. We will share more details about the expansion of our auto loan products shortly. Our dealership penetration through our auto partner now covers over 70% of all U.S. franchise dealerships. Our ability to consistently raise capital allowed us to continue powering our network partners. Despite challenging market conditions, we raised over $2 billion in funding in the third quarter, reflecting the strength of our funding model and investor relationships in both public and private capital markets. We continue to strengthen our infrastructure. Growing application flows through our network is improving our decision feedback loop. We have evaluated over 77 million applications since 2019 and 41 million applications in the first nine months of 2022, representing 120% growth versus the same period last year. We are pleased with our results this quarter. We delivered $1.9 billion in network volume, which grew 26% versus the third quarter of 2021. Our total revenue and other income grew by 49%, reaching a record of $204 million. This continues our track record of delivering top-line growth every quarter since inception, reflecting ongoing expansion of existing partnerships and accelerated growth in our newer products, particularly credit card and auto. Our adjusted EBITDA in the third quarter was negative $5.2 million, reflecting lower margins in our newer program, financial markets volatility, and ongoing investment in our future business. Mike will discuss our financial outlook in more detail shortly. Our company was founded with a mission to improve lives by partnering with financial services providers to make financial opportunity more accessible, leveraging our data reach proprietary technology. Our business model is a B2B2C platform, sitting in the middle between partners and institutional investors. As a reminder, Pagaya is not a lender or a servicer. We enable our partners to provide enhanced access to financial products and services and facilitate the deployment of capital on behalf of investors. You can see how our network works in practice on Slide 7. Partners join our network because of the power of our infrastructure, which converts partners' funnel more efficiently and effectively, thereby enabling them to improve access to financial products for their customers. Onboarding a partner to our network typically takes six to nine months. We spend hundreds of hours working with employees at all levels of the partners’ organizations to ensure we are delivering the right level of service, seamless integration, and customized capabilities to meet the unique needs of each partner. This enables us to build significant trust and a deep knowledge of our partners' current and future priorities. As a reflection of this trust and value we can deliver since inception, no partner has left our network, demonstrating the stickiness of our network external connectivity once established. After our network is integrated into our partner systems, our proprietary technology, seamless customer experience, and flexible solutions help partners achieve more satisfied customers. This, in turn, drives incremental revenue and reduces customer acquisition costs. At the same time, partners see higher brand affinity, which leads to increased lifetime value. Through our network connectivity to institutional investors on the other side, partners can grow their businesses with limited incremental capital, resulting in higher return on investments. Today, our network sells to over 25 partners across more than 50 channels in five different products: personal loans, auto, credit cards, point-of-sale, and real estate. Our infrastructure is informed by over 16 million training data sets, analyzed by over 250 data scientists, and processes nearly $600 billion of application volume that flows through our network annually. Our network has been growing exponentially with a total of 77 million applications evaluated since 2019. At the root of our network is the infrastructure we are building to power the real economy, helping U.S. financial institutions grow their businesses, thereby enabling them to better serve their customers. Our network currently expands dozens of partners across multiple products across the country. This breadth of connectivity is critical to the power of our network, giving us enhanced insights on changing economy, demographic, and consumer behavior trends across the U.S. Every new partner we onboard, new channel we open, and existing partner we scale further adds to these data sets, making our model smarter and allowing us to better serve all partners and investors in our network. This is the essence of the Pagaya flywheel and all comes back to our key asset, the network range, which we have created that connects the partners, investors, and consumers through our ecosystem. It is truly one of a kind; since inception, nearly $1 trillion of application volume has been processed through our network. Supporting this infrastructure is a sophisticated, differentiated data engine that plugs into the lending origination systems of financial institutions across the U.S. It connects the Pagaya infrastructure to each partner's owned network, including dealerships, merchants, and consumers. Pagaya has more than 2,000 partners serving customers in different regions across products and with different profiles. These partners also offer their customers a range of services including marketing, origination, servicing, and collections. Our decision layer continuously collects information from applications across partners' networks, amounting to nearly $1 trillion in application volume processed since our inception. That information covers nearly 300 million unique customer consumer data points and feeds into our data layer, which engineers the data to continuously train our AI. In addition, our enrichment layer brings in real-time information from other sources such as CRA, Census Bureau, and other public and private sources. This combination of high volume, velocity, and variety of data gives us a unique vantage point and trains our AI to be more proactive and accurate, as well as to rapidly adjust to evolving market conditions. Those insights are also helping optimize our partners' businesses in ways that would be difficult for them to achieve on their own. For example, our network can detect fraudulent activity quicker than any single partner. We can track instances of similar characteristics or behaviors across the flow of multiple channels. In fact, in 2021, we identified similar anomalies in application requests across platforms. While other non-network originators were impacted, we were able to notify those on our network, allowing them to act quickly. Institutional investors also benefit from joining our platform. Unlike other market players, we provide a one-stop shop for access to multiple financial originators, providing diverse exposure to consumer assets. Our network infrastructure enables us to help grow our partner's business even in a significant market dislocation. Last quarter, we showed you a case study of partnership during and immediately after the COVID-19 pandemic. We grew from 2% to 33% of the partners’ origination in the environment of shrinking credit boxes and tight liquidity and continued to grow to 37% in 2021, reflecting the stickiness of our value proposition. We are seeing the same trend among our partners today. We are now seeing accelerated demand from our partners in the current market dislocation as they tighten their own credit boxes. We enable a 7-point uplift to a partner's origination from the first quarter to the third quarter this year, further strengthening our network connectivity to our partner. The structure of our business model and our advanced AI capabilities enable us to efficiently navigate macroeconomic cycles and deliver consistent growth for both partners and investors. As a completely complimentary solution to our partner, it is not surprising that application flow grows over time and even faster in tight credit markets as lenders tighten their credit boxes. Our partners rely on Pagaya even more to continue growing their businesses during these times. In the first nine months of 2022, we have seen application flow accelerate, growing at 120% versus the same period in 2021. At the same time, we are constantly adjusting our model lead time to optimize the risk-return balance on behalf of our investors. This ability to dynamically adapt production through cycles is only possible because of the infrastructure we have built. In the current environment, we are reacting quickly by lowering our conversion rate by 45% in September 2022 compared to September 2021. As we shift to more resilient lower profiles to optimize investor returns, we remain focused on standing by our partners, helping them grow their customer base and generate new revenue streams while consistently offering our investors unique opportunities for investment through cycles. Now let me pivot to discuss the next stage of the expansion of our networks: auto and PoS. Pagaya's auto business was created in 2019, with the idea that the network raised we connected in the personal loan market could be replicated to help transform the auto financing market. With our personal loan partners, we offer auto origination as a fully complimentary solution to enhance their ability to better serve dealerships. Over the last few years, we have been focused on onboarding and signing new auto partners across the country to the Pagaya network. Exclusively through our 10-plus auto partners, we have built our distribution into over 12,000 franchise dealerships, representing nearly 70% of all U.S. franchise dealerships. However, while we have greatly expanded our presence, we are just beginning to capture the potential volume opportunity. Approximately 80% of auto loan originations, making up hundreds of billions of dollars in volume, flow through franchise dealerships to auto lenders, representing massive growth potential. We evaluated approximately $25 billion in auto loan applications in the third quarter, growing over 300% since the fourth quarter of 2020. Since we launched auto in 2019, we have evaluated nearly $140 billion in network volume. The large auto lender we onboarded in the second quarter of the year has helped step change our auto growth, allowing us to penetrate thousands of dealerships across 29 states. Capital deployed monthly to purchase auto loans has doubled from January to September, and application flow through our network has accelerated. We remain focused on our strategy to scale our network partner by partner and lock unique distribution channels, in this case dealerships, through our embedded technology. This is the framework of how we think about scaling all of our product offerings. Our network connectivity allows us to replicate the value we provide to investors in our personal loan product across other products too. On Slide 19, you can see the performance of Pagaya auto production versus a market-level benchmark. The chart details 30-plus-day delinquent rate over time for loans as 10 months on book. Our AI infrastructure enables lower volatility with better relative performance versus traditional underwriting methods, even as we have rapidly scaled the products. Leveraging our experience in personal loans and auto, we are now expanding into point-of-sale markets with a similar go-to-market strategy. Our goal is to partner with leading PoS payments providers to help them increase conversion rates at the point-of-sale, helping grow the retail partners’ businesses. We are in the early days of scaling our point-of-sale penetration, but believe our network infrastructure and connectivity can support even faster growth of these products. It is estimated that there are over $50 billion of point-of-sale sales in the U.S. annually, with rapid expected growth as the digitalization of payments continues to accelerate. Leveraging our installment loan experience, we can provide value to our partners across numerous in-market offerings and penetrate new merchant relationships through our partners. We are excited to have onboarded a top-tier point-of-sale platform. This represents a key milestone to accelerate our point-of-sale product, powering a national merchant community. This lender has a fast-growing U.S. presence, serving approximately 30 million U.S. consumers across 10,000 U.S. retailers. This represents a meaningful step change in our pace of growth. Onboarding a leading lender as one of our first partners in point-of-sale is a clear example of how the power of our infrastructure grows over time. We are excited to work closely with this partner to expand their U.S. business while helping them to build a new stream of services and performance data to further enhance their lending capabilities. Let me now hand it over to Mike, who will discuss our financials and 2022 outlook in more detail.

Thank you, Gal. The growth in our network is driving our momentum, resulting in a record quarter of total revenue. Network volume and revenue in the first nine months of the year have now surpassed the full-year 2021 levels. This growth has predominantly come from existing partners, and we expect medium-term growth to be further enhanced by new partners and programs that are in our pipeline. As we've mentioned, our funding model is unique in that we raise cash upfront from investors prior to facilitating the acquisition of assets from our partners. This creates two distinct advantages over the traditional approach. First, by securing capital, we have the ability to continue operating through very near-term market dislocations. And second, we are locking-in the cost of funding, which helps us price risk efficiently and optimize investor returns. We appreciate the trust our investors have had in us, which has allowed us to raise capital through market cycles with over $13 billion raised over the last three years. Of course, we are sensitive to the uncertain world around us and are continuously focused on growing our investor base. Going into more detail for Q3, we raised funding across both ABS markets and our privately managed funds. Within ABS, we raised approximately $1.7 billion this quarter despite an increasingly challenging market environment, executing four benchmark deals across our top three products, including our first-ever rated SFR transaction, which received a AAA rating from both Moody's and DBRS. Our investors get the benefit not only of yield and short duration, but specific to Pagaya deals, investors gain exposure to assets originated by multiple lending platforms, providing diversification in one transaction. In the fourth quarter, we just recently closed on another benchmark deal of $700 million in this very difficult market environment. Turning to our balance sheet and liquidity. Due to the pre-funded vehicles, we do not currently utilize our balance sheet for loans, and we hold over a third of our balance sheet in cash with no corporate debt, all backstopped by an undrawn revolving credit facility. Outside of cash, our largest asset on the balance sheet is investments in loans and securities, almost entirely related to regulatory risk retention and security interests in the ABS transactions that we sponsor. Our net economic exposure after accounting for third-party interests is less than $220 million and only a small fraction of the network volume that we generate, demonstrating the efficiency of our business model. I'd also note that over 50% of this exposure is in debt securities. Now, let me discuss third-quarter results and our 2022 outlook. This quarter, we grew network volume by 26% and revenue from fees by 45% over the third quarter of 2021, primarily due to the continued expansion of existing partnerships and faster growth in our newer products, particularly auto and credit card. Our take rate was at the higher end of our historic range at 9.6%, driven by better economics on personal loans, our most mature product. Production costs rose from 5.4% of network volume in the third quarter of 2021 to 6.7% in the third quarter of 2022, primarily due to newer partner programs and growth in our newer products, particularly auto, as we expand our dealership footprint through our partners. We reported adjusted EBITDA of negative $5 million, reflecting continued investment in our platform and a weaker macro environment. Finally, I'd like to give some context on our updated 2022 outlook. We are maintaining the guidance ranges we provided in our second-quarter results on network volume, total revenue, and adjusted EBITDA. In light of the ongoing uncertainty in the macroeconomic environment, we are guiding to the low end of the respective range for both network volume and adjusted EBITDA. This reflects three key factors: First, our business and network continue to grow at a rapid pace. At the same time, the pace at which macro conditions are evolving has changed significantly in the past few months. Our network volume is a function of both application flow and the conversion rate that we apply to this flow. While application flow continues to grow in line with our expectations, we have been intentionally lowering our conversion rate to shift to a more resilient borrower demographic, thereby impacting total network volume. I note that the two partners we recently onboarded will take time to ramp and will be more meaningful to our network volume in 2023. Secondly, and unsurprisingly, the current dislocation in the financial markets impacts the level to which Pagaya can monetize application flow from our partners, affecting our profitability in the short-term. We continue to see significant volatility in financial markets, but over time, we expect asset pricing will stabilize with a cost of capital certainty. Finally, our operating expenses remain elevated, reflecting continued discretionary investments in our infrastructure, technology, and people. After a large growth in overhead necessary to become bank and public company-ready, the pace of growth slowed in the third quarter as we begin to reach scalability and prioritize our investments against our long-term strategic ambitions, especially in light of the current operating environment. With that, let me hand it back to the operator for Q&A, after which Gal will make a few brief closing remarks.

Thank you, sir. Your first question will be from Eugene Simuni at MoffettNathanson. Please go ahead.

All right. Well, thank you very much, guys. Good to connect with you. I wanted to start maybe with a question on the credit quality of the loans that have been originated through your platform, obviously, not on your balance sheet, but with your asset investors. So, helpful to see the chart again on the auto loans, showing that you're ahead of the benchmark, but can you comment a bit on the other asset classes? Last time you shared a similar chart on the personal loans, but would be helpful to hear some comments on the quality of the credit book across the portfolio.

Sure, Eugene. Thank you for your question. It's Gal here. To your question, as we shared in the auto loans part, in the other asset classes, we see the same trend. We are seeing stabilizing parts that are coming in line with what we expect and credit is very much stabilizing as we expected. We saw a functional change in June, where liquidity was really much driven outside of the market and drove the ability for players like us to provide a much better outcome for our partners, but at the same time provide a much better return for our investors. Internally, we look at ourselves from a relative value perspective and we see that our ability to outperform what we think is the benchmark is substantial, continued, and comes as a few hundred basis points over a long period of time. Now all of that is being driven by the 45% reduction that we implemented in our conversion rates. That's the way we moderate and control the investor return and ensure we are able to deliver what is expected given the higher financial volatility in the market.

Got it. Okay. That's helpful. Thank you. Then maybe another question is on the more strategic level about your growth of your network. It was very helpful to hear comments on the expansion of the auto business and new relationships with point-of-sale players. There was not as much mentioned this time of your big bank initiative, which you talked about a lot last time. So, I'm just curious on the progress of that, or is that part of the auto loan expansion? I mean, big banks are the ones your auto loan partners. Can you update us on that?

So, Eugene, you are correct. The auto loan is definitely driven by the addition of the bank, and we see much more pipeline behind that. As you can imagine, while onboarding a major auto loan partner, there are many others that are looking at that and starting to become realizations of that. In the third quarter, we were focusing a lot on onboarding and expanding what we did with a big bank on auto, which is a step function change for us. While we speak, we're continuing to onboard more and more states through that partner and many dealerships to them. As I said, from a pipeline perspective, we are in discussions with almost all of the top 25 banks in different stages, and we are in different types of integration or discussions to integration with many of them. So, the focus remains very much on those major banks in the U.S., and we feel we have all that is needed to execute on that in different levels.

Got it. Okay. Well, thank you. I'll leave it there.

Thank you. Next question will be from Joseph Vafi at Canaccord. Please go ahead.

Hi, good afternoon, and thanks for taking my questions. Michael, I heard you mention that you closed another funding vehicle in Q4. I wanted to inquire about the current interest from investors beyond that deal considering the macro environment. I will have a follow-up.

Thank you for your question. You're correct that we recently closed a deal for $700 million, bringing our total funding raised this quarter to $1 billion. While the cost of funding has increased, the market remains active. We’re noticing that investors are becoming more selective, seeking issuers that offer products they desire. Our pre-funded model is advantageous, providing both funding certainty and a comprehensive solution for investors by offering multiple platforms in a single deal. We've received a positive response even amid current market conditions. Additionally, we have established strong relationships with several strategic capital partners. This has proven beneficial as we engage with sovereign wealth funds, pension funds, and large asset managers who appreciate our track record and continue to invest. We are very pleased to have completed those two deals despite the current market environment.

Got it. And then, I'm just a little curious why take rates are higher in personal. I know you mentioned it's your most mature line of business. Is it just more operating leverage because you have a cost structure that's different, or is there something else going on as to why the take rate there is higher than some of the other loan classes?

Yes, Joe, as it relates to take rates, so just thinking about our revenue side, you're right, personal loans are our most mature product. The partners that we have been engaged with have been partners of ours now for multiple years. What you've seen in the presentation is that over the recent time period, as credit boxes have tightened up, given the dislocation in the macro, we've been able to provide more value to those partners. We've been able to take more of the volume they provide, and as we do that, we've been able to generate better economics as those partners have grown. That's more apparent in the personal loan space because the volume in that area is bigger given that we've had the partner relationships for longer.

I see. Got it. So, would it be fair to say that if some of your other verticals mature a little bit more, there's a possibility of that same phenomenon occurring there too? Or is it more related to the macro and where we are right now?

You hit it, Joe. That's exactly the way we envision the business, and it's a 100% the way we think this will play out.

Got it. I have one more question about auto. I'm curious about the dealership level and whether they will be using various loan platforms where you might be competing with others. How will that situation develop at the dealer level regarding loan applications? Thank you, everyone.

Hi, Joe. It's Gal here. Just a quick reminder. When we think about the auto and the dealerships, we're actually partnering up with auto lenders. It will not be a Pagaya per se and it will not be something that they will see or we will be with others. We are mainly an enabler. Think about it this way: from a consumer and dealership perspective, they don’t even know it’s Pagaya differing, but we connected the API through the different lenders, and the distribution of those auto lenders has a distribution of dealerships, and we're embedded through them, through their brand, through their name, and actually taking these take rates. So, from a consumer and a dealership, nothing changes and we are riding with them and helping them to get the scale that you see on the presentation, which is rather impressive.

Makes sense. Thanks, Gal.

Thank you. Next question will be from David Scharf at JMP Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my questions as well. I also wanted to dig in a little more into the newer asset classes and network expansion. Starting with auto, the list of lenders you're working with that are included in your securitizations is a very healthy kind of who's who of some leading subprime lenders, the Westlakes and CPS and Flagship. I'm wondering, as we think about the pipeline, are there any OEM captives that you've been in discussions with and/or some of the larger bank subprime lenders like a Santander, Wells, Chase?

Hi, David. It's Gal here. Thank you for the nice comments, and we definitely feel that our presence in the auto space is healthy and good. As we're thinking about the pipeline and the next steps, we are directing our efforts more towards the big banks. There are certain big banks that hold major parts of the U.S. distribution, and it is only natural for us given all the things that we build and the investments that we have done to focus on these. While I won’t say that OEMs are not relevant or not an opportunity, we are definitely going to go after them. But from a short-term perspective, we're more advanced in our pipeline focused on the big banks in the U.S.

Got it. And just referencing, just so I'm clear, based on the answer to the prior question on the transaction flow, I assume an auto application still gets sent by a dealer-over-dealer track or route one to the lender who happens to be your client, and you're just doing the underwriting on the backend. It's completely invisible, even to the dealer as well, correct?

100% correct. You got it right.

Got it. Hey, shifting to point-of-sale. Once again, in this case, just trying to get a better understanding of what type of loan you're actually underwriting. You use the term platform when describing the new partner in the U.S. Are we talking about a traditional second-look point-of-sale lender? Or by the use of the term platform, are you referencing, for example, a large Buy Now Pay Later provider or a network like a charge after?

Yes, sure. Let me start with connecting the dots here first, and then, I will comment on your second half of the question. When we think about the underwriting, the funding, and all the things that we do here in Pagaya, we are thinking from where the problem we are solving and who are the partners that have the most access to that. With the dealerships, that's clear; the auto lenders are our clients, and that's who we partner with and work with, and no one else knows about us. The same applies on the PoS, where there is a merchant at the end, but actually behind that, there is a major BNPL player that has a very wide range of presence in the U.S. and a lot of merchants that they are working with. We are coming again behind the PoS provider, behind the big BNPL player, and we are helping them provide that type of credit for consumers. Think about us as an enabler in these both cases, and the credit we are providing connects to one very big BNPL partner, giving us exposure to millions of U.S. customers and thousands of U.S. retailers through that.

Got it. Understood. And I only ask because the PoS financing market, ever since BNPL became a visible product, the line is blurred between traditional PoS lenders and BNPL, and obviously, there's an awful lot of runway ahead of you with other lenders as well. Hey, lastly, sort of connecting all of those dots about who your actual partners are on auto and PoS. Maybe just a overarching strategic question. Clearly, just all the dislocations in the capital markets lately have shown a light on the importance of having stable partners and access to capital, and certainly, so-called fintechs have had maybe a more volatile experience accessing the capital markets than more traditional financial institutions. If you had to guess what your mix of loan volume will look like in three years with respect to how much of it would be generated by what we would think of as traditional banks, financial institutions, versus how much would be generated by the bulk of your current client base, which you deem to be fintechs, when does that kind of mix ultimately transition to where it's closer to 50/50 do you think? And it would seem like auto gets you there quickly as well.

From the strategic question, it's an evolving and interesting one. First of all, when you think about it, let's lay out the asset classes or the markets we're actually working in: personal loans, PoS, credit cards, and auto loans. When you’re thinking about that, we are trying to be as nimble and relevant to the market we are operating in. When we started in personal loans, they were primarily driven by more tech-enabled partners. The fintech players drive a large portion of the overall personal loan market. Auto loans, however, are very much driven by the dealership experience, so the nature of that will continue to be traditional for many more years. We almost don’t see any partners coming from a tech-enabled space; most of them are more traditional banks and non-bank auto lenders. PoS is a combination of two: banks are getting into that, and there are interesting discussions regarding that. The market may evolve in the BNPL space, which is growing massively and gaining traction over the years. The right answer is to keep this ecosystem accretive for all participants. We will play alongside the market as they evolve, creating a high diversity of offerings, which provides us with stability.

I appreciate you calling out the thought because it's exactly the way we think about it, which is what's most important are the partner relationships, funding, and then risk management, and that's really what we were built on. Just to put some near-term context, our network volume this year is largely driven by existing partners. The impact from the large banks we've onboarded this year, which took between six to nine months to get up and running, won't come until next year. So, think about that lead time as you consider the growth in our bank strategy, which fuels the next leg up of our network volume growth as we move up from the $7 billion range this year into coming 2023, and 2024.

Understood. That's very helpful. Thank you. And congratulations on all the success in these challenging times. Sounds like you haven't taken your eye off the ball in terms of executing on the pipeline, even though the capital markets always have their volatility here and there.

We appreciate that, David.

Thank you. Your next question will be from Vincent Caintic at Stephens. Please go ahead.

Thanks for taking my questions. First one, I wanted to talk about the conservatism in your underwriting. It's interesting, the approval is down 45% in September year-over-year, but the implied guidance for fourth quarter is only down a little bit quarter-over-quarter. Plus, I think the implied take rate is still very strong at 9.2%. If you could talk about the strength of your underwriting, what's assumed in the updates, and whether fourth-quarter conservatism is a good jumping-off point for growth in volumes we should be thinking for 2023? Thank you.

Thanks very much, Vince. Appreciate the question. Let me start at the top and then maybe Gal will want to add. We're encouraged and continue to be encouraged by the level of application flow. With a greater pool of applications, we can be more selective to drive investor returns, and that's really what we're focused on. You're right in citing that we've been tightening our conversion procedures. By seeing a greater pool of applications, we can continue that while maintaining or even growing network volume, allowing us to enhance the expected return for our investors. Why think about it from a high level? By observing a greater pool of applications, we can be more selective to generate a better output for our investors. Anything you’d like to add, Gal?

Yes. From that perspective, it’s about creating an ecosystem where we’re being accretive for all. We’re providing good returns while simultaneously supporting our partners and becoming a larger part of their production during these times. It's a balance between finding the right place in this ecosystem that brings us forward while ensuring a win-win-win scenario for all participants involved.

Okay. That's very helpful. Thank you. And second question, it's kind of following up on the funding questions. If you could update us on how your investors are thinking and what they're sensitive to? Today, we saw spreads tighten just broadly and equities go up because inflation started to come down maybe a little bit. I'm just wondering if you could talk about what your investors are focused on, their sensitivities, and their appetite for growth from here. Thank you.

From an investor perspective, the thing our investors care about the most is stability and consistency. What we built early on is uniquely strong for a company at our size and stage: diversification and variety. This offers us the ability to be the one-stop shop for all players, allowing for a deep discussion and understanding of what drives different areas. The ability to drive stability while enabling access from the public and private market is a unique proposition we provide.

I would just add one point: When markets are volatile, part of our model's advantage is that we lock in the cost of capital before we actually source the loans. By having that known cost of capital, we can optimize investor returns a little easier than if we had to look for funding in a highly volatile rate environment.

Very helpful. Thanks very much.

To close, I would like to say how proud I am of our team. We remain focused on our mission and the expansion of our network infrastructure, enabling us to deliver results for both our partners and investors. Thank you for joining us today, and we look forward to continuing to partner with you in the future.

Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.