Pagaya Technologies Ltd. Q1 FY2023 Earnings Call

Good day and welcome to the Pagaya First Quarter 2023 Earnings Call. Today’s call 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 welcome to Pagaya’s first-quarter 2023 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 strategies, 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 Form 20-F filed on April 20, 2023, as furnished 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. Reconciliation 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. This quarter was another proof point of our ability to execute through volatility and progress on our long-term strategy. I will start with a performance update, then an overview of our plan to achieve our medium-term growth ambition, before I pass it over to Mike, to discuss this quarter’s financials and outlook for the remainder of the year. Let me take you through the financial highlights for the quarter. We beat guidance on all of our key metrics this quarter: network volume, revenue, and adjusted EBITDA. We returned to profitability on an adjusted EBITDA basis ahead of our outlook and are increasing our adjusted EBITDA guidance for the full year, reflecting our focus on driving sustainable profitable growth. Network volume in the quarter was $1.85 billion, 12% higher than last year. This drove total revenue and other income of $187 million, 9% higher than last year, and adjusted EBITDA of $2 million. As a reminder, we closed our acquisition of Darwin in January, an investment we made to take our SFR platform to the next level. If we exclude the impact of Darwin, adjusted EBITDA would have been approximately $5 million, a like-for-like improvement of $14 million sequentially versus the first quarter of 2022. Now I will discuss operational highlights that drove these results. On the partner side, 20% of our network volume came from our partners and products that were unrolled in 2022. As our network grows, we see increased monetization opportunities, with AI integration fees growing by 230 basis points from 5.5% to 7.8% of network volume. On the funding side, we were the top issuer of personal loan ABS in the U.S. in Q1, continuing that ranking from 2022, with over 30% market share. We onboarded two major asset managers to our network and strengthened our relationship with some of our long-term funding investors, such as GIC. Our funding capabilities remain robust as our AI technology enables us to outperform the market. With these achievements in mind, we are confident we are well-positioned for future growth. We remain focused on what we can control, although the timing and pace of our growth can be somewhat influenced by market conditions. Now stepping back for a second, we want to talk about the Pagaya mission. Pagaya’s mission is to empower our partners to deliver more financial opportunities to more people, more often. We do this by leveraging AI technology and data science. We partner with financial institutions like Ally, SoFi, and Klarna, who originate loans with our network. Institutional investors purchase these loans through our network too. Today, over 1 million U.S. consumers currently have active loans that were originated with Pagaya technology. We have a unique business model that we believe is inherently less volatile than other comparable fintechs in the consumer lending space. Looking ahead, our medium-term financial ambition is to reach $25 billion in network volume and $1 billion in fee revenues, less production costs or FRLPC. We plan to do this by one, bringing more value to existing partners, two, adding new partners including large banks, and finally, driving a 3% to 4% FRLPC margin. This brings us to what I believe is an inflection point in our company’s journey. We already have the tools we need to reach our medium-term ambition. We have become meaningful contributors to the growth of some of our most mature partners. Looking at our top three personal loan partners, approximately 26% of the total origination volumes are being created using our network, which compares to only 10% of their origination volumes in the first quarter of 2021. As our value grows, we see improving economics. AI integration fees, which are fees earned for the creation of assets on our network, are growing, helping to offset the impact of financial market volatility. New partners and products, such as auto, are also growing rapidly. Application volume for our auto business grew by 51% year-over-year, supported by increasing application flow from the large bank we onboarded in 2022. We grew network volume for that partner by 4x since its first quarter on our network, with significant runway to scale further in the near future. The combination of increasing scale with material partners and the addition of new partners and products has resulted in substantial growth over the past few years. 2022 network volume was nearly 5x larger than network volume in 2020. We have significant runway for future growth with our network as it stands today; we show an illustration of this on Slide 21 and 22. We believe we can reach our medium-term ambition of $25 billion of network volume and $1 billion of FRLPC with just the existing partners and products on our network. Let me dive into this a bit further. In 2022, we onboarded 6 new partners, with an estimated combined annual origination volume of over $65 billion. We have already demonstrated that for some of our mature partners, we can drive growth to nearly 30% of their total originations. If we assume that we eventually reach 30% of 2022 origination volume for just the 6 partners we onboarded last year, this is an additional $20 billion of network volume. On top of the $7 billion, we already delivered in 2022, this gives us a total of around $27 billion in annual network volume, assuming zero growth from other partners on our network and zero new partners. While we will, of course, continue to drive growth from existing partners and adding new ones, we have the ability to reach our financial goals even without doing so. If we apply our target FRLPC margin of 3% to 4% to the $27 billion of network volume, that translates to nearly $1 billion of FRLPC. Now let me discuss our focus on growing and diversifying our funding network. We offer institutional investors one-stop shop access to 5 different markets at scale, with outperformance enabled by AI. We have raised over $16 billion in funding across all of our financial vehicles since 2020, and we have been able to do so consistently even in severe market dislocations. Our ABS are typically oversubscribed by 2x to 3x, enabling us to become the top personal loan ABS issuer in the U.S., reaching this rank in just 4 years. As our auto business grows, we are increasing issuance to find new partners for originations. We issued $1.1 billion in 2022, ramping up to nearly $800 billion in May 2023 year-to-date. Our investor base is growing. Our older book for our ABS vehicles has around 80 unique investors and is becoming more diversified over time with a mix of large asset managers, sovereign wealth funds, hedge funds, and insurance companies. We have seen a significant step up over time in repeat investment from existing investors, as you can see on Slide 30, speaking to the strength of our performance track record. As we announced last month, we extended our funding relationship with GIC through 2028. We also welcomed new top-tier institutional investors to our funding network. As we announced yesterday, we are partnering with Angelo Gordon to evolve the partners and ATLAS to provide funding for a multibillion-dollar credit union. We believe that growing investor demand is a reflection of our ability to consistently deliver assets outperforming with AI technology. While application volume from partners tends to grow over time, as our network expands, our conversion rate is something we aim to optimize as performance conditions evolve. Backed by AI-driven insights, we have been exercising prudent underwriting in the corporate environment, reducing our approval rates by nearly 50%. As liquidity conditions improve, we can dial the rate back up and increase network volume. In fact, if we applied our peak third quarter 2021 conversion rate to full-year 2022 application volume, network volume in 2022 would have been over $10 billion, double what it was in 2021. With a faster reaction time enabled by our AI, our personal loan portfolio has consistently outperformed the market benchmark. The 30 days past due rate for month three for Q4 2022 vintages is 55% lower than Q4 2021 vintages, which were some of the worst performing vintages market-wide. With recent vintages returning to Q1 2021 performance levels, we are comfortable with our target ROA range of 8% to 12% return. Before I turn things over to Mike, let me recap. I believe that our business is at an inflection point. First, our network is expanding with a significant runway ahead of us. As the network expands, our AI technology gets stronger with more training data points and increased model accuracy. As our data mode grows, we have an increasing ability to monetize our network. Increasing scale and monetization combined with a focus on operational efficiency give us an achievable path forward to delivering sustainable profitable growth. Let me pass it over to Mike to discuss this, as well as our 2023 outlook in more detail.

Thanks, Gal. The inflection point Gal just spoke to is also starting to be reflected in our financial performance. We believe that the path forward to delivering sustainable profitability will primarily be a function of three factors. Number one, significant runway for future growth, which Gal spoke to; number two, a resilient business model that enables consistent delivery of our targeted 3% to 4% FRLPC margin; and number three, a continued focus on operating efficiency. As a reminder, in 2022 we made significant discretionary investments, resulting in near breakeven adjusted EBITDA of negative $5 million. In the first quarter of 2023, we returned to positive adjusted EBITDA, excluding the impact of Darwin, a $14 million sequential improvement versus Q4 2022. The Q1 2023 results reflected a focus on higher margin-generating volumes, further monetizing our network, and executing on cost-saving initiatives while also optimizing for asset returns, as market conditions remain volatile. Network volume grew by 12% year-over-year to $1.85 billion, primarily from the acceleration of new partnerships, balanced by a continued low conversion rate of application volume. Total revenue and other income grew 9% to $187 million. Revenue from fees, which makes up 95% of total revenues, grew by 11% year-over-year. Our take rate, defined as revenue from fees as a percentage of network volume, remained stable versus the prior year at 9.5%. This reflects an evolving composition of our fee revenue, as you can see on Slides 40 and 41. While capital markets fees are lower in the current macro environment, with increased AI integration fees and contract fees, we believe our ability to effectively hedge the impact of financial markets with multiple revenue streams speaks to the resiliency of our business model and the future potential to monetize the network as we grow. After factoring in production costs, our FRLPC margin declined to 2.7% in Q1. While this is below our target of 3% to 4% of network volume, we view this as a transitory period, where capital markets fees are pressured by current market conditions and AI integration fees are on the rise. We expect our FRLPC margin to increase above 3% in the second quarter and on a full year basis in 2023, as we realize the full quarter’s impact of improving economics. Turning to operating expenses, last quarter we spoke about cost-saving initiatives that we planned to implement in 2023 to deliver gross annualized savings of $50 million. We accelerated the bulk of those initiatives in Q1. Operating expenses, less stock-based compensation, depreciation, and one-time expenses in the first quarter declined by $10 million sequentially versus the fourth quarter of 2022, excluding the impact of our recent Darwin acquisition. Our operating expense ratio declined by three percentage points sequentially versus the fourth quarter, to 29% of total revenue. GAAP net loss was $61 million, impacted by non-cash items such as share-based compensation and our election to shift to available-for-sale accounting for our risk retention assets. GAAP net loss in the quarter reflected the cumulative impact of this shift. Adjusted net loss in the quarter was $11 million excluding these items. In summary, let me reiterate that we remain committed to delivering sustainable profitability on an adjusted EBITDA basis. With another quarter of strong execution behind us, we are entering Q2 with significant momentum. As a result, we are raising our adjusted EBITDA guidance to now range between $15 million and $30 million for the year. Our outlook for the second quarter and fiscal year '23 reflects a few factors: first, continued prudence in underwriting standards as the environment remains uncertain; second, delivering our target 3% to 4% FRLPC margin; and third, a continued focus on cost management. It is important to note that with limited visibility, we are not factoring in any material improvements in capital markets into our outlook. In the second quarter, we expect network volume to range between $1.8 billion and $1.9 billion, total revenue and other income to range between $180 million and $190 million, and adjusted EBITDA to range between $5 million and $10 million. For the full year 2023, we expect network volume to range between $7.5 billion and $8 billion, total revenue and other income to range between $775 million and $825 million, and adjusted EBITDA to range between $15 million and $30 million. With that, let me turn it back to the operator for Q&A.

And our first question comes from Joseph Vafi with Canaccord.

Hi, guys. Good morning, and thanks for taking the questions. Nice to see the progress in the business and nice to see the fine-tune on the EBITDA line, just at a high level, maybe some of the top of the final metrics we could dive into. I know you disclosed a really nice increase in application volume in auto. Just wondering what you are seeing in some of the other verticals and related to that appetite from new lenders becoming partners? And then I have a follow-up.

Sure, Joe, it’s Gal here. Thanks for the question. So as you pointed out, definitely auto was the application that we grew the most, with over 50%, because of the good balance sheet placement. That’s the part where we’re growing the most. Second to that, I would say that we are seeing strong demand for replication for our existing partners continue to grow. Those are the best in loans, and some other new partners, as you know, like Klarna and others are just onboarded, working very diligently to increase the amount of application flow and ramp up this type of partnership. From a new partner perspective, we do expect to have one or two more by the end of the quarter, hopefully big names that we’ve been working a lot on and will show the importance in the progress of the lending partners as such. From the way we think about conversion of these things, obviously, it’s important to say that we are staying very prudent in this environment, and we are shifting to more resilient profiles; our conversion rate is down 50% from Q3 2021. And that actually means two things: it means that we have already embedded growth in our systems, so as soon as the environment improves, we can ramp that up and create a lot of growth based on what we have already. The other piece is that this is bringing us better quality borrowers that actually have higher FICO scores and higher income because other funding partners are closing their credit box more and more. And maybe the last point to add, just on the funding side, we have raised over $2.5 billion to support that growth.

Great. And then maybe one on the conversion rate. I know it’s down as you’re remaining prudent and cautious on underwriting, but it looks like it’s kind of stabilized here for a couple of quarters. How should we feel about that conversion rate trajectory? Or basically, do you think we’re at the bottom of where conversion rate is? Or would there be something that would take it lower other than perhaps another macro downturn? Thanks a lot, guys.

I think you are on point. We are feeling confident today that we have bottomed out from a conversion perspective. I will say that these insights come from when we see the funding cost and the return on assets of the assets that we are producing. For return on asset perspective, we believe that we are in the 8% to 12%, which is our target, and therefore we don’t need to reduce the conversion any further. I think the next thing you will see in the coming quarter is that conversion will start to rise. It’s hard to predict exactly when and how, but definitely the trends and direction are positive, and we believe this is the power of the situation. We are styling and contracting towards an inflection point from that perspective.

Thank you.

Thank you.

Our next question comes from Michael Lag with Benchmark. Thanks.

Thanks. Just kind of want to follow up on Joe’s question on the verticals. Can you talk a little bit more about the geographic dispersion of where you’re seeing strength and weakness throughout the different regions a little bit? Thanks.

Sure, so from a geographic perspective, it is rather diversified across the U.S. So like the big states such as California, Texas, etc., seem to have a higher percentage, but if you do it by population, it’s kind of more or less the same.

Okay, great. And then just a follow-up. You mentioned AI integration fees going up? Can you talk about how you’re able to pass those through? Thanks.

Hey, how’s it going? Thanks for the question, Michael. It’s Mike. Absolutely. We see in these times the value proposition of what Pagaya offers is really enabling our partners to continue to grow. In this environment, you see credit tightening and funding becoming scarcer. And in that sort of environment, we’re able to help our partners grow using the Pagaya network. As we do that, we’ve been able to, as part of our value proposition, increase fees. And so as our partners grow, we’ve been winning alongside and that has allowed us to grow our integration fees by approximately 230 basis points over last year.

Nice. And just following on that, does that mean that you have a host of people who want to use your API and that by increasing the cost, it’s almost limiting the expansion in the near term? Just based upon availability or capacity, I should say.

Yes, I think this is Gal again. If you think about it in terms of economics and environments like this, you are prioritizing places where you have a higher margin or higher fee. I think in the future, as the environment and conditions become more stable, we will have the potential to introduce lower margin types of products and be less prudent on that side too. So, you can think about it this way: notice, it’s like a slower growth in that environment. And that’s part of how we’re influencing that, but as we move to a positive EBITDA and have stronger fundamentals, we will continue to grow because we have all the fundamentals to support that.

Great. Congratulations on a great quarter. Thanks.

Our next question comes from Bush with Credit Suisse.

Thanks, and Gal and Mike, great quarter. Maybe to follow up on that a little bit. I think Pagaya had some unique advantages during that difficult funding environment because you kind of pre-funded and were able to sort of get compensated for that. Could you talk a little bit about how, if the financial markets normalize, how do you kind of protect the advantage that you were able to get in this environment?

Definitely. And nice to hear you. Thank you for the question. It may be a little bit less intuitive, but like in times like that, as you mentioned, our value proposition is actually becoming more apparent. So let me talk about it both on the partner side, as you mentioned, and on the funding side. For the sell side, the partner side, we are becoming a greater part of the ability to fund, and we’re happy doing that as we are here to support our partners to be able to bring more credit to our consumers. You see that in few places in the presentation in our wallet share, so to speak, increasing as the day goes by, especially in these environments. On the funding side, as you mentioned, investors want to be more prudent; they desire a high-quality source of assets that comes with very strong underwriting capabilities. And I think to that, just yesterday, we announced a new structure that we’ve used together with partners to be able to facilitate a portion of the portfolio through a credit union using our technology. So being there next to our funding partners to facilitate and make sure the performance is in line is something we are focusing on in this environment. As I said about the partners, that goes a long way in creating strong relationships.

Great, thanks. And maybe as a follow-up to the idea of being able to charge AI fees versus capital markets fees. I would imagine that it’s generally easier for your customers to pay you in those capital markets fees when the market is robust. Can you talk a little bit about how you see that mix evolving over time?

Sure. Yes. Mike, you want to take it?

Absolutely. I think it shows the resilience of our business model. There’s actually a slide in the presentation that illustrates the two different types of fees you mentioned. On the capital market side, we've seen a decline as overall market liquidity has decreased, but we believe we are now reaching a low point. On the other hand, the AI integration fees reflect the added value from our partners and our capacity to grow. These two aspects will vary depending on the broader market conditions. Our aim is to achieve consistent results of FRLPC in the 3% to 4% range, and we believe we can reach that through various avenues, thanks to the unique structure of our business model that ensures resilience.

Great. Thanks very much.

Our next question comes from MoffettNathanson.

Yes, thank you. Good morning. On Darwin, you disclosed Darwin’s contribution to adjusted EBITDA. Could you also disclose Darwin’s contribution to revenue, and maybe to volume too?

Yes, hey, thanks for the question. Stepping back on the question around Darwin, I’d just start by saying we’re really pleased with the progress of the integration. We spoke last quarter about the value of Darwin and a strong leadership team and disruptive technology that’s really going to enhance our overall vertical platform in the SFR space. So overall, we’re really excited about the future growth trajectory of Darwin coming into our platform. From an actual results perspective, Darwin’s contribution has been very immaterial in terms of our business, which is in line with our expectations. We did disclose, as you mentioned, a $5 million impact on adjusted EBITDA. Without the adjusted EBITDA impact of Darwin, we would have been approximately $5 million. So we don’t expect that to be material in the upcoming quarter. But over time, we expect to generate the synergy and the value of the Darwin platform as it grows.

Yes, it makes sense. Just to follow up on that, when do you see the single-family rental business gaining medium-term traction? What are your plans for that vertical?

So I want to connect that for a second to our mission. Our mission at Pagaya is to create access to financial opportunities for more people through our partners, whoever they are and whatever loans they want to get. The same mission exists for our single-family rental space in the U.S. because there is a significant portion of the population in the U.S. looking for access to more affordable housing. With that in mind, we purchased Darwin to connect that modern AI that unlocks potential value to provide housing to more consumers in a high-quality manner. We believe by the end of this year or the start of next year, we will start seeing meaningful progress in that respect from our growth initiatives and our ability to implement all of that. It will take time to fully integrate and understand how we do that, but we are confident that by the fall of 2024, it will become a meaningful contributor for our business.

Okay, it makes sense. One last question, please. You raised about $75 million last month. What are the priorities for deploying that capital, either organically or inorganically?

Sure. We spoke at the time about the opportunities that we see in the market just given current valuations. We think it’s a really exciting time right now, where there are going to be potential opportunities for strategic transactions, such as M&A. So primarily, the goal of that raise was to give us the resources necessary to execute on future M&A transactions. We haven’t announced anything at this point, but we see a lot of opportunities in the market right now, and this gives us the ability to execute very quickly should one of those come to fruition.

Thank you.

Our next question comes from Rayna Kumar with UBS.

Hi, this is Aditya Kulkarni on behalf of Rayna Kumar. Thanks for taking my questions. So, network volume and revenue and other income came in above your prior expectations for the quarter, but you are maintaining your targets for both for the full year. Can you just help us understand some of the underlying macro assumptions that are built into the full year top-line outlook?

Yes. Thank you very much for the question. It goes back a little bit to the conversion rate and the discussions we had before. We have strong confidence in the business and our ability to execute, but we are maintaining that guidance because our ability to predict a conversion point in time, given the volatile market conditions, will be challenging. Therefore, we keep it as such with the certainty, prudent, and in order to manage the flow we're going and this is something we are going to assess over the next quarter.

I will just add to that, really we are managing that conversion ratio to drive to that target return of 8% to 12% for our investors. We are really pleased that we have been able to generate that return at this point. We will continue to monitor it, but that will be the driving force to allow us to adjust that conversion rate when the market improves. That uncertainty remains at this time, but when the market improves, we will be able to increase that conversion ratio, which can lead to upside on potential volume. We are not taking a view on when that will happen.

Understood. That’s very helpful. And just as a follow-up, have you seen any material impacts from the ongoing challenges that U.S. regional banks face, particularly as it relates to partner demand for your network solution?

Yes. I want to take you back to the announcement we made yesterday, which we probably would validate Angelo Gordon to facilitate the credit union partnership. We see the challenges from two sides. On the one hand, it gives us a unique opportunity to utilize technology and AI to facilitate more of that and help banks and credit unions get to a better funding position with the strong relationships we have on the capital market side and private capital. The other piece is that we see medium-sized banks as significant buyers or drivers of this ecosystem in the U.S. across personal loans, FinTech lenders, and auto lenders, which creates a better environment for pricing and the quality of assets. We are capitalizing on that opportunity to become more of a centralized piece of their funding network.

Great. Thank you so much.

Our next question comes from Hal Goetsch with B. Riley Financial.

Hey. Good morning, everybody. I would like to ask a question on Slide 17. It shows the percentage of volume that has increased over the past 2 years, going from 14% to 26%. The reference point of Q1 ‘22 was a tremendous amount of lending going on, with high growth and high demand, while just a year later, it’s a very different situation in Q1, being tight everywhere. My question is, what do you think is normal? What do you think will be a normal percentage you might have of your partners’ volume in a more normalized environment? It’s clearly not 14%, but is it 26%? Is it somewhere in between? Thank you.

You are absolutely right about your observation; you see here quarters with very different funding or macro environments. What we have been noticing historically is that once you hit these targets and these percentage points, usually the integration and relationship between the organizations works to keep that as such. That being said, it’s not to say that 26% cannot go to 24%. But generally speaking, the upward trend of maybe around 25% is a point to consider; once it is established, the partnership should maintain a solid benchmark. The major part of it is the ability to integrate very heavily into how these organizations work, optimizing the value provided over time. That’s why you see these percentages growing regardless of market fluctuations; our aim is to drive growth sustainably.

Okay, that’s great. Thank you. Follow-up question would be then, when a new customer, a new platform that you connect through APIs or software, like Ally or another aggregator, first comes on board, what sort of application demand would you expect to see? How generally does the trajectory look on a same-store basis when you launch? And then in year one, year two, year three? Because I like that term 'land and expand', because it sounds like, hey, the volume will build over time, even with an existing partner. Can you give us your thoughts on that?

Yes, I want to speak about it from two angles, if that’s fine, Hal. The first angle is the land and expand notion, we start rather small, learning the flow. It takes time to adjust and create the partnership. For example, in terms of applications, we see 51% growth with the partnerships in the verticals, but more than that, the funding has accelerated 4x since the first quarter of involvement and continues upward. The initial integration typically starts at a few percentage points and can scale to 25% plus over time, contingent on establishing a solid partnership with benefits. It is also interesting to consider that when infrastructure and partnerships mature over time, they yield unique data advantages, enhancing our AI’s effectiveness and ultimately our performance. Thus, the early days may see slower growth, but as the partnership matures and mutual understanding grows, we can achieve higher margins and growth percentages in the long run.

Great. Thank you very much.

Excuse me. For the final question, I will turn it back to Gal Krubiner, please go ahead.

Thank you, operator. We have a unique last question, everyone. As an AI-driven company, we strive to always be at the forefront of AI innovation, in line with our core values. This quarter, we decided to bring this spirit of innovation to our earnings call, potentially for the first time ever. We invited ChatGPT for our earnings Q&A session as a participant. We wanted ChatGPT to ask one question that it chose, as if it were an analyst on our earnings call. Let me explain how we went about it. We uploaded our earnings materials and historical earnings to ChatGPT this morning and prompted it to suggest a question as if it were a sell-side analyst, and provide an answer as if it were the CEO of Pagaya Technologies, which means me. I am going to have Jency read the question that ChatGPT suggested. I will read out loud the answer that it provided – to be clear, we did not edit or change a single word of both the question and the answer provided by ChatGPT. Here we go, Jency?

Thanks, Gal. The question from ChatGPT is: How does Pagaya’s rapid growth in the auto business contribute to the company’s overall competitive position, and what opportunities do you see in this segment moving forward?

And the answer that ChatGPT provided for me to consider is the following: Thank you for your question. Pagaya’s rapid growth in the auto business is a significant contributor to our overall competitive position by expanding our network and strengthening our AI data load. Our connection to over 20,000 dealerships, both franchise and independent, through our partnership with major lenders has allowed us to access a vast majority of unique data, which in turn improves the power and accuracy of our AI models. This enables us to provide better underwriting solutions and drive growth for our partners. As for opportunities in this segment moving forward, we see tremendous potential in continuing to expand our partnerships and further scaling our auto business. Our recent addition of a large auto bank has already led to a 51% increase in total auto application volume evaluated by Pagaya’s network. This growth enhances our ability to serve our existing partners, but also attract new partners who recognize the value of our innovative underwriting technology. Moreover, as we continue to gain operational leverage through scale and cost management, we expect to achieve sustainable profitability, further solidifying our competitive position in the market. In summary, the rapid growth of our auto business has placed Pagaya at an inflection point, and we are well positioned to capitalize on the opportunities in this segment to drive our medium-term goal of reaching $25 billion in network volume and $1 billion in fee revenue less production costs. Thank you very much, ChatGPT, for the question and the proposed answer. With that, I will make a few closing remarks. I am confident in our ability to continue to deliver for our partners and investors. We have significant momentum as we enter Q2 and beyond, and we continue driving towards achieving our mission. Thank you all for joining us today, and we look forward to continuing to partner with you in the future.

This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.