Greetings. Welcome to Pagaya Fourth Quarter Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Josh Fagan, Head of Investor Relations and COO of Finance. Thank you. You may begin.

Thank you, and welcome to Pagaya's fourth quarter and full year 2025 earnings conference call. Joining me today to talk about our business and results are Gal Kruviner, Chief Executive Officer of Pagaya, Sanjeev Das, President, and Evangelos Paras, 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 first quarter and full year of 2026 our actual results may differ materially from those contemplated by those forward-looking statements factors that can cause these results to differ materially from our expectations included but are not limited to those risks described in today's press release and our filings with the US 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 to the extent available without unreasonable efforts. 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 8K 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 and welcome, everyone. 2025 was a hallmark of failure. In Q4, we achieved $34 million of GapNet income and $80 million in operating cash flow. In the beginning of 2024, we set the goal to become GapNet income and cash flow positive, which we continue to accelerate in the fourth quarter this year. For the full year, we achieved revenues of $1.3 billion, up 26% year-over-year, adjusted EBITDA of $371 million, up 76% year-over-year, and GAP net income of $81 million, up $483 million versus 2024, for with an EPS of $0.93. More importantly, these results and achievements were the outcome of growing in diversifying our business across verticals, further expansion into first look and second look loans, and optimizing our unit economics and balance sheets. Before discussing our result and outlook, it is important to recall that 2025 was a year of discipline for Pagaya. We fine-tuned the foundations of our business and approach towards risk management and underwriting. In turn, this drives further consistency for our investors as we continue to serve our lending partner needs. All of that while building an enterprise focused on sustainable through the cycle growth. This discipline drove us to proactively take action later in the fourth quarter in face of persistent consumer uncertainty and trends. While our data does not indicate consumer deterioration, we have the privilege of being able to pivot our production to focus on prudence and discipline. As such, credit performance across asset classes remain in line with our expectations. However, we pull back our exposure to higher risk and be profitable credit deals which have potential for higher relative losses in a downside scenario. As we mature as a company, we are shifting more and more of our focus to achieve the best long-term outcomes for our stakeholders and to avoid any downside that could arise from potential tail risks. We have built a business that is highly scalable with key inflection points in our operating and capital structure that results in standalone operating efficiencies. We have a robust list of onboarding partners and a healthy funding position. As important, with our data mode, technological leadership, and commercial momentum, we are positioned to continue to take share in this vast market. A market that Pegaia creates and one that Pegaia leads and is increasingly profitable manner. Let me now talk about the long-term fundamentals of our business. It is clear that we have momentum and are executing on all aspects of our business. As we have talked about throughout 2025, future growth will continue to come from the combination of recently onboarded partners and deepening our existing relationships. Our pipeline remained robust, a testament to our product suite becoming industry standard. In the latest quarter and the months that followed, we onboarded Achieve, GLS, and a leading fast-growing buy-now-pay-later provider in North America and we expect to announce additional partner launches in the coming quarters. GLS or Global Lending Services is a leading auto finance provider that offer financial solutions to almost 20,000 franchises and independent dealerships nationwide. As I look ahead I'm excited about more consumer lenders joining the Pagaia network, further highlighting the potential and value added of our enterprise platform. For our existing partners, we continue to innovate, meeting our partners where they are to drive higher partner usage, satisfaction, and engagement. For instance, Lending Club recently adopted our marketing affiliate offering and became a multi-product partner for us. We expect to end the first quarter with multiple large personal loan partners fully onboarded into our pre-screen offering. Our earning power and cash flow generation will become more robust as partners continue maturing into multi-product relationships. At the same time, we continue to institutionalize and diversify our business through long-term agreements with fee and application flow commitments, creating additional partner alignment and business stabilization. This quarter, we entered into long-term agreements with two of our largest partners in auto and personal loans. While we were to continue growing our application volume from new and existing partners, our decision to reduce our exposure is firmly grounded in portfolio profitization rather than growing just for the sake of growth. In fact, we are comfortable having a lower conversion rate when it is appropriate to reduce the likelihood of adverse outcome. As a maturing business, a core pillar of our culture is to deliberately balance long-term growth and profitability against short-term metrics. Our focus on top of funnel growth and expansion is designed for the future as we prioritize building an enterprise platform for the long term. As a B2B2C enabler, our partner depends on Pagaya to manage the business for long-term strength and stability, and they appreciate our ability and willingness to make such proactive risk-based decisions. Turning to funding, we continue to leverage favorable market dynamics to create longer-term committed capital that enhance our capacity while reducing exposure to funding volatility. This year, and in the months that followed, we made strides in diversifying our funding sources with forward-flow arrangements across all three core asset classes, personal loan, auto-loans, and point-of-sale. Building on this momentum, we further enhance our funding stability with the expansion into revolving ABSs across point of sale and personal loan, creating almost $3 billion of revolving capacity. As we enter 2026, our guidance and business plan are driven first and foremost by this discipline risk framework that we have developed over the years. Our accomplishment in 2024 and 2025 set us up for efficient and durable growth. We stabilized the business as we scaled, we optimized our operating costs and balance sheet, and diversified our sources of revenues and funding. Going forward, we are in the right place for balanced, efficient growth. In 2026, investors should expect more measured volume, thus revenue growth, as we prioritize reducing trend exposure over market share gains at the moment. Our strategy reflects a business that is in control of its long-term growth trajectory while deploying measured risks. With our 10-year anniversary approaching, we believe this strategy reflects a company that is building an enduring platform that maximize value creation over time. We are building a B2B2C platform that will be cornerstone of the U.S. financial ecosystem that should be embedded within every U.S. consumer lender. Leveraging intelligent AI quant decisioning as its core, our platform will operate wherever our partners are through the cycle while powering products that meet the needs of our customers. The first decade proves our model and secured our place in the market. The next decade is about scaling that foundation with greater ambition, durability, and impact. Thank you, Gaurav.

As we wrap up the year with our fourth consecutive quarter of gap net income profitability and look ahead, our growth strategy is clear. continue to build a sustainable and profitable business that is increasingly embedded in the U.S. financial ecosystem. Pagaya's growth continues to be driven by institutional-grade scaling of existing partner relationships, as well as new partner additions. In fact, we just added three new partners to our platform, Achieve, GLS, or Global Lending Services, and a leading fast-growth buy-now-pay-later provider in North America. Our onboarding process is becoming industrial-grade, minimizing partner resource requirements. All new partners have a pre-built API integration for the entire Pagaya product suite. Pre-built product APIs, along with an 18-month joint roadmap, will enable accelerated scaling. We also established long-term agreements with all of them that encompass volumes, fees, and all other protections. Our onboarding pipeline remains the busiest in Pagaya's history with demand and traction from leading lenders in the country across banks, fintechs, and other lenders. In fact, a lot of these leading lenders are proactively engaging with us on all products, which is a testament to Pagaya's relevance and strong product-driven value proposition. We are planning to announce some new names in the coming quarters. With our existing partners, we've been consistently delivering and diversifying across products including the direct marketing engine the affiliate optimizer engine and dual look this diversification provides the Gaia with new volume beyond decline monetization increased value and stickiness with existing lending partners and most importantly provides future growth for Pagaya without expanding our own risk appetite Existing partners continue to actively adopt our products. In fact, our largest existing partners signed definitive term sheets and adopted the direct marketing engine after a series of tests and are now scaling with us across direct mail and email prescreen campaigns. Within our affiliate optimizer engine, we recently onboarded Lending Club onto Credit with Karma, where they will be presenting personal loan offers to consumers in partnership with Pagaya. Additionally, we are currently expanding our affiliate optimizer engine to include Experience Activate platform with the launch of our first partner and several more in the onboarding queue. Lastly, we signed several long-term agreements with leading partners to establish commitments across application flow size, quality, and controls to provide further visibility through the cycle. Turning to funding, we continue to diversify from pre-funded ABS funding structure to include more committed capital structures that reduces our exposure to funding volatility. In the last few months, we have expanded our forward flow agreements into all three core asset classes, including inaugural agreements with Castle Lake and Sunpoint in auto and point of sale, respectively. This broadens our Castle Lake agreement into both personal loans and auto. We continue to innovate across our various ABS shelves. We introduced revolving structures, first in POS, and then in personal loans. We inked our second posh ABS deal and our inaugural paid revolving ABS with 26 North, which gives us a more diverse set of financing options and more visibility, hence greater consistency in our funding construct in the face of potential capital market cyclicality. I'd like to reflect broadly on the capital markets environment, which remains very supportive for Pagaya. We see continued strong demand from across insurance funds along with traditional asset managers, while we are witnessing a higher level of rationality than we saw in 2025 from private credit. Overall, we would view the current environment as more of a steady state with healthy demand and execution, particularly for quality assets. Turning to credit performance, we remain disciplined in our underwriting with our core focus centered around gaining access to more high quality flow from existing and new partners. We continue to leverage our unique ability to assess risk in real time based on the data from over 30 lenders across three asset classes with agile decision-making. We continue to prioritize prudent risk management. While credit risk performance of our portfolio remains in line with expectations, we took proactive steps late in the year to reduce exposure to select higher volatility segments. These actions had a direct impact on our network volumes, revenues, and profit in the fourth quarter. Our decision was primarily driven by the changes in risk appetite that we observed across multiple lending partners of ours in light of market uncertainty. We discussed in our outlook, the impact of these actions will restrain growth to a measured degree in the first quarter. We expect a rampant growth through the year due to several factors that we will discuss, including the onboarding of new partners and continued penetration into existing relationships. Before I hand the call to EP for a detailed review of our financial performance and outlook, I'd like to reflect on the successes we've had across the business this past year. In summary, 2025 was a year of innovation, optimization, and profitability across all aspects of the business, laying the groundwork for growth in 2026 and the years beyond.

Thanks, Sanjeev. I will start with the big picture. In 2025, we achieved several important milestones that position Pagaya up for sustainable, profitable growth. Over the last few years, we have been deliberately reshaping this company, strengthening the foundation, tightening the operating model, improving the capital structure, and most importantly, building a much more resilient, scalable, and differentiated technology platform in consumer lending. In this past year, we made sustained investment in our data and risk infrastructure, combined with intentional decisions around risk management, balance sheet optimization, and how we grow. The cumulative result of all that work became evident in the financials as we are exiting 2025 with four consecutive quarters of GAAP profitability. As it relates to our 2026 at Growth Outlook, it reflects our long-term objective to grow the platform while remaining disciplined and adaptive in how we manage risk, and even more so in an uncertain environment. We actively manage the business as a portfolio of products, partners, and risk bands, adjusting exposure as conditions evolve. When uncertainty increases, the appropriate response is to reduce exposure to higher risk segments. When conditions improve, we will reassess and reallocate accordingly. We remain focused on growth from increased product usage penetration and new partners. Let me walk through the numbers. For the full year 2025, we delivered $1.3 billion of revenue, up 26% year over year, $512 million of FRLPC, also up 26%, $371 million of adjusted EBITDA, up 76%, and $81 million of GAAP net income, representing a $483 million improvement versus last year. This reflects meaningful progress in profitability and operating leverage, showing up at scale. For the fourth quarter specifically, revenue was $335 million, FRLPC was $131 million, and adjusted EBITDA was $98 million, representing a 29% margin. We reported GAVNet income of $34 million compared to a loss of $238 million a year ago. FRLPC, as a percentage of network volume, was 4.9%, demonstrating strong monetization while remaining disciplined on risk. Turning to network volume, we reported $2.7 billion for the fourth quarter, up 3% year over year. Personal loan, auto, and POS volume combined grew at a double-digit rate and was partially offset by zero SFR volume in the quarter. Personal loans remain our largest vertical at approximately 65% of total volume and grew 10% year-over-year. Auto and POS represented 19% and 16% of quarterly network volume, respectively. For the full year, network volume was $10.5 billion, up 9%. Excluding SFR, volume growth was substantially higher. Later in the quarter, we proactively tightened production in certain areas that remain profitable but could exhibit higher variability of credit outcomes and may be the first to show deterioration in a downside scenario. This was a dynamic reallocation within the portfolio away from higher risk segments with a plan to be redeployed in volume from new application flow and new products and therefore more balanced risk. Given our visibility into new partner onboarding, new partner and product monetization, and the operating leverage in the business, we are well positioned to make these adjustments. The decision reduced fourth quarter volume by approximately 100 to 150 million without impacting the quarter's profitability targets. When risk moves and persists, we will adjust. We will not stretch. we are dynamic we recalibrate and continue compounding returns fourth quarter total revenue another income was 335 million up 20% year-over-year fee revenue group 16% to 321 million and made up 96% of total revenue interest and investment income grew to 14 million importantly revenue growth continued to outpace volume growth underscoring two key trends improved monetization and higher revenue and profit per unit of volume and risk full year revenue grew 26% and interest in investment income reached approximately 40 million FRLPC in the fourth quarter was 131 million up 12% year-over-year again meaningfully outpacing volume growth FRLPC margin expanded to 4.9% driven primarily by partner and funding mix for the full year FRLPC total 512 million also 4.9% of network volume up 70 bonus points from 2024 I want to spend a moment on a subset of fear revenue fees from capital markets execution. This is an area where we have progressed in a very intentional way. These fees were a negative 6 million for the quarter and a negative 21 million for the year, reflecting the pricing agreements with our forward flow partners and the risk-adjusted pricing of our ABS transactions. Specifically on ABS, negative fees reflect additional cash contribution we put in our securitization structures in addition to our purchase of securities reflected in our investments in loans and securities. This cash contribution is accounted for as an upfront reduction in fee revenues and provides additional support against potential future credit losses. While this does not change the underlying credit performance of the asset, it reduces downside exposure and earnings volatility associated with the certificate investments we hold on our balance sheet most importantly though it also creates a clear and a tighter risk boundary for our investors to put this into context for every 1 billion of ABS funding we are required to contribute a minimum of approximately 50 million of capital ie 5% in line with risk retention rules illustratively a hundred The 100 basis points discount in ABS pricing translates into roughly 10 million of lower upfront fees, but also implies 10 million less in future impairments or up to 10 million more income, all else being equal. Now, let's talk about what we view as another differentiated feature of the business, our operating leverage. Adjusted EBITDA in the fourth quarter was 98 million, up 53% year-over-year with a 29% margin. Core operating expenses declined to 36% of FRLPC, a 13-point improvement year-over-year. Incremental EBITDA margin exceeded 100%, meaning nearly every incremental dollar of FRLPC flowed through to EBITDA. The modest means versus guidance was driven by the late-quarter production adjustment. For the full year, adjusted EBITDA was $371 million, up 76%, and margin expanded to 28.5%, up 800 basis points. Turning to GAAP net income, we reported a record $34 million, our fourth consecutive quarter of profitability, compared to a net loss of $238 million a year ago. Fourth quarter gap net income included the positive impact of approximately $9 million from the extinguishment of corporate notes and a non-recurring tax-related benefit. For the full year, gap net income was $81 million compared to a $401 million loss in 2024. This largely reflects higher fee revenue alongside lower operating expenses, interest expense, and impairments, resulting in a 10% margin in the fourth quarter, compared to a 6% last quarter and a negative 85% a year ago. Credit-related fair value adjustments were $107 million for the year. Adjustment income was $275 million. Diving into credit performance, the results across personal loan, auto, and point of sale remain in line with expectations and within our risk tolerance. Demand for our assets remains strong, as evidenced by new forward flow agreements, our first auto-certificate sale since 2021, and the demand that we're seeing in the first few weeks of the year. 2025 indices represent a more normalized production compared to 2024, particularly given the lower cost of funding from investors relative to prior years. As it relates to new production, rating agencies also validated that cumulative net losses are expected to be lower relative to prior production after reflecting our recent risk actions. Let's go to the specifics. Personal loan C&Ls for the second half of 2024 through the first half of 2025 vintages are running 30% to 40% better than 2021 peak levels. Auto C&Ls are running 50% to 70% better than 2022 vintages. While auto 60-plus delinquencies are higher than 24 following the year's pullback and broadly in line with 2023 levels, recoveries and roll rates are better than both 2023 and 2024, pointing to a normalized level of expected losses. For point of sale, credit rents remain stable and in line with expectations. As I mentioned earlier, realized credit performance remains in line with expectations, and our late-quarter actions reflect increased uncertainty rather than observed deterioration. When uncertainty increases, even if losses have not materialized, the platform is designed to reduce exposure to the tails of the distribution. When conditions improve, we will adjust again. Funding remains robust. In the fourth quarter, we issued $2.9 billion in our ABS program across seven transactions. Last week, we closed an $800 million ABS deal that was oversubscribed even after upsizing from an initial size of $600 million. With a recent announcement of our inaugural POS forward flow with SoundPoint Capital, we now have forward flow agreements across all three asset classes. We also closed our first $350 million revolving personal loan ABS with 26 north, and combined with our two point-of-sale ABS revolvers, we now have about $3 billion of revolving capacity from those three transactions. Turning to the balance sheet, asset quality and mix have improved materially over the past 24 months, providing increased liquidity and flexibility. We ended the quarter with approximately $288 million in cash and cash equivalents, up $62 million from a year ago, and $945 million in investments, loans, and securities. As we have stated over the past year, we're leveraging our improved liquidity to make opportunistic investments to lower our cost of funding and increase profitability. In the fourth quarter, new investments in loan and securities were about $271 million, of which $47 million was opportunistic in the form of ABS bonds, and we received $170 million in return of capital from prior deals. In December, we also repurchased $7 million of our corporate nodes at an approximate 12.5% discount to par, consistent with our stated objective of opportunistic capital deployment. Last week, we repurchased an additional $7 million of our corporate nodes. Throughout 2025, discretionary investments in ABS structures, all in the form of rated nodes, totaled approximately $171 million, representing about 27% of the total investments in loan and securities. Combined with cash, we now hold a healthy liquidity position under a wide range of scenarios. Our objective is no longer just liquidity. We are maturing and increasingly pursuing optionality. Optionality allows us to be conservative on credit, opportunistic on capital deployment, and patient on growth. In the fourth quarter, the fair value of the investment portfolio was adjusted down by approximately 50 million and we added 97 million of new investments net of paydowns our guidance continues to reflect 100 to 150 million of rolling 12-month forward credit related impairments i want to remind everyone that this is not the forecast of losses it's a governance on risk embedded in our guidance it reflects uncertainty and remains consistent with prior guidance let me close with our 2026 outlook we remain cautious in the near term given persistent macro and credit uncertainty we expect volume growth throughout the year driven by new application flow new partners and increased penetration of our products frlpc margin is expected to be between four and five percent for the year and to revert lower within that range from current levels as a result of continued expansion in POS contribution from new partners and our funding mix as just mentioned guidance reflects the credit related impairments if any of 100 150 million both first quarter and full-year guidance reflect the full impact of last quarters exit rate volume reduction of approximately 100 to 150 million per month. Illustratively, the midpoint of that range represents approximately 375 million of first quarter impact and 1.5 billion on a full year baseline, essentially assuming current uncertainty persists and leading to consumer and performance deterioration. If uncertainty recedes, we will adjust accordingly and swiftly. This is an important point, so So let me explain. We are exiting the year with 10.8 billion of fourth quarter annualized volume, deliberately shrinking higher risk volume by 1.5 billion on an annualized basis while still delivering year-over-year volume growth. A reduction in certain credit years and new volume growth are not contradictory. They are two sides of the same optimization process. For the first quarter of 2026, we expect network volume in the range of $2.5 to $2.7 billion, total revenue and other income in the range of $315 million to $335 million, and adjusted EBITDA in the range of $80 to $95 million. We expect GAP net income for the quarter of $15 to $35 million. For the full year 2026, we are expecting network volume in the range of $11.25 to $13 billion, total revenue and other income in the range of $1.4 billion to $1.575 billion, and adjusted EBITDA in the range of $410 to $460 million. We expect GAP net income for the year to range from $100 to $150 million. With that, let me turn it back to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from John Hetz with Jeffries. Please proceed.

Morgan, guys, and thanks for taking my questions. Gal, maybe just go a layer deeper, you know, in this concept of moving away from variable outcomes. Is it pricing in the market? Are you seeing something change with respect to payment trends? Or is it related to certain channel partners or certain types of products? Maybe just another layer of details on this.

Definitely, John. Appreciate the question. So before I'm going into the market dynamics, I want you to start with reiterating that that message that we gave from Pagaya perspective has been the same for the last year, that we will always prioritize prudent risk management over short-term growth. And that principle that we call it a year, year and a half back, is now fully embedded in the way we run the company. Now, the main reason for that is that we are a different type of animal, and we are not like many consumer finance platforms that rely on marketing spend to generate volume. We don't need to grow at any cost to justify our expense base. And this structural advantage is obviously giving us more flexibility to be disciplined, especially when we see early signs of different market softness. Now when you think about that and the data we collect, it's really come to the core strength of our platform, which is the ability to remove what we describe as tail risk or the variability outcomes, as you pointed out, in real time, through the fact that we see signals across 30-plus different lenders, three asset classes, that are a lot of data that allows us to be proactive rather than to be reactive. Now, the first point I would point out to your question is the market dynamic. So, from a market perspective, there is just a lot of volatility. You don't need to look very hard to see that in the last period, mainly since Q4, the amount of volatility and declining rationality that we are seeing has just reached a new level. Financial markets are demonstrating much volatility driven by geopolitical, private credit. You see notable shifts in sentiment. And despite the fact that the consumer performance in our production remains strong and the ABS market are functioning well, it's definitely giving you a pause as a risk manager to ask the question of, like, what's your risk appetite and where you want to be? Now, as I mentioned, the consumer behavioral data front, we don't see a specific deterioration, so nothing on the CNL or the CPR. And therefore, our 2026 outlook of the impact of credit-related impairments, if any, is in line with our 2025 guide, which is the $100 to $150 million, we did see a clear shift in our partner behavior. Several partners have moved away from expansion to cautious as the year progressed. And the early signal is exactly what our operating model is designed to capture. If you will talk with our lenders, call it Q1, Q2, last year, everyone will tell you that, yeah, this is a year of going very strongly, aggressively growing, 40-50%. When you spoke with the same folks by the end of the year, the posture and the understanding of the situation was much more balanced. And as we saw that, we decided to take even one step further and to be what we call ahead of the curve. Now, the way we operate and the way we do it, we do it very quickly and swiftly because of the technology agile advantage that we have and the fact that we can do these things real time. So literally a decision in the middle to late of Q4 can be related to all of that, and that's becoming our basis as we think about 2026. and EP will talk a little bit more about how we think about the guidance in that respect. I think before we close the question, I just want to emphasize that from an enterprise progression and execution perspective, what the team has done and is planning for 2026 is really exceptional. And we are becoming a better Pegaia, not just a bigger one. So think about it that only in Q4, we added forward flow in two new asset classes. We included the revolver capacity in person alone and onboarded two more partners. So when I think about it from a CEO perspective, and frankly I think you should think about it too, is that I'm very pleased with the team outcome despite the short-term reduction in risk decision that he's trying very hard to avoid with any potential of downside because of retail risk. And when I'm looking ahead on 2026, we remain very focused about executing on the things we can influence in our low-term strategy, which is expanding our partner network, deepening our existing relationships, and proactively cutting off scale risk rather than chasing short-term volume. So to end that part, I just want to leave you with two small names. The first one, the fact that we have been more conservative is obviously retain our ability to scale quickly, which is why our guide range is intentionally wide. And the second is that even in what we describe, a volatile environment that we don't want to be over risk on, we expect to deliver a meaningful gap net income profitability of over $100 million in 2026. So, in other words, our entire 2026 guidance range, especially assume current uncertainty persists, and lead to consumer and performance deterioration that we are kind of like taking as part of our plan. So, if uncertainty resists, we will definitely adjust accordingly and swiftly.

Yeah, maybe I'll jump in. So, as we noted, this action translates to somewhere between $100 and $150 million volume cut in the fourth quarter. So, effectively, that's a $1.5 billion of volume into 2026. And remember, we're more than offsetting that with volume from new partners and new products. So, effectively, what we're doing is we're replacing higher credit risk volume with volume from new products and new partners that come in as a much more balanced risk. And if you think about, I'm sure you're wondering, like, okay, to jump ahead, what's next for 2026? What does that mean for the guidance? What needs to happen for that to change? I would say is, you know, we are assuming this decision does not reverse for purpose of our guidance in 2026. And if we are right, we would not be chasing our tail for the year, and if we're wrong, we will reverse and in that case we would have left some money on the table for a few quarters so something has to really dramatically change really 20 26 to go below the guidance that we have provided the other thing I want to point out though and to close the question is just just think about in the long term there is no real impact in the long term part of the business we're still looking at the 15 20 percent growth of this business especially if start thinking about the annualization of the new volume that comes in 2027 into 2028 and the last thing is obviously to keep in mind and let that sink in is this is still a business that's generating

100 million dollar plus of gap net income even in that scenario and then the follow-up question which i think is somewhat um similar to the last question in terms of where your focus is it seems like there is more commentary about being focused on volume outside of decline monetization maybe talk about you know what products might have like increased momentum there and do the economics of those transactions differ from the decline monetization uh sure john i'll take it uh this is sanjeev um absolutely i think uh you got it you hit the nail on its head with your question

So essentially what we are diversifying our products into the direct marketing engine that we've talked about before, we've talked about the affiliate optimizer engine before, and of course dual or concurrent look in order where we look at loans at the same time that our partners do essentially first look. The dynamics of the direct marketing engine where we essentially help our partners grow their originations is very, very strong and very positive, and the performance is also substantially better. Same with the affiliate optimizer engine. We have essentially a business that has about a third of its dependency on credit karma and experience continues to grow very, very strongly, similar to what credit card businesses do. we are doing the same thing in personal loans, and we are substantially improving our partner presence with our existing partners in both of those platforms. And so that is something that has done extremely well for us. This is where the shift in the business is happening, and this is exactly where we are emphasizing that because of the performance of these products, or the economics in these are substantially better than what we have traditionally provided because of better risk performance and better ability to charge, better economics. So that's something that we definitely want to talk about. We have, as you know, 31 existing partners. Our top five partners are already on these new products. We have signed agreements on our pre-screen product, which is our direct marketing product, as well as agreements on Credit Karma and the affiliate channels, and we are starting to increase our dual look performance very substantially. I do want to emphasize one other thing that is extremely important, which is that we have also onboarded a record number of new partners. Carl talked about two that are onboarding right now. There's a third that's in process, and I fully expect that by the end of the second quarter, we will have onboarded maybe seven, potentially eight new partners, which will be like a record for product. What EPGOL and I are trying to do is emphasize is that we are focusing more on the shift in the business with our existing 31 lenders to more profitable partners. We're also focusing substantially more on getting new partners, essentially demonstrating that we We are becoming part of the financial ecosystem in U.S. consumer lending, and we are managing the risk in a very thoughtful, responsible way as a growing franchise in the long term.

Great. Thank you very much.

Question is from Kyle Joseph with Stevens. Please proceed.

Good morning, guys. Thanks for taking my questions.

Been a lot of headlines on private credit and the alts recently. just wanted to get you guys gave an update on on the funding side of business but you know how you're thinking about funding and into uh your 26 outlook given given all the headlines we've seen in that world recently thanks yeah thanks guys thanks for the question i'll take it uh i mean look the the demand for our product and production is uh very robust um look at q4 a couple of the things that we announced, you know, a new deal with 26 North, which combined with a post deal generates more than $3 billion of capacity across these two products from the revolver structure of these. The sale of the certificate in auto, new forward flows in auto, and POS. The sale of the certificate that we said on OWAS. So generally very strong demand and validated by the execution that we're delivering for our investors. What I would say is, if you step back, 2025 was a year where you had a very frothy sort of private credit market deploying capital, and now it's becoming a little bit more normal and much more disciplined, and we're actually benefiting from that. I would take it a step further and say that some of the actions that we took is actually fueling more demand for our product and production. You look at the last ABS deal that we did a few days ago, it went to market with $600 million of size, and it got upsized by 30% and still oversubscribed. So I think what you see is the platforms that have a very robust and very diversified set of investors that they work with, like Pagaya, we're benefiting from all of this. We'll continue to obviously continue to try and diversify our funding further. I know that is on our pipeline. So I think we feel very good about the funding environment relative to our positioning in the marketplace.

And then one thing to add is that a lot of the colleagues are still going around, which obviously is important in the full funding world, but it's much more around the corporate side of the world, and specifically around us, et cetera, and companies that have been in the sphere of trying to grab market share there. I think on the consumer side, which is a byproduct of that, but like you don't see that level of volatility or kind of like changes in the last quarter, but it is calling for everything to be .

Great, thank you. And then just a quick follow-up, a modeling question for you. On the impairment side of things, you know, given the underwriting changes you guys have made, you know, what sort of level should we expect, you know, to get to your GAP EPS guidance for 26?

Yeah, thanks. No, no change on that. We're still guiding to the, call it under scenario A in our guidance of 100 to 150 million range for the year, same as it was in 2025, so no changes there given the ongoing credit performance.

Thanks for taking my questions.

Our next question is from Hal Gush with the Riley Securities. Please proceed.

Hey, thank you. I just got a question. You know, it's a bit counterintuitive given the macro trends we've seen over the year with fallen inflation, rates coming down, job market generally good. And I think EP mentioned, hey, you know, your action in the last quarter was based on increased uncertainty, not an increase in credit losses. So just wanted to, you know, if you give us any more qualitative or quantitative color on what you saw your partners doing in your response, it just seems a little counterintuitive. It seems like things are going in the consumer's direction to be better credits, and this is just a little bit of, it's a little bit, needs a little more flushing out.

Hal, hi. I think it's a great observation. In fact, those were some of the countervailing forces that we had in our mind as well at the end of Q4. On one hand, you know, the macro was, you know, what it was in terms of inflation and rates coming down. And as you pointed out, on the other hand, what we were observing very specifically from our 31 lending partner platform was some of the partners that had been talking about credit expansion in the middle of the year were feeling less certain about credit expansion by the third, fourth, fourth, the sheer uncertainty in the market. And by that, as Gall outlined in his opening comments, there was clearly, you know, geopolitical uncertainty, which was causing some uncertainty in the financial markets, there was some stuff going on at the tail end of certain businesses, there are certain markets, and so we felt that the most responsible thing for us to do, and that's the beauty of being B to B to C market, is that in some ways, we are shielded from this C, because the B that's between the CEO and us response or gives us signals that based on which we were able to take actions at what we thought would be the most marginal risk tier in the business. And it is this theme of uncertainty in the potential uncertainty in the credit markets that drives us to think that we should be responsible and prudent rather than aggressive. and but you know having said that our ability to scale and be nimble is extremely high so if things change in the market which could change I mean rates could change the market could change by the second half of the year well we all we need to do is basically prudently turn that back on and that is the reason why our guidance range is is wide but having said that we have the management team have a very very high conviction that we will deliver a profitable volume, such as why our gap in an income number, it won't end. Sorry, do you want to add anything to it?

One point to take in mind, like, when you see losses, it's a little bit too late, and when you are taking a proactive before, that's the way to be disciplined, so, like, you don't need always to look on the duration of your outcomes on the CNL to say, now I need to take action, and I think, again, as given where we stand and what we see, it's enough to actually say, you know what, I'm going to be more conservative on that part of the spectrum, and that's it.

Okay. And unlike maybe 2023, when you're still building the platform relationship with the lending partners, your pullback in some of those riskier tiers that, you know, your lending partners were okay with that as well, you know, there wasn't a relationship issue. Because I think it was key in 2023-2024 to build the platform, build those relationships. And in this case, it was this kind of pullback is okay with the partner.

So, A, it's a good question, B, it's exactly what we told you that in 2022, it's a different situation, and C, the answer is no. They appreciate that. But for them, you know, 15% growth in the midpoint and a stronger Pagaya is much better than a 20%, 25% growth. But then in three months, six months, nine months, we take it down on them. So stability is key more than the actual growth number.

Yeah, that makes sense.

Next question is from Raina Kumar with Oppenheimer & Company. Please proceed.

Good morning. Thanks for taking my question. Could you just talk about, like, where you actually started to pull back? Like, was it a particular asset class, or was the action taken across the board?

Hi, Reina. It's primarily across, like, the entire portfolio, with a little bit more focus on the personal and auto side, just because of the secular growth that we see in POS. And that was obviously the later part of the quarter, And effectively, that's why you see that sort of as an exit rate change into 2026.

Understood. And then just on your target 4% to 5% FRLPC margin for 26, obviously, that's a very wide range that you highlighted earlier. Can you just talk about, like, you know, how much conservatism is baked in at the low end and, like, what are the puts and takes to get from the bottom to the top? And then, if I'm going to sneak in one modeling question, if you can just tell us your assumption for 26 GAAP tax rates.

Yeah. So, as we have said before, as it relates to the FRLPC rate, appreciate obviously that it's a wide range, and we look to narrow that down going forward at some point. But ultimately, the way to think about it, focus on FRLPC in dollar terms. So the more volume you get from your partners and your product that come in at a lower rate, you may see a sort of dilutive impact on the actual rate, but still coming in at higher volumes and therefore higher dollars at the top line. And then vice versa, there is potentially, let's call it a slow ramp. When you think about the mix of the portfolio, if you see a slow ramp on the new product, new partners, you may end up with, call it a low range of the guidance on volume, but obviously achieving a relatively higher FRLPC. That's how we have to think about that across the board. So it shouldn't materially change sort of the key dollar amounts. On the tax rate question, generally speaking, I would point to call it a 20% type of tax rate. But obviously there's a lot of moving parts there because obviously the business is coming out from a period where it was two years ago losing money now into getting into carbonating and profitability. But that's what I would assume for going forward.

Thanks for the caller.

Our next question is from David Scharf with Citizens Capital Markets. Please proceed.

Good morning. Thanks for taking my questions. Maybe just to sort of dive in a little more to Hal's question and perhaps what your kind of behavior you're seeing from lending partners. You know, this was, you know, so far an earnings season where a lot of lenders, you know, pretty much said things are stable there are no certainly no rush to widen their credit boxes but there there certainly weren't indications that things were tightening either you know just just so we understand did you start to see by the end of the quarter you know more evidence of of turndowns of loan application rejections by your partners that may have been approved by your partners six months earlier is that how we should sort of interpret the behavioral changes you're seeing I think the best way to look on it is many more expansion that were in place

or in plan became not in play so it's not to say that people are not saying hey we are going to continue to grow but it has been shifted much more towards how do we do more asset classes how do we We get more to our customers rather than, oh, the pricing are high and we're just going to make it more aggressive, or the losses are too low and therefore we're going to approve more type of population. So you definitely see a difference, and by the way, I think you will see on the gross numbers of all of the reporting companies you talked about that the growth going forward in growth is not what it used to be last year especially on the personal on the business.

Got it, no that's helpful I mean obviously you're as you noted your your business is in a unique position to kind of see the activities of multiple lenders as opposed to just observing your own portfolio so that's helpful and then just as a follow-up should we think about maybe the recalibration on credit extending to in reducing tail risk, does that extend to how you approach your discretionary investing in securities in addition to originations or loan approvals?

I think these are two different aspects, right? Two sides of the network. One doesn't necessarily tie to the other.

Understood. Thank you.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Gall for closing remarks.

So, I want to thank everyone for joining us today. As you can tell, our results demonstrate the power of the B2B2C model we have worked so hard to build at PAGAIA, increasingly diversified growth with an underlying focus on discipline underwriting, along with a growing list of partners and funding mechanisms that keeps evolving and improving. I look forward for 2026 and to share our journey with you as we grow PerGaia into key partners for all U.S. consumer lending institutions, continually optimizing our product suite and value proposition to maximize the value we provide to our partners. We remain focused on the long-term potential of PerGaia as we penetrate this enormous market opportunity, a market that we created and that we lead. Thank you very much for your time today.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.