Pagaya Technologies Ltd. (PGYWW) June 10, 2026 Conference Transcript

Well, good morning, everyone.

Thank you for coming to our lovely session with Pagaya's Chief Financial Officer, Evangelos Peros. Did I pronounce it correctly? Yes. Okay, great. Well, this is very exciting. Pagaya is obviously doing very well. And we've been big fans of the story for a long time. And I've known Gal for many years. So you guys are pretty much at the backbone of the entire fintech ecosystem so it's a great place to be so maybe as we speak about pagaya more broadly for the people that don't know pagaya can you maybe give us an overview of how it actually fits into the fintech ecosystem in the u.s but also globally yep um first thank you for having me i'm really excited to be here again this year So think about Pagaya as an infrastructure that we build that brings together lending institutions on one side, consumer lenders, banks, non-banks, fintechs, and connects them directly through our technology with institutional investors

who are looking to get credit, access to credit assets like personal loans, auto and point of sale. We are basically offering a white label solution to those lending institutions. integrating our technology with our loan originating systems and effectively expanding their capabilities in underwriting while obviously they get the benefit of retaining their customers and everything that comes with it. We're probably unique in the space in that regard and today we're integrated with about 35 or so lending partners doing about 12-13 billion of network volume across the asset classes and, you know, obviously continue to looking to expand and basically become the utility in this space for all lending institutions in the U.S., not yet expanding internationally. Obviously, you know, for us to do this, you do require a very data-rich sort of country like the U.S. to actually do it. And while we actually started with bureau data and things like that, right now, the production data that we have is quite unique and potentially down the line we could consider expanding internationally as well.

And the number of lending partners and funding partners continues to grow very nicely. So what do you think is actually driving that?

I think it's a value proposition. The company has really evolved over the last 10 years. On the funding side, it's obviously a little bit more commoditized in many ways but we have an extremely strong presence in capital markets that we built over time we're the largest ABS issuer in personal loans today and we have grown this franchise since the beginning sort of our founding but the value real proposition where we're really diversified is on the other side of the network, the lending side you should think about our solution to them allows them in the case of banks for example to retain customers retain the deposits of those customers effectively expanding the lifetime value of those customers for them because you need to keep in mind we are not the originator on record we are not an originator ourselves we go in supplement their sort of underwriting with our own underwriting but the customer stays with them the customer after they do a loan that was approved by bagaya get monthly statements from their bank of choice. So they maintain the servicing, they maintain the customer relationship and everything that comes with it. In the case of auto, if you think about the auto industry and auto lenders, we're at the point of lend and ultimately what these lenders are solving for is increased dealership satisfaction and dealership activation rate. So we can come in and provide products to them at that point to really expand these capabilities. Or in the case of BNPL, it's all about merchant acquisition and merchant expansion, merchant network expansion. So we can do the same thing there. Traditional BNPL provider, you can come in, provide options on bigger ticket items, more purpose-driven type of POS. So every partner is solving something else, but ultimately it's all about them being able to trap their customer by offering more solutions without, by the way, of any use of their own capital. We provide the funding for them. So that value proposition is quite unique and it's resonating. And, you know, even recently, for those that follow the story, this sort of new lending partners onboarding has really accelerated.

And you talked about the value proposition, but maybe if we can talk a little bit about the growth, you know, how does maybe high level, how does management think about, you know, near-term growth and medium-term growth? And What do you think are the key levers that are going to drive it in terms of verticals and, you know, whether it's buy now, pay later or any of the other things that you mentioned?

So first, let's start with the fundamentals of how we go to market, how we grow, which is for us, growth comes in the form of getting more access to more application flow. How do we get that? By adding more partners, lending partners to the network. So growth for us is not like a lever that, you know, we don't have any marketing because we don't reach out directly to the consumer. We're a B2B platform. So the growth comes by adding more partners to the network and obviously monetizing that We start with a certain type of product, a more decline monetization product, as we call it, and then expand to different other products that we can offer to the partners. So it's completely different than in a B2C. To your questions, to your specific question of where we see the growth opportunities is both on the product-led strategy with a focus on the auto vertical. Auto is still, on a relative basis, much newer product line for our asset class line for us relative to personal loans. It's a much more, obviously, fragmented opportunity. We have the opportunity to add a lot of more big players there. And we actually see both the demand for our solutions from auto players as well as our ability to monetize our product strategy with our existing partners really paying off. And we have very high confidence in that. Personal loans will continue to grow, but it's in a much more mature state for us. And then obviously down the line, as I said in my first question, we look at ourselves as a utility player for all the lending institutions out there. If our partners go more into POS, we'll go with them. If our partners go into credit cards, we'll do that, too. So that's how we see our growth strategy, both in the short term as well as more in the medium or long term.

And maybe can we dig a little deeper into the new partners? I think in the last six months you signed about five new partners. And, you know, how should we think about the volume contribution for this year and next year? And how big could these partners become over time? Yeah.

So I think it's obviously very exciting for us to keep on adding more partners to the network. But you should all think about this as planting the seed of growth for 12 to 18 months out. It does take a lot of time to ramp up a new partner. We start very slow. The models need to adjust. We're obviously very prudent about the risk that we're taking up front. so the new partners that we added let's call it in the last four or five months will not really have a meaningful contribution in terms of volume and even more so in terms of unit economics at least until best case year end of 2026 but definitely into 2027 so that's how a little bit to think about their contribution and again it's across multiple partners but when you step back again think about pagaya like a stack of partners you have the mature partners where you introducing more products and monetizing those relationships and then ultimately keep on adding more partners so we actually have very good visibility about sort of the growth trajectory of the business two three years out and the way we think about it is like it's think about us a little bit more as a call it 20 growth year over year over the cycle you know sometimes it will be less this year for example we took some credit actions because we saw some uncertainty in the marketplace. So we're looking more at the mid-teams growth. And then obviously in some other years, it will be more. It's just like a very phased approach by adding more partners to the network. So that's how to think about it.

Fair enough. And maybe can we switch gears to the guidance, talk some specific numbers? I think you raised the low end of your network volume guidance and increased the total net income guidance. So can we talk about those two different line items and what drove that decision?

Yeah, so to step back, I think, you know, we came to market in the beginning of the year and, you know, sort of cut some of our expected, what the market expected for us to deliver in terms of volume as a result of the uncertainty in the marketplace. And then what we said is we're obviously in a position to do that and we feel very good about that decision and I don't think there is any doubt that it was proven to be a good decision given the uncertainty in the marketplace. But we said we're also in a position to do that because we can actually offset that credit-driven type of growth with more product-led growth as well as new partner growth and still deliver, call it, meetings type of growth year over year, 26 over 2025. So now a quarter ahead, jumping ahead, we feel have very strong confidence in our product led strategy is really resonating with our partners particularly in the auto space as i was saying before which gave us the confidence to increase the guidance for the rest of the year more so on the low end which at that point you know to keep in mind right we're doing through the tax season there's obviously some things that muddy the waters a little bit because of the seasonality what i can tell you today is like we did that increased. We felt confident then, and we continue to have very strong confidence in our ability to deliver this network volume growth through new products and new partners.

And maybe a big topic has been the funding environment and capital markets. So I think during the last conference called Q1, you said that you are tactically pivoting towards ABS in the near term due to repricing that you're seeing in the whole loan sale market. So can you dig a little deeper and Tell us, give us more color and what you're specifically seeing there.

Well, first and foremost, if you step back a little bit on which channels of fundings we're using, we're quite diversified. We have forward flows. We have, obviously, one of the strongest ABS sort of practices out there on the large and personal loans. But there is different flavors in between those type of products. But so we were able to pivot at any point in time. And before I go into what we saw specifically, I think it's one thing to keep in mind is when you actually look at consumer credit, consumer credit performance has been very stable and actually very attractive, particularly in this environment where corporate credit has been a lot of the issue. So point number one, and the consumer in the U.S., we can all agree, is very resilient. You can ask if it's strong or not, but it's definitely resilient. So that by itself is still driving deployment into the consumer assets. And where is this deployment coming from? It's either from insurance type of capital or pension plan, like opportunistic or yield sort of seeking type of asset. That demand has not changed at all. It continues to be very strong, again, because the consumer is strong and because the consumer credit is performing well. What did change, though, is how it finds its way to deploy that type of capital. And what you saw in 2025, you saw, obviously, what I call, to some extent, an exuberant demand from the private credit side, and a lot of competition, and a lot of capital being put to work through that type of channel, and actually made it much more economic relative to even the public side, like capital markets like ABS. Now you see a normalization of this. You don't have the issues that you have in corporate credit, and we haven't really seen the contention even there for some of this private credit in the consumer side, but they're much more rational, they're much more disciplined, and think about it as a normalization. So what we said is, look, now this has become a little bit less sort of attractive on a tactical basis, you know, into the beginning of the year. So we pivoted more so in the ABS, where, you know, you see the demand is extremely strong. Every other deal that we go to market on the ABS, we have managed to upsize. You know, the scale of the franchise allows us to be able to pivot and do that. So this is a little bit the dynamics, but again, keep in mind that the secular trend of insurance capital, pension capital, all of that, deploying into consumer assets is as strong as ever because of what I said before, consumer and consumer credit performing well. That's good news. So far, it's obviously something that we need to be very cautious about. I can go on about the risk. I'm sure maybe a question. There is a lot of, obviously, risk in the marketplace, but the facts are the facts. So consumer is resilient, consumer credit performing well. At the end of the day, that continues to fuel the demand.

And that's a broader, this is a Pagai specific or a broader one?

I think it's a broader one. Like if you think about deployment of capital in consumer credit, it hasn't really seen a material change. Again, small movements left and right, but it hasn't seen a change. So that is a broader thing. Obviously for us, we offer that access to such a broad number of investors. and our structuring capabilities and all of that allows us to be at the front end. And what I would say is because we actually took some of the actions to cut credit in Q4, that further improved our own production on a relative basis. So we actually did see a little bit more favorable allocation into our own production, but that's just on the margin at the end of the day.

So I have a question about risk retention. I'm going to get a little technical, so bear with me. So you have the short-term pivot to ABS. How should we think about your ability to self-finance? And will you need to raise equity or debt to help fund that 5% mandatory risk retention? Or have you reached a point where you can effectively recycle capital from historical deals?

Yeah, so obviously we're a wholesale sort of funding model. That is something that people need to get comfortable when you're thinking about baguette. With that in mind, we set out a very deliberate sort of financial strategy two, two and a half years ago to make sure that we can do what you said, but without the need to raise more capital. And how did we accomplish that? Very simply put, we are basically for every loan that we bring in, we make four to five dollars of fees and in terms of real cash, generation of cash. That is cash that comes in. because of the operating leverage in the business there is no incremental cost to originate this loan at all. So this four to five dollars is real cash flow generation straight to the bottom line and to our cash register. Now we have risk retention or risk participation to that in order to align with the investors. If you actually look now at our risk retention over the cycle and even more so in the last 12 months, is somewhere close to 2%. So therefore, we have managed to build the business and get it in a place where you bring in $4 for any new sort of loan, and you have to fund it. Over the cycle, our goal is to do 2% to 3%. If you look in the last quarter, it has been less than 1%. Obviously, it's going to be quite cyclical. And all of that because we improved the unit economics to get to that $4 to $5, but more importantly through the diversification of funding as well as the optimization of our capital structures ABS AAA ratings and everything that we accomplished over the last two years to actually be cash flow positive and therefore to be able to self-fund that growth so that's how to think about the overall cash profile and there will be times there will be more than two to three percent but over the cycle that average two to three percent will be able to do and actually withstand even shocks in the economy where you may have to participate even more and maybe a few more questions on on on my end and then we'll open it up for Q&A capital allocation you've been profitable for the last five quarters I think and you've been generating cash very good how should we think about capital allocation strategy M&A share buyback anything else we can think of yeah so I the thing the first thing I would say is, and it's obviously very exciting for us, is that the company doesn't need any CapEx, organic CapEx into the business. The infrastructure is already built out. We can double the volume and still not require any incremental investments into it. It's a very scalable model. And now that we have crossed the break-even point, both in terms of profitability and cash flow generation, we're basically reaping the benefits of that. So there is none of the capital allocation alternatives that we can talk about now really compete with the growth in the be organic growth in the business so that's a great place to be so now when you think about capital allocations we there are effectively three of them let's just call it one is to buy back of the high yield notes that we should last year because they're trading at the price that doesn't make any sense um in our view uh obviously buy back stock and potentially be on the offense and do mna in this environment where there is a lot of uncertainty geopolitical macro everything that we are aware of and reading the news day in day out the idea that we're going to go in excess and buy back stock and or let's say some of the bonds goes a little bit against how we think about prudent risk and liquidity management. We have been buying some of the bonds but to go out and spend a hundred million dollars and not see the hundred million dollars again even if you prove a little bit the credit profile it doesn't make sense at least to the way we think about financial strategy and to the point from the previous question is yes we're building up cash but is building it steadily and not like, you know, quarter after quarter. So to go out and be heroes of buyback, it doesn't make much sense in terms of how we think about risk management in the current environment. Buying back stock even more so because it's a great signal. We all understand that. But at the same time, you know, it may not be very well received even for some of the other constituents like rating agencies, the high yield investors. So, and interestingly enough, when we think the environment, I'm sure when we do think that the entire environment has turned, then when we feel confident at that point, the stock will be much higher and the bulk will be much higher, so it defeats the purpose. Still, I think we're very prudent and we think about risk first before we think about all the other pieces. So, the other one, the last one, is obviously M&A. it ties back to how we think about the growth trajectory of the business i think there are opportunities i think we can potentially consider being on the offense at the same time i can tell you the roi that we currently have in organic growth specifically into the lanes that we're in today which is personal loans auto and pos with new partners is so high that it actually is a better let's say alternative than going out to be in the mna but we will be opportunistic and if the right opportunity comes up, and if our partner is looking to expand into different asset classes and they want a white label solution, we will actually execute on that

And then maybe my last question is, obviously, this hottest topic out there is AI. You know, how do you think AI is disrupting lending technology, and what is the advantage of Pagaya? I mean, you guys basically invented AI underwriting. So how does the environment help Pagaya continue to have the lead?

So, yeah, your point is, just for everyone's benefit, is like our AI capability, like our front end is fully AI capable and the underwriting happens within milliseconds. It's all automated. Trying to predict where AI and consumer lending will be in six months to six years is, I think, extremely challenging. I think what we feel good about, and we get obviously the question from even newer investors, is we're actually somewhat, quite a bit insulated because the data advantage that we have is our own production data. It's not that somebody can go out and really replicate those capabilities. To give you a little bit of a perspective, we look at, from the existing partners that we have today, a billion, a trillion, a trillion dollar of application flow a year. Against that, we have, we extend offers back to consumers, again, through our partners of $100 billion. And we actually have activation of 10% of that to get to that quality $10, $12 billion of actual volume. But all of that data, the $100 billion of offers against the application flow is our own production data and our ability to do A-B testing and all of that is something quite unique. And it's not that another model can come in and replicate it because that data is not available to them. That's quite unique to us. Now, you could argue every single one of our partners has that data as well, but they do not have the size of this data for this very finite sort of consumer profile, which I can speak to, across multiple different partners, across multiple different channels, affiliates, non-affiliates, organic flow, non-organic flow, banks, non-banks, top five bank, all the way to the fintechs. That is what is quite unique. That's something we built over time. And that is extremely difficult to replicate, either for a new, you know, somebody coming into the industry and trying to replicate the model, or to your point, somebody using AI because the data doesn't exist. If you actually look at the, you know, we think about AI, AI is being trained on, you know, what the data, primarily the data that you have in your own sort of corporate server and what's publicly available. That represents less than 5% of the data. Our own production data is just our own and it's across multiple partners. That's really what the data mode is. And that's how we're insulated. And I think we'll continue to grow that as we add more partners. Now, the environment will change, right? I'm sure there is a lot of sort of, it's going to be very dynamic. Again, I don't have to to explain to people the AI and how fast it's moving. But I think like anything else, we're just going to continue to adjust with it and see where that takes us. But we feel very good about our own AI and underwriting capabilities as a result of that production data that we have.

Okay, wanted to give the opportunity to that, Eyal.

Hey, thank you for the fireside chat, very interesting. I wanted to ask you what makes a consumer credit product more attractive than the other one. For example, why auto loan and not HELOC? Or more like in a general sense, why are certain products more attractive to you? Is that the ability to package it in an ABS? Is that underwriting predictability?

It's a good question. All the products are great at the end of the day. I think it's just our, it goes back to our capabilities. Like we, if you think about our underwriting capabilities, is a little bit focused on these types of consumer products where, you know, range, let's say, in terms of duration between, call it broadly speaking, six months to 36 months in terms of duration, or products that have like, you know, four, five, six years terms. um and if you think about the different products like mortgages for example 15 20 years seven years type of duration our model is not um sort of trained to do that that type of underwriting um our model is also not trained well to do like the four month by by now pay later either so when you actually think about capabilities and we built over time broadly speaking again seeks to call it three years type of duration, whether it's secure or non-secured, auto-secured, personal or non-secured. That's where our niche is. And I would take it a step further. It's also less about the asset class. It's more so, or the type of product, it's also the type of consumer. Very difficult for us to underwrite more competitively the 855 score. It's just not where we play. At the same time, much more difficult to do the 500. Like if you actually look at our clientele. Average FICO score in our personal loans is 680. Average consumer income, $120,000. So we have sort of focused our needs in this underserved consumer base that is still being excluded by the banking system. But that's where we like sort of developed our capabilities. We can obviously expand, but to your question, there's so much still room to grow in this sort of clientele in these asset classes that's what makes it interesting to us and then look from a risk perspective managing in mortgages mortgage businesses the mortgage industry is significantly bigger obviously but it's just not where we play and historically we looked at some of these products but it's just not our niche you know Fergus hey and it's maybe a little follow-up to the last one in terms of like the competitive dynamics how are you seeing that are competitors is mostly rational and is that different by subsector in terms of what you're seeing so to answer the question first and this is one of the exciting things about bagai is we don't have any direct competitors if you think about it nobody really offers a full end-to-end wide label solution that we do from the full integration of our technology all the way through the funding there are competitors or call it you know players out there that may provide this as a service to supplement or validate underwriting capabilities from some of our partners, but it doesn't really exist. Now, if you think about the broader space and think about even from some of our partners, what I would tell you is I think it's different business models. We are, you know, a lot of the consumer lenders in these asset classes are still and have been pushing for a lot of growth over the last six to 18 to 24 months. But part of that is because their business model is quite unique. They see a strong, resilient consumer and they put in marketing dollars to work. And in order for that to have like actually positive ROI, they need to continue sort of pushing for that growth. Our business model is different. When we sat in December and said, we're going to cut 10, 15% of our production, we are able to make the decision because, first, we can continue to drive growth without expanding the credit, but still, more importantly, deliver $100 million to $150 million of gap netting and profitability. If you look at any consumer lender out there, it will be difficult to find someone who can cut 10%, 15% of their production and still be on that type of profitability. Again, it depends on size and all of that. So the point I'm trying to make is there is no real competitor out there. The competitive trends, the dynamics are a little bit driven by the business models. Ours is quite unique. But again, I can tell you for a fact that nobody really wants to see a consumer crisis, for sure. That even for us and for them, let's just be clear. But we have now the benefit of having crossed, again, going to the earlier point, the break-even point. We can position ourselves cautiously in an environment like this. and worst case scenario, we're wrong and we're just going to leave some money on the table. So I don't know if exactly I answered your question, but the dynamics are different because they're driven by the business model, inherent business model features rather than anything else.

Well, good. Looks like we're just about on time. So thank you, Vangelos. Very grateful. Really appreciate it. And welcome again to Miseo's tech conference. Thank you so much. Thank you, everyone.