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..

network volume, revenue and adjusted EBITDA. We returned to profitability on 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 unmolded 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% share of market, 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 the Pagaya technology. We have a unique business model that we believe is inherently less volatile than other comparable fintechs in consumer lending space.

On Slide 13 of our earning presentations, we compelled Pagaya’s volume and revenue versus the market benchmark, which shows that we have been able to deliver more consistent and stable performance over time.

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, by 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 that 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 on growing, helping to offset the impact of financial markets 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 of the large bank we on boarded 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 of 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 onboard 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 the partner total originations.

If we assume that we eventually reached 30% of 2022 origination volume for just the 6 partners we unfolded last year, this is an additional $20 billion of network volume. On top of the $7 billion, we already delivered in 2022 gives us a total of around $27 billion in annual network volume.

That assumes zero growth from other partners on our network in 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 gross, we are increasing issuance to find new partners origination. 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 V cars has around 80 unique investors and is it becoming more diversified over time with a mix of large asset manager’s 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 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 tend to grow over time, as our network expands. Our conversion rate is our level to optimize as a performance as macro conditions evolve. Backed by AI driven insights, we have been exercising underwriting prudent in the corporate environment, reducing our approval rates by nearly 50% as you can see on Slide 32.

As liquidity conditions will improve, we can dial the rate back up and increase network volume.

In fact, if we applied our peak third quarter in 2021 conversion rate to full year 2022 application volume, network volume in 2022 would have been over $10 billion doubled, what it was in 2021? With a faster reaction time enabled by our AI, our personal loan portfolio has consistently outperformed the market benchmark.

30 days past due, at month on book three for Q4 2022 vintages are 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 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 modal accuracy. As our data mode grows, we have an increasing ability to monetize our network.

Increasing scale and monetization combined with a focus of 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 investment 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.

A Q1 2023, results reflected a focus on higher margin generating volumes, further monetizing our network and executing on cost savings 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 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 revenues 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 savings 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 onetime expenses in the first quarter declined $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 for to 22% 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 on the year. Our outlook for 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 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 and $1.9 billion. Total Revenue and other income to range between $180 and $190 million and adjusted EBITDA range between $5 and $10 million.

For the full year 2023, we expect network volume to range between $7.5 and $8 billion, total revenue and other income to range between $775 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..

[Operator Instructions] 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 up on the EBITDA line, just you know 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, you know 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, within over 50%, because of like the good balance sheet [20:19]we landed. That’s the part where we’re growing the most.

Second to that, I will say that we are seeing strong demand for replication for our existing partners continue to grow up, those are the best and alone and some other new partners, as you know like Klarna and others are just on boarded, working very diligently to increase the amount of application flow into ramp-up this type of partnership.

From new partner perspective, we do expect to have one or two more other half 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 resilience, borewells conversion rate is taking down 50% from 3Q, ‘21.

And that actually means two things, it means that, like we have already embedded growth in our systems, [indiscernible] as soon as the environment improves, we can tackle that up and create a lot of growth based on what we have already.

And the other piece is these days, it’s bringing us better quality of borewells that actually having higher FICO, higher income, because of other funding partners are closing their credit box more and more. And maybe the last point to add, just like on the funding side of them, which is another top of the funnel metric.

We have raised over $2.5 billion avail today to support that growth..

Great. And then maybe one on conversion rate, I know it’s down as you’re remaining prudent and cautious on underwriting but looks like it’s kind of stabilized here for a couple 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 like downturn? Thanks a lot, guys..

I think you are on point. We are in the field today that we have bottom out. I like we’re up to the bottom from a conversion perspective, I will say that these things are coming from when we see the funding cost and where we see the ROA of the assets that we are producing.

For [indiscernible] ROA 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 the conversion will start to go up. It’s hard to predict exactly when and how.

But definitely the trends the direction is for that. And that’s what we believe is the power of the situation. We will styling and contract inflection point of [indiscernible] 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 weakness throughout the different regions a little bit? Thanks..

Sure, so from regions perspective is rather diversified across the U.S. So like the big states such as California, Texas etcetera., You will – it seems to be a higher percentage, but if you do it by population, it’s kind of like 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 the Pagaya is really enabling our partners to continue to grow. And it’s all touched on in this environment, you see credit tightening, PT funding more scares.

And in that sort of environment, we’re able to help our partners grow using the Pagaya network. And as we do that, we’ve been able to as part of our value proposition increase fees. And so as our partners when we’ve been winning alongside and that 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 you’re by increasing the cost, it’s almost limiting the expansion in the near-term? Just based upon availability or your capacity I should say..

Yes, I think, this is Gal again.

I think, that – maybe if you think about it in economics, and environments like that, you are prioritizing places where you have a higher margin or higher fee, and as the – I think, environment and [indiscernible] is becoming more stable, you will move more to throw in the lower margin type of products, and you will be less prudent on that side too.

So I think that – you can think about it. Notice, it’s like slower [indiscernible] growth in that environment.

And that’s part of the way we’re influencing us, but as [indiscernible] we move to a positive EBITDA being stronger fundamentals of the business as such, and as the things will move on, we will continue to grow, because we have all the fundamentals to be able [indiscernible]..

Great. Congratulations on a great quarter. Thanks..

Our next question comes from [indiscernible] Bush with Credit Suisse..

Thanks, and Gal and Mike, great quarter. Maybe to following up on that a little bit. I think the Pagaya had some unique advantages during that difficult funding environment, because your kind of pre funded and you were able to sort of get compensated for that.

Could you talk a little bit 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 [indiscernible] nice to hear you. And thanks a lot for the question. So it may be a little bit less intuitive. But like in times like that, as you mentioned, our value proposition actually becoming more apparent. So let me talk about it both on the partner side, as you mentioned, and on the funding side.

So for the sell side, the partner side, like we are at [indiscernible] part of the ability to fund it, and we’re enjoying doing that this is our duty. That’s why we are here to support our partner to be able to bring more credit to our consumers.

And you see that in few places in the presentation in our wallet share so to speak, with may [indiscernible] increasing as the day goes by, especially in these environments.

On the funding side, it’s – and sorry, and for that, like it’s obviously created for us at lower cyclicality, volatility versus others because we are becoming a bigger part of that lending ecosystem in these days. So like in normal days, environment is growing.

And we are keeping our fair share, but in [indiscernible] environment, maybe it’s not growing, but we are increasing our fair share. And that means a little bit of the lack of volatility more consistently, that we are speaking and historically.

We sell that because of these volatile market, but not really much appreciate stability, they’re baked for them, top number one, kind of like metrics is the stability of the network, and its strength in fair value proposition, their ability to be the [indiscernible] consumers and therefore increasing our value proposition with them.

So I think the stability is something that like the partners very much appreciated. And we are working day-in-day out to make sure we are going to be for that to that time. And as such getting compensated for that and rewarded. On the funding side, indeed like that, investors wants to be more prudent, they want a high quality source of assets.

That is coming with a very strong underwriting capabilities. And I think to that, just yesterday, we announced [indiscernible] new bubble sheet that we’ve used together with [indiscernible] to be able to facilitate some kind of a portion of the portfolio. They’re allowed through a credit union through our technology.

So being there next to our funders, next to our funding partners and to be able to facilitate and to use that I the network AI capabilities in order to shoot to make sure the performance is going to be in-line and intact, is the thing that we are flipping and making sure we’re doing in this environment.

And as I said about the partners that goes a long way and becoming a strong relationship that are here to stay after these market situations, and are the basic building blocks of our ability to deliver the future growth in a $27 billion plus. [indiscernible]..

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, it’s generally when the capital markets environments were more robust, it was easier for your customers to pay you in those capital markets fees, but can you talk a little bit about how you see that mix evolving over time?.

Sure. Yes.

Mike, you what to take it?.

Absolutely. Hey, [indiscernible]. Really I didn’t [indiscernible] demonstration of the resiliency of the business model. Because there’s actually a slide I think it’s 41 in the deck that shows that shows [indiscernible], you’ve got those two different types of fees that you refer to.

On the capital market side, you’ve seen the trend actually decreases, market liquidity has dried up overall. And we actually think that’s now really hitting a bottoming out point.

And on the other side, you’ve got the AI integration fees, which is everything Gal just spoke to around the value add from a partner perspective and from overall ability to grow. And so those two things will ebb and flow depending on the overall market. Our goal is to deliver consistent results of FRLPC in the 3% to 4%.

And we think we can get there through multiple ways, which is the unique structure of our business model. That’s resilient..

Great. Thanks very much..

Our next question comes from [indiscernible] MoffettNathanson..

Yes, thank you. Good morning. On Darwin, you disclose 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. I’d say maybe stepping back on the question around Darwin, overall, I would 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 add to our overall vertical platform in the SFR space.

So overall, really excited about the future growth trajectory, allowing with Darwin coming into our platform, from an actual results perspective, actually, very immaterial in terms of our business, which is in-line with our expectations. We did disclose, as you mentioned, on adjusted EBITDA.

Without the adjusted EBITDA impact of Darwin, we would have been approximately $5 million. So in the order of single digit small millions of dollars of impact, we don’t expect that to be material in the upcoming quarter. But over time, we expect to really 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 going into medium term? What are you plans for so that’s vertical?.

So I’m what to connect that for a second for our mission. For our mission perspective for Pagaya is created to provide access to [indiscernible] people, through our partners whoever they are and whatever type of loans they want to get.

The same mission and vision exists for us [indiscernible] space in the U.S., they are the big bulk of the population in the U.S. that is looking to get access to more affordable housing. And places well, they should have the ability to do so in a cheaper, cheaper costs.

So, with that in mind, we designed that we purchase the Darwin and to be able to connect the modern AI that are allowing to unlock a lot of potential value of the ability to provide housing to more people, residential in high quality through the Darwin part.

So, in our perspective, we believe that like, I would say, the end of this year, or maybe the start of next year, we are going to start seeing Julian progress in that perspective from the growth initiatives and from their ability to implement all of that and something to really change in the way we operate.

You just take it a bit of time to have the full integration and understanding the design for out of how you do that. But we are really certain that at the fall 3450 going to become a meaningful contribution for our business in the next year or so..

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 of the opportunities that we see in the market just given current valuations. We think it’s a really exciting time right now, where there is going to be our potential opportunities for strategic transactions, such as M&A.

So primarily, the goal of that raise was to give us the resources that are necessary to be able to execute on future M&A transactions. Haven’t announced anything at this point, but again, 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.

So, 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. So, I think it goes back a little bit to the conversion rate and the discussions we had before. We have a 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 change a little bit. And therefore we keep it as such with the certainty, prudent and in order to stem the flow, we are going and that’s something we are going to assess over the next quarter to come..

And 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. And we are really pleased that we have been able to generate that return at this point. We will continue to monitor it.

But really, that’s going to be the driving force to allow us to toggle that conversion rate when the market improves. And that’s a uncertainty 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. But we are not taking a view at this point of when that will happen..

Understood. That’s very helpful. And just as a follow-up on, 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. So, I want to take you again, back to the announcement we had yesterday which we probably would validate Angelo Gordon to facilitate the credit union, Sam [indiscernible]. So, we see the impact of that from two sides.

On the one hand side, it gives us a unique opportunity to utilize the technology and the AI to facilitate more of that and to help banks, credit unions, etcetera, to get to a better funding position with the strong relationships we have on the capital market side and the private capital.

Bundled with a unique AI, we are translating the perfect – and the perfect moment in the perfect time. And the other piece is that like we see part of these banks, medium-sized banks were a big buyers or the big drivers of this ecosystem in the U.S.

Anywhere from the personal loan, through FinTech lenders, and up until the auto lenders, they were kind of like buying – sorry selling loans to credit unions and others. So, like it’s creating a much better environment for pricing and the ability to actually provide quality assets.

And in the same time they provide us a unique opportunity to react and to be even more centralized piece with our network AI..

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 question on Slide 17. It shows the percentage of volume that has increased over the past 2 years, it’s gone from like 14% to 26%. And the reference points of Q1 ‘22 was it was a tremendous amount of lending going on. And there was high growth and high demand, and everyone was issuing lots of credit.

And then a year later, it’s a very different situation in Q1, it’s very tight everywhere. My question is, what do you think is – what’s normal, what do you think will be a normal percentage you might have of your partner’s volume in a more normalized environment, it’s clearly not 14%, is it 26%, it’s somewhere in between? Thank you..

So, you are absolutely right about your observation, that you see here quarters with a very different funding or macro environment. What we have been noticing historically, is that like, once you hit these targets, and these percentage points, usually, the integration and the relation between the organizations is working to keep that as Dutch.

So, that’s becoming kind of like a speaking number. Now, it’s not to say that 26% cannot go to 24%.

But generally speaking, the upwards trend of maybe 25% approx that flow that has been generated by different partners, think about it more as the partnership that like once you set it up, and once you grow it, and it’s kind of like a land and expand strategy, your ability to grow that over time is relevant.

So, the major part of it is the ability to integrate very heavily into the way these organizations are working, and to be able to provide them an elite solution over time.

And that’s why you see these percentage growing in that event of where the market is, it is true that the market sometimes is giving a push for acceleration of that, the trajectory is actually to become higher and higher, and hopefully above 25%..

Okay. That’s great. Thank you. Follow-up question would be then, like a new customer, a new platform that you have connected to, through APIs or software, like ally, or another type of aggregator have a great amount of application demand.

Generally, how does – what is the trajectory on a kind of same-store basis that 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. So, I want to actually speak about it from two lanes, if that’s fine, Hal. So, the first lane is the lane of light, land and expand, as we say, and we start rather small, we are learning the flow. It takes time to adjust and to create that. You can see, for example, on Delta load fly that’s like both the application were 51%.

But more than that, the funding, that accelerated 4x for what we will call as the first quarter that we are involved in and up until two quarters after.

So, the first piece of the integration, and it’s like continuing to expand and it usually can start as low as like 1%, 2%, 3% ending the height of it could reach to the 25% plus that we just described in your previous question. But I think really another interesting part that people are underestimating indefinite effect.

And this is the most that this is creating. So, think that you had a partner and you have been working with him for 3 years, 4 years, and you will learn the flow and application. And all the different types of uniqueness that that partner has.

And what it’s actually doing is giving you a unique data advantage that your AI can convert into a higher conversion. And that is by definition creating a unique advantage.

It’s creating the mode that others in the future will have time to compete with, because you have all the knowledge and the connectivity for – the collectivity of a specific challenge, that he is making that challenge in the product landscape, we are speaking because you have knowledge and four heels of like specific data that no one has had.

So, to your question, in the early days, it can be few percentage points. And if we are very successful, it could come to a double digit even like it was 25%. And we ought to solve for the partner needs, so as the problem is a little bit different.

But with that it’s coming in unique advantage that we are learning these challenges very much and optimizing for that and therefore other potential competition in the future we will have much harder time to pay for it into that giving the work and the uniqueness of knowledge that we have over others..

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. And now we have a unique last question guys. As an AI driving 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 earning point, 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 point. Let me explain how we went about it.

We uploaded our earnings materials and historical materials earnings to ChatGPT this morning, and promoted it to suggest a question as if it were a sell-side analyst and suggest an answer as if it were the CEO, Pagaya Technologies, which means me. I am going to have Jency read the questions that ChatGPT suggested.

And 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 provide us for me to consider to say is the following. Thank you for your question. Pagaya’s rapid growth in the auto business had significant contributors 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 the vast majority of unique data, which in turn, improves the power and accuracy of our AI models. This enable 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 network.

These growth not only enhance our ability to serve our existing partners, but also attract new partners who recognize the value of our innovation 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 put 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 continue to partnering 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..