Pagaya Technologies - Q2 2023

Transcript

Operator (participant)

Good day and welcome to Pagaya's second 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.

Jency John (Head of Investor Relations)

Thank you, and welcome to Pagaya's second 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, our 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 and involve certain risks and uncertainties. These statements include, but are not limited to, our competitive advantages and strategy, macroeconomic conditions and outlook, future products and services, and future business and financial performance. Our actual results may differ from those contemplated by these forward-looking statements.

Factors that could cause these results to differ materially are described in today's press release and in our Form 20-F, filed on April 20th, 2023, 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, including Adjusted EBITDA, Adjusted Net Income, and Fee Revenue Less Production Costs, or FRLPC, will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release and other materials, which are posted on our investor relations website.

Before we begin our prepared remarks, we want to note that this quarter we published our inaugural shareholder letter in lieu of our usual earnings presentation. We encourage you to review the shareholder letter, which was furnished with the SEC on Form 6-K today, for detailed commentary on our business and performance in conjunction with accompanying earnings supplement and press release. All documents are available on our investor relations website. With that, let me turn the call over to Gal.

Gal Krubiner (CEO)

Thanks, Jency. At Pagaya, we thrive for continuous improvement. As mentioned, we are committed to providing our existing and future shareholders communication that is transparent and comprehensive. Our shareholder letter is a reflection of this commitment, and you can expect to see more of that in the future. We had a strong second quarter, exceeding the high end of our guidance across all our KPIs, network volume, total revenue, and adjusted EBITDA. Our performance reflects our ability to consistently deliver for the lenders and investors on our network. We delivered record network volume in the second quarter of approximately $2 billion, despite an historical low conversion rate in light of the current macro environment. Our lending partners are sending more applications our way as they tighten their own credit boxes, and investors continue to come to us to invest their capital.

The demand is high for our products on both sides of the network. Total revenue grew by 8% year-over-year to $196 million. We are earning more fees on our lending platform product as demand grows. That resulting in growth in our Fee Revenue Less Production Costs, both year-over-year and compared to Q1 2023. Adjusted EBITDA grew to $17.5 million, more than triple the prior year period and our second highest EBITDA in our history. With the continued momentum in our business, we are raising our network volume and Adjusted EBITDA outlooks for the full year, which Mike will speak to more in a minute. Now, let me spend a few minutes discussing our business for those of you who are new to our story.

I encourage all of you to read our shareholder letter in depth, which discuss our product offering and platform in more detail. Pagaya is designed to solve a critical problem in consumer credit. An estimated 42% of Americans are denied access to credit or don't get as much credit as they would like under traditional underwriting systems. Our mission is to unlock that opportunity with technology to help more people get access to more credit. To address this problem, we created a two-sided tech-enabled network that connects the lenders who originate loans to investors who want to purchase those assets. Lenders who integrate with Pagaya's network originate more loans, gain new customers, and earn more revenues, and all of this without taking any incremental risk. On the other side of our network, institutional investors get access to diversified and high-yielding asset pools at scale.

We have pioneered a network comprised of two distinct products, a lending product and an investor product. We believe this model gives Pagaya an edge over other structures. We are proud of the organization we built, housing best-in-class lending technology and asset distribution capabilities on one platform. We hired leading experts in their respective fields, lending and financial market industry veterans, and world-class engineers. As a result, Pagaya offers a value proposition to lender and investors that we don't believe is replicated anywhere else today, and will be difficult to build organically at this scale. On the lender side of the network, our product suite provides access to fully automated credit decisioning technology, secure data exchange and analytics, and real-time funding of any loan originated. The product is deeply embedded in each lender's loan origination system via customized, seamless APIs.

Once integrated, our product allows for smarter and faster credit evaluation, with the ability to evaluate and price a loan in less than half a second. All of this results in a sticky product, evident by the fact that we have grown to over 25 lending partners, and since inception, no lender has left our network. Institutional investors on the other side of the network, connect to a distribution platform that delivers a continuous flow of billions of dollars of assets across multiple markets, including personal loans, auto, and point of sale. In the first half of the year, we raised $3.1 billion across seven different ABS deals, and just closed on our most recent $800 million personal loan deal in July. We were once again the number one personal loan ABS issuer in the second quarter.

Our reputation as a benchmark issuer and our performance track record continue to draw new investors to our network. We continue to see improving trends in asset performance. Early-stage delinquencies for recent personal loan and auto vintages, our two largest markets, continue to decline, while the weighted average coupon remains stable. This translates to improving returns for investors, enabled by our continued low conversion rate. The flywheel effect is fueled by hundreds of millions of data points that flow through our network, which enables better outcomes for both existing and future network participants. The real impact is that over $7 billion of assets were created last year in the consumer finance ecosystem, that would not have been created if it were not for Pagaya. The strength of our product offering reinforce my confidence in our ability to grow existing partners, add new ones, and attract new investors.

With the pipeline we have today, we believe we can grow our network significantly over the next few years. To my fellow Pagayans, I'm incredibly grateful for your hard work and commitment to achieving our mission of increasing access to credit for more consumers across the country. With that, let me pass it over to Mike to discuss our financial results in more detail.

Michael Kurlander (CFO)

Thanks, Gal. We exceeded all of our performance targets this quarter, reflecting the momentum of the business and our focus on profitable growth. While macro headwinds continue, we remain focused on what we can control. Lenders are sending more applications our way as they tighten their own credit boxes, enabling us to deliver our highest ever network volume while managing to a historically low conversion rate. On the investor side of the network, we're starting to see some green shoots, with market liquidity starting to recover from the significant volatility we saw last year. Investor sentiment appears to be improving, with consumer unsecured ABS issuances higher this quarter than the prior two sequential quarters, supporting our ability to continue to raise capital to fund new loan origination. We continue to improve unit economics as we scale.

Total revenue and other income grew 8% year-over-year to $196 million. Revenue from fees, which made up 95% of total revenue in the second quarter, grew by 14% year-over-year. Our take rate, defined as revenue from fees as a percentage of network volume, grew by 110 basis points year-over-year to 9.5% and remains stable sequentially. Production costs grew by 15% year-over-year and amounted to 6.2% of network volume in the second quarter, 80 basis points above second quarter 2022, and a decline of 60 basis points sequentially versus 1Q 2023.

The net result is that our FRLPC, our measure of gross profit, grew by 12% year-over-year and 30% sequentially, amounting to 3.3% of network volume, which is within our target range of 3%-4%. As you can see in our shareholder letter on page seven of our earnings supplement, this growth is primarily a function of the evolving composition of our fees, as well as partner and product mix. As a reminder, we earn margin on both sides of our network, on both our partner product and our investor product. In today's environment, we see increased reliance on our lending partner product as our lending partners tighten their own credit standards and face more challenging funding markets. As a result, we are earning higher margin on the lending side of the network.

This is helping to offset the lower fees we're currently earning on the investor product in today's higher cost of funding environment. The resulting growth in FRLPC was the key driver of our EBITDA delivery this quarter, demonstrating the ability of our two-sided network to deliver consistent results. Moving on to operating expenses. Our total research and development, sales and marketing, and general and administrative expenses were approximately $85 million in Q2, down significantly from the prior year quarter, which was impacted by one-time stock-based compensation expenses related to our transition to becoming a public company. As we said in Q1, our goal this year is to deliver $50 million in annualized cost savings, excluding the impact of our recent Darwin acquisition. We delivered on this target earlier than our original expectation by accelerating our cost savings initiative, which included actions to reduce both compensation and non-compensation expenses.

Core operating expenses, excluding stock-based comp, depreciation, and one-time expenses, declined by $12 million versus the fourth quarter of 2022, or roughly $50 million in run rate savings. The resulting operating leverage enabled our FRLPC expansion to drop straight to the bottom line. We delivered Adjusted EBITDA of $17.5 million, compared to $5 million in the second quarter of 2022. We believe we are on track to continue to deliver sustainable profitability over the long term, supported by the strengthening of our value add to our partners and investors, and the operating leverage embedded in our business model. Given the strong momentum of our business in the first half of the year, we are raising our full-year outlook ranges for network volume and Adjusted EBITDA. Our outlook for the third quarter and fiscal year 2023 reflects a few assumptions.

First, we expect to remain prudent in our conversion rate of application value in light of the ongoing macro uncertainty. Second, we continue to target FRLPC as a percentage of network volume of 3%-4% as our network grows and we strengthen our value proposition to both our partners and investors. While economics on our partner product have been improving, we are not factoring in any material improvements in financial markets, which can impact the level of capital markets execution fees we earn. Finally, we will continue to focus on cost discipline and driving operating leverage. In the third quarter of 2023, we expect network volume to range between $1.9 billion and $2 billion. Total revenue and other income to range between $190 million and $200 million, and Adjusted EBITDA to range between $10 million and $20 million.

For the full year 2023, we expect network volume to range between $7.6 billion and $8.1 billion. Total revenue and other income to range between $775 million and $825 million, Adjusted EBITDA to range between $40 million and $50 million. With that, let me turn it back to the operator for Q&A.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Eugene Simuni with MoffettNathanson. Please proceed.

Eugene Simuni (Managing Director and Lead Fintech Analyst)

Hi, guys, congrats on a strong quarter. I wanted to start with network volume trends. Good to see it exceed, exceed the expectations. Can you talk a little bit more detail about what allowed, you know, network volume to be as strong as it was? Maybe the attribution across, you know, better than expected macro environment, better than expected demand from your existing customers or, you know, a higher level of success with onboarding new customers? That would be very helpful.

Michael Kurlander (CFO)

Hey, Eugene, it's Mike. Thanks for the question. You're right, we did see network volume hit a record level this quarter. Really what that was driven by, to start with, was really strong demand from both sides of the network. On the partner side, we had 20% increase in application flow, and that's really the core driver. We also saw increased demand on the investor side as well, and that led to the network volume. Within that, actually, you actually see that the macro headwinds were still with us, and one of the things that we control on our side is the conversion ratio of that increased application flow.

We kept our conversion ratio very, very low this quarter. That's really a function of us being very prudent in light of the existing macro. One of our core responsibilities, of course, is to create returns, the right returns for our investors. Even though we had higher demand from our, from our lending partners, we kept the conversion ratio really tight, and yet within that, we delivered record network volume. That gives us a lot of encouragement around where we think we can go in the future and the embedded growth that's within the network when we can pull that conversion ratio a little bit higher.

Eugene Simuni (Managing Director and Lead Fintech Analyst)

Got it. That's very helpful. Just to follow up on that, can you talk a bit about your success with capturing and onboarding new, new customers, especially, you know, large or larger US-?

Gal Krubiner (CEO)

Hi, Eugene, this is Gal. I'm gonna take this one. When we're speaking about where we are standing in the pipeline, we feel very confident in our pipeline today. We actually think we can land another big bank partner over the next 12 months, and we are actually in conversations with many of the top 25 banks as they are seeing the unique product that we are offering to the lenders. Part of the context for that is some headwinds in the banking industry that liquidity might be more constrained, and therefore, the fact that we can allow for the ability to progress more loans with consumers is actually something that they very much like. Therefore, it's giving us a lot of tailwind for that ability.

We did work in the last year, if you remember, a little bit about or invested, not a little bit, about moving our product to become more AAA-rated for banks. We are feeling very strongly that our offering right now is in the level and the stage that is relevant. Therefore, we expect to see more conversions coming through based on the Align and Klarna successes we had in the past.

Eugene Simuni (Managing Director and Lead Fintech Analyst)

Got it. Okay, thank you.

Operator (participant)

Our next question is from Rayna Kumar with UBS. Please proceed.

Rayna Kumar (Managing Director for Processor & IT Services Equity Research)

Hi, good evening. Thanks for taking my question. Just want to start with your third quarter guidance. I, I noticed that the midpoint of your 3Q guide implies a 120 basis point quarter-over-quarter decline in Adjusted EBITDA margin. Just curious if that's seasonality or if there's any other underlying drivers there.

Michael Kurlander (CFO)

Hey, Rayna, it's Mike. I'll take that one. Thanks for the thanks for the question. Let me maybe take a step back for a second and just mention that we're, we're definitely pleased with the gains that we've been able to put through in terms of our profitability this year. I know your question was on third quarter, but when you think about the full year, we're now expecting to be $40 million-$50 million. That's 10x where we were last year. We've been able to do that because we've been able to increase our FRLPC margin, and really that's all dropped to the bottom line. The core driver is our gross margin increasing and that operating leverage that's really been able to drop all the way down to the bottom line.

Now to your question, and as a re-reminder, we are still a growth company, and so as we move forward, we do expect to see opportunities to invest in our growth. That's really all going to be driven just by a long-term focus on the company expanding and growing. As we expand the network, we're going to continue to invest in our product, but continue to, continue the trends of profitability that you've seen so far this year.

Rayna Kumar (Managing Director for Processor & IT Services Equity Research)

Got it. It's very helpful. Just another question on conversion rates. Of course, the macro environment still remains very fluid, but with more talks of a soft landing here, if, if the Fed were to pivot, how would you manage conversion rates? Would this be a signal to begin lifting conversion rates, and would it be an immediate transition, or would there be a few quarter lag before, you know, you become more constructive on it?

Michael Kurlander (CFO)

Yeah, here, here's the way we think about it, Rayna. Really, rates are a bit of an indirect impact to us because we're not a, we're not a direct lender and our job is really to manage the investor returns holistically in terms of whatever's driving their investor returns and their hurdles. The way we think about it is, we will lift our conversion rates when, when we feel comfortable to do so, that it meets our investor return thresholds. Obviously, those hurdles will come down and should come down when the macro becomes more stable. From a response time perspective, I think one of the things that we're really proud of around what we built here is that our responses is in real time. I even go back to late 2021 when we started to see trends of consumer behavior deteriorating.

We responded in real time, and on the other side, when we see the environment improving, we also expect to respond in real time. Now, with all of that said, we've definitely, you know, as I said before, are going to maintain prudence with the conversion rate in light of the continued macro. Within that, we were able to produce record volume, and we'll look forward to improving that conversion ratio as soon as we feel comfortable that the macro is stabilizing.

Rayna Kumar (Managing Director for Processor & IT Services Equity Research)

Got it. Thank you.

Operator (participant)

Our next question is from Joseph Vafi with Canaccord Genuity. Please proceed.

Joseph Vafi (Managing Director of Equity Research)

Guys, good afternoon. Nice to see good, solid, demand from both sides of the network. Maybe we just start. I know, you know, application -- it, it does feel like application flow was also growing, not just network volume. I know you didn't really disclose that, but wanted to get a feel if, if there's a kind of a, a range or a band that you wanted to throw out on what application flow growth might have been. Also, I know you said that a conversion rate was also muted, but was wondering if you dialed that down at all in the quarter, or was it kind of more flat sequentially? I'll follow up.

Michael Kurlander (CFO)

Hey, Jo, it's Mike. Our application flow this quarter was up 20% sequentially over the prior quarter. The top of the funnel for us is really healthy. We're really excited to see that growth come through. If you think about that, in the range of how that translates into network volume, the application flow times our conversion rate is ultimately what drives our network volume. We saw roughly $200 billion in additional application flow this quarter. Think about that in terms of our conversion ratio, we can produce, you know, in the order of 20% higher network volume, to the extent we can produce, you know, 20% higher in the conversion ratio.

That's the way we think about it, is we're managing to a pretty low conversion ratio right now, slightly below 2%. There's a lot of embedded growth in that as we can, you know, grow the, grow the conversion ratio from there. Does that answer your question?

Joseph Vafi (Managing Director of Equity Research)

Yeah, that makes sense. That makes sense. I, you know, obviously, I think with, you know, that kind of sequential growth and clearly, you know, you got to filter that down, and, you know, be prudent. That makes total sense. Just, you know, I wanted to dig down also into FRLPC margin or, you know, as a percentage of network volume and kinda, you know, connect that back to your, your commentary on investor side of the network fees being a little muted. That, that margin was up, I guess, to 3.3% here in this quarter, versus 3% a year ago. I know that, you know, the lender side is doing well. I'm just trying to get a feel for, you know, was...

You know, would, would you say that margin year-over-year on FRLPC, you know, as a percentage of network volume is down on the investor side, or do you think it's flat year-over-year, and then the, the gain was coming from the lender side? If, if that question makes sense. Thanks.

Michael Kurlander (CFO)

Sure. The gain that we've seen is really on the partner product. The demand on the partner product side has been very strong as our partners are relying on us more for growing their business and actually converting more of their application flow. Now, when you think about that overall, what we're really pleased about is the evolution of our FRLPC by product. We talked-- you remember, we talked last quarter about some of the new initiatives we had for growing our unit economics on the partner product side. This quarter, going to 3.3%, you're seeing the full quarter impact of those taking hold. Now, as you said, we're actually seeing lower contribution from FRLPC on the investor side.

Now, we expect that will come back with market liquidity, but right now, if you think about where we were a year ago versus today, what we're really excited about is we now have a much more balanced approach or, and much more balanced mix of our FRLPC between the partner side and the investor side. I'd actually encourage you to look, there was a, there's a slide we put into the financial supplement that actually breaks this out, going over the last few quarters, so you can see, you can see that in the, in the investor deck.

Joseph Vafi (Managing Director of Equity Research)

Awesome. Thanks. Very helpful. Thanks, guys.

Operator (participant)

Our next question is from Michael Legg with The Benchmark Company. Please proceed.

Michael Legg (Equity Research Analyst)

Thanks. Great quarter, guys. Can you talk a little bit about the ABS funds raised, the performance of how that those funds have done and how it impacts current raises? Then kind of relate that a little bit to your exposure, to your investments in that, and, and then further, how, if that limits your capacity, the ability to raise those funds, or is that, you know, you're obviously the largest lender of ABS? Can you raise as much as you want? Then by the amount of raise, how that impacts your decisions on your conversion rate? Thanks.

Gal Krubiner (CEO)

Hi, Mike, it's Gal here. I will take the first part, and then Mike will chime in. From a funding perspective, we definitely see an improvement market conditions. I think both from the terms of the liquidity in the market, Q4 was the bottom, and since then, we see an improved liquidity. In that capacity, I think, like, what we're seeing very clearly is that the repeatable, strong issuers, like ourselves, are getting enough attraction, but smaller shelves, et cetera, are not really managing to close deals. It's like, kind of like talking to the scale and the importance of scale, building these things in motion. Just to give you one example, in July, we upsized the deal, an ABS deal from $600 million to $800 million.

At the peak of the order book, we had $2 billion of orders. That speaks to the strengths and the ability of the team to deliver that capabilities into a funding strategies that are becoming very material for our ability to perform in different market conditions. To the, to the, to the side of the investment, Mike, do you want to take it?

Michael Kurlander (CFO)

Yeah, from a, from a balance sheet perspective, actually quite, quite manageable, and I'll explain, I'll explain why. As you know, we don't actually put loans on our balance sheet. Really, our only asset on the balance sheet is the risk retention which comes from issuing ABS and the 5% mandatory holdings that, that we, we have to, we have to put on the balance sheet.

If you think about that, you know, 5% and the fact that every quarter we're actually receiving cash flows from our private prior investments, actually, we have material cash flows this quarter from prior investments, around $65 million, and the fact that we've been able to grow and diversify our funding facilities for the investments in loans and securities, that means that the actual net outflow from a cash flow perspective is in the 2%-3% range. That gives us, you know, actually a long runway to be able to continue to grow the business. Obviously, long term, we'll diversify and actually supplement the ABS distribution mechanism with other funding products that don't have the same balance sheet requirements.

In the near term, we feel really good about, you know, the position we're in.

Michael Legg (Equity Research Analyst)

Great. Congrats on the quarter. Nice job.

Operator (participant)

Our next question is from Hal Goetsch with B. Riley Financial. Please proceed.

Hal Goetsch (Senior Managing Director and Head of Fintech and Financials)

Could you give us a perspective of this application flow? $200 billion in the quarter is a staggering sum of money. Only about, you know, $2 billion of it is actually, you know, closed on 1%. You know, that's a huge number, very selective process. Could you tell us more about that and also maybe the mix of this application? Well, how much of it is coming from auto and different private loans? What was it maybe a year ago on application flow? Thank you.

Gal Krubiner (CEO)

Sure. It's Gal here. from, from the level of application flow, I, I, I think the important piece to, to, to share is the importance of seeing this flow, even if a conversion is happening or not, because part of that is the data that we are collecting and the ability to reach to a bigger and better part of the American consumer, parts. We are choosing actively, both because of the prudentness, and some other events that you need to do on the, on the modeling side to be focused on small population of that and to be able to, deliver that. When you think about, when you think about the network itself as a product or as a connectivity from that perspective, I think we are now seeing something like almost $1 trillion of application a year.

Therefore, you can imagine that the ability to create a lot of value and to monetize that over time will not end up in the 102%, as such, and we'll find more and better ways to be able to do that. From a growth perspective on the network side, again, rough numbers, I would say it's like over 100% over the last year, year or so. Then from that perspective, I would say that majority are coming from auto loans and the PL. On the PL side, it was more flow from partners, and on the auto, it was new partner that we have the idea of bringing, bringing up.

Last, last example that I will leave it with you is that, for example, application on, on, on point of sale, that like a year ago, we didn't have, our partner, Klarna, and this time around, we are seeing a lot of applications through that. It's a total new space that our network was not exposed to, and now we're starting to ramp up that, collect the data, and obviously creating a better model. The, the last piece I would say is like internally, we believe that like, AI capabilities could improve the ability to convert by 30% year-over-year, 20%-30%. To that extent, different macro situations could change that over the shorter period.

Like, what we're building here and seeing that is how we monetize that piece out of the network and connectivity that I shared, and that's really the secret sauce.

Hal Goetsch (Senior Managing Director and Head of Fintech and Financials)

Thank you.

Operator (participant)

As a reminder to star one on your telephone keypad, if you would like to ask a question. Our next question is from David Scharf with JMP Securities. Please proceed.

David Scharf (Managing Director)

Hi. Yeah, good afternoon. Thanks for taking my questions. You know, I, I appreciate all, all the color on sort of the current sort of cyclical backdrop. Maybe, can focus a couple questions on just, you know, future, new business and, and secular growth. You know, first is, I'm, I'm curious, on the personal loan side, you know, the, the, the bulk of the volume is still, originated by sort of legacy branch-based companies, you know, like the OneMain, Mariner, World Acceptance, Lendmark, and so forth. Obviously, your partners are, are digital lenders. I, I, I'm curious, are, are any of these, sort of legacy non-prime, near-prime personal lenders exploring using third-party services like yours, you know, for handling turndowns?

Gal Krubiner (CEO)

Yes, definitely. To my comment in the earlier of the Q&A, we are speaking with top 25 banks. Part of the conversation over there are personal loans. We actually have two prospects that we are in a deep discussions on these pieces and are very relevant. I would say definitely. I think, I think if I take a step back, the banking industry is really interested in three main products: the personal loan, the auto, and the Point of Sale. Point of Sale, obviously, something that is a little bit more new, that people are trying to get their hands around and play the market share.

From a auto perspective, there is a lot of maturity in that spaces, and it's just a matter of like getting into that. We are a little bit more relevant to the subprime side rather than the super prime, so banks that are going over the super prime are relevant for us. With the PL, it's more a complementary product that usually banks want to offer to their customer base, and that's where we see the biggest success from a PL perspective on the traditional.

David Scharf (Managing Director)

Okay, maybe that's a good segue to my next question, which was to get a little better understanding on maybe what products you, you'd be involved in with the large banks. I mean, you know, the, the, the companies I just rattled off were non-bank financials, and specifically it's because, you know, large banks historically have just not cared that much about personal loans. It's been sort of an afterthought of asset class they dabble in here or there. You know, recognizing that, and then on the subprime auto side, you already have really good penetration with a lot of leading subprime auto lenders, based on who's in your securitizations. As, as it relates to asset class with a large bank, is it on the card side, Point of Sale?

Because once again, we, we kinda know that personal loans is not a real big, you know, ceiling within the banking community. Is card or revolving credit something that they're interested in exploring with you?

Operator (participant)

As long as you keep it on the counter by you, you should be fine.

Gal Krubiner (CEO)

Sure. I'm not sure who was interrupting, but like, to your question, I think if you look on the full growth strategy of the company, the answer is all of them. The capabilities that Pagaya has is really divided to two, right? To the product connectivity to the banks becoming banks, lenders becoming very embedded in their loan origination systems and different parts of the system that needs to be able to maintain that in a seamless API integrator. The second piece is the ability to take all of that data and to create from AI, the ability to approve more loans. The third piece is the distribution of these assets into the investor community.

When you think about that, the same flow works in personal loan, auto loan, POS, and credit card. When you're asking yourself, what is the growth strategy that you want to pursue? You're asking the question of opportunity versus effort versus capability. When we started from the PL space, and to your comment, PL is definitely much smaller than credit cards, but because we have so much knowledge and capabilities in that, it's very natural for us to continue to explore that with banks, even if it's not the biggest pie of their books. On the very high, the second side of the discussion, you have the credit cards, which is by far the biggest opportunities with banks, but we don't have a fully yet mature credit card product.

Actually, on the credit card part, we, we have a partnership with Visa, to be able to, we signed a year ago to be able to persuade it and to bring that capabilities and offering and product to the banks, which is in motion and in works. I would describe POS as the new emerger, that this year definitely started to become much more interesting, that most of the banks we are speaking with are having internal initiatives, which we are kind of like connecting into that as part of our strategy. I hope that gave you the color you were looking for.

David Scharf (Managing Director)

Yeah, no, very much. Thank you. Congrats just to terrific results today.

Gal Krubiner (CEO)

Appreciate that.

Operator (participant)

Our final question is from Vincent Caintic with Stephens. Please proceed.

Vincent Caintic (Analyst)

Hi, good afternoon. Thanks for taking my questions. It's nice to see both the good volume growth as well as the good EBITDA growth as well. I wanted to, if you could, kind of talk about your business versus, and compare versus the rest of the fintechs, the lending fintechs, in the industry, because it's interesting to see your strong growth, your ability to launch several ABS this year so far, as well as sign on, and be signing on new bank partners. Whereas it seems like in the industry, the other companies that have reported so far this quarter are talking about, you know, banks being conservative, pulling back from their platforms. Some of the marketplace lenders are struggling for volume as well.

It's nice to see Pagaya's growth, and I was wondering if you could maybe, from your perspective, describe how you're able to, to have these, these partnerships, succeed. Thank you.

Michael Kurlander (CFO)

Hey, Vincent, it's Mike. Thanks for the question. Look, I really think it, it comes back to a little bit of the, the business model, and we are in a very unique position in the ecosystem. You know, a number of the for- players that you just spoke about are actually partners of ours. Our business model, when, when we were formed, was really to solve the problem of consumers not getting access to credit. We solve that through technology and data, but we do that through partnering with lending institutions. As they look to grow their businesses, whether that be a fintech or a large bank, we're partnering with them and helping them actually grow their underwriting and their lending volumes, and then actually connecting those assets in on the other side with investors who are looking for exposure to the underlying assets.

That's very different than the way most other participants play in the market. Most are either on one side or the other side of that equation. What I feel like we've tried to do over our history is really be in the middle, actually complementing what everyone else is doing. That's led to a lot of the growth that you've seen, because we have a really unique vantage point in that we're seeing not only, you know, all the data science that comes with all the publicly available data that, that others could get as well, but we're also then seeing the application flow from 25 different lending partners.

We feel like that gives us a bit of an edge in terms of, you know, applying that, the data science to that amount of information that we see coming through every day. The core focus of just the actual capability itself, as opposed to the other aspects of running a consumer-facing business, we feel like that's actually put us in a really good position to, to deliver not only for our lending partners, an ability to grow their network, their volume, but then also for our investors who are looking for access to these sorts of assets, and we feel like our, our business models allow us to do both sides.

Vincent Caintic (Analyst)

That's very helpful. Thanks very much.

Operator (participant)

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

Gal Krubiner (CEO)

Thanks, operator. I'm proud of our accomplishment this quarter, which I believe reflects the strength of our organization we have built. We continue to exceed our short-term goals while advancing our long-term growth strategy to expand our network. Above all, we continue to be driven by our mission of delivering more financial opportunity to more people. Thank you all for joining today, and we look forward to building our partnership with you. Thank you.

Operator (participant)

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