Pagaya Technologies - Earnings Call - Q3 2025

Executive Summary

• Record quarter with Total Revenue & Other Income of $350.2M (+36% YoY, +7% QoQ), Adjusted EBITDA of $107.0M (+91% YoY), and GAAP net income of $22.5M (third straight positive quarter), driven by fee growth, operating leverage, and normalized impairments.
• FY25 guidance raised for Total Revenue ($1.30–$1.325B), Adjusted EBITDA ($372–$382M), and GAAP Net Income ($72–$82M), with implied Q4 revenue of $333–$358M, Adjusted EBITDA of $99–$109M, and GAAP Net Income of $25–$35M.
• Funding and liquidity inflected: issued $500M 8.875% senior unsecured notes, expanded RCF with four new banks and cut pricing to SOFR+350, taking substantially all borrowings to or below 8.875% coupon; expect ~$12M annual interest savings, ~$40M cash flow benefit, and released >$100M collateral.
• Estimate context: Revenue beat S&P consensus ($350.2M vs $341.3M), Primary EPS beat ($1.02 vs $0.659), while standard EBITDA missed ($81.8M vs $93.6M)*. Company-reported Adjusted EBITDA of $107.0M exceeded its own guidance. Values marked with * from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Monetization and operating leverage: FRLPC rose to $139.3M (+39% YoY), with FRLPC% at a record 5.0% (+70 bps YoY); Adjusted EBITDA hit $107.0M and margin reached 30.6%, with core opex at 34% of FRLPC (lowest since IPO).
• Diversified growth and funding: $1.8B of ABS issued across four deals; inaugural $500M Auto forward flow with Castlelake; second $300M AAA POSH ABS; plus corporate revolver expansion at SOFR+350, bringing most borrowings to or below 8.875%.
• Strategic pipeline: record number of partners in onboarding; POS and Auto now 32% of volume vs 9% a year ago; management reinforced B2B enterprise discipline and multi-year partner contracts.

What Went Wrong

• Non-operating headwinds: credit-related fair value loss of ~$20M, $25M loss from debt extinguishment, and $5M non-cash warrant expense, partly offset by a $20M one-time tax benefit.
• Near-term FRLPC% expected to normalize from 5.0% toward 4–5% range as mix shifts to POS/Auto and funding mix diversifies; implies less margin expansion from mix tailwinds.
• Standard EBITDA fell below S&P consensus despite strong company-reported Adjusted EBITDA; continued credit-related impairments are assumed within outlook ($100–$150M rolling 12 months). EBITDA consensus comparison from S&P Global*.

Transcript

Operator (participant)

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

Josh Fagen (Head of Investor Relations)

Thank you, and welcome to Pagaya's Third Quarter 2025 earnings conference call. Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya Sanjiv Das, President; and Evangelos Perros, 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 forecast with respect to, among other things, our operations and financial performance, including our financial outlook for the fourth quarter and full year of 2025. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially from our expectations include, but are not limited to, those risks described in today's press release and our filings with the U.S.

Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements as a result of new information or future events. Please refer to the documents we file from time to time with the SEC, including our 10-K, 10-Q, and other reports for a more detailed discussion of these factors. Additionally, non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, fee revenue less production costs, or FRLPC, FRLPC % of network volume, and core operating expenses will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available to the extent available without unreasonable efforts in our earnings release and other materials, which are posted on our Investor Relations website.

We encourage you to review the shareholder letter, which is furnished with the SEC on Form 8-K today, for detailed commentary on our business and performance in conjunction with the accompanying earnings supplement and press release. With that, let me turn the call over to Gal.

Gal Krubiner (CEO)

Thank you and welcome, everyone. Our third quarter results demonstrate continued execution against our long-term operational and financial goals. We are nearing the end of the year for Pagaya, where not only have we achieved consistent GAAP net income profitability, but raised it again to an exit rate of over $120 million on an annual basis. Most importantly, the results demonstrate the momentum and strength of our platform, the diverse and high-quality revenue drivers, and the stability of our unit economics, and our very deliberate and responsible approach towards scaling in a complex environment. The outcome is a through-the-cycle business, consistently growing with minimal investments for years to come. After laying the groundwork through discipline, optimization, and capital efficiency earlier in the year, we have shifted our focus to product-led growth.

In short, the next 18 months will be all about perfecting our products and our solutions to ensure we solve the fundamental challenges facing lenders and consumers. Our value proposition remains the same: helping lenders serve more customers. As partners recognize the increasing value of our platform, existing partners deepen their engagement, while new partners join the network. Our ability to design these products is truly unique. It is rooted in our vast data network, a core advantage for Pagaya. We embed data and machine learning as a backbone of our offering across the entire lending funnel, from verification to underwriting and as far up the funnel as affiliate channels optimizations. This creates unparalleled optimizations for lenders and investors. I'm very proud to announce that we have now the highest number of partners in our onboarding queue in the history of Pagaya.

We are in the process of onboarding up to eight partners across all of our asset classes, ranging from fintechs to banks. Inclusive of the two partners that were added this quarter, we now have a robust queue that is set for the next 12 months. In addition to the progress we have made in lending new partners, we have continued to refine our product strategy by listening to our partners, ensuring we meet their needs with our product suite. Just this quarter, in the course of our regular ongoing meetings, Sanjiv and I met with many of our partners and prospects to truly understand their growth and value drivers, and to continue to progress our products towards these needs. Solving for the needs of our partners improves our product ecosystem, and solving for product effectiveness enhanced every partner relationship in return, further propelling our flywheel.

In short, the more value we add for partners, the more deeply they engage with our products and solutions, which in turn provides more opportunity to add value. Sanjiv will discuss later how we are evolving into a best-in-class B2B enterprise, growing our key partners to $1 billion relationships and locking in our commercial terms through multi-year contracts. This will continue to define Pagaya's next chapter and accelerate our journey to become a necessary utility for every lender in the U.S. As we continue to mature and diversify our funding network, demand for our assets remained consistent and robust. During the third quarter, we issued $1.8 billion in our ABS program across four transactions, which were marketed to our network of more than 150 institutional funding partners. Outside of our ongoing core funding mechanism, we announced our first auto-forward flow and strategic funding on residual certificates.

The momentum on the corporate funding side is just as notable. We were rated by all three major credit rating agencies and raised $500 million in corporate debt. In addition, we expanded our corporate revolver with four new major banks at a significantly lower cost, boosting our capital efficiency. Together, we continue to diversify our sources of capital while improving efficiency across our funding and corporate capital structures. We reached consistent profitability and record quarterly network volume of $2.8 billion, with sequential application flow growth of 12%, showcasing the continued growth of our network. Our growth is strong and increasingly diversified, with POS and auto representing 32% of total volume versus 9% in the same quarter just a year ago. We are expanding existing partner relationships across our growing set of products and growing exits from newer partners.

This disciplined growth is demonstrated through our steady application-to-funding conversion, which has remained at 1%. At the same time, we continue to drive new high-potential partnerships to the platform. Across all of these segments, we see our network effect compound. We have an opportunity to truly reimagine the way consumer credit works as we build a platform that connects lenders with better data, more automation, and smarter decisions. This enhances and accelerates our ability to generate the assets that best meet the needs of our investors, in line with our balanced approach towards long-term profitability and resilience. Our goal is to be the plug-and-play solution for lenders getting credit, spending risk deals, and asset types, all delivered in a seamless white-label solution powering the next generation of lending.

We are extremely proud of how far we have come and ask you to stay tuned on what is on the horizon. The journey is long, but we'll be innovative for consumers, partners, and investors. With that, I would like to hand it off to Sanjiv for a review of our operating business and more on our product-led growth strategy.

Sanjiv Das (President)

Thank you, Gal. Pagaya's growth continues to be driven by disciplined expansion with existing partners, as well as the addition of new partners to the platform. We are continuing to strengthen our business by institutionalizing our relationships with lending partners using best practice B2B disciplines, such as long-term agreements and product and fee agreements, while ensuring responsible underwriting and risk management using consumer credit disciplines. Let me first provide an update on existing partners. Just to remind you, Pagaya currently has 31 lending partners on its platform. Our relevance among our existing partners remains extremely high. Banks and fintechs are increasingly focused on consumer growth, customer retention, and maximizing customer lifetime value. Pagaya continues to solve for what lenders care about most while providing efficient capital markets execution and driving fee income growth for our partners.

We achieved our growth of growing five accounts to over $1 billion relationships driven by multiple product adoptions by our partners, as well as expanded access to their application flow. Our existing lending partners are at varying stages of maturity with Pagaya. We define the level of partner maturity with us based on the number of Pagaya products that partners adopt, which eventually drives the volumes on our platform. As one would expect, the partner lifecycle with Pagaya includes onboarding, ramp-up, scaling with decline monetization, and eventually expansion across our products. Our multi-product partners are leveraging the full suite of our products from decline monetization to our direct marketing engine and affiliate optimizer engine in personal loans to fast-pass and dual-look in auto. Multi-product expansion enables our partners to significantly grow volume, fee revenue, incremental new customers, and long-term value from existing customers.

A number of our personal loan and auto partners are currently expanding into Pagaya's products. Let me pivot for a second and give you a product view of our business in addition to the partner view you just heard. Products above and beyond decline monetization are already contributing significantly to Pagaya's volume and revenue. In personal loans, approximately half our current volumes already come from products other than decline monetization. Let's take the affiliate optimizer engine as an example. Pagaya has been enabling our partners to originate loans in the affiliate channels, such as Credit Karma, LendingTree, Experian, and others, for many years now. Last year, we productized affiliate channels separately and commercialized this offering as a standalone affiliate optimizer engine product. We are currently rolling it out across all our partners that are at scale with our decline monetization product.

We are increasingly seeing that partners who have successfully leveraged affiliates to scale their credit card businesses are now starting to use affiliates to grow in personal loans by adopting Pagaya's affiliate optimizer engine. Becoming multi-product presents a significant growth opportunity for partners who are currently only leveraging a decline monetization program. In fact, while multi-product partners represent only 30% of Pagaya's partners by number, their contribution to our volume is more than two-thirds. The more products that partners have with Pagaya, the more volume, the more revenue, new customers, and lifetime value they get from the partnership. This underscores the notable organic same-store growth opportunity ahead for Pagaya for its 31 partners.

Similar to our affiliate optimizer engine, our direct marketing engine offers our partners the ability to grow their business by leveraging our response engine to book new personal loans while providing them with the same superior capital markets execution. Now, a very quick update on our new partners. We are currently seeing the highest number of partners in onboarding in Pagaya's history. Pagaya's new partner onboarding now includes pre-built integration for all the products I just described. For example, pre-integration with Credit Karma, pre-integration with Experian, and so on, along with decline monetization capabilities. This significantly accelerates scaling and unlocks more value for our partners sooner. Partners currently in onboarding represent a mix of all three Pagaya asset classes, as in personal loans, auto, and point of sale, and include leading banks and fintechs.

For the banks, the focus continues to shift toward growth against the backdrop of a more favorable regulatory environment. As they do, they are increasingly focused on building and scaling personal loans, auto, and POS franchises. It presents a growth opportunity for Pagaya's bank-ready platform that has been tested and scaled with U.S. Bank, Ally, and others. I'd like to take a moment to review each of our loan categories, their performance during the quarter, and going forward. As discussed before, in personal loans, we continue penetrating deeper into our existing partner base as they adopt our products while simultaneously ramping up volumes with partners we have already onboarded in the last 12 to 18 months. On the funding side of personal loans, we are still the largest ABS issuer, while also continuing to successfully diversify into forward-flow agreements.

Point of sale continues to make notable progress on both sides of the network. While still a relatively newer business, we have been able to quickly grow annualized POS volumes to about $1.4 billion, up from $1.2 billion last quarter. On the funding side, we closed our second AAA-rated POS ABS offering in November, underscoring the demand and performance of our POS ABS shelves. In auto, annualized auto volumes grew to $2.2 billion, up from $2 billion last quarter. This quarter's announcements underscore several examples of the strength and performance of our auto franchise, including the sale of the residual certificates to 1 William Street in our latest RPM deal and our inaugural auto forward-flow agreement with Castle Lake, which we announced last week. Before closing, I will touch briefly on our response to the macroeconomy, credit, and risk.

As Gal mentioned, not much has changed for Pagaya with respect to the consumer credit performance and lending partner actions. Despite that, we continue to build a robust through-the-cycle business by staying disciplined on consumer credit and long-term commercial agreements with partners. We know that the institutional franchise that we are building can mitigate normal business cycle fluctuations. This management team has done this before in highly cyclical consumer credit businesses and is confident that it can do it again. With disciplined growth, we remain fully committed to our mission to help bridge Wall Street to Main Street for the long term. It is my pleasure to turn the call over to EP to cover the quarter's financial results and outlook.

Evangelos Perros (CEO)

Thank you, Sanjiv. The results of our third quarter earnings demonstrate steady and sustainable growth, and most importantly, growing profitability. Network volume grew 19% year over year to a record $2.8 billion, led by 31% growth in personal loans. Application-to-funding conversion held firm at 1%, reflecting disciplined underwriting. We expect conversion rates to remain stable as we focus on prudent, profitable growth through the cycle. Total revenue and other income rose 36% to a record $350 million, driven by fee revenue growth outpacing volume. The outperformance of revenue growth versus volume growth is a strong indicator of our ability to monetize our volume and reflects the value added to our partner network.

FRLPC increased 39% to $139 million, reaching 5% of network volume, up 70 basis points year over year, a clear signal of monetization efficiency and in line with the financial strategy we launched in early 2024 to focus on improving unit economics. We expect FRLPC as percent of volume to normalize within the 4%-5% range as we scale into POS and diversify our funding. This year, we have shifted our focus on driving consistent and sustainable total FRLPC growth in dollar terms. Adjusted EBITDA increased 91% to a record $107 million, with margins expanding 9 percentage points to 30.6%, fueled by strong fee growth and disciplined expense management. Core OPEX dropped to 34% of FRLPC, the lowest since going public. Incremental adjusted EBITDA margin represented more than 100% of FRLPC growth in the third quarter.

Operating income climbed 257% to $80 million, and operating cash flow hit a record $67 million, exceeding outflows for investments. GAAP net income of $23 million represented our third consecutive positive quarter and improved from a net loss of $67 million in third quarter 2024, fueled by 36% revenue growth, lower operating expenses, and lower impairments. This equated to a 6% margin as compared to a 5% margin last quarter and negative 26% in the year-ago quarter. We are also enhancing transparency in our disclosure by introducing a new reporting line called Gains and Losses on Investments in Loans and Securities. This new line includes gains and losses on investments which were previously included in other expense net.

In the third quarter, credit-related fair value adjustments reported in this new line totaled a $20 million loss versus $14 million in the prior quarter and $78 million in the prior year quarter. Interest expense fell to $22 million, down $1 million sequentially, and should decline further as the benefits of our unsecured loan refinancing fully phase in, driving $12 million in annualized interest savings and $14 million in added cash flow. Third quarter GAAP net income included the negative impact of several non-operating and non-recurring items. We incurred a one-time $25 million in costs associated with the issuance of our corporate bond and early retirement of existing debt. In addition, we recorded a non-cash warrant expense of $5 million. Partially offsetting these one-time items, we recorded a one-time tax-related benefit of $20 million.

Share-based compensation expense of $14 million was up $1 million year over year and down $5 million from last quarter and is expected to remain broadly at those levels. Turning to credit, performance is in line with expectations across personal loans, auto, and POS and remains within our disciplined risk tolerance, also evident by the robust demand we see across all our asset classes from institutional investors willing to underwrite our production at increasingly higher levels. We appreciate the increased investor attention around credit across financials, so I will spend a bit more time covering this today. Macro trends and overall consumer behavior remain healthy, and we continue to monitor closely through the data advantage we have of working with 31 different partners across multiple asset classes. We're always ready to shift if and when needed. Let me give you some perspective on how our credit positioning has evolved.

As you may recall, during 2024, our credit performance was driven by a sharp focus on achieving consistent through-the-cycle GAAP profitability. In addition, since the beginning of this year, we have been benefiting from our positioning to reflect protracted volatility and uncertainty. This is a luxury Pagaya can afford given our GAAP net income profitability and our commitment to deliver sustainable growth and not just growth at any cost. This positioning means that we have been underwriting with a cushion against the market and running the business in that way while benefiting from the lower cost of capital. From investors' point of view, we have been assuming future losses in our guidance as shown in our earnings supplement.

Turning to some performance metrics, our personal loan cumulative net losses across 2024 quarterly vintages are trending approximately 35%-40% lower than peak levels in the fourth quarter of 2021 at month-on-book $8-$17. Auto production continues to deliver strong performance, evident by the investor demand for auto ABS, the first sale of our certificates since 2021, and our inaugural auto forward flow. Auto loan C&Ls across quarterly 2024 vintages are trending approximately 50%-65% lower than levels during comparable 2022 periods at month-on-book $9-$18. 60-plus DQs across 2025 vintages are higher when compared to 2024 levels and lower relative to 2023 levels, and well within our expectation. Offsetting this, 2025 net recoveries and roll rates are trending significantly better than 2023 and 2024 vintages, driving the strong performance.

For POS, credit trends remain stable and in line with expectations, validated by the continued strong demand we see for this product from our funding partners. Overall funding continues to be robust, with a focus on improved efficiency and diversification. During the third quarter, we issued $1.8 billion in our ABS programs across four transactions. Last week, we announced our inaugural $500 million auto forward flow agreement with Castle Lake, expanding our relationship into two asset classes. Additionally, in early October, after the quarter, we closed a $400 million RPM auto transaction, which included the sale of the residual certificate to strategic funding partner 1 William Street Capital Management. Last week, we closed our second POS ABS transaction, which was oversubscribed. This underscores the attractiveness of Pagaya's assets as we grow our auto and POS product offering.

Turning to our balance sheet, we ended the quarter with $265 million in cash and cash equivalents and $888 million of investments in loans and securities. We completed a $500 million senior unsecured notes offering that reduced our cost of capital by approximately two full percentage points to 9%. As part of the refinancing of higher cost facilities, we bolstered our corporate liquidity with a release of over $100 million in highly liquid collateral. After the quarter, we announced an expansion of our existing revolving credit facility with four new bank partners, as well as expanded commitments from our prior four existing lenders. This lowered the facility interest rate by nearly 35% to SOFR plus $350. After this expansion, substantially all of Pagaya's corporate borrowings are now at or below the high-yield bond coupon of 8.875%.

In the third quarter, the fair value of the overall investment portfolio and allowances, net of non-controlling interest and prior to any new additions, was adjusted downward by $32 million versus $20 million last quarter. We also added $38 million of new investments in loans and securities, net of pay downs from prior investments, majority of which is our required risk retention related to our ABS securitizations. As provided in our supplemental filing this morning, we maintained our scenario A illustrative assumption of $100 million-$150 million in rolling 12-month forward credit-related impairments, which is reflected in our guidance. Now let me turn to our updated outlook. Our full year 2025 outlook reflects the momentum and resilience in our business to date and our unique operating leverage while maintaining our cautious stance given the protracted volatility.

Key drivers include consistent levels of personal loan production and continued growth in auto and POS products. We continue to expect FRLPC to grow steadily in dollar terms and range between 4%-5% as a percent of network volume for the year versus staying at the levels of this past quarter. Profitability trends will reflect continued scale and operating leverage. Our guidance continues to reflect potential scenarios related to future credit-related impairments, if any, as laid out in our earnings supplement, which imply a range of $25 million-$37.5 million per quarter over a rolling 12-month period. Core OPEX is expected to be slightly elevated in the fourth quarter as a result of higher funding issuance. Interest expense is projected to trend lower as a result of the recent refinancing notes transaction.

For the full year, we're updating our expected network volume to a range of $10.5 billion-$10.75 billion, total revenue and other income in the range of $1.3 billion-$1.325 billion, and adjusted EBITDA in the range of $372 million-$382 million. We are increasing our GAAP net income for the year to a range of $72 million-$82 million. With that, let me turn it back to the operator for Q&A. 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. One moment while we pull for questions.

Our first question is from John Heck with Jefferies. Please proceed. Hey, guys. Congratulations on a good quarter. EP, you gave a lot of detail around credit, but I'm wondering if we could just step back, maybe go, if you look at the different products, your different, maybe different income ranges within the programs and so forth. Can you maybe give us your perspective on credit quality now and the consumers' and borrowers' ability to manage their credits? Yeah, thanks, John. I'll start. So credit, like Pagaya's credit, is performing well and well within our expectations. I think the important thing here is that this is not an accident. We appreciate, obviously, the focus on credit performance over the last few weeks or months, but I want to remind everyone that we have taken a very balanced and conservative approach on our underwriting since the beginning of the year.

We're very pleased with the disciplined approach that we have been doing in our underwriting and how that has reflected in our performance. It's interesting, during the last few months, people have been asking us why we don't grow faster. This is exactly the reason, right? We have been positioning well for anticipating more volatility, more uncertainty, and how that could potentially have any impact on the consumer. We're benefiting from that sort of positioning. I would highlight we're quite unique in our ability to do so. Why? We're a B2B company. We have the highest fee rates, fee margins. You see how FRLPC has been growing. We have the most diverse partner set and, more importantly, very excited about the partners that are coming in our onboarding queue.

All of that translating to profitability, which allows us to be positioning the way we have over the last multiple quarters. To remind everyone, a lot of that we have already reflected in our guidance as potential impairments down the line. We do not see any reason for us, obviously, based on anything to deviate from that approach and obviously the provided guidance. I do not know, Gal, if you want to add anything. Yes, John, I think thank you for your question. I think putting that question in perspective, that is what is important for us on this call. The way I want you to think about it, or at least the way we think about it, is that in the context of our business model, it is really relatively easier to manage the credit side of the business. Think about it from a very high level.

As you can imagine, this is more a philosophical question. This is built in a way and for a reason in how we like to run our business. We chose the B2B versus the B2C in consumer credit approach, although, as you can imagine, in the early days, it was the least straightforward decision. The reason we chose it usually is B2C lenders have very strong correlation between marketing spend and approval rate increasing, and therefore they are growing with the cycle. They need to have good days to be able to approve more and therefore spend more, and that is how they are growing. The same phenomena is the other side of it.

That when the cycle show weakness, you expect a good B2C, and most of our partners are like that, to reduce approval rates, and therefore you will see less firepower to spend on marketing power. The result, as you can imagine, is much lower growth rate. All of this to say that credit is a super crucial backbone in the B2C organization ability to grow, especially in an increasing competitive world. While I know many of our investors still think of us as another B2C organization because we deal with consumer credit, the reality that this is far from the truth.

The way we designed the company, which is expanding, as you know, through more partners and product, i.e., the B2B concept of consumer credit, was purposely designed to reduce the level of fluctuation over the cycle because we do not have marketing spend that moves up and down with approval rates. Now, none of that is to say that we are immune. We are not immune to the cycle, and therefore we are very closely monitoring. Remember that we have entered this year with a very tight thinking around it. The sector is rightfully focusing here in general, but we do want to highlight that the relative impact from changes in consumer credit behavior on Pagaya is much more muted. We are trying to solve for a specific—we're not trying to solve for a specific growth rate in a specific quarter.

The long term is what matters for us, and that leads to a high ability and degree of discipline over quarters. Great. Thank you guys very much. Our next question is from Peter Christensen with Citi. Please proceed. Good morning. Thanks for the question. Nice performance here. Gal, EP did a good job, I think, talking about collateral performance, looking pretty good there. I'm just curious, with a lot of successful ABS issuances this year so far, I think a lot of them oversubscribed, can you talk to maybe how risk retention may have changed or your strategy there or how it could evolve over the coming months given the environment that we're in today and how you foresee that potentially changing should the market start showing any signs of increased volatility, as you mentioned? Great. Thanks, Pete.

I mean, look, you can see that when it comes to the demand for Pagaya origination, it continues to be very robust and actually improving. If I take you back, call it a year ago or so, remember we're 100% ABS funded. Since then, we have really diversified our funding currently across all our products. We're approximately at that 60-40% mark between, call it ABS and the other structures like forward flows and pass-throughs and things like that. You saw a couple of the announcements where we sold our certificate actually in our recent RPM deal, which was the first time since 2021. At the same time, since then, again, let's not lose sight of the fact that our ABS now has a triple-A across all our products. Always keep in mind how that has evolved over time to our benefit.

Obviously, given the scale that we have, people were worried the same thing back in April when tariffs came along, and then we managed to absorb and actually do most of our, some of our highest issuance back then. Still, we have very strong funding, as I said, diversified funding and funding sort of expertise across the different products. Given where we are as a business, more importantly from a cash flow generation perspective, if things move for whatever reason against that, the risk retention, if we need to put in more of that, we're best positioned in our history to actually do that. We're not worried about managing that through the cycle. Finally, can you just talk about your forward flow pipeline? I mean, obviously, you're adding a lot more partners here. That looks really encouraging.

But from your flow partners, whether existing or potentially new, can you speak to that and whether or not you're seeing increased traction there? Thank you. Yeah. I think the traction is evident by what we have delivered already. You see how we have moved from just personal loan forward flows now to auto forward flow. And we continue to see traction across all our products. The next level of diversification, I would say, is now actually bringing more partners with which we do forward flows. And we're on track to deliver that as well while maintaining sort of that view that we should get to that, call it 50/50% mix between, call it ABS and other structures like the forward flows. Great. Thank you. Our next question is from Hal Gouch with B. Riley Securities. Please proceed. Hey, thank you. Great quarter, guys. My question is for Gal.

Gal, we've seen a lot of other consumer lenders report, but they're mostly consumer-facing B2C channel. Have to spend a lot to get new customers. Could you just remind us how different your model is on the B2B2C level? Thanks. Yes, definitely, Hal. Thank you very much for the question. I will start with a little bit high level, and then Sanjiv will take it further to speak about the onboarding stages and the different parts. I will start with the statement, as we said, we do have the biggest number of partners in the queue ever. I think the real question and interesting part is how we got there. Step back, think about the fact that we have been really focusing in the last year is to perfect our value proposition and the product suite behind it.

A new partner considering Pagaya should be very clear for them, for him, how the partnership with Pagaya is becoming a meaningful contributor for them over the two, three years after going live. While we have a very clear value proposition, we did, I think, a better job in defining the different parts of the product and to be able to show to the partners what is the sequencing of ramping them, as Sanjiv has explained in the call, and the ability to take partners to the first decline monetization product and therefore a few others that you have a very clear and precise 18-month plan of how we roll out the different products to get them access to all of the Pagaya products over time.

Now, that is creating a very clear, concise target of at least $1 billion of origination already in year two or three for many of these potential partners. The combination, for example, in the personal loan space between the decline monetization and the pre-screen or in the auto, the decline monetization and the fast-pass is really becoming something that is hard to resist from a partner perspective. Therefore, they are investing the time, the engagement, the tech, and we see the growth in the onboarding queue.

Last sentence before I am heading over to Sanjiv to speak more specific, I will say that the point in the cycle where lenders are looking to ramp up their growth and looking to become more on the offense rather than on the defense, call it two years ago, combined with slightly more attractive regulatory regime is actually bringing many more conversations to fruition and to actually acting on rather than an explanatory type of situation that was before. Sanjiv, maybe you want to share a little bit about the specifics of the partners? Sure. I did want to say that to help question between B2B and B2C, I did want to say that essentially at its core, Gal, as you and I have talked about, Pagaya is squarely a B2B business model.

Hal, I mean, the way we think about this is we are in the business of essentially growing the business of our lending partners. That is the business we are in. We provide them the ability to approve more customers across the entire value chain through the Pagaya system or the Pagaya platform. In that respect, we are more like a First Data, which is of course now Fiserv, where I worked for many years to establish the same B2B disciplines that we are now instituting at Pagaya.

What that means is, Gal and I are very focused on establishing the disciplines of long-term agreements with our partners, the certainty of locking in predictable long-term fee contracts with our partners, clear rules of engagement around the new products that Gal described, with shared economics of growth, better focus on our partners' needs and what we see sort of uniformly demanded by partners across our lending platform. It is very institutionalized. Just to be clear, we have started the process of B2B long-term contracts with our mega sort of billion-dollar partners that I described in the earlier script. It has been very well received. Our partners now clearly consider these institutionalized B2B relationships very valuable. They want certainty in the long-term Pagaya partnership as well. We have now three to five contracts that are at fairly late stages of contract finalization.

Having said that, where our B2B business sort of spirits a little bit into some of the B2C disciplines is in risk management and consumer behavior, where we manage our business with the strict disciplines, which, as I'm sure you know, given sort of the world-class consumer experience of this team, we have turned around highly cyclical consumer businesses several times. This is something we believe we do quite well. Essentially, that's what we are building: a solid B2B business with B2C disciplines, building it for the long term. We do not consider ourselves beholden to being slaves of volumes through credit expansion.

We believe the right way to grow our volumes is through partner expansion and product expansion, which is what we'll talk a lot about today and in future intervals, essentially in a market that has a TAM of over $500 billion, of which we represent about $10 billion. Great. I can ask one follow-up. You mentioned the most amount of partners in the queue. I think, Sanjiv, you mentioned you've got a lot of technology kind of pre-built that allows a much faster onboarding scale. Could you just basically go over that again, describe what you've built and what will allow maybe next year to be one of your bigger years of onboarding? Thank you. Yeah. You're right. Let me answer your tech question first. Again, I'll go back to what Gal said.

What's happened, Hal, is that we've built out all these products: the decline monetization product. In addition to that, we now have the direct marketing engine product, the affiliate optimizer engine product in personal loans. In auto, we have, in addition to decline monetization, fast-pass and the dual-look program. We're going further up the ecosystem. These products are now pre-built and integrated into the Pagaya platform. Now when we go and onboard a platform, these products are already there, and the partner literally has to turn them on. Back to the number of partners, we now have several new partners that we are currently onboarding and several more that we will onboard in the next quarter. These include a mix of all three asset classes that Pagaya represents today.

We have onboarding partners that are in personal loans, onboarding partners in auto, and onboarding partners in point of sale. They include a couple of banks, including a major regional bank, point of sale fintech institutions, and auto mono lines. As we said, I say this very proudly because it sort of took us some time to sort of build a robust product proposition on our platform. We now have partners that are in our onboarding queue for the next six months that are truly the highest we have had in our history, again, as Gal mentioned. In fact, we totally know that we will achieve our guidance of two to four partners a year, both for 2025 and 2026 in the next six months.

I should also mention, Hal, that we are seeing very, very strong demand of cross-selling to existing partners that want to expand into other asset classes. For example, right now, we have one of our biggest personal loans partners that wants to expand into POS, and they intend to be a very significant POS player. We are already in the ecosystem, so we have those discussions, and we will just expand with them. Another major personal loans partner wants to expand into auto. Most interestingly, I should mention that a very significant auto partner wants to expand into our pre-screen personal loans program, which we talked about before. Cross-selling across asset classes with our existing partners is truly becoming a strong value proposition in addition to onboarding new partners. Thank you, Sanjiv. Very helpful. Our next question is from Raina Kumar with Oppenheimer & Company. Please proceed.

Hi. Good morning. Good results here. Could you talk a little bit about what you're seeing in the macro in general, just are you seeing any pockets of weakness or where are you seeing strength? Thank you. Thank you for your question. This is Sanjiv. As I think both EP and Gal mentioned, consumer performance has been very stable. EP said our credit performance is in line with our expectations, and that's certainly the case. I'm sure you're all hearing this across the board from most lenders, and it's what we hear from most of our lending partners whom we check in with regularly. I mean, the fact is that we have 31 lending partners, so we have the benefits of talking to all 31. We also have the benefit of looking at three asset classes.

If there is one deterioration in one asset class, it is clearly a signal for the others that we can take actions proactively. Having said that, we are closely monitoring early-stage credit performance for any downstream impact that we keep hearing about from the Fed or the macro in terms of inflation or the impact of tariffs. So far, credit behavior seems very stable. Maybe I will add to that on the investor side, which is another part that could, from a macro perspective, impact. I think that putting the liberation day, a little bit of over-volatility aside, this year, demand for the different part of the capital structure is very robust. When we look on the spreads of the senior capital stack, it has actually been fairly steady throughout the year.

On the junior pieces, actually came a little bit even tighter, something like 50 basis points, call it January, February versus now. There were points in the market of a little bit of overheating where people just wanted to deploy for the sake of deployment. That went out too. A steady, healthy environment, which actually that's what we love. We prefer that over overheating or overcooling. Definitely, the trajectory of travel is something that we are feeling very confident in. Very helpful. Thank you. Our next question is from Kyle Joseph with Stephens. Please proceed. Hey, good morning, guys. Thanks for taking my questions. You guys talked a lot about product expansion and the ability to cross-sell.

Just thinking about you guys are in three asset classes, and this might be longer term, but are there any other asset classes you could see yourselves expanding into over the years? Hi, Kyle. It's Gal here. Thanks for the question. I will tell you that this question is actually a question we are dealing a lot with, and it has more philosophy rather than the specifics. Let me share with you a little bit how we think about it and the process of what we are seeing in reality. When you think about what's the next so-called asset class, we prefer to call it market, that we are looking to expand into, there are a few must-haves that we need to make sure we're feeling comfortable with before we are going there.

The first one is that the TAM is big enough that when we are doing that, that's actually going to be something that is meaningful. Meaningful for us is things that we believe we can produce $2 billion-$3 billion in a relatively short period of time, which you can think about as the two- to three-year term. The second piece is we need to see that the adaptation or the interest of more than one partner, more than two partners, are actually going through this way because do remember that a lot of the operational heavy piece is not sitting within Pagaya, and therefore, we want to see the best-in-class pieces that are coming to that particular market. If you have only one partner that is doing very well something, it's less of an interest for Pagaya.

If you will see a phenomena of three to four partners that are going into one direction, that is starting to become very interesting for us. The third piece, it needs to be less cyclical or not cyclical. Anything which we believe that is a little bit more cyclical because of relativity of high sensitivity to interest rate, like home equity or refi of auto, is things that we might do a little bit, but not something that will put all of what we call the Pagaya machine behind because when it takes you something to build a year or two or three, and then you are over the cycle, what is the point, right? We are not a trading shop. We are a technology business.

The reality is that to choose it, you need to have a very strong understanding of the financial piece, but at the same time, the understanding of the tech piece of what does it take to build and where is your actually answer. In general, I would say that these are the things that are driving our decisions. Specifically to what we see with the partners, and Sanjiv, I do not know if you want to add any more after that, but I will just give the very high level. Home improvement is starting to be something that we feel is gaining some traction. We see a few partners that are going to adopt and to do that, and therefore, potentially a candidate in the future to think on that. Obviously, we need to see that partners are doing it and doing it properly and to a major scale.

I think the bigger picture is really that the opportunities that are in front of us is really all the consumer credit per se. As we see things that are sticking, growing, and becoming meaningful, you should expect that Pagaya will participate in that capacity rather early on after that's becoming to be institutional. Sanjiv, anything to add? No. I just reinforce what you just said, Gal, which is essentially being very, very disciplined around the criteria that our partners have as the products of the market demands. We are seeing some very consistent, stable demand across some of the things, products that you talked about. We follow a very strict discipline of making sure the TAM is there, that the through-the-cycle performance is there, and there is robust investor demand for those kinds of assets.

They are consistent with what we certainly home improvement credit cards stand out. Having said that, with the new regulatory environment, as you mentioned, Gal, earlier, there is a lot of demand for our existing products from new players. Banks in general are sort of leaning in to growth. We are seeing a very strong demand to stand up brand new personal loans programs for banks, stand up brand new personal loans programs for many of the mono lines, very successful POS mono lines. The focus on the existing business itself, I think, is demanding a lot of our attention. Great. Thanks for taking my question. Thank you. We have reached the end of our question-and-answer session. I would like to turn the conference back over to Gal Krubiner for closing remarks. Thank you, everyone, for joining us today.

As you can see, this quarter record results are truly starting to reflect the benefits of the B2B business model that we worked so hard to build: increasingly diversified growth drivers, responsible and disciplined underwriting, a highly diversified partner and funding mechanism, all with the increasing efficient capital and operating structure that we have. The result is through-the-cycle stable growth and increasing profitability. I'm even more excited about the long term as we enter our next stage of the long-term growth. We have optimized and perfected our product suite and value proposition to maximize the value we provide to partners. We are defining and accelerating our tailored multi-product roadmap for B2C financial institutions from day one. This underscores the organic opportunity for our B2B solutions and has driven a record number of partners in our onboarding pipeline.

We remain laser-focused on the long-term potential of Pagaya and look forward to sharing progress with you over the coming years. Thank you very much, everyone. Thank you. This will conclude today's conference. You may disconnect your line at this time, and thank you for your participation.