Pagaya's Q3 2025: Contradictions Highlight Credit Quality, Funding Diversification, and Risk Retention Strategies

Date of Call: November 10, 2025

Financials Results

• Revenue: $350.0M, up 36% YOY (record)
• Operating Margin: Operating income $80M, up 257% YOY; GAAP net income margin 6%, compared to 5% last quarter and -26% in prior year quarter

Guidance:

• Full-year 2025 network volume expected $10.5B to $10.75B.
• Total revenue and other income expected $1.3B to $1.325B; adjusted EBITDA $372M to $382M; GAAP net income $72M to $82M.
• FRLPC expected to normalize at ~4%–5% of network volume while growing in dollar terms.
• Guidance reflects rolling 12-month credit-related impairments of $25M to $37.5M per quarter.
• Core OpEx slightly elevated in Q4 for funding issuance; interest expense expected to trend lower.

Business Commentary:

* Strong Financial Performance and Profitability: - Pagaya Technologies Ltd. (PGY) reported a record quarterly network volume of $2.8 billion for Q3 2025, with a 19% year-over-year increase. - The company achieved GAAP net income profitability with an exit rate over $120 million annually. - Growth was driven by consistent revenue generation, disciplined expansion with existing partners, and increased network volume from new partners.

• Product and Partner Growth:
• Pagaya is experiencing the highest number of partners in its onboarding queue, with up to 8 partners across different asset classes to be onboarded in the coming months.
• POS and Auto segments now represent 32% of total volume, up from 9% a year ago.

• This expansion is attributed to refined product strategies, such as the adoption of the Affiliate Optimizer Engine and Direct Marketing Engine, and the onboarding of new partners.

• Diversified Funding and Capital Efficiency:

• Pagaya issued $1.8 billion in ABS programs across four transactions in Q3, with a focus on diversifying funding sources.
• The company raised $500 million in corporate debt, lowering its cost of capital by approximately 2 percentage points, now at 9%.
• Improved capital efficiency is due to strategic funding agreements and the expansion of the corporate revolver.

• Credit and Risk Management:
• Credit performance remained stable with personal loan cumulative net losses trending 35% to 40% lower than peak levels.
• The company achieved strong demand for its ABS and secured new forward flow agreements, indicating investor confidence.
• Pagaya's conservative underwriting and risk management strategies have enabled it to maintain credit discipline amidst market volatility.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted record results: "total revenue... rose 36% to $350 million," "Adjusted EBITDA increased 91% to a record $107 million, margins expanding to 30.6%," and "GAAP net income of $23 million" (third consecutive positive quarter), while emphasizing strong onboarding momentum and diversified funding.

Q&A:

• Question from John Hecht (Jefferies LLC, Research Division): Can you give perspective on credit quality now and borrowers' ability to manage credit?
  Response: Credit is performing well and within expectations due to a conservative underwriting posture year-to-date; the B2B model mutes cycle volatility and potential impairments have been reflected in guidance.

• Question from Peter Christiansen (Citigroup Inc., Research Division): How has your risk-retention strategy evolved with strong ABS demand and how might it change if volatility increases?
  Response: Funding is diversified (roughly 60/40 ABS vs other structures); ABS demand and ratings are strong and the company is well positioned to increase risk retention if needed given improved cash-flow generation.

• Question from Peter Christiansen (Citigroup Inc., Research Division): Can you speak to traction in the forward-flow pipeline and with flow partners?
  Response: Traction is strong—Pagaya has expanded forward flows from personal loans into auto and continues to add partners, targeting a longer-term ~50/50 split between ABS and other structures like forward flows.

• Question from Harold Goetsch (B. Riley Securities, Inc., Research Division): How is Pagaya's B2B2C model different from B2C lenders that must spend heavily for new customers?
  Response: Pagaya is a B2B platform focused on growing partners' businesses via long-term contracts and multi-product adoption, reducing dependence on cyclical marketing-driven volume increases.

• Question from Harold Goetsch (B. Riley Securities, Inc., Research Division): What prebuilt technology enables faster onboarding and scaling next year?
  Response: Multiple products (decline monetization, affiliate optimizer, direct marketing, FastPass, Dual Look) are prebuilt and pre-integrated, enabling partners to 'turn on' capabilities and accelerating onboarding across personal loans, auto and POS.

• Question from Rayna Kumar (Oppenheimer & Co. Inc., Research Division): Are you seeing any macro pockets of weakness or areas of strength?
  Response: Consumer credit performance is stable and in line with expectations across 31 partners and three asset classes; investor demand and senior spreads remain steady, underpinning funding robustness.

• Question from Kyle Joseph (Stephens Inc., Research Division): Are there other asset classes you could expand into over time?
  Response: Expansion discipline: target markets must have meaningful TAM (~$2B–$3B), multi-partner adoption and low cyclicality; home improvement noted as an early-area of interest but focus remains on scaling existing products first.

Contradiction Point 1

Credit Quality and Consumer Ability to Manage Credit

It involves differing perspectives on the current state of credit quality and consumer ability to manage credit, which could impact investor perceptions of Pagaya's risk management and financial stability.

What is your view on current credit quality and borrowers' ability to manage credit? - John Hecht(Jefferies LLC)

2025Q3: Credit performance is well within our expectations and reflects our conservative underwriting approach. We've positioned ourselves for potential volatility. - Evangelos Perros(CFO)

How is consumer credit health in Pagaya's portfolio and what's the path forward? - Sanjay Harkishin Sakhrani(KBW)

2025Q2: Credit performance is strong, with disciplined underwriting and strategic process improvement. Credit quality remains solid, and Pagaya is cautious yet tactical in expanding its credit box. - Sanjiv Das(Co-Founder & President)

Contradiction Point 2

Diversification of Funding Structures

It highlights a discrepancy in the reported level of diversification and progress in Pagaya's funding structures, which could affect investor views on the company's financial flexibility.

How does Pagaya origination demand compare to last year, and how is your risk retention strategy evolving? - John Hecht(Jefferies LLC)

2025Q3: The demand for Pagaya's origination is robust and has diversified from ABS to other structures. Our ABS now has AAA ratings, enhancing our funding flexibility. - Gal Krubiner(CEO, Co-Founder & Director)

How does the successful bond offering impact Pagaya's capital structure and growth prospects? - Peter Corwin Christiansen(Citi)

2025Q2: We have successfully issued a $650 million non-callable subordinated bond. This bond issuance is transformational, providing risk reduction and cash savings. It enhances Pagaya's ability to access capital in a nondilutive way and offers credibility through rating agency scrutiny. - Evangelos Perros(CFO)

Contradiction Point 3

Risk Retention Strategy and ABS Ratings

It involves the company's approach to risk retention and the ratings of its Asset-Backed Securities (ABS), which are crucial for investor understanding of the company's financial strategy and risk management.

How has risk retention changed or evolved in the current environment? - Peter Christiansen (Citigroup Inc., Research Division)

2025Q3: Demand for Pagaya's origination continues to be robust, and we have diversified funding across products. Our ABS is AAA-rated, and we are well-positioned to manage any changes in risk retention. - Gal Krubiner(CEO)

What are the key drivers of your addressable markets in personal loans, auto, and POS, and what are you seeing in capital markets regarding pricing changes? - Jake Kooyman (Oppenheimer)

2025Q1: We are currently looking at finding ways to diversify the ABS bucket to bring more visibility to our funding structure beyond ABS. Some of the ways we are thinking about it is by looking at structured settlements, other types of funding transactions, you know, more in the asset-based lending. These things might create more kind of visibility and transparency throughout the balance sheet. - Gal Krubiner(CEO)