Figure Technology Solutions Q2 Earnings Call Highlights

Figure Technology Solutions (NASDAQ:FIGR) reported second-quarter results marked by triple-digit growth in consumer loan marketplace volume, expanding adoption of its Figure Connect tokenized loan marketplace and a higher share of fee-based revenue. Consumer loan marketplace volume reached $4.3 billion, up 132% from $1.8 billion a year earlier and 4% above the company’s guidance range, Chief Executive Officer Michael Tannenbaum said. Adjusted net revenue increased 95% year over year to $218 million, while adjusted EBITDA rose 126% to $119 million. The company reported an adjusted EBITDA margin of 55%, compared with 47% in the prior-year period. GAAP net income was $87 million, up from $30 million a year earlier. Chief Financial Officer Macrina Kgil said the quarter included a $4.4 million tax benefit related to stock-option exercises, while adjusted EBITDA included a $5.9 million realized gain from the sale of a minority investment. Excluding that gain, adjusted EBITDA margin would have been about 52%, she said.

Figure Connect represented 65% of consumer loan marketplace volume in the quarter, rising from 56% in the preceding quarter and 42% a year earlier. The marketplace allows partners and investors to transact through the company’s blockchain-based infrastructure, and management characterized it as the most capital-light of the company’s operating channels. “This quarter marked two years since the June 24 launch of our tokenized loan marketplace, Figure Connect, which now represents 65% of our consumer loan marketplace volume,” Tannenbaum said. He added that the company now expects Connect to approach 70% of volume over the medium term, versus a prior estimate of 60%. The company had 489 partners on its platform at quarter end, up 102 from the previous quarter. Tannenbaum said growth came from independent mortgage banks, servicers, depositories and fintech small-business partners. One new partner joined directly through Figure Connect and became either the company’s largest or second-largest partner depending on the month, he said. Partner-branded volume accounted for 83% of marketplace volume.

Kgil said ecosystem and technology fees became the largest contributor to adjusted net revenue for the first time, reflecting the mix shift toward Connect. Management said the company’s net take rate was 3.6% during the quarter, toward the lower end of its previously discussed 3.5% to 4% range. Tannenbaum attributed the lower rate to Connect’s increasing share of business, the impact of higher interest rates on gain-on-sale revenue and strong year-over-year growth in first-lien loan volume. During the question-and-answer session, Tannenbaum said the decline was not caused by pricing cuts. Instead, he said, larger partners can reach lower pricing tiers as their volumes increase. The company expects take rate to remain near the lower end of its range in the third quarter.

Figure said its underwriting standards have not been loosened amid rapid growth. Kgil said weighted-average FICO scores at origination increased to 756 year to date from 737 in 2020, while weighted-average combined loan-to-value declined to 62.1%. Average loan size increased to $96,000 from $52,000 over the same period. The company said AAA spreads on its HELOC securitization shelf narrowed to roughly 135 basis points year to date from approximately 255 basis points in 2023, across 22 priced deals. Its securitized collateral base nearly doubled year over year to $7.7 billion, while the buyer base expanded from about three buyers in 2023 to more than 100 unique note buyers. Democratized Prime, Figure’s financing platform for loan originators, ended the quarter with $392 million in matched offers.