Figure Technology Solut-cl A Aktie

All right. In the interest of time, let's get started here. Good afternoon. My name is James Yaro. I cover brokers, crypto and investment banks and Goldman's Equity Research division. With us, we have Michael Tannenbaum. CEO of Figure, a position he took over in 2024. He [indiscernible] the company through its IPO last year and have seen tremendous growth since and it's driven by an innovative approach to HELOCs and increasingly other asset classes. So thanks for being here, Michael.

Thanks for having me.

All right. So look, the business has evolved pretty quickly from a direct HELOC originator into a much broader capital markets platform, update us on what Figures building today and some of the long-term goals.

First of all, as I said, thank you for having me. It's been a great conference so far. Figure is a company really focused, as you mentioned, on the capital markets, and particularly, we're a first mover to the future of the capital markets on blockchain. We're the market leader in what's known as a real-world asset tokenization.

And what we mean specifically by that is especially in home equity, where we do about $1.7 billion of volume through our marketplace, a month, our 500 partners are using our technology to originate mortgage assets those assets are on a blockchain that reduces the cost to originate, reduces the cost to trade and are traded in a very liquid capital market that offers whole loan and securitization sales to those 500 partners.

And in the process of that loan manufacturing process, we save about $11,000 out of a $12,000 cost to originate and we save a ton of time as well. So it's about a 5 -- as fast as 5-day process versus industry 45. So it's a really fast-moving process that has created a very standardized capital market, and as you mentioned, James, it's a capital market that is now increasingly being used to standardize other asset classes, particularly in consumer finance and asset-based finance more broadly.

Perfect. So maybe you could just talk about the top 2 or 3 key strategic initiatives over the next, let's say, 12 to 24 months for the business? .

Sure. So we see a tremendous amount of growth in our core mortgage opportunity. There's $2 trillion of mortgage outstanding and we do about $20 billion a month. And then we also see about an opportunity in other asset classes as we mentioned. So we started in both auto and in small business. And just to be clear, those are -- we're not originating auto loans, we're not originating small business loans but we're taking third-party assets and standardizing the rails and offering capital markets as a service to those asset classes.

So you have, as I mentioned, growth in the core mortgage where we see about 100x opportunity as well as bringing other asset classes onto the platform, both of those are fueling that over 100% revenue growth that you're seeing in Figure over the past couple of quarters.

All right. So maybe let's turn quickly before we get into some of the business details the competitive landscape, how it's evolved since the IPO, which is almost exactly a year ago. And I guess, as you add new TAMs and potentially new competitors. And then maybe just on your competitive mode as well.

Sure. So increasingly, Figure is moving more towards an exchange-like business model. And you should think about our differentiation in our moat from that context -- or in that context. And so specifically, we're the first mover in the home equity space. There's $35 trillion of home equity outstanding, we're the move in the market leader there. And increasingly in this rate environment, everybody wants to have a conversation about home equity. And that -- and we're making hey, while the sun is shining.

You also have a dynamic that creates a lower cost of capital as more and more volume goes through our platform, investors like buying assets in bulk, and as we grow and as we do more and more AAA securitizations and become more of a repeat loan platform for investors the cost of financing comes down and spreads come down. And so what that means is every margin alone that we do is done more cheaply and provides this flywheel effect, and that increases our first-mover advantage.

We see more broadly, capital markets are moving more towards tokenization. There's every bank conversation, every boardroom every capital markets company, that's your focus area, is talking about the future of the capital markets moving on chain even as people are regardless of enthusiasm for Bitcoin or Ethereum, there is absolutely a movement towards tokenization and we are the market leader there. And as more banks start to form consortia for tokenized deposits as an example, we're there to provide the assets against those tokenized liabilities as an example.

So all of these things, these first-mover marketplace style advantages, these flywheels create a competitive moat for us more broadly, right? But then specifically, where I kind of look to when I look at Figure's, competitive advantages, is, one, the Fannie Mae ecosystem where Figure is very competitive. And Fannie Mae has done a lot on the first lien space of standardization and tools and technology and capital markets liquidity, we have done that in the second lien space, right?

So if you were in home equity today, you look at FIGR as that standardized capital market you look to us for liquidity, and it's actually driving conversations even with depositories, for example, who may not necessarily want to adopt our origination technology, but they see the opportunity to use our capital market as a way to offload exposure to mortgage. Mortgages are 30 years, and that's a long time even for a bank.

And so people are looking at Figure as the standardized way to access liquidity and for mortgage assets and increasingly other assets.

So I think you alluded to it a little bit, but this is really the third straight year where you're seeing an acceleration in origination partner growth. I guess, what are the catalysts for that? Is it brand recognition? Is it volumes being bigger, other factors? And I guess has the time to ramp up a new partner changed at all?

There's a bunch of different go-to-market motions that we have that are fueling the growth for Figure. Some of those were set forth years ago, some are new, and in general, I came to the company 3 years ago, as you mentioned, and I brought a lot of kind of B2B sales rigor to our process. And the sales cycles that we have range from a couple of months to many years.

And so you're seeing the fruits of some of that -- those efforts start to develop now and in past months, and we see a very robust pipeline. We break out our partner opportunity set across a couple of different dynamics. One is what you would call mortgage banks, independent mortgage banks to is servicers, so people that service loans and can offer home equity on top of those existing loans. Three is depositories where we started to have a lot of growth we announced in our -- in May, our partnership with Flagstar Bank, which is a publicly traded bank, and that's unlocked a lot more depository conversations.

We're also having conversations with small business lenders who we've now built a $500 million run rate volume business in that space. And we're also seeing in fintech and home improvement really big opportunities for us to grow as well. So there's a bunch of different verticals each within their own respective levels of maturity that are starting to come to fruition and fuel that origination partner growth, which is then fueling volume growth. But I'll also add that within those 500 partners that we have, there is significant opportunity for upsell. We don't have nearly 100% penetration. In fact, for those partners, we're under 10% penetrated in their business. and especially as we're now having more of a moment in home equity, given the rate environment, we are earning our way into the CEO and executive level conversations to talk about expanding our business with our partners.

And I think we shared in our most recent earnings, it's like a 60-40 dynamic new growth versus existing, especially as people adopt Figure Connect that capital-light marketplace that's now 65% of what we do as of Q2.

So you brought Figure Connect, I thought it was really interesting what you said on our last earnings call about how new partners are onboarding directly into Figure Connect, and that's obviously a new phenomenon. why is this occurring? What does it mean to go directly to Connect? And maybe you could talk about that in the context of the speed to ramp up volumes or in terms of the volumes themselves.

Yes. And for the audience, Connect is the dominant way in which partners interact with Figure today. It's 65% of our volume. We've guided to near term to 70%, and that number continues to grow. Figure Connect means that a partner for Figure uses our technology, originates loans on their license with their balance sheet and capital and then sells the loan into the capital marketplace and we just collect a rate or take a big on that. It's capital light, and it's increasingly where we've gone.

Again, as we build towards that exchange for tokenized assets and the related trading. And when we launched our business, we always anticipated a trajectory, which would start with Figure as an intermediary, meaning we would buy the loans and then quickly sell them -- but what we're starting to see, as James mentioned, and particularly in recent months, is large partners going direct to connect and moving that percentage of connect volume as a percentage of total to higher amounts than we anticipated at our IPO, which was only a year ago, we guided to 60%, and we've already gone through that.

And the reason is, Connect from a value proposition standpoint is very attractive for partners. They're earning more of the economics, and it's much more of the business we want to do, given it's capital light and given its high margin. You've also seen the company's margins post IPO scale well into the 50s on an EBITDA basis. And we're continuing to focus on connect and bring people into Connect, but I like to clarify, our #1 North Star's volume. And so we want to be a partner regardless of how the partner wants to work with us.

So if someone wants to start and they're not ready to go to Connect for a variety of reasons. They don't have the licensing, not comfortable, don't have the capital, then we're happy to serve them. And increasingly, I was meeting yesterday with 1 of the largest warehouse lenders on our platform. And they -- that's an example where an ecosystem is building a round Figure. And so today, if you want to go to connect, we actually have warehouse partners, including our own proprietary product, democratize PRIME. But we also have third-party warehouse lenders like Texas Capital, like Western Alliance that lend against the Figure ecosystem and offer warehousing.

So we're starting -- which is something that really only Fannie Mae has today, right? And we're starting to have financial partners that lend against Figure assets and make the onboarding to connect more easy because these partners don't have to use their own capital, they can use the warehouse lending.

Right. So I'm going to turn back to the 65% of consumer loan volumes that are on Figure Connect and you increased the target to 70%. But obviously, that's not that far away. So maybe you could just talk a little bit about the aspirations for what that proportion could be? And I guess, are there any constraints on what it could eventually be over time?

Well, I think as we move more to -- like I think the growth, especially '27, '28 for Figure, we don't see anything slowing down in the core mortgage market, right? We've continued to outperform analyst expectations, investor expectations. If you look back at our IPO because we just actually were back at NASDAQ, celebrating our 1 year, and we were looking kind of at the numbers that we put out a year ago, and we've blown through those.

And nothing is slowing down from that perspective. But as a mix, we're seeing increasing momentum in third-party assets trading on Figure Connect. That is going to be the way if we think about the entire capital markets as the price we're -- we don't want to wait for 6 to 2-year sales cycles to get there. We're going to have to support the trading and the standardization of third-party assets as well. And that is going to take the ultimate percentage of -- that's all Figure Connect. And so you're going to see Figure Connect continue to grow as that part of the business grows.

And for those students of our P&L in the audience, that will mean that the ecosystem fees that we capture as a percentage of total revenue will continue to go up. And that's really the growth. And I think in our most recent quarter, ecosystem fees became the single largest P&L line item for the first time ever.

I want to turn in a second to some of the new products that you're adding, but 1 more on the core home equity business. First lien HELOCs, now comprise roughly 20% of volume, that's what are the key components of first lien HELOC today? And I guess where are you seeing the most traction in that bucket?

Yes. So we grew first lien business 3x year-over-year in Q2. So despite so much attention now [indiscernible] being paid on second lien because of the rate environment, first lien is firing on all cylinders for us. And the first lien story for Figure is a cost story. So our partners that do $100,000, $200,000, $300,000 loans, first lien loans, traditional mortgages, they're paying, on average, industry average, $12,000 cost to produce. So $12,000 on a $200,000 loan is 6 points, which is from a regulatory basis, you're only allowed to charge 5 points of fees.

So you basically have to make up for all of that on gain on sale, which is challenging because then that means the rates need to be higher. So our low-cost production engine, which does a mortgage in under $1,000 is a very natural place for traditional mortgage origination to turn when they're looking at $100,000, $200,000, $300,000 loan balances. And that is the pitch we use home equity as a wedge and we earn the right to that smaller balance origination.

And that business is booming for Figure despite the rate environment because of the low-cost nature of what we do, we're taking market share there from the Fannie Mae ecosystem and all in the first lien production that we do, and that continues to be a big part of our business. As a reminder, right? There's $35 trillion of home equity that I've mentioned. And we are -- people are using our product not only to take out money for home improvement or to refinance existing mortgage, but they're also paying off high rate credit card debt, high rate student debt, high rate auto loans. And as rates go up, all of the rates are going up. And so the value of being able to borrow against home equity over 30 years, which is going to be the lowest payment and against the most attractive collateral, which is the home is actually going to be more manifest in a higher rate environment.

So we're seeing some of those dynamics in the first lien space as well.

Okay. So let's turn beyond the core HELOC product. So you've expanded into SMB, auto, DSCR, RTL loans. Just at a high level, how are you thinking about further product diversification? What are the key metrics that you think about when you're determining whether a product is a good fit for the platform? And then just how do you decide between an organic build, a partnership or an acquisition?

Sure. Fair amount of questions there, so I'll take them 1 by one. Let's start with the diversify. I just want to make sure clarify the diversification in other asset classes is a little different than what we're doing in the mortgage space. So in auto and in small business, we are working -- when we're standardizing those asset classes, we're working with people that are doing their own origination, their own underwriting, and we're taking those loans, we're tokenizing them and standardizing the way that they trade and are securitized.

So it's sort of capital markets as a service, we're not getting into auto origination. We're not getting into small business origination. In the small business space, small business brokers do use our home equity product as an alternative to their business mix, but that's just our home equity business. So I just want to clarify that.

In terms of -- you mentioned residential transition loans also known as fix and flip as well as DSCR we bought a company called [indiscernible] , we closed last week. That is our bet in that space now. So while we were experimenting with different models, they're the market leader in that industry, 25% of housing stock in the United States is owned by investors. So this is a huge market. [indiscernible] the market leader.

As I mentioned, transaction closed last week. They have 10% market share, the next best competitor has 2%. And what they -- their secret sauce is being able to lend above 100% loan to value. So what [indiscernible] has done since 2013 when they were started and they've done it with about 50 basis points of losses as originated loans that are either home improvement, fixer upper adding an ADU, which is really popular here in the West Coast, these type of loans where you're going to increase the value of the property, they're an expert in doing that.

They have the capital market support and the data and the technology to do all that. We bought that. We can put that on top of a HELOC. It's a very differentiating because 40% home equity loans are done for home improvement purposes. And 1 of our biggest decline reasons is loan to value. People that bought a home 1, 2, 3 years ago, don't necessarily have the equity, so they may be turning to a personal loan or to a home improvement loan.

And now we can offer that through the Figure ecosystem through all our partners, and Kiabi unlocks that. So big opportunity there. And that's where we see a lot of the diversification efforts from our products, both first party and third party.

I want to turn to Kiavi and since the deal just closed, but I just wanted to ask firstly about the synergies that you're seeing from these new asset classes, but really in terms of the originating partners what's the dialogue with those in terms of what they might originate on Figure and I guess, cross-sell opportunities to buyers as well?

Yes. So the -- when we announced the transaction, we announced an under 4-year payback period and about $100 million of EBITDA, and in that contribution from the acquisition, and purchase price was around $537 million per Figure, and then Six Street bought the balance sheet with us.

And when we announced that transaction, we actually assumed in those numbers a decel in their growth. So we're being very conservative. But based on the dynamic I just shared as well as the more fundamental dynamic of Kiavi was a classic fintech in that they had a special secret sauce and they kept that for themselves and their customers. which is very different than the Figure approach, right? The whole nature of Figure Connect is us taking our proprietary technology and offering it to a broader marketplace and that has fueled growth. You see that in our results, and we're going to do the same thing with Kiavi.

So people are already -- partners are already reaching out to us saying, "I want their DSCR. I want their fix and flip, how do I get access to that." And we are making it available on both a brokered and a private label basis within the Figure marketplace, Figure Connect not on our balance sheet, similar to what we do in the home equity space, but again, standardizing those rails and offering them the same benefits of tokenization, which you're going to include data attributes being put on chain as well as using DART to prevent the loan from being double sold or double pledge, which is a huge value proposition to investors.

And we expect more and more volume on Figure Connect and investor demand accordingly.

So Kiavi had $7 billion of loan volume last year. I think it seems like that's what you think is achievable in the near term. But maybe just comment on what success looks like for you for Kabi 1 to 2 years after the deal?

As I mentioned -- yes, well, as I mentioned, you have 25% of the housing stock being investor owned. So that's huge. And we think that often in the investor world, you're competing with cash much more so than in the consumer world. And it's one, very diversifying in terms of the interest rate environment, so much of Figure has been focused on a world where rates come down, and we focused a lot on first lien and Kiavi also bolsters that.

Obviously, in today's market, rates are going up, which has been kind of the status quo for Figure and where we've thrived. But I think success for us is, one, the diversification. But to that growth into that 25% of the investor market as we continue to standardize these asset classes and bring them onto our rails that growth from us and our partners is really going to be the metric that we focus on.

All right. So maybe digging 1 level deeper on Kiavi. So Kiavi loans especially the RTL loans are shorter term, but they do have sticky recurring customers. You're talking quite a high percentage of recurring customers..

over 50%, I think.

Right. So maybe you could just walk through the economic model for Kiavi and I guess the impact on your profitability?

Sure. There's not -- so we talked a little bit about this in the transaction announcement. But at a high level, with Kiabi, what we did that was very powerful is purchase the platform alongside Sixth Street. And so when the -- when loans are opportunities come to Kiavi from a recurring borrower basis, right, someone that does multiple fix and flips a year, which is a lot of people. that opportunity comes to Figure and actually Six Street is going to be paying an origination fee and for the loan that will be crystallized by Figure in our ecosystem fee line item. -- and then Six Street will be selling the loan into Figure Connect. So it's almost as of day 1, we already have the vast majority of the Kiavi business on Figure Connect because of that JV with Six Street.

And what that allows us to do is continue our capital-light approach and our marketplace approach to all of the mortgage space and then very naturally offer the same technology to the other 500 originators. And you should expect a similar dynamic where we earn ecosystem fees as they sell those loans into the capital market.

Let's turn to Agora. What is the early -- the experience been so far bringing auto assets onto the platform. Maybe you could just update us on the -- at a high level on the growth, the partnership and I guess, how that's impacting Connect and Democratized Prime.

Yes. And to Democratize Prime is our short-term, basically warehouse lending alternative that Figure provides. We provide the rails and capital partners use the rails to earn yield and borrowers or fintechs and other originators use it to borrow against their assets. And so we built those rails and we started in the home equity space, which is our bread and butter and then we expanded to auto. And I think before we even get to auto, it's worth mentioning just the opportunity we have in home equity there which is that lots of parties that may not use the Figure origination technology still want access to the Figure capital market.

And I mentioned banks as being an example of that. And we also have, for example, the jumbo mortgage space today, which Figure doesn't play in, we have a conversation tomorrow with a large jumbo originator that's looking to access Democratized Prime as a way to use as a warehouse line because they're seeing rapid growth. It's a fintech in that space.

So this is a big opportunity for Figure, and it's 1 that translates from home equity where we have market leadership now to auto. So Agora is the partner that we announced in the auto space. That's the first partner that we named. And they are known for being an auto originator themselves working with dealers, and they basically outsourced their capital markets to Figure. So you see this dynamic within tech,- fintechs especially, but smaller originators. They don't have the wherewithal or the technology or the scale, frankly, to maintain a robust capital markets program or a securitization program.

And they're essentially outsourcing that to Figure. We've announced that we plan to do a securitization in the auto space with Agora assets. It will be the first securitization of tokenized auto loans done. And that's something we hope to do in early Q4. And once we do that, that should unlock a much lower cost of capital for those loans and also serve as a hallmark to investors and borrowers and originators in that space because it will be a more public offering with kind of priced debt that will then set the benchmark for where the future can be in terms of capital market.

And you see, for those of you that are familiar, kind of with the fintech industry, securitization is often a watershed moment for an asset class or for an originator and then they can kind of expand from there. So we're really excited about that.

There continue to be questions that I get from investors around the take rate. So I wanted to touch on that a little bit. Could you break down the take rate evolution between 3 things, mix shift, and I guess the impact of lower take rates in first lien as well as some of these other asset classes we talked about, pressure from originators receiving volume-based discounts, which you alluded to on the call. And then thirdly, any other impacts we should be thinking about?

Yes. So the take rate has been an output of our strategy to move more towards and exchange capital-light business model. And as you've seen Figure Connect go from 0 to 65 in a 2-year period, that is the lowest take rate of the 3 origination channel for Figure, 1 being our own direct-to-consumer, to being Figure as intermediary and three, being Figure Connect. So it's very much an output of that strategy. That's the #1 contributor to the take rate evolution over time.

And something that we support, right? We want to move more towards that capital-light, high-margin business model that does happen to have lower take rate, but it's an output of that strategy. The second thing that we see, as you alluded to, is our partners, I wouldn't use the word pressure, I would say that our partners are hitting higher volume tiers. And as they're doing that, the blended ecosystem fee that they pay goes down. And we're seeing, frankly, lots of success with some of our larger partners. And as a result, they hit those contractually mandated lower volume tiers, although we also -- and I just want to clarify this, most of our contracts, if not all, have some minimum level of ecosystem fee as a percentage of volume.

So it's not to say that as the largest partners do the margin alone, the marginal take rate drops. That's actually not how it works. It's just that more and more partners are hitting some of those marginal those like lowest tier ecosystem fees, which we view as a positive. We view volume as our North Star, and we are absolutely focused on kind of continuing to grow, and we've been growing both top line and margin really nicely throughout the past year.

And then you mentioned on first lien, we do actually offer a slight discount to ecosystem fee to origination partners that do first lien with us to incentivize what is a much larger percentage of the $2 trillion annual mortgage origination market is first lien, and we want partners to lean in there. So we offer some brakes there. But what we've said publicly is that in Q2 -- excuse me, in our Q3 earnings, we want to provide more clarity about the take rate and what investors should expect going forward, especially as we have now Kiavi at 40% of our volume -- and also this dynamic, as you've been mentioning, with third-party assets, where if we do a securitization of third-party loans that will, of course, impact ecosystem fees, which impacts take rate, but the denominator there is a bit unclear because technically, you could imagine that's "lower take rate" business, but obviously, every investor in the audience would want us to do more of that business, not less because it's high margin and attractive from a capital markets perspective.

So let's turn to the adjusted EBITDA margin, which I know is something that you've talked about as it relates to take rate or I guess, contribution margins, but the adjusted EBITDA margin was 55% in the second quarter. As you noted, it's up substantially since the IPO. Help us think about incremental margins for the business and I guess, relative to that 60% plus medium-term target?

Yes. One interesting way to look at it is even at the lowest ecosystem fee tier that we're doing on Figure Connect, you're still going to see incremental margins north of where we're printing today. So meaning that every marginal loan going through Figure is attractive on an EBITDA contribution basis, and we'll continue to do so. So we're benefiting from scale when we bought Kiavi, we were clear that we wanted to maintain that 60% medium-term margin target.

And as I've referenced a number of times in this conversation, exchanges, we look at their relative contribution margin as we start to look much more like an exchange and less like an originator, which was our roots, you can see that in the EBITDA margins that we're able to produce and the marketplace style transaction economics that we deliver. And that has been a focus for us. And incrementally, a lot of the innovation, the moves towards third-party assets, all of that is building and guiding towards that marketplace model.

All right. So we have a couple of minutes left here. So I just wanted to give you the opportunity to -- as we close, just talk to investors about what you think investors are misunderstanding about Figure.

Yes. I think that the sometimes the investors focus too narrowly on the home equity market and think about, well, how does Figure diversify. And I think the diversification comes not only inorganically from Kiavi, which is obvious, right, introducing market leadership in multiple asset classes. But it's really important to think about the -- it's actually relevant from our Q2 earnings. We talked about the Home Mortgage Disclosure Act data.

And when companies adopt Figure, they grow their home equity business 2.6x faster then they were doing prior to adopting Figure, which is enormous, right? I mean, if you look at these people, these aren't people that double their business. And here, our average partner probably grows 5%, 6% a year, maybe with GDP, if not slightly higher.

And the reason they're able to do that is because we're doing something very fundamentally different, the home equity business is not the right way to think about Figure because of that statistic, you should be thinking about that broader $35 trillion and the broader opportunity to standardize the capital markets bring liquidity where it has not existed. People are transforming their businesses with Figure.

And when you kind of listen and talk to our partners and look at the stories that we shared at earnings or in our podcast or any of the opportunities that we give investors to hear from our partners, you see how transformational what we are doing, not only from a technology standpoint, but also from a liquidity standpoint, right? There has never been this level of liquidity and standardization in an asset class like this. And we're coupling that with great technology today alone, we announced a partnership with Sierra, as you may have seen, where we're offering all AI loan officer assistant to our partners that do a lot of volume with us -- and the reason that, that assistant is able to go end to end and close alone is because of the simplicity of our platform and the connection between the capital market and the technology that we offer.

All right. With that, we're out of time, but -- that's great, Michael.

Thank you, James.

Appreciate it.

Thank you all.

Good morning, everyone. Welcome to the Figure Technology Solutions Second Quarter 2026 Earnings Conference Call. [Operator Instructions] And lastly, today's call is being recorded. I would now like to turn the call over to Mr. Bryan Michaleski, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to Figure's Second Quarter 2026 Earnings Call. My name is Bryan Michaleski, Head of Investor Relations here at Figure. Joining me on today's call are Michael Tannenbaum, Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer.

Before we get started, I'd like to note that in today's call we'll refer to certain non-GAAP measures. These measures have been reconciled to their GAAP equivalents in the earnings release we issued earlier this morning as well as in the appendix of the supplemental slide presentation posted to our website. As a reminder, non-GAAP measures are not intended to be a substitute for GAAP results. I'll also highlight that certain comments made during today's call may be considered forward-looking statements under federal securities law. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, could cause actual results, events or circumstances to differ materially from those described in these statements.

Please note the risk factors we've identified in our most recent 10-Q and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law. Recording of this conversation will be made available on our website following the conclusion of this call. Following the conclusion of the prepared remarks, we'll open the line for questions.

And with that, I'll turn the call over to Michael Tannenbaum. Michael, please go ahead.

Thank you, Bryan. Good morning, everyone, and thank you for joining today's call. Figure delivered another great quarter as more and more partners see our vision for bringing the capital markets on chain. As previewed in July, Figure generated $4.3 billion of consumer loan marketplace volume, beating the top end of our guidance by 4% with 132% year-over-year growth. This was our strongest ever quarter, and we've seen continued strength in Q3, with application volumes on our platform surpassing $1 billion per week for the first time in early July. The continued rapid growth extends to our origination partner ecosystem as well.

We now have 489 partners on our platform, up 102 from last quarter, with growth across all segments, including independent mortgage banks, servicers, depositories and fintech SMB. Importantly, recently closed partners are ramping faster than we traditionally see, aided by our investments in AI-enabled onboarding processes, thereby proving the scalability of our model and the value we drive for partners. Overall, our flywheel is spinning faster and our blockchain-based infrastructure and marketplace advantages are compounding. Prospects are hearing about the benefits of our disruptive capital marketplace and our liquidity that's soon approaching what they get from the likes of Fannie Mae.

The volume is improving our execution and pricing, adding loan buyers and in turn, attracting more prospects. The investor side of the marketplace is also building momentum with large demand. Our recent prefunded securitization is a great example, where investors committed to purchase the bonds on our platform before loans were originated, a testament to their confidence in the standardized nature of Figure production. Investors continue to join the platform and appreciate our strong credit quality, the transparency and speed of our investor reporting and the reduced third-party diligence cost characteristics of our platform. Not only do we have nearly 100% revenue growth, but we are accomplishing this with over 50% EBITDA margins. Our EBITDA margins were strong at 55% this quarter, reflecting the growth of the capital-light Figure Connect marketplace and our ongoing commitment to capital discipline.

We are continuing to make progress towards our medium-term goal of 60% margins through the growth of Connect and the operating leverage inherent in our business model. This growth and margin profile puts us at a Rule of 150 in the Rule of 40 investor framework. This quarter marked 2 years since the June '24 launch of our tokenized loan marketplace, Figure Connect, which now represents 65% of our consumer loan marketplace volume, up from 56% last quarter. This is very material growth, especially considering that aggregate volume is growing 130% plus. That 0 to 65% in just 2.0 years. Turns out, when you build a better highway on chain, capital moves at high speed. As a result, more of our growing volumes are generated off balance sheet, again, demonstrating the momentum of our partner flywheel.

Growth in Connect has been broad-based with both new partner additions and expanding wallet share with existing partners. In terms of new partners, our trend has been increasingly aggressive. At the time of our IPO, we had around 250 partners, which then was roughly 3 years after being in the B2B business. And recent quarters have been 307, then 387 and now 489 this quarter. One new partner in Q2 onboarded straight to Figure Connect and has already become the largest or second largest partner we have depending on the month. Importantly, most whale-sized new partners are going direct to Connect, which means lots of incremental volume is skipping the Figure as intermediary phase. This gives us an updated line of sight to predict that Figure Connect is likely to approach 70% of volume in the medium term rather than our previous estimate of 60%.

Each point of mix shift to Connect reduces balance sheet usage, increases fee-based economics and builds towards our medium-term 60% EBITDA margin goal. We've said before that we're a company that does what we say. We don't just whale watch. We bring the whales and we bring them into Figure Connect day 1. Take rate for the quarter was 3.6%, towards the low end of our guided range. We know take rate is an area of focus for investors, so I'd like to dedicate some time to addressing the contributing factors. For Figure, take rate is an output of our strategic focus on accelerating our growth flywheel rather than a metric we manage to. The results I've just shared in terms of volumes, partner network expansion, migration of channel mix towards Figure Connect and our adjusted EBITDA performance all demonstrate strong execution towards that objective.

The take rate performance reflects this in a few ways. First, Figure Connect has the lowest take rate of our 3 channels, although with strong contribution margin and the least capital intensity. We now have our largest partners going direct to Figure Connect, which is a favorable dynamic to our business, although at the trade-off of take rate and was not a dynamic we anticipated to accelerate this quickly when we gave the initial take rate range. Second, interest rates rose meaningfully in the quarter, which hurts our gain on sale and therefore, impacts take rate. And third, we previously mentioned that first-lien loans typically have a lower take rate. And this quarter, we saw a 3x growth year-over-year in first-lien volume, although at a flattish mix quarter-over-quarter.

As we expand our first-lien origination volumes, it's likely to be a modest headwind to this metric over time. As we're nearly midway through Q3 today, our expectation is that the combination of these dynamics will keep the take rate at the bottom end of the guided range in the current quarter. Stepping back, when we set pricing with our customers, we focus on contribution margin, which includes operations and support costs and therefore, better reflects our total earnings power for each dollar of marketplace revenue. This strategy is working, and this is the first quarter in which ecosystem fees are the largest line item on our P&L. This is consistent with our strategic focus on increasing our scale and the network effects from our flywheel, including asset classes to our marketplace -- including adding asset classes to our marketplace.

To that point, as Kiavi closes later this year, this will add a new dynamic to take rate. We're taking a closer look at this with the goal of giving you a better aligned way to measure our success as we build out the platform with a focus on unit economic margins. More to come on that.

Figure Connect's growth is also leading to growth in Democratized Prime. These are 2 complementary layers of the same capital market stack designed to serve our partners at every stage of their financing journey. First, Figure Connect fast tracks our ability to launch new asset classes, adding auto, small business and third-party home equity alongside our core HELOC product without needing to build the origination engine ourselves. This expands our platform breadth, adds diversification and attracts deeper capital supply.

Second, that increased supply systematically drives down borrowing costs across the platform. Origination partners can leverage Democratized Prime as a flexible, modern warehouse facility to aggregate loans, benefiting from streamlined onboarding, significantly reduced operational friction and rates that are closely competitive with legacy warehouse alternatives. Ultimately, growth in Figure Connect fuels growth in Democratized Prime, making it a key value proposition for the broader Connect ecosystem. Given the growth and maturity of these dynamics, we're moving quickly to launch the next phase of this initiative, which includes long-term capital takeout via whole loan sales and securitizations for non-Figure assets.

Similarly, every partner we acquire is an upsell opportunity as we add more products like residential transition loans and DSCR with Kiavi. Our Kiavi acquisition will only serve to strengthen partner interest as their market-leading RTL technology was previously not available as a private label marketplace offering and many prospects have, therefore, expressed excitement. We have started to receive key regulatory approvals for the transaction and anticipate closing by the end of this year. This was a very attractive transaction with an under 4-year unlevered payback period and adds 40% to our volume as well as $100 million of EBITDA. This was a great opportunity to use an inorganic approach to make our flywheel spin faster. The opportunity with Kiavi reflects an important point about fintech and the broader problem Figure is solving.

The residential transition loans are not agency eligible, and therefore, companies like Kiavi use their advantages, underwriting, technology and brand to benefit themselves. But that approach can only go so far. That's why we are so excited about our acquisition because we can use their market-leading technology to develop liquidity and standardization for the space. By putting the marketplace first, we expand access to the advantage that made Kiavi the market leader, which is their post-renovation home loan valuation technology. And then we will make this technology the industry default, driving adoption at scale. We did this in HELOC. We're doing it with Demo Prime and other asset classes, and we'll do it with Kiavi as well. So I've shared a lot here on our growing business momentum.

Now I'd like to dive in a little deeper on some of the details on the growing volumes our partners are bringing to us. 40% of our Figure Connect volume growth was attributed to customers that have been with us for longer than 1 year. We have shared previously that over time, we see 100% growth in monthly volumes from existing partners that adopt Connect. And this quarter, we saw a number of existing partners migrate to Connect and expand volume accordingly. Our partner, New American Funding is one such example as they grew volume 80% in Q2 versus Q1. They onboarded onto Figure Connect in early April. As interest rates have risen, end consumers are using their home equity balances to pay off higher interest rate consumer balances. Year-to-date, this has grown 4 percentage points of our total volume, reflecting the massive opportunity of the $35 trillion of home equity outstanding in the United States.

Additionally, as these dynamics drive additional HELOC activity, our credit quality has improved and delinquency performance has remained low. These growth stories are part of a larger winning with winners trend that we see at Figure, where market-leading companies, forward-thinking business leaders and those with offensive strategies are leaning into Figure and growing their businesses. There has been increased M&A in the mortgage space. Within the past few months, for example, CrossCountry purchasing Two Harbors and Synergy One buying the retail business from Newrez. In each of these cases, for example, you have an existing Figure partner buying business from a non-Figure partner, allowing us to, in turn, grow with our customers.

Along similar lines, in 2025, 185 of our partners have been live on our platform long enough for the full year of Home Mortgage Disclosure Act data to attribute their volume to us. We ran a counterfactual analysis to get a sense of how that volume compares to what they were doing pre-Figure. We took each partner's HELOC activity from before they joined our platform and grew it forward at the rate the rest of the non-Figure HELOC market grew over the same period. That's the baseline. What these partners would have produced had they continued at their prior trajectory. The result, our partners originated 2.6x more HELOC volume in 2025 than their pre-Figure baseline would predict. We call this the Figure factor. Banks and credit unions are starting to take notice of this momentum.

This is a focus area for us, and we moved this into our recently launched new verticals go-to-market motion to give it extra attention. Banks are leaning into mortgage and home equity as they see the market opportunity and also the potential capital relief from proposed changes to risk weightings. More recently, we've started to engage with large depositories that have big home equity businesses and are looking to leverage Figure Connect as a way to manage their exposure and even buy Community Reinvestment Act eligible assets, meaning they can use Figure Connect to source loans that meet their regulatory requirements to lend in certain ZIP codes. It sometimes gets lost on the market that depositories are big customers of Fannie Mae and Freddie Mac.

Just because they have deposits does not mean they want to hold fixed rate assets for 30 years. They want Connect. That same new verticals go-to-market motion includes our HELOCs sold for business financing and via home improvement partners. These 2 businesses saw $470 million run rate volume as of June, with SMB growing 57% quarter-over-quarter at real scale. The partners originating home equity loans for business purpose are also generating opportunities for Democratized Prime as the SMB market has very little capital market standardization, and we, therefore, launched our SMB pool officially in July.

Before I close it out, I'll share a few examples of how important technologies in the market today, AI and blockchain are making a difference in our marketplace. I'll start with AI. Figure has a large task in that we must standardize multiple asset classes with disparate loan data and naming conventions that must be transformed into a standardized schema with a loan tape as an end product. In response, we built an AI adapter tool that creates this necessary standardization. For the Agora auto assets alone, the AI adapter accomplished in 5 weeks what would have been a several months-long process and solves a huge partner pain point. This tool is also giving us the confidence to bring in Kiavi assets to our marketplace later this year.

Similarly, we've been growing the use of stablecoin, yields in particular, as the payout infrastructure in Figure Connect. Partners selling loans can get paid in yields days faster than the status quo with lower fees. Doing so has us projecting meaningful savings from wire fees and reconciliation time. Stablecoin allows for atomic settlement, which means asset ownership and conveyance can happen at the exact same time as money moves, reducing fraud and reconciliation. We are building the modern capital marketplace, and we continue to use cutting-edge technology to modernize our products.

In summary, our Q2 results demonstrate once again that we are building on our first-mover advantage and market leadership amidst a paradigm shift in the capital markets towards tokenization and standardization. This is reflected in the growth of Figure Connect, our capital-light marketplace, huge partner acquisition momentum and diversification of our partner base. The future is bright. The future is tokenized.

And with that, I turn it over to Macrina.

Thank you, Michael, and good morning, everyone. This was a great quarter, growth across every part of the business. Consumer loan marketplace volume was $4.3 billion, up 132% year-over-year from $1.8 billion and 4% above the top end of our guidance, our third consecutive quarter of triple-digit year-over-year growth. Adjusted net revenue was $218 million, up 95% year-over-year from $112 million. Figure Connect volume grew to 65% of CLM volume, up from 42% a year ago and up more than $2 billion year-over-year in absolute dollars. Overall, partner-branded volume is now at 83% of CLM volume. One milestone worth reiterating, ecosystem and technology fees this quarter became our largest contributor to adjusted net revenue for the first time, directly reflecting the ongoing mix shift towards Figure Connect, where we earn fee-based technology and ecosystem revenue.

As Michael noted earlier, net take rate was 3.6% for this quarter within the 3.5% to 4% range we discussed earlier in the year. Connect comes in at a lower take rate but with high profitability to adjusted EBITDA and is the most capital-light of our business. This brings more fee-based economics and is the fastest growth driver for our business and revenue. Democratized Prime ended the quarter with a matched offers balance of $392 million, reflecting continued adoption following the expansion onto the Ethereum network this quarter and our broader Solana real-world assets consortium initiatives adding distribution as well. We are also at $170 million of third-party assets on Democratized Prime as of last week, primarily from growth coming out of the Agora partnership announced earlier this year.

We think this is an important number to watch going forward because it's the clearest signal we have that Democratized Prime is strengthening as a 2-sided marketplace as part of our broader Connect value proposition. Every dollar of third-party demand that comes on to the platform is a dollar that's choosing Figure's infrastructure over a traditional warehouse line. We expect this to keep building as we bring more partners onto the platform and as awareness of the capital availability and pricing advantage spreads across our existing partner base.

Moving to GAAP profitability. Net income was $87 million, up from $30 million a year ago, an approximately 190% increase. That included a $4.4 million tax benefit from excess benefits on continued stock option exercises following a similar and larger benefit in Q1. We expect ongoing post-IPO equity activity to continue to create periodic tax benefits that may not be indicative of our normalized operational rate. Over the long run, we still believe an annual effective tax rate of 26% is appropriate. Adjusted EBITDA was $119 million, up 126% year-over-year from $53 million with a margin of 55% versus 47% a year ago. This quarter included realized profit of $5.9 million from the sale of a business where we owned a minority interest.

Margin, excluding this gain, would be approximately 52% and continued progress toward our medium-term 60% plus target. We continue to support Democratized Prime by deliberately retaining a portion of our loans on balance sheet longer than we normally do, approximately $360 million at quarter end, as I indicated last quarter to help build out the Democratized Prime marketplace. That had 2 effects. Both interest income and interest expense were higher and adjusted EBITDA margin was reduced by approximately 1.7 points since it added lower margin interest revenue to a larger denominator. As continued proof of operating leverage, operations and processing costs were at approximately 67 basis points of volume, down from roughly 79 basis points a year ago, even as we processed more than double the volume. We continue to invest in AI and automation in our operations process.

For this quarter, I wanted to briefly touch on the strength and performance of Figure and partner originated loans that have followed Figure's underwriting standards and utilize our loan origination system. Today, these loans are held by loan buyers or securitization vehicles. We sometimes get asked with growth at this pace, whether we're opening up the credit box to get there. In short, we're not. If anything, the underwriting standards have gotten stronger. Weighted average FICO at origination has moved from 737 in 2020 to 756 year-to-date. And weighted average CLTV, which is combined loan-to-value, has come down over that time period to 62.1%. Average loan size has grown as well from $52,000 to $96,000, reflecting a shift toward larger, more established borrowers.

Our execution in the capital markets has strengthened right alongside that as we continue to show a track record on loan performance. AAA spreads on our Figure HELOC securitization shelf have come in from roughly 255 basis points in 2023 to roughly 135 basis points year-to-date across 22 priced deals, about 120 basis points tighter, while economics for note buyers have held up well. We've also grown the buyer base materially from approximately [indiscernible] buyers in 2023 to over 100 unique note buyers today with 70% of them active across multiple deals. On performance, our securitized loan pools continued to perform well as they season even as the securitized collateral base nearly doubled to $7.7 billion year-over-year. This reflects the same credit discipline we apply at origination.

We also continue to see strong recovery behavior across the broader servicing portfolio. A meaningful share of loans that go delinquent cure back to current or pay off in full within 6 months rather than continuing to deteriorate. That combination of disciplined underwriting and strong post-delinquency recovery is what gives us confidence in the book as it scales.

Turning to our balance sheet. We ended the quarter with $1.44 billion in cash and cash equivalents. And subsequent to quarter end, on July 14, we closed our rated $600 million senior notes offering at 8.5%, putting financing for the acquisition fully in place ahead of our expected Kiavi close in the second half. This debt transaction broadened our funding base and added a new source of liquidity for us to be able to tap into the future. We think this strongly demonstrates the maturity of the company, the quality of the franchise and our ability to access capital in a disciplined way. We want to preserve balance sheet flexibility, avoid unnecessary equity dilution and fund strategic opportunities in a way that supports long-term growth. This unsecured debt raise is not just to finance the Kiavi acquisition, but is an important step in expanding our capital toolkit as we continue to scale the business.

Looking ahead, we are establishing our Q3 consumer loan marketplace volume guidance in the range of $4.8 billion to $5.2 billion. We're 1 month into the quarter and July came in at $1.7 billion. July has historically been a good indicator for the full quarter and applying the actual August and September historical pattern from both 2024 and 2025 to this July result lands Q3 volume in a narrow band around $5 billion, the midpoint of the range we're guiding to today. We feel good about how the quarter is tracking. Our confidence here is really an extension of everything I walked through earlier. The partner ramp we're seeing on Figure Connect isn't slowing down and Kiavi is on track to close in the second half, which will layer in a potential additional growth vector we haven't reflected in this range yet.

So when we say we feel good about the quarter, it's not just 1 month of data. It's that same set of drivers continuing to compound. Before we go to questions, I want to close with the same note I opened on. This was a genuinely strong quarter across every dimension we care about: volume, revenue and margin, which none of it came at the expense of credit discipline. Connect is scaling even faster than we planned. Our balance sheet is stronger and more diversified than it's ever been, and we're heading into the back half of the year with Kiavi, Democratized Prime and our core Connect business, all pulling in the same direction.

Thank you, and we will now open up the queue for questions.

[Operator Instructions] We'll go first this morning to Patrick Moley of Piper Sandler.

So I guess I just was hoping you could maybe elaborate on the 3Q guidance for origination volumes. It seems like you're expecting strength in July to continue throughout the rest of the quarter. So if you could just maybe talk about some of the assumptions that are baked in there. And then in terms of the new partners that were added in the second quarter, could you maybe just talk about the size? I know you said one of them was already one of the largest players on Connect, but just maybe the nature of those new partners added and how we should think about them contributing to volume into the back half of the year?

Sure. Patrick, I'll go first and then hand it over to Michael for the partner section. So last quarter was the first time that we guided as a company. And back then, as we were talking about during the call, we leaned towards being a little bit more conservative. We had some new partners that onboarded in late Q4 and into early Q1 and volume ramp time frame was in the range. And so we wanted to be prudent as much as possible last quarter. This quarter, we feel very strongly confident in the range that I mentioned before. As I indicated earlier, July was $1.7 billion. We understand from looking at history how August and September would come in. I would also take into account some level of business days in the months of August and September, which is why we're pretty confident around the $5 billion midpoint of the range that I mentioned.

I'll turn it over to Michael on the partner expectations.

Thank you. So we're operating with a well-oiled go-to-market machine. Of that 102, it's pretty broad-based around the different segments of the market, meaning independent mortgage banks, banks and credit unions, IMBs, fintechs, et cetera. And at the same time, you also have a pretty nice range of size. So we talked about in the quarter, in Q2, we had a partner go directly to Figure Connect and become one of the largest. That's not necessarily the norm, but it's also not something that we expect to be unusual going forward. So we're attracting a broad range of customers in terms of both the type, but also the size. And we have a number of different go-to-market motions that we see as very successful in continuing to expand.

We'll go next now to James Yaro of Goldman Sachs.

I hoped we could turn perhaps to the buyer side of the consumer loan marketplace. Could you just maybe provide some additional color on what sort of buyer types you're adding? And what percentage of those are engaged with Figure Connect?

So all our buyers are engaged with Figure Connect. That's the way that they buy on the platform and all the incremental buyers we bring are Connect first. And the range is pretty broad and consistent with what we have talked about before. So it's going to be a combination of insurance companies, asset managers, credit funds. And we continue -- in fact, earlier this week, we were out meeting with a very large asset manager that has not yet purchased on the platform.

So there's a number of opportunities, and Todd Stevens and his team dedicate all of their time to meeting with asset managers, both existing and new to continue to drive momentum. And one thing that he often shares is volume begets volume. So people like to buy at scale. And as we get bigger, it actually opens up the opportunity for more people to join because people want to see that consistency and want to know that if they do the work on understanding Figure, there's going to be volume to purchase in the future. So our growth is back to that flywheel concept, adding more buyers and therefore, helping us continue to take in spreads and therefore, bring more volume in a very virtuous cycle.

Great. Just as a follow-up, I just wanted to level set on the take rate. Could you just clarify whether there have been any pricing cuts that have affected the take rate? Or is the lower take rate entirely from mix shift into new products? I think that's an important distinction. And then if that's true, there have not been any take rate cuts on the pricing side, do you see any risk that you might have to cut pricing in the near term?

Great question. And you're right, it's good to clarify this. We don't see take rate as the take rate performance in this quarter coming from price cuts. Instead, take rate is really a product of the success of Figure Connect. And we've talked about Figure Connect as having the lowest take rate of the 3 ways we do volume, direct-to-consumer, Figure as intermediary and then Connect. And so because we're seeing partners that are coming direct to Connect, that's a dynamic we didn't necessarily appreciate would happen as fast as it is.

And so that's why we've gone -- we went 9 points as a percentage of volume in the quarter in terms of what Figure Connect was. And so you see take rate as really a result of that strategy. It's something that we want to happen. We're excited about this. It's not coming from partner pressure. And what you'll see is that, that 3.5% to 4%, as I mentioned in the prepared remarks, is still appropriate, but we see the lower end of that range as realistic for the coming quarter.

We'll go next now to Ryan Tomasello with KBW.

Maybe dovetailing off of James' question on the take rate. I think it would be helpful if you could maybe quantify where the pricing floor is in the Connect channel, particularly when considering, I think, the tiered pricing volume discounts that you have for your larger partners, which I think is something that may not be as appreciated by investors. So maybe just as a starting point, sharing where that lowest pricing tier is on Connect, and that would be irrespective, obviously, of like the volatility that gain on sale can cause to the take rate.

Sure. Sure. So I'll talk about -- so our pricing is in terms of ecosystem fees rather than take rate, but obviously, they're related. So our kind of top volume tier pricing is right at the bottom of the range of take rate, meaning if you're a partner that goes to the highest tier in general, you're going to be at the bottom of the take rate range we provided. Of course, there's other dynamics such as servicing fees, interest rates as well as whether or not the loan is securitized, all of those impact take rate and then you have sort of volatility and gain on sale. So there's a couple of things that are moving there, but the pricing that we do is generally aligned with the bottom of the range.

I'll note, though, that when we set the pricing, we don't actually set it based on take rate. We set it based on contribution margin. So one of the things we want to do with the Kiavi acquisition is give the analyst and investor community a bit more color into how contribution margin looks because that trajectory has actually been both better and more stable as a percentage of volume over the past couple of quarters. So I think that additional disclosure will be helpful. We just want to give it when we have full line of sight into Kiavi to make sure that we really only have to explain it one time to you all and not waste your time.

That's helpful. But I guess maybe a follow-up to that. Help us understand why you're talking about 3Q take rates at the low end of that 3.5% range when you're saying that, that low end is only aligns with your largest volume partners on Connect and considering the mix of the business with a lot of smaller origination partners, the business is not on Connect. Why are we talking about the all-in take rate across the entire business already hitting that 4%? Am I missing something there?

No, you're not missing anything. 65% of the volume is already on Figure Connect. In general, we see that increasing in the quarter. And then we have the general variability that comes with other business models as well as differing mix shifts potentially on servicing as well as mix shifts that come from the securitization parts of the business. So based on the visibility that we have, we continue to see the low end of the range as realistic, but we'll continue to update you if that changes.

We'll go next now to Rob Wildhack of Autonomous Research.

Maybe on that last line of discussion, you've got nice growth in Figure Connect volumes, but growth in ecosystem and technology fees is not growing as fast. And I think this quarter, just isolating those 2 lines alone, like ecosystem and tech fees are less than 3% of Connect volumes. So why is that? Like is there some kind of non-volume-related component that's in ecosystem and tech fees or something that we're all missing here?

Well, I'll start, and Macrina is the closest to the composition of take rate. But just remember that, for example, servicing fees are a separate line item. And so that's one of the components. And in general, this is the first quarter that ecosystem fees are the largest on the P&L. So it continues to reflect that migration to Figure Connect, but I'll turn it over to you, Macrina.

Yes. And what we also have as part of the take rate is that we have the mortgage servicing adds addition, so gain on mortgage servicing that goes on to our revenue. The total part that you see on GAAP P&L includes fair value, and we actually adjust that out as part of adjusted net revenue. So I do want to keep you honest in terms of -- we're not taking the full GAAP amount. We are taking just the addition of the new servicing that is being added as part of our take rate.

Okay. But if we -- like if I just isolate ecosystem and tech fees, so no servicing, no origination fees and divide that by Figure Connect volumes, like that number is coming down over time. And so we hear you on no pricing cuts or anything like that, but what would be the driver there?

So it's going to be the tiers that people hit on volume. So I just want to be super clear on this point. We're not renegotiating our volume tiers with partners. But when we sign up partners, we establish volume-based pricing that comes down to incentivize partners to do volume with us. And so as they hit higher volume tiers, their individual pricing comes down. But in general, as we talked about, that's going to put us at the lower end of the guided range we gave. Is that making sense?

It does. And then if I could just sneak one more in, loans on the balance sheet up to like $600 million. Can you just remind us of the strategy because we hear you talking about how Figure Connect is less balance sheet intensive and third-party Demo Prime is growing nicely. Does that continue to grow? Or is like $600 million maybe the cap?

Okay. So I'll just put this into parts. So balance sheet loans was about $600 million at the end of the quarter. We had about $360 million of Democratized Prime that was supported with Figure's borrower demand. This is pretty consistent with what we had back in Q1 moving into Q2. So that number really hasn't changed. We are continuing to add more in terms of third-party Democratized Prime loans from the borrower side, which I mentioned in my earlier remarks.

The other part that is making up the $600 million is we do have loans where Figure does go direct to consumer, where Figure is also the acting intermediary before the loans are sold on to Connect. And as you saw, our growth overall in volume from Q1 to Q2 is quite significant. And what that translates to is that we hold on to these types of loans, whether we're going direct-to-consumer or Figure as an intermediary around 3 to 4 weeks at a time before it's sold on to Connect, and that's because we want to be able to aggregate the loans before it's sold. And so you're just seeing really a natural way of seeing that volume growth is translating into loans on our balance sheet for a temporary amount of time before it's sold on in Q3.

We go next now to Dan Dolev of Mizuho.

Really nice results here, fascinating growth, triple digits. I wanted to ask about the SMB home improvement diversification. It looks really interesting here. Any comments you can make on this strategy and what it does for Figure would be really helpful for investors.

Thanks, Dan. It's interesting to reflect on that because it shows a number of highlights of what Figure does best, right? You have the $35 trillion of home equity outstanding. And as we talked about, in any interest rate environment, that's going to be really attractive. And so what's happening is people who have that home equity are using that to fund small business financing. And that's a new avenue for us. We're lapping about a year of us launching that. And it's already grown to a meaningfully significant portion of our volume. And it's a new go-to-market motion.

So back to what's driving that 102 partners is we're now signing up people that would historically not have been in the mortgage business whatsoever. They're business loan originators, brokers, fintechs, but they're able to use Figure because we make it so simple and easy and inexpensive. And that's a big part of our broader strategy is to take partners that normally wouldn't be in this space and give them tooling to join our platform, join our marketplace, be capital-light, be part of Figure Connect, and you're really seeing that strategy borne out. We're also seeing a similar dynamic in the home improvement space.

So this would be traditionally unsecured loans towards things like home renovation, roofing, pools, et cetera. That's starting to grow really nicely as well, and we're excited about the momentum we see in that space. And as I pointed out on the call, we've decided to make depositories a specific focus within the new vertical approach that we're taking, which is really a go-to-market motion in terms of how do we align internal resources and mobilize. And we see just massive opportunity there as well. So a lot of momentum on growth, which is our focus and continuing to bring that growth into Figure Connect, that capital-light marketplace. That's our strategy, and we're continuing to execute accordingly.

We'll go next now to Kyle Peterson with Needham.

Nice results and not to belabor the take rate, but I wanted to start off there and maybe see if you guys could directionally give us some impact on -- you guys mentioned a spike in interest rates kind of weighed on some of the gain on sale this quarter or is expected to in the third quarter. But I guess, how much of a headwind is that expected to be? And like what's the relative impact of that, that's kind of pushing you towards the 3.5% range? And then I guess, if rates stabilize, is -- should that headwind kind of abate after this quarter?

Kyle, I'll get started, and then Michael, feel free to add if you'd like. So in our prepared remarks, we did talk about some of the rate headwind in terms of gain on sale and gain on sale is another portion of take rate that we consider. And it does get impacted by the macro markets. And so when rates are wider, then we are going to have a little bit less of a gain on sale.

When rates are tighter, then we're going to have a better gain on sale, which is what you're seeing, and that's more volatile compared to what we would see for ecosystem fees and technology fees. The other part that I would also mention is although our take rate is coming in on the lower end of the range, Michael had mentioned earlier as well, we are seeing a lot of success in Figure Connect. The Figure Connect contribution margin is coming in really nicely. That is why you're seeing additional growth in our adjusted EBITDA margin and growth in our profitability as well.

Michael, do you want to add a few more things?

No, just agree. And we were simply talking about Q2 there. We can't yet know all of the interest rate movements for Q3. We're just letting you know that we -- that volatility will always be a part of the Figure as intermediary revenue line item, and that's why we're so focused on growing Figure Connect because it gives us much more stability and also that capital light. So that's really our focus.

Great. That's helpful. And then I guess as a follow-up, it's great to see Agora. It seems like the volumes there are really starting to inflect higher, and there's a lot of things -- good things happening on the auto front. I guess should we think about in terms of time line and additional asset classes that you guys are spinning up, is this kind of the playbook and time frame from when you get someone or an asset class announced and signed to when the volumes start to really inflect and start to contribute a little more meaningfully? I guess like how -- is like this quarter, like a couple of quarters time frame, a good way to think about the ramp time to get these upscaled and running? Or can that cycle time reduce over time? Just like how should we think about additional asset classes and how long it will take to ramp them up?

It's a great question. And the -- as I talked about, I think AI is critical here because it's something that we can leverage to reduce what is a very complicated process to ingest and standardize third-party assets. And so when we bring on Agora as an example, we're thinking broader than just one individual auto loan originator. We're thinking how can we set the standard for the way that auto loans and then ultimately, auto securitizations can operate in a tokenized way. And so that's the approach that we're taking. So there is probably to open up a new asset class is going to be much more significant than to open up a specific originator onto that asset class. But because everything is new for Democratized Prime right now, those 2 are the same thing, but we would expect another auto originator, for example, to go much faster than that.

And I mentioned this in the prepared remarks, but I think you're going to start to see us in the coming quarters work on making Figure Connect as a concept work for permanent sale and securitization of the assets that are being financed on Democratized Prime. And that's really going to start to turn the flywheel because we're going to be able to take originators, give them short-term financing with Democratized Prime, but then take those assets and get investors that want to buy them permanently or securitize them and use Figure Connect earning those ecosystem fees that we love so much in the process. So this is -- so more to come there. And that blueprint that you've seen is a really good way to look at a new asset class rather than a new originator.

Thank you. And ladies and gentlemen, that is all the questions that we have for today. So that will bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining the Figure Technology Solutions Second Quarter Earnings Conference, and wish you all a great day. Goodbye.

Welcome to the Figure Technology Solutions Investor Conference Call. [Operator Instructions] lastly, today's call is being recorded. I would now like to turn the call over to Bryan Michaleski, Head of Investor Relations.

Good morning, and thank you for joining us on short notice. My name is Bryan Michaleski, Head of Investor Relations here at Figure. Joining me on today's call are Mike Cagney, Executive Chairman and Co-Founder of Figure; Michael Tannenbaum, our Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer.

Before we begin, I'd like to briefly note that today's call may contain forward-looking statements. These statements include, but are not limited to, discussions about the anticipated benefits of the proposed transaction between Figure, Kiavi and Sixth Street, any financial and operational outcomes associated with that transaction as well as the timing of the transaction's completion.

Any statement made today that is not historical facts should be considered a forward-looking statement. We highlight that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, can cause actual results, events or circumstances to differ materially from those described. We are not undertaking any obligation to update these statements based on new information or future events, except as required by law. This call is being broadcast live and is available on site on our Investor Relations website, where a recording will be available later today.

Additionally, we have posted a press release and supplemental presentation regarding the transaction on our Investor Relations page. Following the conclusion of the prepared remarks, we will open the line for questions. We ask that you limit yourself to one question and one follow-up during that Q&A period. And with that, I'll turn the call over to Michael Tannenbaum. Michael, please go ahead.

Thank you, Bryan. Good morning, everyone, and thank you for joining us on short notice. Today, I'm excited to announce Figure's acquisition of Kiavi. Our mission has always been to build the future of the capital markets on blockchain rails. Today's announcement accelerates that goal by bringing adjacent important asset class into Figure's ecosystem. Kiavi's leading investor mortgage technology has proliferated in a backdrop of the aging U.S. housing infrastructure and a well-known housing affordability crisis.

Its technology unlocks the financing that fuels the rebuilding and refurbishment of the American housing stock. By putting Kiavi's engine on blockchain rails, we supercharge its growth, driving capital markets efficiencies that propel its success. The transaction is a pull halt on our trajectory to bring more assets on to blockchain, and its impact is relevant across 5 core areas we've continued to emphasize: scale, first lien, AI, growth and financial impact.

The first, scale. Kiavi adds $7 billion of volume across its leading products in residential transition loans and debt service coverage ratio loans, DSCR, both products that Figure has been offering through its marketplace and both in the fast-growing investor mortgage space. Residential transition loans, sometimes called fix and flip, are short term, often less than a year, but are relatively high rate and backed by a house, which makes them a natural fit for democratized prime, bridging financing before these loans are ultimately sold permanently through Figure Connect.

We expect this transaction to add between $100 million to $200 million of democratized prime volume monthly, which is a step function change in the volume of diverse, high-quality assets borrowing in that platform. Blockchain-native assets are central to Figure's mission. To move Kiavi's loans to blockchain, we'll modify the origination technology to be compatible with our digital asset registry technology, DART, and therefore, we will track both the liens at the county level as well as prevent the eNotes from being double sold or pledged, one of the biggest differentiators of our capital marketplace.

The scalability of DART is a competitive moat for Figure and based on our conversations with Kiavi's leadership, we expect their loans to be blockchain-native at close. Second, we've been highly focused on expanding our first lien business given it's a 25x larger opportunity than the second lien space that Figure dominates. We declared 2026 the year of the first lien and Figure has grown from 10% to 20% first lien in the past year, while doubling volume. The addition of Kiavi only accelerates that progress.

Pro forma for the transaction at year-end '27, we expect Figure's total consumer loan marketplace volume to be 40% first lien. Third, on AI and technology, Figure has entered this transaction with long-time partner, Sixth Street, who will be buying the loans on Kiavi's balance sheet, while Figure assumes its technology, customer base and employee base.

Sixth Street will originate Kiavi's residential transition loans, finance them on democratized Prime and then sell them via Figure Connect. Figure uses an AI-driven feature called Adapter to impose uniformity to disparate originator data schemes across all asset types in Figure Connect and democratized Prime, saving partners months' worth of time and resources when onboarding.

Adapter now offers the technical capability to be performed agent to agent with Sixth Street expected to be the first originator to use this new agent-to-agent capability. Relatedly, on technology, it's important to highlight that Kiavi has invested over the last 13 years in an industry-leading post-renovation valuation model that predicts a home value after construction and improvements. This underlies Kiavi's market leadership position as the capital markets recognize the value of this model and reward Kiavi loans for it, allowing the platform to offer more attractive rates and loan offers with a flywheel effect.

We'll use this technology to improve our HELOC product and its ability to estimate home equity. This also relates to how this acquisition will turbocharge growth. On growth specifically, Figure plans to take Kiavi's valuable technology, which is primarily marketed direct to borrowers and offer to our embedded base of 380 partners while preserving the relationships with Kiavi's strong base of professional customers that have propelled its own rapid growth. We have already started growing our investor mortgage business with around 10 partners having originated either of these 2 loan types. And we know Kiavi's market-leading technology will bolster this marketplace.

Lastly, on financials. I want to highlight how this acquisition underscores our frequent emphasis on high margins, representing an incredibly compelling transaction and an exceptional allocation of our strong capital position. We have repeatedly communicated our focus on building a higher-margin capital-efficient business. Kiavi is a net income profitable company and a Rule of 40 company. With this acquisition, we are reconfirming our medium-term 60% margin guidance.

Moreover, we see a less than 4-year unlevered payback period and believe the post-synergy contribution will be both accretive to EBITDA and earnings per share, furthering our commitment to financial discipline and compelling growth. Now Mike Cagney is going to share some remarks about how this connects to our broader vision before Macrina closes it out with the financial impact. Before I leave you, I want to say that we are excited to welcome the Kiavi's employees, partners and customers to our ecosystem. Kiavi is a profitable, fast-growing market leader and has done so much right, and we're thrilled to be partnering with them for the future.

Thanks, Michael. I want to take a moment here to touch on what's really compelling about this opportunity and how it makes up a natural extension of what we spent the past 8 years building. In HELOC, we proved you could take a consumer credit product, standardize the origination process, put the asset on blockchain rails and create a better capital markets outcome. Kiavi's RTL and DSCR loans are a natural extension of that.

The residential real estate-backed assets with real institutional demand. And Kiavi has built the best platform in the market. The team understands the borrower. They understand the value of creating a homogenous asset, and they've built a similar business to Figure, technology first, capital markets oriented and focused on solving hard infrastructure problems instead of just the front end. That matters to us. We're not just acquiring the volume, we're bringing in a platform and team that are as ambitious as we are. And the benefits here of bringing this into figure are simple and obvious.

Kiavi fits perfectly into our core focus today, growing our originator ecosystem for asset origination, democratized prime for financing those assets in whole loan and security form and the Figure Connect marketplace to trade them. Like HELOC, we're taking an asset that already works and moving it on to rails where it should work even better. Our partner, Sixth Street has already signed up to finance the RTL loans on democratized prime, where they'll benefit from lower friction, reduced legal expenses and deep pools of liquidity. Then Figure Connect becomes the other side of the equation. Once those loans are seasoned or ready for long-term placement, Connect gives us the marketplace to distribute them as loans or securities into permanent capital.

So you get the full life cycle, originate through Kiavi's technology, finance currently through -- or efficiently through democratized Prime and place the asset through Figure Connect. So for us, Kiavi is not just more volume, it's the right volume. It deepens the originator ecosystem, Figure Connect and democratized Prime with a diversified, financeable first lien-oriented asset class. It adds collateral that should attract capital and accelerates what we've been saying all along, which is that the future of private credit is not going to be a spreadsheet sent to a warehouse bank for every 5 days. It's going to be assets originated, financed and traded on chain with capital competing to lend in real time.

With that, I'll turn it over to Macrina to share how the numbers behind the transaction are just as compelling as the strategy underpinning it.

Thank you, Mike. Let me start with an overview of the transaction and what it means for Figure's future earnings profile. Figure is purchasing Kiavi as a joint strategic acquisition with Sixth Street Partners. The transaction is 100% cash consideration and Figure's portion is $538 million. Sixth Street will be purchasing RTL assets together with the right to originate these loans at close and will be our first partner using democratized Prime and Figure Connect with these loans. Figure is purchasing the technology, data, intellectual property, employees and the existing customer relationships.

While Figure has sufficient cash on its balance sheet to fully fund this transaction, maintaining a strong liquidity position remains a key priority. Accordingly, in connection with the acquisition, we intend to launch an approximately $600 million unsecured debt financing in the coming months. Importantly, we expect to remain conservatively capitalized following the transaction with pro forma corporate leverage below 2x at closing.

We believe this financing optimizes our capital structure, preserves significant balance sheet flexibility and positions us to remain net cash positive on a pro forma basis while maintaining ample liquidity to support ongoing operations and future strategic initiatives. In addition, the debt structure includes call provisions that provide us with meaningful financial flexibility.

As we continue to generate strong free cash flow, we will have the ability to opportunistically delever and further strengthen the balance sheet over time. We did not consider stock as a form of consideration given where we see the valuation of our stock at this time. From a financial perspective, this transaction is accretive to our scale and financial profile, as Michael shared in his prepared remarks. In 2025, Kiavi did over $250 million of revenue and over $100 million of EBITDA.

In our diligence and discussions, we noted that Kiavi was among the rare private fintech companies with fast revenue growth and high margins, comfortably above the Rule of 40 metric, which reflects its market leadership position. As a platform, Kiavi has continued to grow market share given its differentiated data and post-renovation value technology. Borrowers receive more attractive rates and loan-to-value ratios given the strong investor support for the AI-powered valuation technology. This flywheel means that historically, Kiavi has had the lowest losses but also the most attractive offers, and it is why the company has been so successful in the capital markets.

This virtuous cycle dynamic is a natural fit in Figure's ecosystem. The transaction is immediately accretive to EBITDA post close with strong EPS accretion for full year '27. The company already had strong margins, which will be enhanced due to the capital-light structure we anticipate post close as well as cost synergies expected to be realized in the transaction. Furthermore, we see an unlevered free cash flow payback period of less than 4 years, which gives us confidence that this transaction is highly valuable for shareholders. Figure has been committed to growing EBITDA margin, maintaining a capital-light business model and increasing operating leverage in our quarters post IPO. This transaction redoubles on those commitments, and we maintain our medium-term adjusted EBITDA margin target of 60%. And with that, we will now open up the queue for questions. Operator, please go ahead.

[Operator Instructions] Our first question today will come from Dan Dolev with Mizuho.

Congrats on this really, really good acquisition. We had a question about why are you so excited about the RTL space? And why do you think this is the time now to bolster your presence there?

Thanks, Dan. Appreciate that. For us, I think this transaction comes down to -- it's a platform that we've been following for a long time. As Mike mentioned in his prepared remarks, this is a company we've known. We have mutual investors. We've known this company. I actually had dinner with the CEO, Arvind, back in January 2025. So this has been very much a transaction in a space we've been following. As you also know, we have started to originate residential transition loans ourselves. And so we know what that market looks like and what it takes to be successful there.

And for us, we see a really big opportunity with Kiavi to supercharge growth and maintain that high-margin profile that we have, especially by partnering with Sixth Street. So for us, it's been a space we know. We believe in kind of try before you buy, and it's not an acquisition for acquisition's sake. And for us, having been in the space tracking this company, we're excited about what it can do to our growth and also to do so in a way with our partner, Sixth Street that allows us to build out that marketplace. It's a really nice fit and extension into our core focus.

And our next question comes from James Yaro with Goldman Sachs.

Congrats on the deal. Could you talk a little bit about the revenue synergies with the core business from this acquisition that you foresee, I guess, on either the origination side or the buyer side, I know -- I think you touched a little bit on the latter of which -- the latter already, Michael, but just if you could expand on both.

Definitely. Thanks, James. So on the originator side, this is an asset class that many of our partners, the 380 do, but they don't use Kiavi. Kiavi is the market leader in this space with the largest market share and the post-renovation technology that allows them to be really competitive and offer both lower rates and also better offers to customers, and we saw that in the space. But what we want to do is similar to what we did in the home equity space, open that technology up to our partner base and leverage those partnerships to supercharge growth.

On the investor side of the marketplace, we are using our partnership with Sixth Street, in particular, to build out that marketplace and be sure that we have the investor support for this asset. And so of course, it would have been a simpler transaction to do it bilaterally versus having a tri-party transaction, but it was very important to us to build out that capital-light marketplace day 1. And we know that there's a lot of investor demand for the space, but having Sixth Street there in the beginning is going to really help us build the marketplace and supercharge the growth as we add this product to those 380 partners.

That's very clear. As my follow-up, you've conducted your growth organically mostly thus far. Should we view this transaction as representing a shift in the way that you will allocate capital going forward with an increased focus on inorganic growth? Or was this just an opportunity you couldn't miss out on?

I'll let Mike add as well. But from my perspective, I think we're very disciplined about where we want to spend our time and our capital. We were pretty open at the time of our IPO that one of the advantages of going public is a transaction like this, and we saw that very much in our conversations with the company. I think people were excited about our access to capital, our scale. However, we are very disciplined. We've probably seen over 30, 40 transactions since going public or right before then. And this one really stood out, as I said, it was something we've tracked for a long time, and it's also something that's very much aligned with our core focus and a company that we feel we really know how to operate and enhance. Mike?

Yes. Just to build on that, I think we have a focus that -- we like to be the market leader in whatever we do. And there's a lot of opportunities that are shown our way of the #2, #3, #4 in an industry that's notoriously subscale, and we haven't moved on those. And in this situation, we get the market leader in the RTL and DSCR space. And we think we can make that model even better with what we have on the blockchain infrastructure and technology, the Sixth Street partnership and the combination of the human capital. So it was somewhat unique in that it really checked all the boxes for us. We don't see a lot of those, but we certainly have the ability when we do see those to lean in and execute.

Our next question comes from Ryan Tomasello with KBW.

You mentioned, I think, that Kiavi will initially bring over $7 billion of annual volume to Connect. So I guess first question would be, is all of that $7 billion of originations being done through Sixth Street? And what will be the approximate take rate on that volume for Figure? And then overall, Macrina, if you can just help us walk through sizing the EBITDA and EPS contribution from that initial volume uplift, just given I would assume Kiavi's financials from last year are somewhat relevant as you kind of transition the business model.

Sure. So the $7 billion or so of volume that we do anticipate from this deal, we expect this to come through democratized Prime and also Figure Connect. This is how we think about it. This is really what we are looking at historical information to be coming on board for '26 and '27 is our base foundation and assumption for this. In terms of take rate, I do want to mention there's 2 types of loans that are coming over as part of this deal. There's DSCR and also RTL.

DSCR, we view similar to our first lien HELOC. And so the take rate would be similar to where Figure is today. It's how we think about it. RTL loans is shorter duration and will have a lower take rate. However, I do want to add to that, that RTL borrowers are recurring on Kiavi's platform, and we do expect the revenue volume to continue post merger.

What that means is these are shorter-term recurring customers that come back to the platform. And so we think that's going to be additive to our overall revenue contribution margin and adjusted EBITDA, which is why we think we're going to be quite strong in terms of the medium-term goal of 60% adjusted EBITDA margin. But I do want to make sure you do hear from us.

And we do expect a high contribution margin coming out of these types of loans that we add is how we think about it. In terms of EBITDA and EPS, there's going to be some transaction-related fees. And so we do think the EPS benefit will come through in 2027 rather than in 2026. In terms of adjusted EBITDA, because we're going to be capital-light, the interest income and interest expense elements would start to dissipate as Kiavi onboards onto our platform. But in return, we really think that the ecosystem fees and the volume that's generated on Connect is going to be immediately accretive to what we do as a company.

Great. And then for the volume that will be sold through Figure Connect, how confident are you that there's enough liquidity with the investors in that marketplace to absorb a significant uptick in this new RTL product? And will that require any effort with Figures securitization shelf to add residential transition loans to that program, assuming that the shelf will also be used as part of the Connect marketplace for RTL?

Two benefits to the transaction here. One is that Sixth Street has committed to buying a large portion of the assets that Kiavi originates for a period of time that extends over a year. So as I mentioned earlier, it was very purposeful to kind of -- if you think about how we build out marketplaces in the past, we usually secure one side of that and then focus on the other. And so here, we believe the funding side is spoken for and our focus will be on supercharging growth. Also, Kiavi has a market-leading securitization shelf, which we will be inheriting. And that is a big part of the bigger Connect and capital markets approach that we're taking to this asset class.

And our next question will come from Rob Wildhack with Autonomous Research.

I wanted to ask about the $200 billion TAM that you cited. Could you break that apart a bit? I'm wondering who are kind of the legacy originators? Is it mostly from banks or nonbanks? Any growth or how much that has grown in the past few years? And is there any number or overlap between like the $200 billion there and an annual home equity or mortgage origination number? Any color you could add there would be really helpful.

Sure. So in general, this is a nonbank market. And it's a market that also, which I think is a really important dynamic, has a fair amount of nonconsumption at least for loans, meaning that a lot of the transactions are actually not financed, fix and flip transactions. And so one of the big upsides to the transaction is that currently, home loan transaction activity is relatively muted. And if that were to change, there would be significant upside, although we have not modeled any upside to that activity in our projections or in the 4-year unlevered payback that we shared less than 4 years.

The TAM is largely mom-and-pop-ish investors that use the financing to do loans in a fix and flip style. And then often, those loans are actually refinanced into DSCR loans. So in a way, you can double dip. And if you do the residential transition loan well, you have the right to get the DSCR loan, and we see that as a huge part of the opportunity here. Another related point that I'd make, Rob, is that we have the purchase technology with Kiavi. So one of the things that we don't have and one of the reasons why we're excited about the TAM is that today, Figure does not have a product that focuses on purchase loans, whereas Kiavi does have that technology. So we see that as another expansion into the $200 billion TAM that we mentioned.

And then just on their $250 million in revenue that was cited, can you talk a little bit about how that's split by revenue line? It sounds like they have some loans. So I guess how much of the $250 million is interest income? -- how much comes from gain on sale and how much comes from maybe like a figure equivalent ecosystem or tech fee? Just trying to get a sense of where the legacy Kiavi model earns its revenue.

I can start and have Macrina share more details. But the -- one of the advantages of the way that we've structured this transaction is that the legacy approach, as Macrina was mentioning, won't be the way that the financials present when the company comes to Figure because we've been very specific to start the marketplace model day 1. So you'll see in some ways, a reduction, as Macrina mentioned, of interest income and interest expense, but then more of those ecosystem fees that you see in the figure P&L because we're starting the marketplace day 1, but I'll let you add, Macrina.

That's right, Michael. And so even if the the geography of where the P&L lands at the end of the day, Rob, how we think about it is because of the benefit of ecosystem fees that are coming through with less expenses that are coming through, it's ultimately going to be more beneficial in terms of adjusted EBITDA margin. We do think we can capture quite some take rate and revenue coming through from the $7 billion of volume that I talked about earlier. And then in our model, as Michael alluded to, we're not really thinking about or adding to the 4-year payback in terms of additional synergies that may come from our partners is how we think about it. And so day 1, you'll see some of the interest income and interest expense coming from DSCR because we are adding that to our portfolio, but the vast majority is coming from the RTL portfolio, which is going to be additive to ecosystem.

[Operator Instructions] Our next question comes from Patrick Moley with Piper Sandler.

Quick one for me. So on the $35 million of cost synergies that you said you expect to receive or generate in 24 months, how much of that is coming from technology consolidation versus headcount, et cetera? And then could you maybe just talk a little bit more about what the technology uplift is going to look like? I know you talked about you're going to have to modify the origination technology. So any color on kind of the time line there and maybe some initial upfront investments that might be required? Anything there would be helpful.

Okay. I can start on the technology side and then have Macrina cover more details on the synergies if that works. From a technology perspective, I shared in my prepared remarks that we're going to be putting these loans on DART. And what that will do is we'll start to ensure we get the benefits of reduction in post-closing costs as well as the reduction in fraud, which is actually the way -- the #1 way investors have lost money in the capital markets in the past couple of years. And so we see that ultimately, day 1, this is going to be a tokenized marketplace that starts to benefit not only from this reduction in fraud, but also the third-party diligence costs that we often cite, right?

Today, the loan file review costs that Kiavi incurs are significant. And in general, we see about a 3x Kiavi cost to originate versus Figure today, and we do expect a lot of the technology changes that we bring, which are mainly capital markets oriented and reduce a lot of the friction in loan sales to be a big part of that reduction, and that's included in that $35 million. I'll let Macrina share more details about the makeup of that though.

Sure. So Patrick, you're very familiar with who we are as a company and where our cost to originate loans come from. And we have been very upfront about the fact that origination and processing costs on Figure's expenses are variable costs. And as we continue to adopt AI as part of our process, we have been able to show that year-over-year, our cost per loan has been coming down, and it's already below $1,000 -- and when we look at Kiavi, we also saw that benefit of the technology that we could improve as part of adding it to our blockchain rails in addition to some of the additional AI processes that we can add as part of the synergies. And so we will be continuing to optimize on processes and vendor costs and using technology primarily similar to the figure model going forward. And that's where we expect a lot of the $35 million to come from.

Our next question comes from Kyle Peterson with Needham.

I wanted to start off on the growth rates that has. I know the revenue model and such is going to change post close, but obviously, a good kind of growth rate and scale there. But I want to see if you guys could add any insights on what the gating factors of their growth have been. Obviously, you guys are growing quite a bit faster. So I just want to see if there's some potential upside if some of these gates are lifted, whether it's tech or funding or scale or kind of any thoughts there would be super helpful.

It's a great question, and it's a perfect fit to why we think our platform supercharges their growth. If you speak to the Kiavi leadership, you'd hear an interest for them in expanding the partner channel, expanding the broker channel, which is exactly the area that we excel in. And that's been a big part of their focus and where we think we know that almost besides Kiavi, almost all of the origination that happens in that market is through the broker channel or third parties. And so we're kind of taking the market leader in the space and bringing that technology to all these other parties, which is the exact thing we did in home equity.

So for us, it's a very natural transition, and we have these relationships. On the DSCR side, that's also been an extremely fast-growing area. And there's a big opportunity to recapture more of the RTL business with the DSCR. And when you turn over the economics to the originators like we've done in Figure Connect, as we've seen, we supercharge growth because people are incented to do more. So there's a big tie-in there.

And then lastly, Kiavi also has some new business that's been growing really rapidly in kind of infill construction, which just gets to the broader investor-oriented loan space, which has just been a really fast-growing area. As I mentioned in my prepared remarks, there's kind of a structural demand for housing and a huge opportunity as people age and as the housing infrastructure ages. So this is a really fast-growing space, and we think by linking our partnership model and our existing partnership base with it, we will supercharge to growth.

Got it. That's really helpful. And then maybe a follow-up. Obviously, they're fairly seasoned in the capital markets as well. So I just want to see if you guys had any color in terms of whether it's overlap in kind of capital markets investors that's already there or -- are there some potential new investors that -- credit investors that they have that could be good kind of cross-pollination candidates for other assets on the Figure platform? Any color there, potential cross benefits to you guys would be really helpful on that side.

Absolutely. They will bring in new investors to the marketplace. As we mentioned earlier in the Q&A, they have their own securitization shelf that has a lot of investor support. And then you have Sixth Street as a clear crossover between the existing Figure investor loan investors as well as their investors. Sixth Street is already an investor in Kiavi's assets. So it was a really nice bridge. And we know that there's, in general, a lot of investor demand for these loans because they are backed by a house, which is very similar to the figure marketplace.

They are relatively high rate and they're relatively short term. which also connects to democratized Prime, as we shared because as we talked about, loans often are financed on democratized Prime and then they are sold permanently on Figure Connect. So this really is a perfect fit. And as Mike was kind of sharing as we thought about capital allocation, there really wasn't an opportunity that fits so perfectly that we've seen in, call it, the last 24 months.

Our next question will come from Randy Binner with Texas Capital.

Apologies if I missed this, but have you broken out the RTL versus DSCR size or components of the Kiavi platform? I'm just -- I'm thinking of it more from just like a modeling perspective for some of the answers before, but is there -- it seems like they're heavier on RTL, but have you broken out that percentage breakdown of their book?

We haven't put it in the deck, but I'm happy to address it here on the call, Randy. It's about 85% plus RTL volume. The rest really comes from DSCR and a very small piece on construction, but we are really looking primarily on the RTL and DSCR side.

Okay. And then just a follow-up on the -- just the net gain on sale component of their book that I heard the answer before that -- I think I heard that their DSCR product will have more of that as RTL transitions to Connect. Is that kind of breaking out that percentage-wise in the model? Is that the right way to think of how the net gain on sale line would increase for Figure?

I didn't quite catch your point...

I was surely worried. I'm kind of doing this real time. I guess what I'm trying to get to is how we should think about increasing the net gain on sale line item for Figure relative to this and weighting that kind of like 80-20, weighting that with just more with the DSCR component than the RTL component.

Got it. Got it. Okay. So we really think about the benefit of this transaction as being capital-light -- interest income and interest expense will not be showing up on Figure's P&L in relation to RTL. The primary revenue line that you're going to see is really going to be from ecosystem fees, which is representative of what we do on Figure Connect and democratized Prime.

From a DSCR perspective, to the extent that Figure is the primary originator, in the future, we do expect to add on additional partners. So this will also move to Figure Connect as well. For the portion that stays with Figure, we do anticipate some level of interest income and interest expense in line with the ratios that I mentioned before. And also, there's going to be some gain on sale, as you mentioned, but it's not going to be a huge add to where we are at Figure today because the volume that's coming on from DSCR is smaller as part of the overall deal.

At this time, there are no further questions in queue. This concludes today's Figure Technology Solutions Investor Conference Call. Please disconnect your line at this time, and have a wonderful day.

All right. Welcome back, everyone. So next up, we have Macrina Kgil, CFO of Figure Technology Solutions. Figure's the largest nonbank originator of home equity lines in the country with its origination marketplace, asset transfer technology, all built on the Provenance Blockchain.

Since going public last fall, Figure and its 380-plus partners have originated around $10 billion in loans with a marketplace volume up triple digits year-over-year. And I think today, you reported that volumes in the month of May were up 5% month-over-month consumer loan marketplace volumes?

Yes.

If I'm not mistaken. They just delivered their first AAA-rated blockchain native securitization from both S&P and Moody's. Macrina brings real public markets pedigree, having led OneMain's IPO and serving as CFO of blockchain.com. Macrina, thanks for joining us.

Thank you for having me, Patrick, and I had my whole spiel laid out for what Figure does and you've already done it.

Well, I think -- why don't we start with -- maybe just on the environment then. It's been a busy period. Can you walk us through how Figure is performing today, where origination loans are tracking, volumes are tracking, what the funding environment looks like and maybe how the macro setup is kind of shaping demand?

Sure. So as Patrick mentioned earlier, we've been doing tremendously well. Our May volumes came out last night, $1.4 billion. Month-over-month, it's been 5%. But really, we look at year-over-year because we do have some seasonality as well, it's over 100%. And so we have been hitting 3 months in a row in terms of $1 billion plus funding volume, business and partners that we have been adding overall. From a foundational perspective, we've reached 380 partners that has been performing very well.

And if you look at the macro landscape and how that has been impacting or actually less impacting Figure is that we have been growing through these volumes across the board through higher rate markets, lower rate markets with the whole geopolitical macro economy being more unstable, we have been continuously in the market with our capital market vehicle since Q1. And Q1 was a tough market for everybody. I do want to repeat that we have been very stable, being able to use our capital markets infrastructure that Patrick had mentioned, that is who we are, Figure Connect as a capital market infrastructure. We have been able to see that whole loan buyers are coming into our marketplace and also that we are continuing to use our securitization vehicle.

But before I go deeper into like what we do, and I know you mentioned we are more of a HELOC -- nonbank HELOC originator, I do want to start with how we view Figure is that Figure is a blockchain-based capital marketplace infrastructure. And what that means is, yes, in the past, we had been originating HELOCs ourselves, selling them into the marketplace through forward flow agreements that we developed ourselves and also placed the securitization vehicle in place.

But since June of 2024, before we went public in September of '25, we built out a marketplace called Figure Connect. And what that essentially does is we are connecting loan holders, loan originators to be able to utilize our marketplace to get capital in return. So it's -- in essence, it's really an asset and capital exchange marketplace, and that's what we view as Figure Connect.

And where Figure is benefiting from that is we receive a revenue for volume that goes through the marketplace. And we call that more of an ecosystem fee to be able to use our marketplace, which includes a loan origination system for HELOC, and we've been doing this for a very long time. We base all of our assets on blockchain technology, which is amazing because it is very efficient and blockchain technology provides you with immutable information where if you change any information, you can see it right away.

And then because we've been around since 2018, we do have the whole loan buyers that are very used to understanding Figure standard and homogeneous loans coming on to the marketplace. And we have been AAA rated, as you have said, from S&P and Moody's since the summer of last year. Hopefully, I touched on it.

No, yes. So I do want to touch on the blockchain aspect and the lending aspect of the business still. I think sometimes people have a hard time fully comprehending what it is that really differentiates the platform. You mentioned you've been growing loans by over 100% year-over-year. You've been aggressively taking market share in HELOC and you're entering into other products. But what are maybe the 1 or 2 things that have allowed you to grow so quickly into this market, whether it's the technology stack, the funding cost advantage, the speed at which you can originate loans because of the blockchain? Just talk a little bit about what those factors are?

Yes. I would say it's really a mix of everything that you just mentioned. So we started out the company by being able to build out a technology stack that originates loans in as fast as 5 days or on average, 9 to 10 days. So I think that's something that has not really been around before. Traditional mortgage markets, I know many people in this room have experienced getting a mortgage. It would take you about 45 days to be able to originate a loan.

So the technology stack that we built has been very efficient to be able to replace humans who are part of the origination process with technology. The other part that I would say is because we're using technology, the cost to originate a loan is less than $1,000, which I think is a huge benefit and a huge motivator for many of the loans that we originate using the Figure ecosystem.

As an example, so if you are a borrower going to a credit union and you're looking to borrow $50,000, many of the credit unions may say, no, this really doesn't make sense because it costs around $11,000 to originate the mortgage. In our case, it's $1,000. So we wouldn't be able to -- we wouldn't turn you away or our partners would not turn you away because they're using our ecosystem and the tech stack.

They are able to enter into greenfield markets where the borrower now can access funding and they're able to get the mortgage where previously they would have just ignored and moved on. And so Figure works with our partners behind the scenes because of the cost advantage and also the speed in terms of the technical advantage as well. And that's how we are able to bring more customers and borrowers and partners into our ecosystem.

Where blockchain technology is really critical and very helpful is that it adds speed and it also cuts down cost in terms of how the transaction moves through the ecosystem. So I'll give an example of when a borrower borrows through a partner, our partner name is actually recorded onto the blockchain technology together with the characteristics of the loan onto the blockchain. So as I mentioned earlier, if you're on the blockchain, the loan is native to the blockchain. It will say it's a $100,000 loan that is borrowed by Macrina, that's me. And it will have the rate and it will have the term, all of that information onto the blockchain and you can read it if you are the loan holder and the loan buyer at the end of the day.

When the loan moves through our structure and it goes to a third-party buyer, a whole loan buyer on the other side or the securitization vehicle, usually, there is a lot of third parties that come in and review all of the information that's on the loans. So I'm sure many of you have experienced, it could take weeks at a time. It does cost a lot of money to be able to do that as well. And if you're in the capital markets often enough, this trade happens multiple times throughout the life of the loan, and it does take a lot of time and cost to be able to do that.

Where blockchain technology is so efficient is that you can see the information right away and blockchain, whenever there is a change in the information can also have a record of who changed it and what changed. And so there is a lot more trust and there's less review by third-party intermediaries into the blockchain technology. So I just wanted to give you that context to why there's efficiency in terms of speed and cost.

And then the other thing, if I'm the loan buyer at the end of the -- on the other side of the capital market infrastructure, what works really well is that if I wanted to see the information on the loans, I could literally pull down the information on a daily basis or live. In a normal loan world, for you to be able to see the loan information, if it's defaulting, if it's prepaid, what the interest rates are, et cetera, et cetera, you would need to wait 30 to 45 days. And so that immediate impact from a portfolio manager perspective of the risk management that they can take, I think it's a huge benefit if you use blockchain technology.

So your core competency up to this point with the underwriting model and the loans that are on your platform is in HELOC. You are launching what you would call HELOC or mortgage adjacent products. Can you talk about what those are and kind of what the pace of growth there could look like in the next couple of quarters?

Sure. So I think everyone is used to what a HELOC is and you kind of think of a HELOC as more of a second junior lien to your main mortgage that you have in your home. What Figure has been doing in the past several years is that we've introduced the concept of a mortgage, so home-based product where it could be a first lien because there's $35 trillion of home equity out there, and you can use your home equity to be able to borrow into these types of loans.

We've also introduced different types of loans using home as your collateral base. So we have SMB products, so business loans that we give to business owners who have equity in their homes. So we're taking the home as a collateral, but then we're actually giving you the cash on to the business itself. And so it's a hybrid to what you understand as a mortgage or a HELOC-based product, but it is really going out to the business side.

We're also thinking through investment property loans, which is called DSCR. We're also looking at construction-related loans, which is an RTL loan as well. So I think the opportunity within a HELOC set or a home-based mortgage product is quite huge.

And as I mentioned earlier, because of the cost advantage that we have as a company, and the tech stack that we offer to all of our partners, we are seeing that there are more borrowers, more volume coming through. And, dare I say, HELOCs are becoming more trendy because there's just more originators and banks entering into the overall ecosystem, which I think is very beneficial because people continue to understand what the loan product offers.

So on HELOC specifically, I don't know the exact stat, but I think your market share -- and you don't have to share this if you don't want to disclose it, but I think it's sub-5% is my guess. So there's a lot of runway there. How do you think about prioritizing like the white space and the growth that you have in front of you in HELOC? And then I'll follow up. I have some questions on some other product categories that you're going into. But in terms of just HELOC, how much runway is there?

I would say I would really look at the $35 trillion of home equity that's in the overall market out there rather than looking at the HELOC loan category in a narrow way because as I mentioned earlier, HELOCs were larger loans. It took many days to be able to close on a loan and a lot of money from the borrower and the bank perspective to be able to originate these types of loans.

What we are introducing is a whole new greenfield of products where it can be used for home improvement, which is what traditionally HELOCs were used for, but you can also use it for debt consolidation, where if you're thinking about asking for a $50,000 loan on a personal loan, it could actually have many times multiples in terms of the rate that you need to pay. If you're using our product, you can think of a 30-year amortizing loan at a high single digits or 7% to 9% rate is how we think about our type of product. And so we think the market opportunity is very large, not just as part of the smaller HELOC ecosystem is how we really think about it.

Sure. Okay. So moving on to other product categories. As you think about the longer-term product road map, which other lending verticals do you think are the most natural fit for Figures technology and underwriting capabilities?

Sure. So how we think about our capital market infrastructure that I mentioned earlier, Figure Connect, and we also have a short-term marketplace infrastructure as well called Democratized Prime. What would be a great fit is you're thinking about giving an asset or a collateral into an asset in exchange for liquidity. And so if you have a loan category that has a collateral -- tangible collateral behind the scenes, that can be validated and placed onto the blockchain technology platform that we offer, we think that is a really great asset class to continue on to our ecosystem.

And so auto loan is a great example. We announced a partnership with a company called Agora Data in February of this year. That meets a lot of the characteristics of what I just explained, being able to place the loan on blockchain technology, having a car behind the scenes so that you can sell it.

And then there is already a very active market of liquidity buyers, loan buyers on the other side, securitization market is well built out. Whole loan buyers actually understand the loan characteristics. And so we do think those types of loans, auto, SMB, small, medium business loans, receivables and many other different types of asset categories along that line will be extremely beneficial for the borrower, the originator who is providing these loans and also for the loan buyers on the other side.

So taking all these different pieces together, the originations that you do, the third parties like Agora, secondary market liquidity that's being generated from these loans, what do you view as the next phase of the Figure story? Like where do we go from here? What are you most excited about?

Well, we have a lot of things to be excited about. But we've been talking about the Figure Connect journey where it took us about 8 years to build out the marketplace from a lender and a borrower side of the house. I would say the next phase of where we think we're going to be really great at is Democratized Prime. And what that infrastructure does is it's really a short-term warehouse facility.

So if you are a loan originator as a company and you want to be able to have a forward flow agreement to sell your loans or be able to place your loans into a securitization vehicle, many of these companies spend a lot of time, legal fees, hire people to be able to go out and get a warehouse facility.

And I'm sure many of you have had that experience where if you are working with the bank to get a warehouse facility in place, even a renewal takes several months and the underwriting is a lot of work. What Figure is offering is a decentralized blockchain-based finance network called Democratized Prime, and you can plug and play and bring your loans like Agora Data did into the ecosystem and be able to get a short-term warehouse facility through third parties that are coming into the marketplace.

So as an example, the lender supply is really coming from blockchain, real-world asset technologies like Solana. They have their own curators and a group of companies that come together to be able to lend to certain types of yielding assets. Where Figure is really unique is in the past, if you're lending on a blockchain DeFi ecosystem, you're lending to Bitcoin or you're lending to Ethereum, and the assets are not really self-yielding.

In Figure's case, we are providing a platform where auto loan lenders or HELOC loan lenders or any types of yielding asset could come into democratized prime, takes a few weeks for them to be able to get through our validation tool and be able to be recorded onto the blockchain technology with the asset information and they can start using Democratized Prime.

And so if you're an originator coming into Figure, you have the option to, one, originate loans, be able to get the warehouse facility in place without too much effort. These are all homogenous and standardized. And then over time, once there is a securitization market that's built for your asset class, auto being a great example of it's already there. And there's loan buyers on the other side. You can also tap into a longer-term facility, which is where you're selling your loans to third parties.

So we're very excited about, long story short, bringing on Democratized Prime to be more of a big marketplace infrastructure that continues on from who we have -- what we have on Figure Connect. And so you have the whole set of suites of possible financing that could come.

The other thing that we're really excited about is our stablecoin security, which is YLDS, because we're on blockchain technology to be dependent on more of the banking system where it takes about 2 to 3 days to settle your funds, we actually want to make sure that there is a stablecoin on the other side that can automatically settle all of these transactions that are taking place. And so we're really excited to see that Democratized Prime and YLDS are pairing up together to be able to work on our ecosystem quite well.

And then lastly, I'm going to touch on briefly is we also have started tokenizing equity on the blockchain natively, starting with Figure's own equity on the blockchain. So we call that system open. That was launched in February. And so we think we have the capability as a holistic marketplace where equity can be native to the blockchain, traded 24/7.

If you want to be able to lend out your equity to other people, you can lend your equity and be able to get all of the benefits of interest income that come through. And then lastly, because it's the blockchain, every single owner or whoever is owning the equity is also very transparent. So from an issuer perspective, so Figure, if I wanted to know if Patrick is holding on to the equity or myself, we can actually see that information. I think that's highly beneficial. It's the same thing as you have to wait for a service to report 45 days to see your loan performance. You don't have to wait for a 13F to come out 45 days later to know who is holding on to your equity.

So maybe just a quick follow-up there. Do you have any comments on the regulatory environment, specifically this innovation exemption that is being talked about. Do you have any concerns? Do you think that could be a tailwind? Any thoughts at all?

So Figure has really thrived and grown in any regulatory environment or any administration, to be frank. And so we received a lot of the licenses, and we've seen the blessing from the SEC on many of the products that we have throughout the last 3 or 4 years. So it's not really a recent event.

However, we welcome the tailwind. I really enjoy the fact that tokenization is more of an everyday word that people think about and talk about and there's more understanding on the benefits of tokenization of assets that are used on a day-to-day basis. So I really think that the regulatory headwind -- tailwind in helping us get through the understanding from institutions and more interest from the institutions, I think, is very, very helpful.

I think the other part I would also add is that there is more awareness around stablecoin. And because we do have our own stablecoin called YLDS that was registered with the SEC, it is a face amount certificate, more like a debt security and earning yield. We think that's going to be a huge tailwind for us because the current CLARITY Act that's going through the government right now it talks about stablecoins not being able to earn yields if you're a passive holder.

Whereas our token yield token is more of a security. So we are able to provide yield. Right now, it's SOFR minus 35 basis points. And it is freely transferable peer to peer, which I think is a huge benefit for the holder. And I think as I was doing my research around what are treasurers of companies really interested in, they want to be able to hold stablecoin, but they think about is this something that is actually yielding and I don't want to be able -- I don't want to lock up my cash on something that's not yielding. And I think YLDS debt security is really an attractive alternative in that case as well.

So let's shift gears on competition, you're competing with not only traditional originators, but also there's a growing set of crypto-native players who are trying to tokenize real-world assets. We have many of them at this conference. But you've probably been outgrowing a lot of them, most of them. What do you view as Figure's most durable moat in a tokenized world?

I would take us back to us being a capital market infrastructure. We essentially have created an alternative view of the credit capital market. So the one that you will be most familiar with is with the GSEs, Fannie and Freddie. So they have created a standard homogenous process for mortgages to go through the ecosystem there, and there is a buyer on the other side.

And so you definitely know when a mortgage is originated, there is going to be a takeout at the end of the day, and there's liquidity that's readily available. And that's essentially what Figure is doing in terms of the capital markets infrastructure.

I would say the other advantage and the huge moat that we have is we've been securitizing Figure loans that are native to the blockchain for a very long time since 2021. And we are one of the very few companies or actually the only company that has AAA from S&P and Moody's for our securitization vehicle. So that's a huge moat in terms of any competitor coming in, if you're looking at your fintech companies out there, it takes time, and it takes experience and it also takes the performance of the loans to be able to get these types of ratings. So I think that's another huge moat that we have.

And then the other one I would add is we're licensed in all the states in the U.S. for originations and servicing. We also have different types of registered broker-dealer. We have a transfer agent for our equity. So being able to, one, get these licenses; and then two, maintain them over time without major issues is also a huge effort for the company itself. And you can see -- you can only see all of this through history. And you have to have the experience in several years of what we have been doing as a company to be able to build out the capital infrastructure and bring in the different types of buyers and lenders into the ecosystem.

All right. We'll end on a big picture question. If we fast forward 3 to 5 years, what does Figure's revenue mix look like? Are you still primarily a HELOC business? Or is the tokenization democratized prime open platform become the dominant story?

So we have been growing really fast. So being able to predict 5 years down the line is going to be difficult, to be honest. However, I really do think that we're going to be primarily on a market infrastructure. So Connect and Democratized Prime will be a huge part of what we do. We want to be able to make sure that our partners are using both of the marketplace infrastructures, which makes a lot of sense for them.

And ultimately, we want to be able to address many of the different asset classes, not just HELOC coming into our ecosystem. Auto, as I mentioned before, some type of loans that are based on asset classes. And ultimately, today, we're about 50% ecosystem fees, if you look at our revenue and ecosystem fees is what we generate from our marketplace. We want to be -- we want to make sure that, that is the vast majority of what we do. And Democratized Prime, Figure Connect that will all come through our ecosystem.

The other part I would mention is we are currently 50% adjusted EBITDA margin. We would want that to continue to grow. A lot of the volume that goes through our ecosystem is really -- contribution margin is quite high. So ultimately, if you look at who we are 5 years down the line, I'm sure we'll continue to be profitable. Our margins are going to be high, and we have lots of different types of assets on our markets infrastructure.

All right. Well, it's been a fun story to watch so far, and we look forward to watching it play out over the next years. Macrina, thanks for joining us.

Thank you for having me.

Yes.

Hi. Good afternoon, everyone. My name is Gautam Chhugani. I cover digital assets at Bernstein. One significant shift that's happened in my space is I used to cover crypto, but native crypto has moved to what we call real-world assets. I think that's where Figure fits in. So Mike, thanks for doing this.

I mean, Figure has had a bit of a history. You've been around for a while. How has that Figure vision evolved over time? Because there's been regulatory shift, there's been technological shift. Just like take us through that.

Thanks for having me. The vision of Figure has actually been remarkably consistent since the beginning. And I think the company has been really purposeful in the way it's built out marketplaces on blockchain rails. So if you go back -- and that's been consistent through a number of different regulatory environments, a number of different crypto winters and summers and also a number of different interest rate environments.

So I think Figure has been a business that's thrived through all of those things. And to go back to the vision of the company when it was founded in 2018, Figure came out of SoFi in many ways. And SoFi, when I was there, we were doing about $1.5 billion a month of volume. And like many SoFi was not a bank then. Many nonbanks, you're always thinking like how could you -- how do you find a solution for all the assets you originate. And blockchain at the time was one of the summers for blockchain back in like 2015, '16. It was hot, and it was also hot in 2013. It goes through these waves. And so blockchain became a natural way to do that, and Figure has been successful in using blockchain and other automation to take a lot of cost out of the system.

We do, for example, a mortgage in $1,000 versus industry average of 12. And we have been -- that vision and that purpose of using the -- especially blockchain technology, but other automation to standardize the capital markets and modernize them, bring them on to blockchain rails has always been the goal. And I think Figure has been unique in that we've been not afraid to build out marketplaces with our own inventory. So we started by doing consumer loans ourselves until we turn that over.

Today, 60% of our business in consumer loan marketplace is Figure Connect, meaning Figure is just the rails and doesn't touch the loans, doesn't touch our balance sheet. and democratize Prime, which is our short-term essentially money market or warehouse line. We started by seeding that business out with our own production of home equity and now are pulling that back and have introduced new third-party originators.

Tokenized equity, as an example, we started with our own security. So I think we've not been afraid to build out a marketplace with our own capital. That was a big part of why we did an IPO and raise those money -- that money. But at the same time, our purpose has always been and our ambitions have always been much greater and to be this marketplace and to build a marketplace, it's hard to build marketplaces. There aren't that many. But when they are built, they're really durable and they're hard to disrupt.

And I talk to a lot of investors on Figure, and there are many different ways of describing the business. What's the simplest explanation of Figure's business model?

So what we're doing is building the future of the capital markets on blockchain rails. And what we specifically have done in the mortgage business, which is the majority of our revenue, is we have built a network of 380 partners that use our technology to originate assets into an embedded capital markets that works on blockchain rails. That is a much faster and cheaper process than the alternative. We are taking that technology into other consumer credit and, more broadly, asset classes outside. That's what we do.

And sort of stepping back, why is it important to tokenize credit?

When you use -- I think tokenization has been -- and Figure has been really fortunate, like tokenization 2 years ago for sure and probably even 18 months ago was not a term in the lexicon. And if you -- and we see this a lot with our bank partners, today at a bank Board meeting, there's conversations about tokenized deposits or stablecoins. There's conversations about tokenized assets in a way that you would have been laughed out of a Board meeting previously if you had brought that up. And now people are asking at the Board meeting, what's our strategy? So clearly, that's changed. Why is it important in credit?

Well, credit actually has the biggest -- is the biggest beneficiary of at least the 3 main reasons why we use blockchain. Those reasons are for transactional efficiency, for liquidity efficiency and then for like what I would broadly call lean perfection. So -- and I'll go through all 3. So transactional is in our case, the third-party diligence expenses that we cut out of the process.

Going back to SoFi, which I mentioned, there'd be 100% third-party loan review due diligence on every loan that we sold. Every single loan will be checked, the attributes of that loan will be checked and then someone would sit there at the company and dispute any findings that, that third-party diligence provider found. And that's how loans trade. That's obviously inefficient. And so what Figure does is we take the attributes of the loan upfront and move them on chain. And so they are immutably there and people don't need to check.

Now -- and I think I want to be clear on this, as Figure has become more ubiquitous and the standard through which many mortgages and other asset classes trade, there are people that aren't necessarily checking every single loan on blockchain and confirming they know that, that process is done. And just like people aren't -- when they hear a FICO score, right, of 740, they know what that means. They aren't necessarily checking all of the variables that go into making that score, they kind of understand.

So people understand what Figure stands for and they see the attributes they need to see and there's just a lot more liquidity and standard in what we do as a result. So that's the transactional benefits. I think those are pretty well understood.

The next are the liquidity benefits, right? And liquidity is the biggest thing that people miss about tokenization. They think that just because you tokenize something that makes it liquid, and that's not how it works, right? But -- what we've identified is that things like mortgages and consumer credit have much more in common than they do not in common.

And therefore, if we can standardize the rails through which they are originated and standardize the rails through which they're bought and sold, we can create liquidity. And I think Fannie Mae is the best reference point for a ecosystem or marketplace that creates liquidity. I think Visa and Mastercard are examples of something that creates liquidity.

But Fannie Mae is a more direct comparison. And so with Fannie Mae, nobody asks, well, which person originated this Fannie Mae loan. They just say, is this loan a Fannie Mae loan, right? And a lot of people get this wrong and they assume that, that has to do with the government guarantee. It doesn't. right? Credit risk is not the #1 risk in mortgage. People in mortgage are focused on interest rate risk, they're focused on prepayment risk. Credit risk is generally not that relevant because housing is strong and at least in the Figure case, our average loan-to-value after our loan is 60% to 65%. So there's 30% to 35% equity in the home in our loans. And so people are not actually worried about credit risk. They're worried about liquidity and interest rate risk.

And what Figure is doing is the same thing that Fannie Mae did, except we are Fannie Mae plus ICE plus a portion of Tradeweb, all kind of one technology and capital market stack together. And when we bring this automated technology and capital market together, we, of course, lower cost and time savings, but we also make it so there's liquidity, right?

And I was having a conversation recently with a very large mortgage company, one of the largest in the country, and they said, one of the things we track is the percentage of volume that we do not on Fannie Mae, not to the agencies. And the reason they track that is because they're worried about liquidity. And so another conversation I've been having today on this liquidity point is like, do you think Fannie Mae is more valuable than any of the mortgage companies it serves.

If Fannie Mae were a public company, would it be a bigger company than Rocket Mortgage, of course, it would, right? And that's because what they do, the standardization that they bring is extremely valuable. It's not just about that government guarantee. And so that liquidity is what we seek to bring to consumer asset classes, not only mortgage, not only the areas of mortgage that Fannie Mae doesn't cover, but we also 20% of our business directly compete with Fannie Mae, but also to other asset classes, auto, small business, all the things we've been talking about, because if Fannie Mae were a public company with a pure mandate of profit, they probably would be expanding what they do to other asset classes. They just don't because they're sort of government today, public tomorrow, who knows.

And then, so that's number two, that's liquidity. So first transaction, number two liquidity. And number three is the lean perfection. And this gets to a conversation we had about token equity as well. But what's really important when you are a lender, the #1 way that people lose money in lending today and in the past year has been fraud, right? If you look at Tricolor, look at First Brands, you look at MFS, the places that people have lost hundreds of millions of dollars has been on fraud.

And so in the warehouse lending markets in the asset-backed markets, people are really concerned with double pledging and they're concerned with double sales. And the way that the loan markets work today is when you are pledging loans or buying and selling loans, you're just accepting a spreadsheet and hoping that someone didn't sell those loans to someone else. And sometimes it turns out they did.

You do that on blockchain, you prevent that from happening because -- and you get this lean perfection, right? It's why we are so focused on care about the provenance of the loan. And we -- and that lean perfection is really important in lending that you can look through and be sure that you actually have ownership over that asset and that no one else has ownership over that asset. And that's the third way that we use blockchain. And all of those things together create an opportunity in consumer credit to do something different to lower cost, bring liquidity and ultimately build -- bring the value propositions and the value back to the originators and the investors and sort of reduce the value capture in the middle.

And sort of this gets me to one of your significant businesses, which is HELOCs. -- you have almost like a 5% market share of HELOCs. And so the business model you talk about sort of is a testament to the market share -- the share that you've gained in the market. How do you sort of articulate the value proposition to the partners who've done well, thanks to the Figure technology stack? And then on the other hand, with the investors. Just like explain the proposition to the 2 sides of the marketplace.

I will do that. First, I'm going to push back on something you said, which we don't track our market share in.

Yes, probably.

Because -- and there's a reason for that. And it's just true. like I literally do -- there's no document or presentation. There's lots of documents and presentations at Figure. None of them is like what's our market share of HELOC today. Reason is...

It is significant.

It's just not relevant because at the end of the day. One, there's $35 trillion of home equity outstanding and anybody who has access to that home equity is better off using their home or their home equity than borrowing in any other way because it's always going to be the cheapest way you can borrow. That's one. And two, 20% of what we do is first lien. And therefore, a huge amount of what we do is not related to the narrow concept of home equity. So I do not think that, that metric is relevant, but I'm fine for you to cite it because I can't control you.

But to your question of, why do originators use us and why do investors use us? The value proposition to the originator is -- there are some things that are consistent and there are some things that are specific. At the high level, we're doing a mortgage in $1,000 cost to originate versus industry average of $12. There's a bunch of reasons why we can do that, but they all kind of boil down to the fact that we've built a technology that comes with an embedded capital market. So we're a combination of Ellie Mae plus Fannie Mae, and as I mentioned, a little piece of what Tradeweb does.

And we bring all that in one system. And because they all work together, there's significantly less costs than the alternative. And those costs aren't going away with AI, right? Reminder, loans once we're done with pen and paper, we've added tons of software to the process. Costs have not come down. So just adding token spend also into that mix digitizing a bad process didn't improve anything and AI in a bad process won't improve anything either.

And so we're representing a new way and new approach. And that low cost and high speed is a big reason why people are selecting Figure. There are some nuances, right? There's different types of companies that we serve. We serve sort of probably in largest in dollars, independent mortgage banks that are like addicted to Fannie Mae liquidity and don't have their own balance sheet, and they're a natural fit for us because we're also bringing liquidity -- there are regional banks we just signed up Flagstar as part of our Q1 earnings. We announced that I know everybody is listening intently to that earnings call.

And what you heard was us talk about Flagstar. And that was a big win for us because that's a real regional bank that has chosen to use our technology and our capital market. Even though banks have a balance sheet, they still access Fannie Mae. They still don't want to hold loans at relatively low interest rates for 30 years, again, because the #1 risk is interest rate risk.

And we also serve fintechs and fintechs that use us at home improvement companies, people like Lowe's Home Improvement, not a big retailer, pool financing companies, all these people -- we're actually competing more with home improvement financing in that business. And again, we're offering a lower cost and a more efficient process. And so these are all people that would normally have not -- those types of people wouldn't have considered themselves in the mortgage business, certainly not Lowe's, but they're using us because we've made it so fast and easy. So there are some things that are consistent around cost and speed, but then other things that are nuanced by the type of partner.

And then on the investor side, the other side of the marketplace, we're bringing a level of consistency and scale to the market that makes us a much more attractive place for someone to invest. We have AAA rating from S&P and Moody's on the securitizations. We were the first to securitize blockchain assets. We were the first to get them rated. We were the first to get them AAA rated and the first to get them AAA rated by a major S&P and Moody's or Fitch, which doesn't rate us, but could.

And as a result, there's a lot of consistency. And so buyers are looking for risk-adjusted return. They're looking for yield. Even in a world of kind of some of the disruption we've seen with like Blue Owl and those people, that's sort of happening over here. But what it's actually doing is increasing demand for Figure loans because we're not software, not exposed to that. And we have a ton of real money accounts, insurance companies, pension funds that are buying these assets to offset liabilities that they have. And that's a big trend in the market not going away as sort of lending has moved off bank balance sheets.

And so as a result, there's just -- there's a tremendous demand for yield, and we create that attractive yield, and we're also increasingly doing that on chain. We announced over the weekend that now, at least on the Ethereum blockchain, there are loans being financed. Figure loans being financed cheaper than they are in any warehouse line. Like is that forever? Is that like whatever, right? Point is like that's happening now. It's a real thing. And it certainly wasn't happening a month ago and it definitely wasn't happening a year ago. So it kind of shows you where the world is going.

As more and more liabilities move into stablecoin, which is obviously happening, you all know the success of Circle. And I think one of the reasons why a lot of people put us in the Circle category is that we are another company that uses blockchain to do something, to do activity on chain rather than just buy and sell crypto. And so one of the -- but as Circle and its ilk grow, more and more liabilities are moving to stablecoin, which means they're moving out of the banking system, just like assets have been moving out of the banking system. And as they do that, people who are in stablecoin will want access to yield and Figure is the natural place for people to get that yield, and that's what's happening on Ethereum today.

And Figure in the past 9 months has done a really nice job of expanding what we do to serve other blockchain ecosystems. So we were built on Providence, but increasingly, we have expanded what we do to serve the Solana ecosystem and the Ethereum ecosystem, which allows -- it really allows us to focus on what we do best, which is tokenizing assets and then bringing those assets and the yield that those assets bring to people that are in tokenized liabilities wherever they are.

The other question I often get from investors is you have these partners, 380-plus partners right now. How significant it is, or how involved it is to like on-ramp these partners, right? Someone could come into the space and say, I'm going to go to the same originators and can they sort of replicate the Figure model easily. Just talk us through how involved is this partner onboarding process.

Yeah. The people in our space with the exception of a few partners are often using multiple liquidity technology vendors, right? If you were to go to any of our standard partner, let's just say, let's just -- we talked about Flagstar Bank.

Like, if you go to what they're doing, they sell loans to Fannie Mae, they sell loans to a bunch of different people, right? And they also are using a bunch of different third-party software. So that's the landscape that we compete in already. There's already a lot of people doing what we do. And this actually came up in one of the conversations today, which is pretty much anyone else who had built what Figure has built would just use that to kind of originate for themselves. We did something very different, and we said, well, we're going to turn this into a marketplace. We launched Figure Connect in June 2024. So it didn't exist.

And now by May 2026, so less than 2 years later, it's over 60% of our volume. So 0 to 60 like a car in 23 months. And the reason why we were able to do that is because we've taken something really valuable and turned it over to the partners and allowed them to benefit from this. And that's hard to do. That's part of building a marketplace. And we don't really see, at least today, anyone capitalized or incentivized or with the technology to go and do something like that. That's not -- there's no one -- everyone is sort of solving kind of myopically their near-term thing. And so we don't have any competitors that are doing this exact thing. And if they were to try to do this exact thing, well, they would have to start where we were 8 years ago and get those ratings, get people to trust their blockchain technology, get people to trust their process and also compete with the $1.4 billion growing 130% year-over-year business that we're building that we're running quite aggressively. And so obviously, this is America, people can do that and compete, but I think it will be hard.

And obviously, we started talking about HELOCs, but there's a lot more coming. So there have been new loan categories that Figure has been working on. There's been small business, auto. First lien has been a growing category within sort of HELOCs. How do you see that sort of transition over the next couple of years?

So the first lien business, meaning not a loan on top of another loan, but just what people traditionally think of as mortgage is a 25x larger business than the second lien market that you mentioned, market share. And as a result, we see a lot of -- it's $2 trillion outstanding in a bad year. And we think that over time, all of that's addressable. But our ambitions, as I mentioned, are greater than that. And we think that the future of the capital markets is a tokenized future, and that's going to be one where all of the asset classes are moving to chain.

And we're using our -- a short-term financing marketplace democratize prime, which is essentially a warehouse line or commercial paper market that's kind of standardized and available to all without complex third-party diligence and legal documentation. We're using that as a way to get into other asset classes and start to build volume there and then expand kind of the same marketplace style approach and products that we offer in those markets as well.

How big -- I mean, when you compare the sort of newer products, small businesses, I mean, what's the kind of scale that one could imagine, especially for products beyond mortgage?

Well, mortgage is the largest consumer credit class and mortgage, but at the same time, mortgages is a lower rate, and it's also the longest. So when you talk about dollars outstanding or dollars of origination, like mortgages tend to be bigger and outstanding for longer. So I look at an asset class like small business as a really big opportunity for Figure for a variety of reasons.

One, and we talked about this in our Q1 call, $60 million of volume in Q1 was done through SMB partners. So that's home equity volume originated by people that are SMB lenders using our product to replace what would otherwise be business loans, right, whether that be SBA or non-SBA loans. And what that means is we're building out a network of SMB origination partners in addition to mortgage partners. And those SMB origination partners are -- have other loans that they would like to use other Figure products for like Democratized Prime, like our securitization product, like DART, or Digital Asset Registry Technology, right? They want those products. They want that standardization. They want that automation.

And that's why Credibly, which is, call it, a mid-market fintech that does business loans has already signed up to use Democratized Prime as a replacement for their warehouse line, right, which I believe today is a -- I guess, I can't probably say who does it, but it's not Bernstein. It's not stocked. So don't worry.

So they have a warehouse line and they're looking to use us instead or as a supplement. And over time, as I talked about, the cost of financing is coming down. They want to basically outsource their capital markets to what we do. And they are looking to pair and their loans with other SMB loans and build a securitization help build liquidity, right? The same thing that we did in mortgage, we want to do an SMB. And I think because you have kind of a lot of similar dynamics, aggressive salespeople, you have sort of this quasi-government entity, in this case, the Small Business Administration, providing some level of standardization, but not enough. I think that this is a market that's -- and we already have relationships in this space. I think you'll see a lot of activity from us in that space that's sort of happening away from what's going on in mortgage, but also fueling our growth and expansion.

And just broadening the ecosystem that Figure is building, there's democratized prime, there's your yield stablecoin. Can you just like paint the picture for us, like how do each of these parts of the ecosystem sort of stack up?

Yes. The way that -- I think the most valuable -- the originator relationships are the hardest thing to get. And so from the perspective of an originator, they're using our -- most of those people are mortgage, but they're not all, right? Some are small business, as we talked about. One is auto. And these people are looking at Figure's portfolio of products as ways to solve capital markets problems that they have, monetize their business, monetize their customers, et cetera.

And people are doing that and largely accessing our capital markets and our liquidity when they do so. And we have a bunch of products that offer that. Figure Connect, as we talked about, the origination system, which comes with Figure Connect and increasingly Democratized Prime, which provides short-term capital as they aggregate loans because loans are not sold one by one, they're sold in bulk and you need -- often you need financing to aggregate loans. And even the biggest -- even Affirm, even like the biggest fintech, anybody, even banks don't want to necessarily hold these loans on their balance sheet for long periods of time.

So everybody needs financing. That's why there's trillions of dollars in the money markets and the commercial paper markets, right? And so we're disrupting that, prime brokerage, all those types of things. And the point is that -- so that's kind of the short-term aggregation phase is supported by Democratized Prime. And then yields are stablecoin is kind of the oil of the capital markets. And the loans are settled in that. They're serviced by that. When people are -- like one of the reasons why yields grew a lot week-over-week for those of you who are tracking it, which may be no one. But the yields grew a lot recently because as we opened up the auto asset, when people are on Democratized Prime, when people are looking to lend onto that platform, they are -- their resting bid is in yields.

So rather than having dead cash, we offer people the ability to buy stablecoin and bid on lending to our assets. And while they hang out in yields while they wait, which is better than hanging out in cash that doesn't earn anything. And so yields is sort of better money is how we talk about it. And it's -- and so people are increasingly in our marketplace being paid in yields. And I'd just say yield just grows as a result of our overall marketplace. But it's a relatively small contributor to the P&L.

And when do we sort of -- and maybe this is potentially a more long-term scenario, but when do we go from a marketplace where you tokenize and there's sort of private investors buying the tokens versus going to almost like an exchange where people are -- it's a vibrant exchange where people are buying and selling tokens, they're borrowing against it using democratized prime. They're settling it using yield stablecoin what would take you from where you are today to kind of like an exchange for tokenized assets?

Well, I think for loans, right, there may not be demand to trade loans in that way. And I don't think that in any way diminishes what Figure does. I think that there are -- because -- but also remember, loans are -- especially mortgage loans are outstanding for 30 years. So it's really about when I do want to make a trade, which may be in bulk is that liquidity.

Some of the investors hold these token. So they could like, oh, I want liquidity, I'm going to come to Democratized Prime.

Right. So the fact that there's liquidity matters a lot, but I don't think that we need to gamify debt or to make people all of a sudden want to trade loans all the time for Figure to be successful. I'm not -- nor did you imply that, but I just want to clarify that.

However, I think one of the most interesting things about blockchain is this concept of collateral that you get with lean perfection. So this gets after our -- this gets to our ambitions in the prime broker space, which is why we're talking about tokenized equity and why we're talking about Democratized Prime because there's a lot of money in the short-term financing marketplace.

And today, if you want to like from a prime broker, if you're a hedge fund and you want to a margin a stock, you maybe use that margin to buy the same stock or maybe another stock, maybe, right? But Archegos, that sort of meltdown was, I think, an example of where that can go wrong, and also gets to kind of the values of blockchain and ownership and looking through and lien perfection. But point being is that there's not this level of cross-collateralization and margining that there maybe should be because of the way the systems work and frankly, the lack of something like blockchain that prevent you looking through from one asset class to another. That's not the way that things have to be.

And so Figure is imagining a future where someone could institutionally or retail, right, borrow against one asset class to then buy another asset class and have more fungibility and liquidity in the prime brokerage space -- and I think that is getting to a version of what you're saying without necessarily having to change behavior and saying people all of a sudden want to buy and sell mortgages the way they buy and sell equities. So probably just given that loans don't have the upside of equity and have more downside, that's unlikely, I think, from a behavior standpoint.

And on the other side, obviously, you can create yield products, right? So as you're integrating with the digital wallets, I mean, how is that sort of yield -- that spectrum of yield products evolving?

It's evolving in a number of ways. I think third-party ecosystems that are on chain, so let's say, like the exchanges of the world and the wallets of the world. So without like naming specific names, your Bullish's, eToro's, Coinbase, whoever, Kraken, right? They're all -- their customers are all looking for a yield. How are those customers going to get yield? Figure assets is a natural place, right? And that actually doesn't include just the Western-oriented ones. That would include the Korean and Hong Kong exchanges as well in wallets.

So I think those are big opportunities for us as yield products get built. But also as the -- just capital markets in general become more tokenized and you see BUIDL as an example and what BlackRock is doing. And you see a lot of different parties looking to tokenize the money markets in general. Well, the collateral inside those money markets will also start to tokenize and Figure has 75% market share in real-world asset tokenization. And that market share has been growing, right? We had that market share at the time of IPO, and we're going to continue to do so.

Again, one of the favorite investor topics on Figure is unit economics. I mean -- and that's also evolved. At one end, this was going from the origination to Figure Connect as a platform. And then you're also seeing this simultaneous shift between loans, right, as you're going from HELOCs to first lien and other sort of newer products. How do you see unit? I mean, first, -- what is a sustainable business model in terms of unit economics for Figure? And how do you sort of see that evolving?

Well, Figure has become increasingly capital-light as we've moved to Figure Connect. And essentially, with Figure Connect, we aren't involved in the origination of the loan from a balance sheet perspective. So it's really a technology fee that we earn and like a processing fee, which is sort of also a technology fee. And that has -- as I mentioned, has gone from 0 to 60 in 23 months as we've doubled each year. So it's grown tremendously, and it has a lot of momentum behind it.

And when we do that, we see a much a more balance sheet-light P&L, but we also see higher margin, and that's why our margins are approaching 50% right now because we're basically get that marketplace style economic of earning a fee and we have some variable costs, but not much. And as a result, that kind of drops down to the bottom line.

Offsetting some of that, of course, is going to be newer products that we're focused on where we haven't reached that level of scale, and we don't necessarily have those margins. So that would be like newer consumer loan marketplace products like our DSCR product where we're not as evolved our residential transition loan, -- and then you get into like yields and Democratized Prime, which are almost 100% incremental margin products because --

It's all fees.

Right. It's all fees with a stablecoin or with a short-term capital marketplace. And so the net of all that, as we've kind of shared in our medium-term guidance is around 60% margins. And I think from a unit economic standpoint, we started with the direct-to-consumer a long time ago, and that would be like the highest revenue, but the lowest margin. And then we moved into like an intermediary business where we leverage the sales and marketing of our partners to have them originate, but then we bought and then sold quickly thereafter, and then we moved to full Figure Connect. And in each of these cases, our actual dollars of revenue has come down, take rate has come down, but margin has come up and capital intensity has gone down.

And how should investors think about credit risk in general, in terms of loan quality, but also from the perspective of liquidity because the big funders here are private credit investors.

Well, the big funders aren't private credit investors, right? Some of the big funders are private credit investors, but many of the big funders are insurance companies. It depends on what your definition of private credit is. But I think Blue Owl, not to throw shade at them, like they're fine, like we -- I don't know anyone there or whatever, I don't mind them. There's actually someone there with my last name. Kurt Tenenbaum he covered us back, at my last company. But anyway, so he's fine.

But the point is Blue Owls bought loans from us, I think, once. So they're not like a big part of what we do. And I think we have a very diversified base, and I also talked about this on the earnings call, which is that even in early April, which was like probably the peak of drama related to this topic, we were executing at the best -- the lowest spreads ever.

So we're just kind of doing something a little bit different than that world. But that was a bit of a tangent from your question. And the focus for us in terms of like credit risk and liquidity, which was your question. So from a credit risk standpoint, we are the -- at least in the mortgage part of what we do, -- the average FICO score for our borrower is 740. The average income is 180. The average equity in the home after the loan is 30%.

So it's a solidly mass affluent customer that's very diversified. We're talking about $100,000 average loan amount. So these are pretty -- these aren't like chunky credits to software companies that are getting disrupted by AI. It's pretty different. And on the liquidity thing, we've obviously invested in the marketplace and also something we haven't talked about today and haven't been talking about as much, but it's really important because we invest in the future is the relationship that we have with Sixth Street, who I guess would be defined as private credit, but for those of you who listen to invest like the best, which I do, they had their founder on relatively recently. It was a pretty interesting podcast, I think very thoughtful platform, not to say other platforms aren't thoughtful.

And we've worked with Sixth Street to build out kind of a guarantee or permanent equity vehicle, which we call the guarantor. And that term, the guarantor, the SEC didn't love that during our IPO process, but we kept the term. And the guarantor is a permanent equity that has been established to buy loans in the Figure marketplace. It is -- we are somewhat inspired by Fannie Mae, and it represents a bit of what's going on there, which is to say that Sixth Street likes what we do enough to say we're going to commit permanent equity here.

And I will tell you that in early April, in the sales conversations that I'm a part of, something like the guarantor was coming up more than it would normally come up with originators who don't care about this until it's a problem. And so it is a differentiator for us because people see Figure as a capital market that will be there in times that are not as robust. And I don't think I actually specifically said what the guarantor is. It's a permanent equity that's been established to buy Figure loans. And an expectation, it would always be the best buyer of loans. But in a hot market, it will not be a great buyer. And in a bad market, it will be. And sometimes it may be the only buyer, but it will be there.

I wanted to touch upon tokenized equities as well. I know there's open very different -- very early stage of the business versus the credit business.

Sure.

Just like what's the idea behind it?

Right now, it seems at least to me that there's sort of a jump ball in equity, right? Everybody is trying to plant their ground in tokenized equity, and we also are trying to do that because clearly, tokenized equity is a big trend and things are changing. And what Figure is focused on is that lean perfection that we spoke about, right? Because if we're going to -- where does Figure have the right to win? We have the right to win in the prime brokerage business and the securities lending business. And prime brokerage today, a lot of the money is made when stocks are lent and borrowed against for short sale.

And right now, that economics is not earned by the owner of the stock or the borrower, right? It's generally earned by the prime broker. And a big part of what we did in credit is disrupt the middlemen and sort of turn over the economics to the originator or turn over the economics to the investor. And in the mortgage space, prior to Figure being there, there'd be all kinds of people that buy from small guys and then sell the big guys and like -- and we kind of cut that all out, right? And we're trying to do the same in equity. And in order for us to do that super well, the equity needs to be blockchain native because you need to know that that's what you're lending against and going back to a different thing I talked about earlier this afternoon, in order to like borrow against equity and be sure that you're borrowing against that equity and not have like an archego-style blow up, right, you kind of -- that's where blockchain can come in. It can prevent fraud, which again tends to be where people lose a lot of money.

And so we believe in a future of lean perfection and tokenized equity that is native to chain. We put out kind of our vision for that future by doing our own equity on chain. We initiated -- excuse me, we issued an all blockchain share class, FGRS, and we did a secondary transaction in February to show the market that, that could be done. Now we're signing up other issuers to do the same. But ultimately, what we -- our vision is not that different than the vision that Bullish and Equiniti promoted 3 weeks ago when they did that deal.

And I believe very strongly that, if that becomes the place that equities trade, the prime brokerage business will be bigger because the vision that they have is aligned to the vision that we do, and we are best positioned to win. So I think equity is not an asset class that we want to ignore because tokenization is coming there.

Figure is about the future of capital markets on blockchain. And so we want to have our -- we've put out our stake. And I think we have historically been the infrastructure layer, and that is my best guess as to where we will thrive in equity as well. But I think in today's world where so much is still up for grabs, it's very important that Figure flags what we're about and how we see the future and continue to build out that marketplace, even if that marketplace evolves to be kind of behind other people's distribution, which is what most of our marketplaces are.

I'm going to just ask one last question and then turn it over if the audience has any questions. As you said, right, the Figure volume is growing 130% year-on-year. Top line has been very strong. EBITDA is expanding as you get operating leverage from the tokenization platform. It seems like pretty straightforward to me. What do you think is sort of investors misunderstand about Figure?

Number one thing is that they narrowly focus just on home equity as like a trade, and they miss the fact that we've really created liquidity in a space in which there haven't been. And so they're always trying to like talk about the origination technology.

And what people don't sort of miss in that context is like there's lots of software out there, right? People aren't needing a new software provider. Nobody -- when I'm having a conversation with an originator, I'm talking 0% of the time about software. And I'm talking 100% of the time about capital markets, liquidity and how we can offer a solution that scales with their business and sort of changes the game. So that's the #1 thing.

And I think in general, we do have a more complicated story because we're blockchain and we're fast growing and we're fintech and there's a lot and there's regulatory interest rate, there's a lot going on. But I think at the highest level, and one of the reasons why we focus so much on that combination of growth and EBITDA is because like we don't look like other people. So don't bucket us with whatever you are. We think about us as something that is unique and singular and special, and we'll continue to execute into the really large market opportunity that we have.

Excellent. Just going to see if the audience wants to ask any questions. Okay. I'm going to ask a question. Sure. CLARITY Act. How does Clarity Act impact Figure? I mean, most -- I think a lot of investors think that this should accelerate tokenization. But just like what's the impact of CLARITY on Figure?

High level, Figure has been successful in a number of regulatory environments, right? Our stable coin was approved under Biden, and we are a company that's thrived prior to kind of the risk -- the blockchain forward administration, although we welcome that administration, right? It's obviously been helpful for business. But I think it is important to remember things change. And Figure has been a company that has not needed any one sort of legislative body or approach to make our business work. And we think about the world as back -- like just zooming out blockchain sort of a subset of fintech.

Fintech, you need regulatory, you need technology and you need capital markets to succeed in fintech typically. And so we care about all 3 of those. CLARITY, in particular, it will help on our Democratized Prime platform clarify the role of DeFi. So I think that will give institutional investors more certainty when they're signing up to lend in something like that. I think there's a world where our stablecoin yields YLDS is uniquely positioned as something that both can offer yield because it's not a GENIUS Act stablecoins.

Security.

It's a security, but may potentially not require a transfer agent to move. And if that happens, yield would be just a better USDC, right, because it would be a yielding USDC.

So that would be very disruptive. I mean that's -- I'm not counting on making the year with that, but that would be definitely nice. And just in general, I think CLARITY, as you said, it's kind of solidifying the future of tokenization, which is a big trend for Figure. But if CLARITY passes, it's not like that's not going to be a poll vault for Figure's business. And if it doesn't pass, it's not going to be a brick wall.

How does AI sort of accelerate the Figure business model? And how are you sort of adapting to the sort of agentic finance?

Yes. AI is among the biggest challenges, I think, for people running companies today because it's just the pace of innovation and the pressure that is put on companies to evolve and adopt is high. And I think we are meeting that moment very much. I think we're doing it across not only our product, but also how we run the business.

So in terms of our product, we're very well positioned in that we represent -- I like to say that, AI is the brain, but blockchain is the nervous system. And kind of going back to what I mentioned before, just because you add AI to an origination process does not mean you will lower its cost or speed it up. And you cannot -- digitizing a bad process left us with a $12,000 cost to originate. And so for us, it's very important that the inputs are verified on chain because otherwise, you just get AI slot, right, which was the word of the year in 2025.

And at the same time, as we look to bring new asset classes on to what we do, we're using AI to adapt those asset classes to the same schemas that we've done for mortgage and translate them, and that's been very helpful. So AI is providing a lot of operating leverage there, which that would have been like a whole thing prior to AI for sure.

Then you get to how do we use AI ourselves, like not in our product, but as our company -- and one of the reasons why our direct -- I don't talk about this too much, but this is a close group of friends. And we don't emphasize our direct-to-consumer business very much because it kind of competes with our partners. And -- but I think one of the reasons why I have wanted to keep it is because it is actually our way of making sure that we are always at the forefront of using AI in marketing.

And we have continued -- even though every marginal -- originatating partner that comes on our platform is competing with ourselves, right? We are giving away our advantage to our partners. We're still growing that also 100% year-over-year. And that's because we are the most effective user of AI of the partners. Because we are a company that really focuses on that. And I just don't think -- you never know where the world will go, and that's not something I'm prepared to give up in case we need to go back -- who knows what AI can do. And if it can do so much that we need to -- that we're really the only ones who Figure out how to do it well. I'm trusting -- I'm betting on ourselves, right, on that one.

And then lastly, how do we use it in terms of operating leverage and costs. That's where we do more third-party stuff. So chat is something that we've leveraged heavily, voice AI for service. We also -- I think I said this on the most recent call, just in terms of coding, I think 30% of our coding is done is AI code. So we're leaning in, but we already are a lean business at 50% margin. So at the margin, I'm focused on AI and the product, not an AI taking out cost because we don't have a cost problem.

Sure.

We're only 600 people-ish so.

All right. That's it. Thanks, Mike, and thanks for doing this.

Thank you.

Welcome to the Figure Technology Solutions First Quarter 2026 Earnings Conference Call. [Operator Instructions] Lastly, today's call is being recorded.

I'd like to now turn the call over to Bryan Michaleski, Head of Investor Relations. Please go ahead.

Good morning. Welcome to Figure's First Quarter 2026 Earnings Call. My name is Bryan Michaleski, Head Investor Relations here at Figure. Joining me on today's call are Mike Cagney, Executive Chairman, Co-Founder, Figure; Michael Tannenbaum, our Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer.

Before we begin today, I'd like to briefly note that in today's call, we will refer to certain non-GAAP measures. These measures have been reconciled to their GAAP equivalents in the earnings release we issued today or yesterday as well as in the appendix to our supplemental slide presentation posted to our website. As a reminder, non-GAAP measures are not intended to be a substitute for GAAP results.

I'd also highlight that certain comments made today may be considered forward-looking statements under federal securities law. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which of are beyond the company's control, can cause actual results, events or circumstances to differ materially from those described in the statements. For more information, please refer to the risk factors we've identified in our most recent 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law.

And with that, I'll turn the call over to Mike Cagney. Mike, please go ahead.

Thanks. So I want to thank everyone for taking the time to join us on the call today. We've got a lot to cover and a very strong quarter. Before we kick off, I know there were some questions about my absence from the earnings call last quarter, so I wanted to set expectations. And my role as Executive Chairman, I'm thrive to long-term strategy of Figure. I'll join these calls when we're spending time on that topic like today. You should expect to hear from me about every other call, but that will be -- that will vary based on what's happening with the business.

So I understand that for an investor looking at Figure for the first time, there's a lot to take in and often leads investors to take the easy path assuming Figure is a HELOC company, but Figure is not a HELOC company, Figure is a company building a capital market ecosystem native to blockchain, this is a total overhaul of the existing market. To kick off this call, I'd like to lay out the ecosystem we're building, how we plan to scale it and why it matters.

So Figure's ecosystem has 3 verticals: debt and structured finance, equity and non-debt digital assets and capital and financing markets, YLDS acts as the currency that ties these verticals together. With debt and structured finance, our first launch into that vertical was through our own retail HELOC production back in 2018. We quickly evolved that into a B2B business. And today, the vast majority of our mortgage production on the platform comes from our 380-plus third-party partners.

Further, over half of that production trades on Connect our whole loan marketplace. With Connect, we pioneered what we believe to be the only liquid private credit capital PSCs, which only quasi-private. This capital market, not the originating technologies are moat in this business and our primary revenue driver for loans in our ecosystem. Last year, we began to bring our digital assets over to DeFi for financing, introduced the problems remain to all real-world assets on blockchain. DeFi's asset-based lending, the premises that the collateral backing the loan is liquid. What are the collaterals a whole loan given LTV breach, how does a lender take a fractional position in the whole loan. And even if they could, where would they sell it. This is where our platform forge comes in. We built forwards to transform whole loans in the small single dollar liquid participation units. Loans get pledged or sold into a bankruptcy remote container that container issues participation units against the loans, these units have a natural market. They get expensive, entities will buy loans on connect and pledge into the container than sell participation units in the market. They get cheap, bigger and others will buy them, swap in the loans and securitize them. This 2-way arbitrage supports the liquid marketplace. With liquidity, the unit's work as collateral in DeFi. Lenders can see market liquidity, volatility and advance rate to decide on whether to participate as they would with Bitcoin or other crypto assets.

Forge acts as a critical intermediary between on chain loans and DeFi. We were excited to announce Agora in Q1 is the first forge third-party partner and are building a pipeline of many other issuers across consumer mortgage receivables, SMB and other loan categories, with the goal of bringing these issuers onto blockchain into connect via forge to DeFi. Michael will talk more about the economic model to this and the other 2 verticals. But essentially, we make money running the marketplace, which is Connect, the bridge to DeFi, which is Forge and DART, DeFi itself, which today is Democratized Prime and the arbitrage from participating in the token market.

For equity and nondigital assets in Q1, Figure launched the on-chain public equity network or OPEN. With OPEN, we are capturing the blockchain value proposition, transactional efficiency, liquidity and DeFi through public equities native on-chain. On open stock is registered on the blockchain, not DTCC, stocks trade on our ATS, which functions like a decentralized exchange of self-custody self-clearing. The ATS supports Direct Wallet Connect eliminating the need for introducing brokers. And through self-custody stockholders can access DeFi for lend and borrow.

OPEN delivers important value to companies and investors. First, companies can do proxy and other outreach and distributions directly to wallet holders eliminating the cost of these services from firms like DTCC. Check the combination of 24/7 trading and Wallet Connect opens up access to trading to a global investor base, but a most important value proposition lies in DeFi. With OPEN, shareholders can put their stock up as collateral to borrow in DeFi markets at potentially better advance in interest rates that can cross collateralize combining stock with Bitcoin, for example, to borrow against both. But most importantly, they control stock loan rather than the prime broker sitting in between a stock lender and borrower at an opaque market, the shareholder can put their stock out or borrow directly on a limit order book. This redirects the money that primes make today to the shareholder. It also creates an interesting mitigant to high short interest where the underlying stock is -- when the underlying stock is on special.

With the shareholder getting this full stock loan benefit, the company creates a countervailing force to own a heavily shorted stock, high coupon from the stock loan. OPEN is unique and that the stock is native on chain, not a DTC copy or an SPV interest. Shareholders have full rights in the stock can trade in the limit order book. Competing efforts suffer from limited access as PVs are available to U.S. investors, for example, limited liquidity DTCC copies can't trade in the limit order book because of Reg NMS and best execution or limited utility. So copies of assets generally won't work in DeFi protocols.

In addition to OPEN, we also support marketplaces for other non-debt digital assets, including crypto, or we're not actively trying to grow these markets today, they provide an important laboratory for testing and product and technology ideas. Again, Michael will talk about the unit economics, but with OPEN, we earn in listing fees, trading fees, but the bulk of the economics come from DeFi.

On capital and financing markets, the common threat across the debt and equity verticals and the biggest value from blockchain is the DeFi. Last year, Figure stood up a custody bilateral marketplace called Democratized Prime. As the name implies, we weren't trying to hide our ambitions into the separate. We're building a compete venue for financing digital assets on blockchain. Democratized Prime currently supports markets across whole loans, loan participations, crypto and equity. Democratized Prime is native to the Provenance blockchain or primary layer 1 chain.

Last year, the Provenance Foundation launched Hastra, a DeFi protocol that swaps wrapped yields for a prime token. The Hastra protocol unwraps the yield takes yield to Democratized Prime prime and passes on the interest less a feed to the prime token holder. There are liquid markets for prime token and active DeFi protocols away from Provenance blockchain that provide leverage called looping for prime token holders boosting returns from mid-single-digit mid-teens. Hastra access middle from third-party Layer 1 blockchains to Democratized Prime. It launched on Solana in Q4 using Camino for financing and Radium for Liquidity. The Prime Token was the fastest-growing token in Camino's history and is the largest actively deployed real-world asset open for DeFiLlama in the entire DeFi ecosystem across any blockchain.

Last week, Hastra announced its launch on the Morpho protocol on Ethereum, opening up an even water addressable DeFi market on blockchain today. Again, Michael will talk in detail about the economics, but the primary driver here is the spread we earn between lenders and borrowers with some protocol fees from Hastra eventually paid back to Figure.

In terms of what we're trying to do to scale these verticals, we're pursuing a set of discrete strategies to build out our blockchain native capital market ecosystem. First, we're working on growing the first lien market via HELOC on Connect. The first lien market is upwards of 25x larger than the second lien space. We've been pushing an innovative solution of using HELOC and first lien position, dramatically lowering originating costs relative to traditional mortgages and are beginning to establish dominance in the sub-$300,000 first lien loan marketplace.

Second, we're focused on bringing USDC, USDT utility yields. While yields per appear transferable as the security it still requires a transfer agent and then the name and address of each holder. We're advocating both to the SEC and via Clarity satisfied transfer agent requirements with wallet address. This would bring identical utility to yields afforded to any genius at coin, but with the added feature that yields pays interest. We see this as a significant unlock for applications from DeFi to payments.

Third, we're working to build a proof point of the -- we're going to improve a point of the borrow benefit to shareholders on OPEN. We've been working with some of our largest shareholders and migrate their stock positions from NASDAQ to OPEN. We believe this will cause a tipping point where borrow for shorts must happen on change. Once we've established this proof point, we'll make a concerted go-to-market push more listings.

Fourth, we're bringing third-party borrow on to Democratized Prime. And in order for us to scale significantly, we need to make bolder bets in terms of the types of companies that we partner with and the structure in which we do. The team has done a nice job of adding 380 partners in our tokenized mortgage marketplace, but we are exploring ways to add additional assets and change the capital markets in. In fact, we'll talk about adding SMB as part of Michael's comments.

Fifth, to accommodate this expected increase in volume, we're working to bring TradFi capital on to Democratized Prime. The DeFi ecosystem is still nascent size relative to TradFi wholesale capital markets. To get DeFi scale, we need TradFi dollars from retail investors and institutional asset managers to begin to use protocols like Democratized Prime to earn yield. We're working with multiple partners on this, including ensuring security perfection and collateral and helping third parties launch dedicated DeFi yield funds where they have guaranteed access to certain democratized prime pools.

Finally, we're beginning to allocate resources into existential problems for blockchain a wallet-centric experience. Terms like coinbase, Robin Hood and so are building Super App. So one-stop shop where the firm controls the customer data, custody transactions and experience. Blockchain affords a different user-centric approach, notably with self-custody wallets and distributed applications and east can control the data, pick their own transaction venues and maintain a consistent user experience. Blockchain is a very small pond. The only way to make it a lake in a notion is to deliver an experience that both retail and institutional TradFi customers can embrace. You'll hear more from us on this topic over the coming months.

Our blockchain ecosystem is a multiyear endeavor with massive upside. I know public companies look quarter-to-quarter, but we want to set expectations on timing. It took us several years to drive means treatment option in HELOC and it wasn't an easy path. We expect the same as we build into additional credit equity and yields, but believe the payoff is worth the upward. To help explain the upside and to provide a recap of the quarter, I'm handing it off to Michael.

Thanks, Mike. I'll kick it off by covering our strong performance this quarter. Q1 '26 continued our impressive financial performance with again over 110% consumer loan marketplace growth and roughly 50% adjusted EBITDA margins, putting us at a rule of 140 versus benchmark of 40. Revenue was up 92% and adjusted EBITDA margin at 50% as we continue to see the benefits of our capital light marketplace, Figure Connect in the financials. In fact, Figure Connect grew to 56% of volume, up from 54% last quarter.

In terms of volume, we saw growth across all channels, most notably new partners, depository activity, business purpose and partner growth via Figure Connect. I'll walk through each now. We added 80 new partners the most ever, and launched partners, including the seventh largest lender in the country. Our business purpose product highlighted by the SMB channel continued its very rapid expansion with volume in almost $60 million this quarter. We've also seen a significant acceleration of depository activity within our pipeline, reflecting a clear and growing demand for Figure's own products from this important market segment.

Highlighting this is the recent onboarding of Flagstar Bank, a large regional depository and now the largest bank originator on our marketplace to date. This validates our platform's institutional grade and our ability to support complex, large-scale banking operations. We're currently in the final stages of implementation. We believe this momentum will only be amplified by proposed regulatory shifts. Specifically, Fed guidance regarding reduced risk weightings for mortgage assets and home equity loans serves as a substantial tailwind further incentivizing depositories to leverage our platform and optimize their balance sheets.

The business channel progress coincides with growth we are seeing in SCR and residential transition loans. These 2 products, often used by real estate investment businesses represent a roughly $100 billion addressable annual origination market. The SCR loans focus on rental housing and are one of the fastest-growing pockets of residential lending and residential transition loans are an attractive category for us on democratized Prime due to their short-term nature. In Q1, we saw 70% growth from both of these products, and we expect this to be a focus going forward.

Last quarter, I jumped 2026 the year of the first lien. Today, I'm pleased to share first lien volume now accounts for 20% of our total, up from 19% last quarter. We compete there primarily in the small balance loans where our $1,000 average cost to originate versus industry average of $11,500 is most differentiated because the cost savings makes the largest difference on smaller loans. The standardization and liquidity that we are bringing to the mortgage industry is showing up in our strong results, our volume growth and our execution in the face of complex geopolitical and macroeconomic environments. In a recent meeting with a major potential partner and executive shared that their company sees 2 existential threats. The first I expected, AI disrupting the value chain such that their company's cost advantage erodes, but the second was that Figure becomes the default capital market and that they're late to partner with us. So that company is one we've called on for years and the posture ship was notable.

Macrina will cover take rate in more detail, but we achieved 3.8 this quarter, in line with the guidance we provided. Reminder that in connection with the airline Mike just gave our economic level for Figure Connect and the consumer loan marketplace more broadly is take rate by volume. On this quarter's take rate, we see this result as impressive, especially in light of the volatility and interest rate expectations experienced throughout one, as we indicated last quarter, while our take rate is lower on firs-lien volume, the total revenue contribution margin and EBITDA we earn on each first lien loan is higher as balances are significantly larger. For example, we would rather earn a 2% take rate on a $300,000 first lien loan or $6,000, then a 4% take rate on a 60,000 second lien loan or $2,400, as the cost to originate are the same.

Any decrease in take rate is not a reflection on our competitive differentiation or demand for our platform. Having just recently crossed the $1 billion monthly marketplace origination mark, we see a clear path to $2 billion. On the acquisition side, we benefit from what we refer to as Wales, which can do $50 million plus per month at scale. We've been adding at least one of these per quarter consistently. One of the wells we added in late Q3, for example, did over $150 million this quarter. While smaller partners contribute less, we have also been adding conservatively around 50 per quarter and with the wide open TAMs and SMB and depositories, we see lots of opportunity.

Then we go from existing partners, which continues to exceed expectations. This is fueled by improvements we make to the product as well as the incentives that drive volume on Figure Connect. Think of Figure Connect as the Baylin for these walls, it's the specialized infrastructure that allows them to swim through the capital market and efficiently ingest vast amounts of volume. Just as been filters everything a well takes in, Connect standardizers and filters their originations into AAA quality assets for our capital markets. Three examples: one, product improvements we made in Q3, such as expanding the underwriting automation to business bank accounts now account for almost 10% of our monthly volume. Two, for Connect, on average, we see over 2x monthly volume on a same partner basis, 6 months after launching on Connect. And three, in Q1 saw offering 5x monthly volume growth for Mutual of Omaha, a Fortune 300 financial institution after upselling to Connect. Ultimately, we see a very clear path forward to continuing to double the business from here.

Turning to the blockchain ecosystem. We continue to see rapid growth with yields and democratized prime balances both growing roughly 80% quarter-over-quarter. With yields democratized prime participants are staking yield via the Hastra protocol as a way to earn yield. Growth also came via a measure milestone with an OCC chartered bank on yield on its balance sheet for treasury purposes. Lastly, we are working with a large region bank on a sweep arrangement that we expect to drive significant balances. The economic model of yields is a captured spread over SOFR, which is roughly 35 basis points multiplied by the yields balance outstanding. Democratized Prime saw the launch of Acura auto assets with $24 million borrowed as of the end of last month. Third-party borrowers are the immediate focus of Democratized Prime and the quarter we have already added 3 more, including a DSCR originator and Credibly, a fintech lender for salt and medium-sized businesses.

Credibly highlight the traction we've made in the SMB space as well as the opportunity to build new tokenized Capital Markets rails. In 2026, we planned to add a total of 8 to 10 third-party originators, although we are on our way to exceeding that goal. Adding third-party borrower volume on Democratized Prime is important because, one, it's currently the bottleneck to growth; and two, because our revenue model earns economics from the borrower. 50 basis points has been the baseline but with the value of Forge, as Mike mentioned earlier, we see upside to that number.

On the lend side of the marketplace, the state yields prime token is now the #1 by TBL on the Camino marketplace, and we recently announced an extension into Ethereum. Even though third-party borrow is the current limiter on growth in the marketplace, we maintain robust efforts to diversify our lender mix as well. I mentioned this because to echo Mike earlier, figure has ambitions for Democratized Prime to be much larger, and we are seeking to bring entire asset classes on chain. While the take rate Democratized Prime is lower than our consumer loan marketplace, the TAM is much larger and the inbound interest we have from borrowers joining the platform is significant.

We see a medium-term world where Democratized Prime balances are measured in the tens to hundreds of billions. In terms of open, our on-chain public equity network we maintain a robust pipeline of issuers with OpenWorld being the second issuer to publicly file a registration statement with the SEC with the intent to use OPEN. Mike outlined a lot of the why with OPEN, but from an economic perspective, we see a number of fee opportunities here. Listing fees and trading fees are endemic to the equity capital markets, the broader prime brokerage activity with the same monetization model we see for debt and Democratized Prime is the largest opportunity by total addressable market.

Before turning it over to Macrina, I want to quickly cover private credit before ending on AI. In terms of the capital markets, our platform was resilient despite the industry's concerns around retail investor-driven redemptions from private credit bonds. In March '26 alone, when private credit concerns were heightened, over $1.15 billion of whole loan sales were executed on Biggest Marketplace. In April 2026 a BWIC bid wanted in competition or a loan auction was completed on Figure's platform that resulted in a record low spread to the applicable risk-free rate, reflecting strong institutional investor demand for our assets.

In fact, we're seeing increased interest in Figure assets as investors rotate out of leveraged loans where there are more concerns and into the high-quality, diversified consumer assets on our marketplace. As a reminder, the credit performance of loans in our marketplace reflects a borrower base with strong fundamentals.

Turning to AI and building off our discussion from last quarter, we believe rapid AI adoption represent a massive tailwind for blockchain native coding like figure, and I'll continue to detail our efforts here regularly. Capital markets are undergoing a simultaneous shift from blockchain and AI and Figure is building the system that connects them. Here, we say AI is the brain, blockchain as the nervous system.

Our custom AI platform operates on a structured, time-stamped on-chain financial data set that is directly tied to actual transactions, trained on real outcomes and helps with execution within our marketplace. This is a key point of differentiation and I can't emphasize enough. Many organizations today are building AI-enabled features or experimenting with agents, but moving capital markets requires an underlying system that is optimized for reliability, control compliance.

As I repeatedly say, you can't AI your way into AAA. To lead this next phase of execution, we recently welcomed back Rod Albuyeh as our Head of AI. Under his leadership, we're developing agenetic workflow systems on top of our platform that handle tasks like data onboarding, document validation, underwriting checks and exception handling. Everything we do is in systematically reduced friction in areas where automation complemented by human oversight when necessary, delivers the most value.

Three specific examples I'll cover are: one, our use of AI and building product; two, our use of AI and customer support; and three, our use of AI in adapting Agora's third-party auto assets to Democratized Prime. In the last year, we've seen a 25% increase year-over-year in what we call story completion, which is essentially engineering projects delivered on flat headcount. In chat containment, we've seen 70% and are now implementing voice AI and most significantly, with Agora and now other third-party Democratized Prime assets, we introduced an AI-enabled validation workflow that compares third-party assets against the underwriting criteria those assets were intended to satisfy at origin. The initial results have been encouraging and are helping us build a more scalable workflow and control framework for honoring third-party assets. And now I'll turn it over to Macrina for financials.

Thank you, Michael, and good morning, everyone. As Michael highlighted, the first quarter of 2026 was a period of both significant growth and strategic diversification of our partner network and product offerings for Figure. We are operating at a rule of 140, a best-in-class standard we've achieved through 92% year-over-year adjusted net revenue growth, combined with an adjusted EBITDA margin of 50%. To put that in perspective, we are performing at more than triple the traditional rule of 40 industry benchmarks.

Our consumer loan marketplace volume grew over 110% year-over-year. This brings our Q1 '26 volume to approximately $2.9 billion compared to $1.4 billion in Q1 of 2025. As momentum accelerated coming out of the winter months this quarter, in March, for the first time as a company, we crossed above $1 billion of CLM volume at $1.2 billion. To highlight the scale, March volume alone represented 85% of all of Q1 2025. This momentum has continued into Q2 with our published April volumes continuing to accelerate both sequentially and year-over-year. Our volume on Figure Connect accounted for 56% overall Q1 volume suggesting enhanced capital efficiency given the balance sheet light dynamic of Figure Connect.

Democratized Prime ended the quarter with matched offer balances of $368 million when YLDS ended at $598 million, reflecting continued adoption following the Prime token expansion on to Solana and our broader real-world assets consortium initiatives, adding distribution for these products.

Our adjusted net revenue for Q1 '26 was $167 million, an increase of 92% over the prior year quarter. Adjusted net revenue benefited from higher consumer loan marketplace volume alongside servicing and interest income, which are asset balance based revenue lines. Adjusted net revenue directly correlated to consumer loan marketplace volume grew 109% year-over-year while servicing and interest income combined grew by 42%.

Our net take rate for the quarter was 3.8%, which is in line with our previous guidance between 3.5% to 4%. We continue to see more first lien volume, which reached 20% of our total volume this quarter up from 14% in Q1 of '25. As we've mentioned, there are a number of inputs to take rate, which is why we do not really view it as the core North Star metric for the business. Mix shift is one factor. And over time, you should expect some of our key growth areas, including first non-Figure Connect impact towards lower take rates than junior lean volume.

That said, these businesses are attractive because they are less capital intensive, operating much larger markets and generate strong contribution margins and profitability for the company. So when we evaluate performance, we are much more focused on contribution profit, EBITDA and the absolute dollar economics of the business and just take rate. In this quarter specifically, some of the inputs to take rate were net positive based on normal market variability, including interest rate-related dynamics in some of the higher take rate portions of the business.

More broadly, as we continue leaning into larger opportunities like first lien, which is roughly 25x the size of the junior lien market, we believe that is the right trade-off for long-term growth and profitability. To touch on loan sale execution on Interconnect, it has held quite steady in Q1 '26 and into April of 2026 despite the macro and geopolitical environment. Since the beginning of the year, we have priced 5 securitizations with an aggregate notional value of nearly $1.9 billion and are continuing to see our pools priced competitively in new issue markets, reflecting a strong market consensus on the quality and resilience of the underlying credit on our marketplace.

One further point to add in this revenue discussion section is that we are strategically retaining a portion of our loans as reflected by the approximately $350 million on our balance sheet at quarter end. Longer than we normally do, which was a deliberate decision to support the buildout of our Democratized Prime DeFi marketplace, as I had indicated during the Q4 earnings call.

During our IPO roadshow and recent earnings calls, we have highlighted the importance of using our own inventory to build this marketplace. Lenders on blockchain are showing significant appetite as we see continued interest and growth in lender supply coming into Democratized Prime and Figure originated loans are supporting the supply to match offers. This translated to higher interest expense of approximately $2 million quarter-over-quarter.

Our adjusted EBITDA margin was impacted as a result by approximately 1.4% with a larger revenue denominator for lower margin interest revenue with more lenders and asset classes coming online into Democratized Prime over the next quarters, as Michael announced today, we expect this interest income expense and loan balance trends to diminish.

As Mike Cagney noted in his remarks and also have noted a number of times in past remarks, building out marketplaces requires upfront investments. With that, the scale comes quickly and handsomely as with Democratized Prime, where we are already seeing scale benefits into prevailing lending rates which will flatter margins going forward. I will cover this further in the balance sheet and liquidity section.

Moving to profitability and adjusted EBITDA. Our GAAP net income for this quarter was $45 million including a tax benefit of $7 million. Following the post-IPO lockup expiration, we saw a onetime tax benefit from option exercises. While equity activity can continue to create periodic tax benefits, we view the magnitude of the Q1 benefit is elevated and not indicative of the full year expected tax rate. Assuming no additional material tax benefits from option exercises, we currently expect the full year effective tax rate to be closer to the 20% range.

Adjusted EBITDA was $83 million, up approximately 190% year-over-year, and adjusted EBITDA margin was 50% compared to 33% in the prior year period. In addition to the interest income and interest expense impact to our margin, as I discussed earlier from a variable cost efficiency perspective, we are making further investments to utilize AI and automate our operations.

Our technology platform has proved to be extensible. And even as we have been adding a number of enhancements to the mortgage products such as support for new income types and property ownership models, there has not been a material increase in these costs. Operations and processing income declined 20% from 93 basis points to 74 basis points as a percent of volume as our CLL volume more than doubled from Q1 '25 to Q1 '26. This is the power of our AI-driven efficiency road map.

Near term, we expect operations and processing costs to remain relatively flat as a percent of volume as we continue these initiatives with AI-driven improvements expected to impact further in the second half of 2026.

Moving to our balance sheet and liquidity. We ended the quarter with approximately $1.5 billion in cash and cash equivalents. Loans held for sale was approximately $500 million at quarter end, an increase of $100 million since year-end and on par with a year ago. Our loans held for sale balance typically reflect the periodic timing of loan sale and securitization programs as we generally only hold these for a few weeks.

As I mentioned earlier, as we scale Democratized Prime and utilize figure loans for collateral to meet lender supply, we extended the time we hold certain loans on our balance sheet for this quarter. Available lender supply was 0.9x borrower demand at the end of the year. This is now 1.2x at the end of this quarter. As more third-party borrower demand comes on to the platform such as Agora data as well as Credibly, which we announced this May, we expect these balances to normalize back to historical trends.

In addition, as more lender supply comes in from East network, we expect to add more lender supply and also bring down cost to borrowers on Democratized Prime marketplace. I wanted to provide some color on changes to adjusted net revenue as YLDS in circulation continues to grow, we are updating our definition of adjusted net revenue to deduct YLDS related interest expense. Bondholders of yields earned, which today is still for minus 35 basis points. This better reflects the true spread take rate on YLDS as part of adjusted net revenue.

In addition, as our CLM volume continues to grow, we are holding more marketable securities on our balance sheet as a regulatory requirement to hold at least 5% of figure sponsored securitization. We are adjusting net revenue and adjusted EBITDA for unrealized P&L volatility from these securities. Note that securitizations issued by our guarantor do not have a risk retention requirement.

Finally, starting this quarter, we are introducing quarterly guidance for our consumer loan marketplace volume. Looking ahead, we are establishing our Q2 '26 CLM volume guidance in the range of $3.8 billion to $4.1 billion. This marks the first quarter in which we are providing formal volume guidance. We believe this is the appropriate inflection point to do so as the increased data transparency from our blockchain integration, combined with more predictable scaling patterns provides us with requisite visibility to forecast with a high degree of confidence.

Our outlook is supported by a robust start to the year. Following a strong Q1, April delivered another record-breaking volume month. That momentum has carried into May where we continue to see strong activity levels ahead of normal holiday-related trends later in the quarter. As Michael noted earlier, our strategy remains focused on onboarding high-volume Wale partners. In our guidance, we have been intentionally conservative regarding the ramp-up of larger accounts onboarded in Q4 and Q using a 3 to 6 months' time line. While we have seen partners integrate faster, we believe it is prudent to provide a range that accommodates a more measured ramp up. This approach ensures our guidance remains grounded as we continue to scale these enterprise-level relationships.

Thank you, and we will now open up the queue for questions.

[Operator Instructions] And we'll take our first question from Dan Dolev with Mizuho.

Guys, excellent results out there, very, very strong. I just had a question about DSCR. Can you talk about -- it looks like -- it looks really promising. Can you talk about the market opportunity compared to traditional HELOCs and how we think about it into the future?

Thanks, Dan. We talked both about residential transition loans and DSCR, which is debt service covenant ratio. And both of those are targeted towards traditionally investment orientation in the business case, so people using a loan for business purposes, often renovation or fix and flip. And you're seeing product traction there in markets that have historically been pretty manual, fragmented, operationally intensive. These capital markets have also been really slow with legacy processes and loan by loan sales. And so we think this creates an opportunity for modernization on name.

These greenfield opportunities come in that broader business market that I was mentioning, which we see as another avenue to attack that $35 trillion of home equity outstanding. And I mentioned this in the prepared remarks, but for residential transition loans, in particular, we see that as a really nice fit with Democratized Prime because the loans are relatively high rate they're collateralized by a home, but they're also short term. So it's almost a perfect set there.

And congrats again.

Our next question from James Yaro with Goldman Sachs.

Michael, I wanted to touch on your comments on potentially lower bank risk weights for mortgages. I guess I would think that those could make banks more incentivized to hold assets on balance sheet, but you talked about how you expect this to support volumes. I just want to get a little bit more from you, just how you think that, that could drive even more activity on Figure?

There's 2 ways. There's the origination and there's the capital market. from an origination perspective, if banks are looking to have the flexibility and reenter the mortgage space, as you likely know, it's generally a nonbank market today. Then Figure is the easiest way for them to get up and running. And it also provides the most flexibility from a capital market perspective because they can make and hold some portion and they can also even hold just for CRA eligible, for example. So we've seen a lot of interest from banks and depositories in doing so.

And then more broadly, in the event that bank balance sheets actually become a strong long-term opportunity for holding mortgages, which today is not the case, right? Many banks participate in Fannie Mae securitizations even though they have the balance sheet, but if that were to change, then we think Figure Connect would be the ultimate rails and pipeline to help those banks aggregate mortgages because they're not going to overnight become large originators of this asset class.

That's super clear. Can I just ask one follow-up here. I'd love to just get your sense or your aspirations in the first lien purchase mortgage market. I guess, is this a goal for you to add to the platform? And what do you think you need to build before you could start to tap that obviously, very sizable TAM?

It's a medium-term goal for sure. We think that it's obviously a large addressable market. We have great relationships across partners, and we think as we look to ultimately take the entire capital market on chain, purchase mortgage as a part of that. For us, we are currently contemplating with some of our larger partners, some of those whales we've mentioned, who have actually come inbound and asked for that. So we're currently developing that in connection with some of those partners.

We'll take our next question from Patrick Moley with Piper Sandler.

This is Will [indiscernible] on for Patrick Moley. Earlier in the call, you mentioned upselling Mutual Omaha to Figure Connect. Can you talk a little bit more about the upselling process to connect some of the sticking points, if any, and the pace at which you expect nonconnect volume to switch to connect over time?

Thanks for the question. Process generally is a volume-based one. The incentives are naturally aligned. As a reminder, when people move to connect, they ultimately earn more of the economics and then Figure goes to be increasingly balance sheet light and earns a higher EBITDA margin as a result. And so generally, around $5 million to $10 million of monthly volume is when conversations start regarding Figure Connect. And we've made it as easy as possible by building a large ecosystem of products, including Democratized Prime, which is a way that people can finance assets as they aggregate to then ultimately securitize.

So everything that we do, Figure Forge, as Mike was mentioning, all of these -- all this tooling that we provide in this broader ecosystem ultimately greases the wheels of Figure Connect and that's why you're seeing 60% of volume and why folks like Mutual of Omaha are flocking to this and also increasing their volume by such amounts when they do so.

We'll take our next question from Ryan Tomasello with ABW.

Nice to see the addition of Five Star. I know you've already given some prepared remarks on it, but I wanted to double click on the traction you're seeing with traditional depositories, particularly for Flagstar, what drove that win? And then in general, how that sales motion differed versus going to your traditional more common IMB and fintech partners beyond some of these regulatory dynamics? Michael, what's driving the unlock of those conversations?

The drive towards depositories is personal for me, I was an investment banker covering regional banks right out of school. So I've been really focused on the space since I got here and Mike Cagney is also as a way with regional banks. So for both of us, it's been a big focus, and we have yet until recently to make really significant traction. And I think the turning point has been one, just the scale of what we're doing at some point now in the past quarter, we crossed over $1 billion a month of volume, which is really significant.

I think us being a profitable public company, makes banks more likely to work with us. And I think the years in business, frankly, is another thing I hear and of all those years being really careful not to cross sell and not to cross market, which is really important to banks who spend, in many cases, centuries protecting our brand.

I'd also add that banks, in particular, are not as well equipped to the boom and bust cycles that the rate environment has brought more recently. And so as people look to outsource with a simpler, faster on-chain solution like Figure, we're a natural choice. And then furthermore, as people look to the smaller balance first lien loans, in particular, those we make profitable, which are historically unprofitable and banks, unlike others, can't turn their existing customers down. They support all their depositors or at least try to.

So these are all reasons why banks are increasingly interested. Flagstar, in particular, has been a partner and Mike feel free to elaborate because it's been a partnership dating back to when it was New York Community Bank. And we have known them and we have been a deposit customer, but it was only until recently that we were able to turn that long-standing relationship into an origination one, and we think that is going to be a major deal as we go and seek to get the rest of those 5,000 banks and 5,000 credit unions that currently aren't working with Figure.

Yes. I think just to build on that and to reemphasize the ability for us to offer competitive product in the sub-300,000 first lien category, is an enormous opportunity. But I think all 3 of us have commented on the fact that first thing's a 25x larger market in the second lien space, where [indiscernible] traditionally been used. And we see the banks, in particular, as wanting to lean in. But going back to what Michael said earlier and reemphasizing our big partners have been coming to us proactively asking for first lien, asking for first lien, not just refi, but purchase. And I think it's an estimate to how effective the technology is. And in particular, the benefit of the marketplace that those loans can go into.

Great. I appreciate that. And then just a quick follow-up for Macrina. Can you just talk about the near-term outlook for expenses? You're obviously reiterating the midterm EBITDA target of 60%, which is nice to see, but any color on the expense trajectory coming out of 1Q as we think about modeling for the rest of '26 would be helpful.

Sure, Ryan, thanks for joining the call. And we've talked about how our expenses are bifurcated into fixed expenses and variable expenses. As you know, variable expenses will grow as a percentage of volume. So sales and marketing, option processing, those you'll tend to see they are going to be larger compared to where we were in the past because volumes are just growing naturally as well.

Fixed expenses, we do anticipate them to be pretty stable. I think we were pretty stable versus Q1 for both of those accounts, which is tech and product and G&A. We expect that trend to continue into the following quarters as well and interest expense as we bring down our own loans on Democratized Prime over the coming quarters, we do expect that to come down as well.

We'll take our next question from Rob Wildhack with Autonomous Research.

Just on the volume outlook for the second quarter, you've got the $4 billion roughly at the midpoint, and I think you called out $1.3 billion in April. So that kind of suggests May and June on average will be about the same as April. And that's a little bit different from the more -- the pattern of sequential growth we've seen through this year. So is there anything to read into there because my instincts would have been for more sequential growth given the huge opportunity to seasonally strong spring months in home lending and all the new products you've been highlighting?

Sure. I've also mentioned in my prepared remarks, we want to make sure that we look at our whales that have been coming through for Q4 and Q1, and they tend to ramp in a 3 to 6 months' time line. So when we're providing guidance and where we think we're going to end up for Q2, we really want to take a balanced approach as we think about where it could come out. We could be a little bit on the conservative side, just looking at trends, but I do think we need to be looking at this on the right pace, and that's where we think we're going to end up.

Okay. And then just one on the take rate. Mike Cagney, you called out some interest rate volatility in the quarter, you have that. give the faster growth in some of the lower take rate products. I would think both of those would be negative from a take rate perspective. So is there any specific offset that led to the flat take rate sequentially? Just any other color you have there would be great.

Take rate is an output of lots of inputs. So we have, for example, mix shift to Figure Connect, we have mix shift to first lien. We have shifts from DTC to B2B. And then you have the annual take rates that are coming partner by partner as people expand volume tiers, for example. And you also have take rates that are coming from the overall execution and gain on sale. So all of those things collectively create the take rate for the quarter. And that take rate is ultimately, as we've said, it's an output metric.

And our view is that the activity for this quarter, the puts and takes of all that ended up at $3.8 billion which we -- which is something that we think is strong and as you noted, and particularly in light of the volatility that happened towards the end of the quarter. That said, that broader range that we provided, we maintain because of all the variability in these inputs. But I'll just restate the example that I gave in the prepared remarks, which is the focus on first lien and on product diversification are ultimately strengths of the platform in terms of both EBITDA and contribution margin, and that's where we're focused in terms of our execution.

We'll take our next question from Randy Binner with Texas Capital.

So obviously, the overall volume trend is good for the guide. But for HELOC, just the HELOC market in particular, are you -- do you feel that you're gaining share there's more banks because of the lock-in effect who are offering it products so far had an announcement that got some investor reaction. So just can you give us a sense of kind of almost halfway through a year, do you think you're gaining share? Where are you fitting in, and then the overall kind of HELOC competitive market in the U.S.?

Thanks for the question. We've said this before, which is that we don't actually consider the HELOC market to be relevant to what we do. One, because so much of what we do is greenfield and two, because so many of our partners don't consider themselves mortgage companies or participants in the HELOC market; and three, because of so much of what we do is first lien, which would have historically been the per view of a traditional mortgage.

And so for us, HELOC is a way to approach not only that $35 trillion of home equity, but also that $2 trillion of annual mortgage origination. So kind of the announcements of SoFi and others, right, those are welcome to kind of emphasize the value of the space. But ultimately, those are not part of our consideration set when we look at the addressable market for Figure.

Okay. I guess then I would maybe shift the question to say, for your addressable set do you -- how will you characterize your share gain?

I'd characterize our share gain as a combination of new partner growth, and we see the opportunities there as not only the existing first lien origination market, right, so call it people like banks, credit unions and independent mortgage banks that originate mortgages, but also fintechs and home improvement companies that historically don't consider themselves in this space, but look to tap home equity as places where we're gaining share both in terms of net new customers, but also very importantly, as I mentioned in the prepared remarks, as gaining share versus ultimately Fannie and Freddie's market, right?

So if you look at Mutual Omaha, something cited in the quarter, that 5x quarter-over-quarter growth that we saw didn't just come from an overall 5x growth at Mutual Omaha, right, that came at the expense of Fannie and Freddie market share, and that's where we see ultimately our competition, that combination of call it, the Ellie Mae, Ice and Fannie and Freddie Mac complex.

Just to build on that, I think it's important to emphasize that, that sub-$300,000 first lien category is a loan that wasn't done before. So it's not that we're taking the share from anybody. I said no one was originating that asset. I think Anthony Stratis talked about this in his earnings remarks at Loan Depot last week, and references partnership with Figure's opening up this market for them in a market that couldn't address before. So a lot of what we're doing isn't competing amongst an existing pie, it's greenfield. We're making bigger pies.

We'll take our next question from Dan Fannon with Jefferies.

I was hoping you could expand upon your comments on the outlook for new partners. Obviously, a lot of momentum in that in the numbers we saw this quarter. But how does that compare to, say, at the beginning of the year? And then also the 3 to 6 months of ramping that you highlighted for your larger customers, I would also just be curious about how that compared to, say, a year ago. Is that 3 to 6 months shorter than maybe what you saw previous as customers have become more comfortable with the platform or you've grown in your size and scale?

Dan, the future is bright. We see the pipeline the same day as it has been. And in fact, I feel Mike has said to me, we can't double forever, but so far, we are doubling forever. So we feel really good about where we are. And we also feel that, if anything, the implementations that we're doing in terms of AI and onboarding and examples, like I gave a Mutual of Omaha are being helped by tooling technology and the more visibility that we have being a public company. And so we don't see any extension of time lines for partner onboarding nor do we see any reduction in pipeline.

[Operator Instructions] We'll take our next question from Kyle Peterson with Needham.

Nice results. I wanted to touch on the funding partner mix. Really helpful how you guys kind of split that out in the slides, but I wanted to follow up a little bit more on the asset measure place. Maybe if you guys could give some direction and color even qualitatively on kind of what of that is backed by kind of longer duration institutional capital versus kind of some of these more semi-liquid retail products like BDCs or interval funds? Any color or direction there would be great.

We broke that out in terms of the types of funds in particular. And as I mentioned in the prepared remarks, we have seen somewhat of a rotation into the figure and the consumer loan space, given some of the weakness in the software and overall private credit. So from our standpoint, we -- and I mentioned some of those executions we saw both in late March as well as early April. And I think that reflects the rotation that I'm sharing about.

Okay. And then maybe just a follow-up, taking the take rate and mix and kind of what you guys are seeing in in April. It seems like at least the macro has gotten a little less favorable for first lien, more favorable for HELOC and probably some other products, but I know you guys are scaling this off of kind of really small bases as Mike referred to, like creating new buys. So I guess how should we think about the mix? Like have you guys seen any change in April that reflects rates kind of spiking back up?

Our platform is strong because it is able to be successful and create bigger pies regardless of the rate environment. So when we have rates moving up like they have been in the near term, you have that $35 trillion of home equity opportunity we talk about, and I'd also point out that from our marketplace, about 20% of loans are used to pay off higher interest rate debt. So credit cards, student loans, auto loans and the like. And as a result, that opportunity goes up as those rates tend to go up more than the prevailing mortgage and home equity rates.

And then separately, as you know, we're creating just larger pies to greenfield nature of what we do. And given borrowing against your home tends to be the lowest cost option for anyone who has home equity, which includes that $35 trillion and the 40% of homeowners who own their home free and clear, it creates a really nice opportunity and a tailwind for us. And I think what you've seen in the SMB space, in particular, where people are partners are using our ability to access home equity to fuel their business -- their business lending franchise is a great example.

And just to build on that again, I think you don't have the same price elasticity in the sub-300,000 first lien products because, again, they just weren't offered before. And so the fact that we're unlocking that market there's less rate sensitivity there and more just being able to access the credit. And so while we are a barbelled in the sense that higher rates push us towards second lien, lower rates pushes towards first lien, we have those products. This first lien space is so greenfield. It just doesn't have the same rate elasticity that you'd expect in normal mortgage.

There are no additional questions at this time. This will conclude today's Figure Technology Solutions First Quarter 2026 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.

Probably time to kick this off to keep this on schedule. What an honor it is today to welcome Todd Stevens, Chief Capital Officer of Figure. Todd, thank you so much for joining us today.

Thanks for having me.

It is, again, a great pleasure. Maybe it's a great place to start with having you kind of level set for everybody about Figure. Maybe just give us a brief overview of the business and how it's sort of evolved over the years?

Yes. So Figure, we're a blockchain marketplace. We tend to play in the lending space, but we're also playing in the equity space. We think blockchain -- like Larry Fink says, I mean, we think every asset will trade on a blockchain or at some point in the future, and we're building the marketplace for that. And so we're really excited about what we're doing, and we're excited about the growth. And why would somebody want to use a blockchain as a settlement rail? It's just a better settlement rail for a number of reasons.

Transactionally, we do a lot of securitizations in the market. And given our automation and how we anchor the blockchain, we have a much lower percentage of third-party review that we have to do. So there's a ton of transactional efficiencies. There's a ton of liquidity efficiencies. So think about like how the world is changing in the sense that like old school kind of bond people, I mean, when you invested in something, you used to get like a kind of a service or remit report once a month. Now you can get that real time. That's what the blockchain offers you is the ability to get real-time information. That is going to increase liquidity.

And then there's also transactional benefits. So a few people might be familiar with some of the misgivings of maybe the tricolors or the first brands or the MFS kind of double pledging stuff that's been going on. And with blockchain technology, you just can't do that. If you're on a system, you cannot double pledge your loans. And I'm happy to send out a white paper to anybody that wants that. We issued a white paper a couple of weeks ago on that. But think about the blockchain in this instance, like I don't think many people have like Life360, like my wife has that on our kids like all the time. Think about it as Life360 for your assets. You can track your assets.

So think about putting on a lean registry like Goldman Sachs is a warehouse lender to us. Before they accept a loan, they look on our digital lean registry, which reads from the blockchain and says, is this loan secured or not? If it's secured already, there's a pad lock on it. They cannot take it as a pledge. If it's not, game on, they can finance it. So stuff like that, transactional liquidity and lending. And we could also cross collateral as this collateral. But -- so we're a blockchain marketplace company. There's a ton of benefits for people kind of hosting their assets in the blockchain, and we're just getting started.

Fantastic. I want to dig into the ecosystem and the products, but I want to ask you first about your recent launch of the Figure secondary offering of blockchain native common stock. Outline why the on-chain public equity network open matters, why issuers and shareholders would want to participate. What are the benefits of launching on-chain versus...

Yes. I think if we're given this talk a year ago, everybody would be like scratching their head. Now like even this morning, Kraken comes out with an announcement with the tie-up with NASDAQ on tokenized equity. So it's a reasonably kind of hot sector. But let me lay out kind of how -- what we do versus what the other groups of people in the market are doing. So our thesis is very blockchain-centric, very purist, very self-custodial. It is your equity, so you should be able to do with it what you want compared to what New York Stock Exchange, NASDAQ and all these other people are doing, which is a DTCC security, which they're issuing a digital twin and letting that trade anywhere or like maybe some of the other groups like Robinhood are doing with maybe synthetic derivative type representation.

So think tracking error, I think maybe not full capabilities with New York Stock Exchange and NASDAQ are doing or think like full autonomy of your shares. So why would you do this as an issuer? As an issuer, you have a direct relationship now with your shareholders. Like we went public 6 months ago today. And we don't know who our shareholders are. Certainly, the retail, we can look at 13F filings to figure out who still has our stock. Blockchain just enables people to have a direct relationship. So imagine me being able to give everybody 50 basis points off their next loan that they have and just drop that as a reward to them directly.

How about dividends? I mean, like we could just give a dividend out very quickly once it gets approved. So as an issuer, what you're trying to do is create a viral community. You're turning a static contract into an active kind of permissionable asset, which has a ton of utility. So that's the issuer benefits. But I think the bigger benefits are for the investors. The investors right now, they can take their equity and they could just lend it into a lending pool and sit there and -- because there's all kinds of borrower demand for stocks typically. Right now, prime brokerage pockets most of those economics and those rents. So we're enabling the rents to go to the investor.

You could cross-collateralize it into a borrowing relationship. And then you can basically almost pay like I could say thank you for the spot today and give them a share figure provided your KYC. But tons of benefits for issuers, tons of benefits for investors. And we think ours is the purest version of this because you can hold it in a self-custody wallet. It is your equity.

I think that's a terrific point. And I think an underappreciated one that it isn't just the efficiency of issuing securities on chain. It's also the access to this kind of Cambrian explosion of innovation and composability and programmability with things like, I guess, DeFi is what we call it, even though that might be a misnomer in some cases. But I think that's a gravitational pull that's actually quite important. You guys are right at the center of that shift, I think that will eventually occur.

And we didn't even mentioned, I mean, the sensibility is really important because you can take the share and you can list -- it could be listed on a deck, a decentralized exchange. And then with the liquidity pull around it, you can offer a looping of this, and it might be speed a better way of getting leverage exposure to an equity. So absolutely. It's very extensible. When you have control of this asset, you can do a lot with it.

Any very high-level thoughts about the interest levels among different types of issuers of various types of securities in terms of them contacting you to talk about, hey, how could this work for us?

Yes. We've had a tremendous outreach to us. So I'd say there's 2 types of issuers are really engaged. And this one is the crypto crowd. They're very interested in kind of being able to have a relationship in the fintech crowd have a relationship with their investors. That's very important. DATs. I mean, DATs hav had a tough little run over the last kind of several months. And think about like what can they do to get their NAV back to par? If they had -- if they had all their shares issued on blockchain, they can just issue a dividend of the underlying kind of a crypto into a wallet and they don't give them a pool to par pretty quickly.

So those are 2 of the big ones. We're really interested in people that are in the public filing process. So we're interested in people that are already public. And so with our equity, you do have filed an S1 or S3. It is a separate share class, which gives it the benefits of the composability and extensibility. But yes, so it's a lot of tech forward, a lot of DATs and then there's been some surprisingly large companies that kind of want to put the power back into their investors hands.

So I want to drill down a little bit into the individual products and the ecosystem, particularly Figure Connect and democratized Prime. So starting with Figure Connect. I think in Q4, more than half of your consumer loan marketplace volume transacted through Connect, which is a nice milestone. Talk about what does Figure Connect, what's the value proposition? Why has it resonated so much with originators and institutional buyers...

Yes, Figure Connect is really important to us because we never stood -- we never stood out to be the world's largest nonbank lender, that's not where we want to be. We want to be a blockchain marketplace. And in that marketplace, we want to bring sources and uses of capital together. There's a tremendous amount of demand for borrowing and tremendous amount of demand for assets. And really our marketplace, Figure Connect is where all that interaction happens. So why does somebody want to join Connect? A number of reasons. One, we make it very easy for originators to onboard to us. We instead of the originator, who normally had to go out and negotiate with individual investor, spend 4 months on a master loan purchase agreement, spend $300,000 with outside counsel to get one deal done, not such a great use of time. Join our marketplace, you have access to all the investors that are onboarded onto Figure Connect.

So there's definitely efficiency there. And -- but more importantly, what our originators really like is we give them the ability to maximize their gain on sale. We collect an ecosystem fee. That's all we're in the game for, but we -- they can leverage our capital markets almost like an outsourced capital markets team, and we can help them get a better gain on sale and the whole loans, we can help them on securitization. We are an outsourced capital markets unit for these originators, and we make their life very simple. We also enable them to get warehouses. We probably have north of 10 banks that warehouse or collateral. So the collateral is fairly liquid. So we just set up our originators to succeed and allow them to do what they really do best, originate loans.

And so -- and as we go into new products, they -- a lot of them want to outsource that capital market functionality to us, and that's what we do at Figure Connect. We'll just collect our ecosystem fees.

This is a bit of a tangent, but there's kind of growing concern in private credit markets. What are you guys hearing from your partners in the space?

Yes. So I really love the media and how they kind of talk about private credit. And yes, there's certain elements of private credit that there's a problem potentially. And when kind of 23% of the direct lending market is software and some companies have done a lot more. Some of them have 30%, 35% exposure. These are 8 to 10x levered companies. Bruce Richard had a great podcast with Bloomberg the other day. He said 3% of the high-yield market is software. 13% of the broadly syndicated market is software. 23% of the direct lending market is software.

And so the kind of high-yield bond market does what it does. The broadly syndicated market tends to find an exposure finds its way into CLOs. And then and the direct lending market just sits on these private credit balance sheets. And they might lever them up and it was a nice cash flow. But when you're 8 or 10 or 12x levered, like you're not able to pivot that business to an AI kind of like issue. AI kind of like disruption that's going on. So that's private credit, and I get what's happening there. We live in the world of asset-based finance. I mean it is a market where instead of being 8 to 10x levered, you are over collateralized. Everything we do has some overcollateralization to the asset.

So you have $100 an asset, you only have $80 of a security. So you're over collateralized by that $100 divided by $80. So we just operate in a very different space, and we haven't seen a whole lot of contagion there at all. I mean, like look last week, JPMorgan did a $5.7 billion securitization and it cleared the market at a very solid price. We did a $0.5 billion securitization last week, and it cleared the market. Fine, we might be at December kind of like where we executed in December, January was like a super risk on, but the market is super strong. And I think we really have to differentiate asset-based finance from broader private credit because broader private credit, you can pick a story out of it.

And yes, certain people have overleveraged themselves and probably didn't risk and manage themselves so well, maybe with some of their software bits. But our borrowers are the consumers. We have 5,000 loans in kind of our deals, and there's a lot of over collateralization. So I think there will be a flight to quality and towards our side. And there's been already over $50 billion that's been raised in the private label kind of resi market this year. There'll be over $250 billion that's raised. And that's of the $1.8 trillion private credit market, where there's probably about $500 billion of dry powder. So I think money is just going to go to where safety is and we think we're safe.

Don't pit everything with the same brush, in other words...

Exactly.

Okay. Talk about democratized Prime. I think that's one of your kind of most innovative offerings launched last year, according to you guys scaling very nicely. Talk about some of the drivers of that growth. Actually first describe for the audience sort of what it is and then talk about some of the drivers of the growth?

So democratized Prime is it's our effort to democratize access to prime brokerage. Banks have a beautiful business. They make $20-plus billion a year top line, prime brokerage, great business. Why can't the man on the street get access to that. That's our goal and our ethos with Demo Prime is to give people access to what the banks are doing. So figure, we'll probably at any point in time, check our balance sheet, we have probably $500 million, $600 million -- $500 million of warehouse balances, probably any point in time. We turn over our collateral a lot. So -- and then of that, like we typically give that to JPMorgan, Goldman Sachs, the traditional warehouse banks.

What we're doing now is we're -- we started democratized Prime to really enable DeFi liquidity to fund those warehouses. And we have -- you can check the Camino. We're in 1 blockchain -- layer 1 Solana, 1 application Camino and we have a $600 million market or $597 million market. That includes liquidity pools as well as what we got pledged up. But it's been tremendously successful. So there is a lot of liquidity in DeFi. And all we're doing is just offering people the ability to really compete with warehouse lending. So you have TradFi competing against DeFi liquidity. And that's, I think, where the market needs to go. It keeps everyone honest.

And again, when you're trafficking in DeFi, these are just different -- it's a different world. I mean they -- like when you're ostensibly an a crypto winter, whatever that means, like funding rates go down. So if you can offer real-world assets at a higher yield than Bitcoin lending rates are less than 2%. Like if you can offer a real-world assets at a reasonable yield, you're going to get interest. So it's quite an interesting project that we're working on. We think this will be a multibillion-dollar tokenized warehouse lending marketplace. And our borrowers are quite interested in joining this.

And the reason they want to join is, one, you don't have to spend 4 months and $300,000 outside counsel setting up -- maybe 6 months instead of a bank warehouse. It's very quickly -- very quick to onboard. And typically, they -- what they do in this they're trading off -- they can have a wider box so they can originate to a wider box. They can democratize access to the borrowers, wider box, but you have to offer hourly liquidity or instant liquidity. DeFi has no term structure. You have instant liquidity. So the borrowers have to get to wrap their head around that.

So we think a great strategy for any borrower is to have a traditional finance warehouse and a Demo Prime warehouse. And we think that will be the model. And part of our marketplace, we offer services. We can do pledging as a service and handle that for the originators because again, we let the originators a la carte, take what they want. They can do the all you can eat or they can just pick and choose parts of our figure connecting marketplace. Demo Prime is a service in the marketplace. You can offer to use it or not or we found a lot of people leaning into that.

And how does the yield stablecoin fit into the model?

We think just as every asset will be tokenized in the future per Larry Fink, stablecoins are going to be the payment rail. I mean will you exchange an asset for a stablecoin. And so we use our yield stablecoin as a payment rail for our Ecosystem. We sell loans, we exchange -- we have our buyers exchange give us yields for that and then they trade out of it or keep into it or whatnot. But yes, so what's different about our yield product. And this is why we're slightly indifferent to what's going on in D.C. with the CLARITY Act because CLARITY Act is a big battle over yield. And can you pay yield on a stablecoin?

Well, like are the banks going to win or crypto going to win? I don't know. But like we can always pay yield on our stablecoin because it's a security. We went through the S1 process. We've filed 10-Ks, we filed 10-Qs. It kind of looks like a tokenized money market fund, but it can trade peer to peer. And so we think we have a pretty interesting product. We think there'll be a lot of copycats to that product, but stablecoins are just the path of the future. I mean, there's a ton of pain points that it solves, not the least of which is cross-border payments.

Is it a simple minded yet probably accurate thing to say that as you have on chain assets that move in real time, you're also going to need a settlement tool that moves kind of in real time, and that's the gravitational pull for stablecoins on the capital market side of the things?

Yes. 100% because think about what happens today, like I sell you loans, I give you a loan tape with the rights and you give me a wire, that's kind of asynchronous. And like with stablecoins, you can put the rights on a smart contract, but the stablecoin in a smart contract and they can click and then it goes out to each other. So there's no more asynchronous kind of like trust me type stuff. I mean the reason some of the banks got burned on this double pledging warehouse stuff is because it was a trust me game. Like I don't need an assignment of mortgage. We need an assignment mortgage later and some people got burned on that. So I think when you have atomic settlement when you have that click, everything goes -- both sides come in to the smart contract and it clicks and then the rights and the payment rail goes to the right people.

It's interesting how much of the entire back-end and infrastructure capital markets is really predicated on ensuring settlement occurs. And once you have real-time settlement, you have to wonder whether a lot of these ancient building blocks on the back end might have to modify or go away.

I mean, Banks don't want it to go. I mean...

That's always the case...

So like T+2 is somebody is making money.

I wanted to touch on some of the other kind of product expansion news that we've heard out of you guys. One of them is Agora. So it's a strategic partnership with Agora data to bring auto finance asset onto the Figure Connect marketplace and democratized Prime. Talk us through that, the dynamics of the partnership and sort of what it is?

Yes. Agora is really important to us, and it's also the beginning. I mean it's the first third-party borrower that's coming on to our Connect marketplace. There'll be more coming. Stay tuned. But Agora, when we sit across the table for them, they look just like figure. I mean they're in the auto space. They -- over 90% of their loans are automated, originated. They have a nice kind of alignment of interest with their dealers that they -- that are kind of originators of their loans.

So -- and the they want to lean in. They want to leverage a Demo Prime, they will leverage Figure Connect. They're a classic group of solid originators. 20 plus years of experience in the auto sector, but they have a part-time capital markets outfit. That's a perfect client for us. We could be their capital markets, outsource capital markets, we'll handle their securitizations. We'll handle their whole loan sales. We'll enable them through Demo Prime, they're going to do what they do best, originate solid loans. This market needs solid origination because I mentioned that $500 billion of dry powder, we trying to find a home for that with the solid originated loans.

And so I'm just trying to think through other potential loan categories that might be interesting for you guys to kind of delve into. I'm sure you're having plenty of conversations out there, but is auto something you can lean into with other partners? Are there other categories that you see expanding into?

So we like going into markets have large addressable markets. So the mortgage marketplace is about a $2 trillion addressable market. Auto is $1.5 trillion. So we're going in places, and we're not fighting for pieces of the pie, the pie is really large. And so Auto is going to be great for us. There's a lot of other really interesting short-dated assets, maybe like receivables financing that will be -- that could be leveraged here. It could be small SMB loans because there's a need for the borrowers to get solid financing. So yes, there's a lot of potential there. And we really had a -- after the Agora announcement, which was great. We've had just a ton of inbounds on that side. So we're just kind of sifting through and kind of drinking from the fire hose on the Demo Prime side.

And what about first liens? I think that's increasingly a larger part of your mix? I have it here in my notes, loans growing to 19% of originations in Q4, up from 12% a year ago. What are some considerations there as that becomes a larger part of your mix? Is that...

Yes. I mean, that's just another asset class that we're originating. We think we have a right to win because our process is fully automated. I mean we can get to a yes in minutes, we could be funding in 5 days. Our average funnel is around 9 business days. I think we said that in our S1. So we're very quick and we're very efficient. We -- it costs us less than $1,000 to create a loan, much less than $1,000 to create a loan where traditional market for first lien especially, is $12,000, I think, on average.

So like if you're spending $12,000 to originate a loan, you're not going to be able to do small balance loans. You just can't do them profitably. We can't. So think about there's 40-odd percent of the U.S. market doesn't have a mortgage. That a $15 trillion TAM. That's an easy market for us to take a ton of market share for us. So we make it easy to get a kind of a cash out on your property. So you don't have to knock on the door of a consumer unsecured lender and pay a higher rate. We can do something very quick for you, rapid lien around it and get you your money added more cost-effective price point. So we're super excited about first liens. We think there's a tremendous opportunity for us to really grow that. But again, it's a function of when you're automated and you do stuff quick and you have a tight credit box like the world is your oyster on when you find use cases like the first lien use case for us.

So -- where is the friction in the system still? Where are the challenges in terms of this flood gate, which seems to be opening, kind of opening further? Is it regulatory certainty? Is it just you -- mentioned banks, there's an intrinsic friction in terms of changing these large platforms because they're making money on the old inefficient ways. Like where are you seeing the hurdles that need to be overcome?

So I think there's a TradFi friction and then there's a DeFi friction. The DeFi friction, regulatory clarity, evangelism, kind of education, getting people to come to DeFi. I think the winners are when TradFi comes to the middle and DeFi comes to the middle. And then I think you'll see an explosion of growth. I mean every bank has got a digital asset team, every bank of any size as a digital asset team, and they're all ready to get tapped from the shoulder and say, go and most of them are going right now. So that's good. So DeFi, it's literally evangelism, it's education and it's regulatory clarity.

TradFi, we just live in this funny TradFi world where there's a ton of borrower demand, and there's a ton of kind of like capital and then there's just like small thin little looking glass where only the cool kids get to go through and play the capital market game. And so -- and that's because of there's banks and the rating agencies as well as the could be the lawyers, but we're trying to just expand that out. So that's our marketplace. We're trying to just democratize access to the sources and uses of capital. So that's a friction kind of getting people there.

I think the banks are getting close. Federal regulations really close. We still need states to follow certain states like the one we're in is going to be a big bar to kind of get over for people, but no, I think there's optimism. I mean, everything is moving very, very quick. And I argue the best thing that ever happened to blockchain was AI. Because Blockchain in 2017, 2018 was supposed to be the next platform. You had mobile, you had social, you had cloud and everybody is like blockchain. Blockchain wasn't ready for the prime time at that point. And then AI comes along and AI is doing a great job taking that mantle. And blockchain is just doing a lot of work. And they're getting everything right. They're getting custody, they're getting piping. And so we think this will be the future capital markets is going to be built on a blockchain rail. And that's largely our North Star.

So you mentioned AI, and I feel like a lot of these panels wouldn't be complete without some AI questions. And I know you mentioned it in the context of it sort of taking -- it's sort of become the shiny new thing and given blockchain maybe room to actually just execute quietly and methodically such that when the tide turns in its direction, we will be sort of more ready maybe than it was last cycle. That's what I took away from your last answer. Is there any AI overlay in the business in terms of agentic -- are you guys thinking about or deploying AI in any way in terms of agentic commerce, agentic originations or however you want to look at that?

Absolutely. We're working with our -- some originators that it doesn't take long to spin up an AI loan officer. And then people are testing them and then kind of giving them context. And then in one case that we were out with a client probably a month ago, they're probably 3 months into their journey, maybe made 2 months of training and 2 months of launching, and their AI loan officer was like 2x as efficient kind of getting stuff through the funnel. Like because AI, they don't miss calls. They don't -- they always get callbacks and they know the speel. And our process is fully automated. I mean we do not have underwriters. It's a feature, not a bug of what we do.

But because of that, it's very rules-based and deterministic. It's perfect for AI. So we can be -- these AI agents are so good at what they do. And in this one case, I think I'll get this right, but 80% of the time, the borrower on the phone wasn't aware that they were talking to AI. And then the 20% when they found out, only half of that, they said, "Give me a human." The rest of it, they just chuckled and went along their way. So yes, so we're all about funnel conversion, removing friction, efficiency. There's definitely a role for AI to play in that.

Fantastic. We only have a minute left, so I'll ask you in a possibly long question. What about -- what does the environment look like? What does Figure look like when you go forward a few years? I mean what is the vision? What will success look like for a Figure a few years?

So I think we're going to stick to our knittings of we want to -- right now, we have a digital asset marketplace and consumer loan marketplace. Those are overlap. We'll have multiple different products. We'll have tons of volumes flowing through the system. We won't have to do as much education. People will come to us, will be the go-to place. So there'll be a lot of diversity in our product mix. There will be a lot more asset classes, and we're going to have a lot of fun doing it.

Awesome. What a great pleasure. Thank you so much.

Thank you.

Super insightful. Appreciate it. Thanks.

Welcome to the Figure Technology Solutions Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] To get to as many questions as time permits, we kindly ask that you limit yourself to one question and one follow-up [Operator Instructions] Lastly, today's call is being recorded.

I would now like to turn the call over to Bryan Michaleski, Head of Investor Relations.

Thanks, Leo. Good afternoon, and welcome to Figure's Fourth Quarter 2025 Earnings Call. My name is Bryan Michaleski, Head of Investor Relations here at Figure. Joining me on today's call are Michael Tannenbaum, our Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer. Mike Cagney, our Executive Chairman and Co-Founder, regrets not being able to join us today due to prior commitment at the White House.

I'd like to note that in today's call, we refer to certain non-GAAP financial measures. These measures have been reconciled to their GAAP equivalents in the earnings release we issued today as well as in the appendix to our supplemental slide presentation posted to our website. As a reminder, non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, our results we discuss today, including our net revenue and profitability, refer to their non-GAAP equivalents.

I'd also highlight that certain statements made during today's call may be considered forward-looking statements under federal securities law. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, can cause actual results, events or circumstances to differ materially from those described in the statements. Please see the risk factors we've identified in our most recent 10-Q and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law.

Recording of the conversation will be made available on our website following the conclusion of today's call. And following the conclusion of our prepared remarks, we'll open the line for questions. We remind you to limit yourself to one question and one follow-up during this Q&A period.

With that, I'll turn the call over to Michael Tannenbaum. Michael, please go ahead.

Thank you, Bryan, and thanks to all of you who are joining us this afternoon. As many of you know, we previewed our results earlier this month, and what we're reporting today is consistent with that update. Rather than walking through the numbers you've already seen, I want to focus our time today on what this quarter sets up going forward.

As we look ahead to 2026, there are three areas that we're focused on. First is continuing to scale our marketplace, particularly through Figure Connect and driving more volume into our capital-light exchange. Second is broadening the types of products that live inside that marketplace, especially across mortgage adjacent categories where we already have strong partner relationships. And third is expanding the broader blockchain ecosystem around that marketplace, where tokenization, decentralized finance and atomic settlement are setting the standard of how a modern capital marketplace should function. Everything we're doing across the business from product launches to partnerships ties back to those themes. They reinforce each other. And together, they move us further along the path of modernizing capital markets and bringing them on to blockchain.

Let me start with the marketplace. Pillar 1, scaling the marketplace. Figure Connect is the operating system for how capital flows through our ecosystem. This past quarter, more than half of our consumer loan marketplace volume transacted through Connect for the first time ever. That milestone matters not only because of the speed at which it happened. Reminder, we launched Connect in June 2024, but also because it represents structural progress in how the business operates. The more volume that flows through Connect, the less we rely on balance sheet intermediation. The model becomes more capital-light and our margins become more durable.

What's also important and often underappreciated is how difficult it is to build and scale a marketplace to this level of integration. Marketplaces are not software features, they're trust systems. They require standardized assets, consistent underwriting, clean data, transparent performance history, deep institutional relationships on both sides of the market and credibility with rating agencies and securitization buyers. They require repeat investors who trust the standardization of the asset.

You cannot simply AI your way into that. What AI can do is optimize processes and fuel growth, and we are leaning into that. We've been explicit that AI is primarily about fueling growth opportunities for us and our partner ecosystem rather than simply optimizing costs. From an AI growth perspective, because our mortgage process is the fastest and lowest cost, again, as we've built our own integrated loan origination system and capital market that removes friction, it is the most optimized for AI. In fact, this month, I was visiting with a partner and they showed me a demo of an AI salesperson walking someone through their white label figure product. They said to me, we're going to divert more to Figure versus Fannie Mae because the process is so simple, it's much better suited for an AI workflow. I expect more partners to do the same in the coming months.

On the cost side, two weeks ago, we launched an AI customer service agent to streamline parts of our application flow with roughly 3/4 of chat volume containment. Importantly, we can now deploy our staff to focus on either enhanced support, which expands our partner ecosystem or more growth-oriented tasks, especially as many of our unlicensed partners need our licensed staff for true sales activities.

We've also embedded AI into property title review workflows and as a parallel validation step against our underwriting guidelines. These tools reduce error and enhance the quality and homogeneity of our assets. More importantly, the agents we train on these workflows can then be deployed on third-party assets, making it easier for us to bring in new asset originators into our democratized prime short-term financing marketplace, something I will cover a bit later today.

But before that, I'll make one final point on AI in our business here, particularly in the context of the market thinking about which companies benefit versus our disrupted. While AI can improve underwriting models, enhance servicing workflows and further reduce costs in our origination flow, AI cannot create liquidity nor can it replicate years of standardized asset performance across cycles. As I wrote last year, you can't AI your way into AAA. Furthermore, Figure Connect works in tandem with democratized Prime, our on-chain short-term financing marketplace that provides the working capital layer to fuel additional origination. Where Connect drives long-term liquidity and asset distribution, democratized Prime provides programmable, decentralized short-term warehouse capacity.

Together, they create a vertically integrated capital market stack from origination to financing to distribution. Each incremental originator and new product expands asset supply. Each additional investor, whether DeFi or traditional, improves price discovery. And every transaction enhances performance history and transparency back to that durable ecosystem and moat. This is the formula we believe that builds durable marketplaces. And once they reach the levels of scale we've achieved, they're not easily displaced. So our focus is to stick to the same formula: increase penetration, broaden liquidity and continue shifting volume into this capital-light framework.

Pillar 2, product expansion. That brings me to our second pillar for 2026, expanding the types of products within our marketplace on the back of Figure's second lien HELOC success. If Connect is the engine, product expansion is the fuel. Our goal here is straightforward: extend the Figure ecosystem into mortgage adjacent verticals without changing the core architecture that makes the model work. Importantly, we're not reinventing the system every time we enter a new product. We are extending the same standardized blockchain native infrastructure into new use cases, as I shared previously, leveraging AI to make it go faster.

There are three important examples of this. First, adding third-party volume, meaning volume not originated by our loan origination system. One of the most powerful evolutions of our model is the ability to bring externally originated assets onto our capital markets rails. For example, we just signed a major partnership with Agora Data to bring auto finance assets into Democratized Prime. Agora is a fintech platform that provides analytics, capital markets access and loan performance data solutions to auto finance lenders, helping them originate, fund and manage auto loans more efficiently and profitably. With our partnership, which is expected to bring tens of millions of dollars of auto finance to Democratized Prime and Connect in just the next few months, we are expanding distribution without owning the front end or powering the LOS.

What matters is that the loan ultimately flows into a standardized marketplace with transparent underwriting, blockchain registry, preventing double pledging and both institutional and DeFi liquidity. By integrating with third-party originators, we dramatically expand addressable supply without material costs. We effectively turn our marketplace into a capital markets highway, one that can accept assets from multiple on-ramps. That increases network, liquidity and importantly, further strengthens Democratized Prime and Figure Connect. For the auto loan space, the road ahead is paved on chain.

Second, SMB loans. SMB is another clear example of how we extend the Figure ecosystem without changing the core architecture. Many small business owners are asset rich, but liquidity constrained and oftentimes, that core asset is their home. According to the Consumer Finance Bureau, more than 2/3 of business owners also own their homes. At the same time, many entrepreneurs are boxed out of traditional capital sources. They may lack sufficient time in business. They may not meet minimum revenue thresholds and may not fit conventional underwriting boxes. As a result, they often turn to higher cost capital products because they believe those are their only options. We intend to be a big part of changing that. Given the substantial portion of these operators that own a home and have strong personal credit profiles, we can service these borrowers where most others can't or won't. In Q4, partners on our SMB platform did over $46 million of loans, twice as much as the prior period.

In this spirit, we are very excited to announce that Figure is finalizing a strategic partnership with Newtek, a highly established and trusted leader in the small business financial services space. In the near term, we're excited to support Newtek in delivering Figure's HELOC for small business to Newtek's deep network of loyal business owners through our partner-branded channel. Over time, we see this evolving into a fully embedded small business lending, banking and money movement partnership anchored by our SEC registered stablecoin, YLDS, Y-L-D-S. This partnership reflects our shared commitment to serving small businesses and highlights how Figure's full ecosystem can power transformative long-term growth.

Lastly, I'll touch on a product category that, while not new, has been increasing in importance for us, first lien mortgage. As of Q4, first lien represents roughly 19% of our originations, up from 12% just a year ago. That change in mix reflects both growing partner adoption and increasing investor comfort with the asset. The opportunity here is significant. First lien is a multitrillion dollar market and represents the majority of our partners' existing volume. Our existing partners do over $300 billion of first lien. If we want our marketplace to be the winner in all of housing finance, we have to participate meaningfully in that market, and that's exactly what we're doing.

Over the past several quarters, first lien has moved from being an extension of HELOC to becoming a central driver of growth. That momentum gives us confidence that 2026 will be the year of the first lien for Figure. Chinese New Year was last week, that ran in the year of the horse. This is now the year of the first lien. What differentiates our approach is the low cost and speed that we can offer our origination partners. Repetition does not spoil the prayer. We do a mortgage in less than $1,000 and in five days versus industry average of $11,045. Our first lien HELOC offers everything a mortgage does, but with the full redraw functionality and sits in the first position. That structure provides flexibility and unlocks a strong competitive differentiation against the GSE-driven conventional mortgage alternative.

Today, when partners originate first lien mortgages, they are often routed into a Fannie Mae or Freddie Mac channel by default. By offering an alternative with faster cycle times and lower costs, we provide a different path and one that integrates directly into our capital markets rails. The result is that mortgage partners no longer view us as their HELOC outlet. They're increasingly coming to us as a comprehensive mortgage platform.

Pillar 3, blockchain ecosystem expansion. The third pillar for 2026 is expanding our blockchain ecosystem. This is where our long-term differentiation becomes most visible. From the beginning, we've said blockchain is core to our strategy. It's the critical infrastructure layer that allows us to modernize capital markets. Over the last several years, we've proven this thesis in private credit. We've shown that tokenized real-world assets can originate, trade and securitize efficiently on public blockchain. We've demonstrated that transparency and immutability reduce friction, and we've built liquidity around standardized on-chain assets. And we're extending that infrastructure even further with the recent developments here.

I'll start with an update on Democratized Prime, our decentralized finance marketplace that competes with traditional warehouse lines and prime brokerage, but in a structurally different way. Instead of relying on bilateral agreements, legal complexity and bank intermediation, assets can be pledged, financed and settled directly on chain with programmable collateral management. This is not theoretical anymore. We're seeing real traction. Democratized Prime delivered outstanding results with nearly 10x quarter-over-quarter growth, expanding from $20 million to over $200 billion in matched offers. We now have more than 1,000 active participants on the platform, demonstrating strong market demand for decentralized warehouse financing, and we've almost doubled again this number since the beginning of the year.

We successfully launched our real-world asset consortium partnership this quarter, extending Democratized Prime access into the Solana ecosystem. The cross-chain expansion allows DeFi participants to access U.S. real estate-backed YLDS, which is quite different from -- versus the speculative assets typically seen in DeFi.

We brought institutional assets to a broader participant base. Reminder that Democratized Prime adds an important COG into our flywheel by providing critical working capital for loan origination for our partners while generating fee income for Figure. It is also the most natural way that third-party assets enter our ecosystem because it's easier to offer short-term financing than permanent capital. We see democratized Prime with an upsell of Figure Connect as the baseline go-to-market approach for third-party assets and the aforementioned Agora Data auto finance partnership is a consummate example.

Next, I'll touch on YLDS, the settlement layer of our ecosystem. YLDS is not just a stablecoin. What makes it differentiated is that it's regulated, yield-bearing and natively integrated into our capital markets infrastructure. It can settle loans, it can finance assets, it can move across chains. And over time, it can serve as a bridge between traditional financial institutions and on-chain markets. As the oil of the machine, YLDS growth directly correlates with increased activity across our lending marketplace and Democratized Prime platform. You see this reflected in the results this quarter and to date, with yields in circulation nearing $0.5 billion, increasing by over 20x since the end of the third quarter. We expect YLDS adoption to continue to accelerate on this exponential curve as more partners recognize the efficiency benefits of blockchain-based atomic settlement and as regulatory clarity continues to favor compliant stablecoin structures over less regulated alternatives. As mentioned previously, Newtek, as one example, is exploring funding loans and yields, thereby reducing the interest burden for borrowers and settlement expenses for itself.

And finally, last week, we demonstrated something that underscores the broader opportunity in front of us. We became the first public company to launch a blockchain native share class of our own security. listed on an exchange, we purpose-built to enable others to participate in the same model. The equity marketplace is called OPEN, On-Chain Public Equity Network. This isn't a tokenized wrapper of a DTCC security or a synthetic representation of legacy infrastructure. We issued equity that is native to the blockchain from day one with its registry, trading venue, settlement layer, custody model and financing rails fully integrated on chain.

Let me explain why this is important. First, we rebuilt the transactional structure. Trades occur 24/7 on our ATS with atomic settlement. Investors can self-custody through wallet connectivity. Ownership is recorded directly on chain through an integrated transfer agent model that reduces friction, cost and restores direct control to the shareholders and issuers. Second, and most economically meaningful is holders realize the benefits of true ownership and self-custody through financing and DeFi integration. Equity on open is programmable collateral. Shareholders can borrow against it at up to 80% loan to value. They can cross-collateralize with other on-chain assets inside Democratized Prime. They can lend their shares directly through transparent limit order books, retaining stock loan economics rather than seeding them to opaque prime broker structures. This is a structural shift and who captures value in equity markets. And third, this is the beginning of issuers forming direct relationships with their shareholder base. On-chain, issuers can access their shareholders directly for communication, rewards, governance without intermediaries like brokerages or proxy advisers. Shareholder communication is increasingly important to issuers, especially as a broader segment of retail enters the public markets. OPEN offers important keys for issuers to navigate this dynamic.

When you step back and look at what we've accomplished this year, the through line is clear. 2025 was about proving that this model works operationally and financially and about establishing real first-mover advantages in building out marketplace infrastructure. 2026 is about compounding that momentum. We believe we're still early in the transition towards more efficient on-chain capital markets, where we are operating with increased scale.

Before we move on, I want to briefly address a recent security incident. To be clear, this was not a blockchain or protocol-related event. This incident involved a targeting phishing attack that affected our loan inquiry records and a limited number of customer accounts in our loan products. There was no compromise of our blockchain infrastructure or core transaction processing systems. The impact of information includes names, loan account numbers, addresses and dates of birth as well as social security numbers for approximately 12,400 individuals. We have begun notifying individuals and are offering appropriate support. We moved quickly to contain the incident and implemented additional safeguards, including enhanced authentication controls, expanded employee training and further monitoring to reduce the likelihood of similar events in the future.

We take information security extremely seriously, and we will continue investing in our controls and processes. At this time, the incident is not expected to have a material impact on our financial results.

I'll now turn the call over to Macrina to walk you through our financial results for the quarter.

Thank you, Michael. I'll walk through our results, touching on our growth, scale, profitability and balance sheet for the quarter. Starting with growth, we reported exceptional consumer loan marketplace volume this quarter, reaching $2.7 billion, an increase of 131% year-over-year, primarily driven by new partner expansion with 307 partners and continued growth in volume from nascent products such as SMB loans and DSCR loans. As a reminder, the winter months from November to February represent seasonally low levels of activity for home-based lending. Despite this, we reported sequential quarterly growth in our consumer loan marketplace volume with contribution from new partners and newer product categories offsetting the seasonal headwinds.

Democratized Prime ended the quarter with a balance of $206 million and YLDS ended at $328 million, reflecting continued adoption following Prime's expansion on to Solana and our broader RWA consortium initiatives adding momentum for these products. Shifting to scale. We reported adjusted net revenue of $158 million, an increase of 106% year-over-year. Adjusted net revenue benefited from the higher consumer loan marketplace volume and by servicing and interest income, which are asset balance-based revenue lines. Year-over-year adjusted net revenue directly correlated to consumer loan marketplace volume grew 130%, while servicing and interest income combined grew by 47%. Net take rate was 3.8% this quarter, 40 basis points higher year-over-year with better gain on sale execution as the primary driver of increase.

Last year, we had very little Connect volume in Q4. This year, 54% of our volume comes from Connect, where we primarily earn a net take rate on volume traded. Compared to the prior quarter, net take rates were lower from a decline in gain on sale premium, in line with broader market execution, which was wider from increase in deal flow during Q4 of '25. Secondarily, we saw net take rate was slightly lower quarter-over-quarter due to business mix. For example, as we introduce first lien securitizations to credit buyers, premium on the loans, what we call gain on sale is more attractive to the buyers, which means it's lower for Figure. Another would be as we scale with larger Connect partners who bring more volume to our marketplace, they benefit from lower ecosystem fees due to the sliding scale rate we offer for higher volumes.

It's important to note, we manage the business to optimize for marketplace volume growth and long-term profitability rather than to maximize our net take rates for each quarter. This approach aligns with the broader strategy Michael outlined today. As to our near- to medium-term outlook on net take rate, we believe the range will be between 3.5% to 4%, which takes into account factors such as product mix, marketplace participation and capital market conditions. That range may fluctuate quarter-to-quarter, but our focus remains on scaling long-term marketplace margin durability and capital efficiency, not short-term pricing optimization at the expense of marketplace slowdown.

Turning now to profitability. GAAP net income for the quarter was $15 million, representing a margin of 9.4% compared to 7% in Q4 of last year. GAAP net income was impacted by higher overall share-based compensation expenses in the quarter, which were primarily driven by onetime fully vested grants to third-party advisers and for certain of our restricted stock units that incurred accelerated recognition of expense to earlier years within the vesting period. We expect stock-based compensation to normalize around $21 million over the next few quarters.

Adjusted EBITDA was $81.3 million, up approximately 426% year-over-year, and adjusted EBITDA margin expanded to 51.6% compared to 20.2% in the prior year period. This quarter, we recognized additional public company-related costs of $2 million, and we expect this trend to continue into 2026. Our medium-term goal for adjusted EBITDA margin is to be above 60%, and our progress this quarter can be explained as follows: First, we are growing volume and assets in Figure Connect and democratized Prime that reduce balance sheet usage and improve contribution margins as more volume moves into our capital-light marketplace. Second, we are seeing our contribution margin from partner-branded volume continue to be around 80% as we have built out the core infrastructure that powers Figure Connect and our partner-branded initiatives. And third, we continue to execute on operating leverage across both fixed and variable expense categories, where our volume increased 131% and our operating expenses, excluding share-based compensation, increased 13% over the same period.

I'll move on to our balance sheet and liquidity. We ended the quarter with approximately $1.2 billion in cash and cash equivalents. Loans held for sale was approximately $404 million at the end of the year, an increase of $15 million this quarter. As a reminder, our loans held for sale balance typically reflect the periodic timing of loan sale and securitization programs as we generally hold on to loans for a few weeks. As we scale democratized prime and supply figured loans for collateral to meet the demand, we may extend the time we hold certain loans on our balance sheet. This could increase the balance sheet in future periods, while our loans represent available land supply for this product. As more third-party lending supply comes on to the platform like Agora that Michael mentioned earlier, we expect loans held-for-sale balances to normalize back to historical trends.

In addition to our strong operating results, I'd like to highlight our announcement today that our Board has authorized a $200 million share repurchase program. We are taking this step as a reflection of the strength of our balance sheet, the durability of our operating profile and our confidence in the long-term opportunity in front of us. I'd note this program does not obligate us to acquire any specific amount of shares, and it will be executed in a disciplined manner, consistent with our liquidity position and strategic priorities. We expect to maintain substantial financial flexibility to continue investing in marketplace expansion, product innovation and growth across our businesses.

In summary, Q4 demonstrated strong volume growth, significant operating leverage and continued migration toward a capital-light marketplace model. As we enter into 2026, we remain focused on margin durability, balance sheet efficiency and further scaling our marketplace as the primary drivers of long-term profitability.

With that, I'd like to thank everyone for joining us today and for your continued interest in Figure. Leo, we're now available for questions.

[Operator Instructions] Again we kindly ask that you limit yourself to one question and one follow-up. [Operator Instructions] Our first question is coming from Dan Dolev with Mizuho.

Michael, Macrina, really, really nice results, very impressive as always. I wanted to ask you about the Agora partnership. It looks like a very, very exciting development here, third-party originated auto loans. Can you maybe frame the opportunity here and how much upside this should be adding to Figure over time? Because this seems like a phenomenal business in our view.

Thank you, Dan. Agora, in many ways, is like Figure. They're innovative. They've got a huge partner network. In their case, it's dealers, and they have a really successful capital markets franchise. They're also really big believers in blockchain. And so for them, standardizing the capital market infrastructure is going to help them grow faster.

In terms of the opportunity set, it's really threefold. One, it's an entrance into the massive auto finance sector with about $1.5 trillion outstanding. It's also a huge opportunity for us from a democratized Prime perspective because we're bringing third-party assets onto the platform, which is how we monetize democratized Prime. And then lastly, it's also a connect upsell opportunity because as Agora standardizes its assets on to Figure, we will have the exposure to our buyers who will then be able to participate in Figure Connect and transact in permanent acquisition of loans rather than just temporary financing on democratized Prime. So a really massive opportunity across all of our capital-light products.

We'll now move on to Patrick Moley with Piper Sandler.

So I wanted to talk about loan origination partner adds. You've almost doubled it in the last six months, up 25% sequentially in the fourth quarter. So I was hoping you could maybe pull back the curtain and help us get a better sense for where those partner adds are coming from, the nature of those partners.

And then given the accelerated pace of growth we've seen there recently, could this be a leading indicator of an acceleration in loan origination volumes in 2026?

We're firing on all cylinders in terms of partner acquisition. We have three primary motions that are all working really well. We have the license approach, which is split into a focus on independent mortgage banks and then separately, depositories, which includes banks and credit unions, and we see significant traction in both of those. And then we also have the non-licensed approach where we have the SMB channel we talked about doubled quarter-over-quarter, and we're seeing activity in fintech and broader real estate.

I haven't spent as much time talking about residential transition loans and DSCR, but that whole ecosystem and market of investors, people that fix and flip loans and properties is a really massive opportunity. It's considered broadly non-QM and the Figure product is a perfect fit for that space. And so a lot of our non-licensed activity is partnering with those types.

And so to directly answer your question, I do think it is indicative of a really strong pace of consumer loan marketplace volume growth that we continue to see into 2026.

We'll now move on to Ryan Tomasello with KBW.

I echo the congrats on the strong execution and the initiatives. I wanted to double-click on the Agora partnership, specifically on the monetization. I think we know that the Democratized Prime fee rate is roughly 50 bps. So that's pretty clear. But in terms of upfront tokenization fees, what the Figure Connect monetization looks like relative to first-party assets, anything to help size that math would be helpful.

I'll start, and I'll turn it over to Macrina. From a monetization standpoint, I think the important point is that this is pure margin. we're not incurring the expenses to originate the asset, maintain the LOS. It's really about leveraging our capital market infrastructure.

And I'd also say that 50 basis points is the estimate that we've shared for assets. But as we enter into different conversations and asset classes, we see generally upside towards that number. Without being specific about this transaction, I do think that you'll see as we add additional third-party assets, the contribution dollars and basis points of margin from Demo Prime to go up.

Macrina, what would you add?

Thanks, Ryan, for asking the question. I would also add, Michael mentioned earlier that this will be going into Figure Connect as we see more standardization in the loan product for auto. And so we do anticipate this impacting the overall volume coming into Figure Connect, which is great. And then additionally, as securitization for this type of auto loans are developed, we'd also be getting the securitization sponsor fee.

Just keep in mind, I did allude to a net take rate range of 3.5% to -- that is taking into account these auto loan types because these are shorter duration, and so they will likely command a lower take rate rather than the HELOCs, which have a longer duration. And so we are thinking ahead to think of different types of asset classes being added and being helpful to us in the overall volume coming into our marketplace.

We'll now move on to Rob Wildhack of Autonomous Research.

Just sticking with the take rate. I think previously, you were suggesting the take rate to be stable around 4%. And now you're saying more like 3.5% to 4%. So can you just unpack what's changed structurally there in the last couple of months?

Sure. In 2025, our main products were really the second lien HELOCs as part of our overall ecosystem. As we move into 2026 and we add different types of products, the product mix is changing into auto and more first lien coming across. And so auto, I gave the example earlier, these are shorter-term loans, and they're going to have a different type of profile and different types of buyers that come into Connect Marketplace. So we do anticipate the take rates really coming down for the shorter duration products. And it's going to depend on really the product mix going forward. And at the end of the day, we really want to be able to continue to grow our marketplace.

The goal for us has always been to add different types of assets coming into our marketplace, not just be one HELOC second lien. And so first lien products or auto or any different types of loans in the future will have an impact on take rate.

Okay. And I guess the take rate is going to be that much lower going forward, but you're still targeting 60% margins. How do you bridge the gap there? Is that just more volume or lower cost in the longer term?

I'll start. And Michael, if you want to add anything, please go ahead. I think the important part is, as I mentioned in my prepared remarks, our contribution margin has been around the 80%. It's not that we're going to be spending additional expenses. As we mentioned for Agora, it's not that we're going to be adding more different types of LOS systems and having to spend. And so we do anticipate the contribution margin still to be higher than that 60% mark in the future with different types of assets.

It might also be worth adding, first lien, 19% this quarter, 12% last quarter, same period -- and excuse me, last year same period. And so when you think about first lien, in particular, those are larger loans. And as a result, Take rate happens to be lower basis points on loan amount, but the dollars that we earn and the profit dollars are actually higher because the unit costs are the same for us to do so.

So I wouldn't look at take rate as an input metric or any decline in take rate as saying anything about maybe partners in a more competitive environment or renegotiating take rate, nothing like that. It's simply product mix. The 12% versus 19% is pretty material. And we're actually leaning into that. We want more of these larger first lien loans. We started doing the smallest loans available, call it, $100,000. And as we work our way up, remember, disruption starts at the bottom. We're doing a loan at $1,000 versus industry average of $11. And so we're able to continue to work our way up towards our partners' volume, doing larger and larger loans being more and more competitive with Fannie Mae, that take rate may not be 4%, but the unit economics of that loan is going to be better just given the size.

And so we are classically disrupting that market. And as I mentioned in my remarks, our existing partner base does $300 billion of first lien production annually, more than that, conservative number, and we're adding partners all the time. So this is definitely a positive. I just want to make sure that's clear.

It is. Yes, if I could -- just one clarification because I think growing in first lien has been a priority for the company for some time, but the take rate outlook is softer. So is that just a function of even more first lien loans that you're expecting or even larger dollar first lien loans than you were expecting a couple of months ago?

Yes. I mean if you think about it, right, we're growing 100% year-over-year, and we moved from 12% to 19%. So I don't think at the time of the IPO, we expected first lien to have as much traction as we do. And so many of our conversations today with partners are about first lien because at the end of the day, that's the biggest part of their business. And if we want to be as helpful and as disruptive as we can to the status quo, we're moving into that market. Our product is getting pulled in that direction.

We'll move now to James Yaro with Goldman Sachs.

I just wanted to touch on the ramp-up in volumes for new originating partners. Is there a rule of thumb you could lay out for us for how long partners take before they're fully scaled up and originating volumes on your platform? Maybe could you comment on the composition of year-on-year growth in origination volume between new partners versus existing partners?

James, our sales team would say it's three months because that's how the compensation structures work. But in general, that's roughly what we see. There's going to be different dynamics. Our partner base is diverse. Some are licensed, some are not licensed, some use an API, some are bigger. and they take more time. So some of the partners we announced last quarter, even some of the larger ones, they're still not fully ramped because especially as we expand into that first lien ecosystem and as we do things like DSCR and SMB loans and add things like yields, right, all of these opportunities are a big reason why upsell is such a large part of our go-to-market motion.

And so for us, we continue to see new products being added. But in terms of the core first and second lien HELOC, that's going to be about three months.

And just to add to what Michael had mentioned as well, I would say that our partner count is getting up to 307. It's not that new partners are the ones that are contributing the most to this. We also have existing partners who continue to grow within our ecosystem as they move on to Connect. And we also see that new partners are joining us as figure acting as an intermediary or going on directly to connect. And some of them are taking a lot of the share within Q4, which is great. And these are newer partners that have joined in the second half.

Excellent. Just a quick ticky-tacky one for you, Macrina. Any ability for you to comment a little bit on the seasonality in the first quarter? You touched a little bit on the seasonality in fourth, but maybe you could just comment a little bit around the first quarter as well.

Sure. It's -- we are still in the deep throes of winter months in New York as well. It's very cold. And so what we do see is that from November to February, those tend to be the months where we see less volume than the rest of the year. And so we're just exiting out of that and going into March. And so we do anticipate higher growth in March as it was in the historical trends.

[Operator Instructions] We'll now move on to [ Randy Binner with Texas Capital ].

I was just hoping you could update on the securitization process, how that's going for the HELOC loan products? And then I guess, like for these newer products, if there'd be a longer period of time where you gather loans before you'd be able to place those in the securitizations as well?

Sure. Randy, it's Macrina. So what we are seeing in Q3, Q4, Q1, just a reminder for this group, we earned our AAA on our securitization from S&P and Moody's over the summer, and that has greatly helped us in terms of higher gain on sale premium that we are realizing for Q3 and Q4. So you are seeing that in the trends compared to 2024, which has been very helpful for us.

As you allude to in terms of newer products, first lien, we did our second securitization actually in Q4. The first one we did in Q3 for the first time. And so it does take some months to be able to gather the new products before we can move on from a whole loan direct from Connect sale to a securitization vehicle.

So how we think about it is, usually, we want to be able to have size of about several hundred million for each of the securitization products. So the new products that we talked about that are less than $100 million for this quarter, it's going to take some seasoning over the next few quarters before we can enter the market.

Okay. So that -- those loans held on the balance sheet will just be higher, but that's the reason why -- and so that's all helpful. Just on auto, is...

Randy, sorry to interrupt. On the -- on these types of loans, we actually just sell them through whole loans. So Connect is really a whole loan marketplace where sellers come into the marketplace to be able to sell different types of loans. So they are being sold directly on Connect.

Securitization is a different vehicle where Figure has stood up a shelf, worked with the rating agencies, and we collect a sponsor fee on those types of vehicles. And so it does take time, actually a few quarters and more size for these loans to go through a securitization, but that's additive to us in terms of take rate.

Okay. Understood. The last follow-up is just on the auto product. Is that going to be direct? Or is that -- would some of that be held for securitizations over time?

So I just want to make sure that we're 100% clear. So with auto, Agora already has their own securitization shelf. And so what they're looking to do with Figure is to standardize that approach on our blockchain rails, take advantage of, for example, our registry and the fact that we prevent things like double pledging as you saw in the Tricolor bankruptcy, those types of things and get better execution over time by introducing also competition into the financing, both on the democratized prime marketplace as well as in Connect. But we won't be taking those loans onto our balance sheet.

Similarly, when we talk about, for example, DSCR loans, those loans today aren't living on our balance sheet. In fact, they are living on one of the originating partners' balance sheets. And then what we do is we work with the rating agencies and those partners over time to build out a shelf that then our partners can contribute into. And so as Macrina mentioned, when the securitization ultimately happens, it's a fee-based event for us. We take a securitization fee as part of that transaction, but it's the contributors who own the assets that contribute those assets into the securitization.

[Operator Instructions] We'll move now to Kyle Peterson with Needham.

I wanted to start out, particularly on private credit and it's been pretty topical of late. I think there's been some jitters about it. I know at least a decent chunk of some of the whole loan and securitization buyers kind of are private capital and private credit investors. But has there been any change in whether it's kind of tone or activity or anything like that in buyer appetite in the last couple of months as some of these concerns have creeped up. I know it seems like it's more kind of isolated commercial credits, but I just wanted to see if there's any change in sentiment or contagion concern with your partners.

Kyle, thanks for the question. So -- what we have seen in the market at the end of the day is that we actually haven't seen any change in the demand for Figure loans. And that's because we're in the market very often. People understand our product. We are in the market with securitization vehicles as often as well. And so as you alluded to, the private capital -- private credit capital jitters that you're seeing is really on the commercial loans rather than these residential mortgage type of loans. So we aren't actually seeing that.

With that said, though, as a reminder, we -- our loans actually get originated within nine days on average, as fast as five days. So if we do see anything, it's going to take a long time for other loan originators to shift to meet the appetite. We have a very short time, and we're able to change trends as needed as quickly to accommodate the market. But that isn't something that we see today.

Okay. That's really good to hear. And then I guess just a follow-up. I wanted to touch on the crypto-backed loans. I know that's, I guess, smaller kind of ancillary product now, but how has that product performed? I know there's been some recent volatility in crypto prices, but has the credit performance and collateral held up on par with your underwriting standards? Or I guess just how has that book performed over the last few months as there's been a little more volatility in crypto prices?

It's a dream asset class from the perspective of the investor or owner of the loan because you have the ability to liquidate that asset basically at any time because of the way the Bitcoin market works. And so even though there's been volatility, we've actually had a really easy time liquidating in the event we drop below LTV thresholds. So we've been handling that nicely. It's -- there's been zero losses in crypto-backed loans to date. And in general, while you note there is an environment that people are spending more time on private credit, we're seeing across all of our products, securitization execution at all-time tights, including even earlier this month. So definitely, there is some distinction across asset classes and across issuers. And so we feel really good about the position that Figure is in.

Thank you. This concludes today's Figure Technology Solutions Fourth Quarter and Full Year 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Good afternoon. I'm James Yaro. I cover brokers, crypto investment banks here at Goldman Research. With us, we have Michael Tannenbaum, CEO of Figure Technology, a position he took over in 2024. He successfully led the company through its recent IPO. So congratulations on that. Figure offers robust growth and a unique innovative approach to fintech and blockchain technology. Prior to this role, Michael was COO at Brex and held senior positions at Brex and SoFi. Thank you so much for being here.

Thanks for having me. Excited to be here.

Great. Michael. So let's start on strategy here. So for investors who are new to the story, maybe lay out the simplest way to describe what Figure is building and why it matters?

Sure. We're building the future of capital markets on blockchain rails. We have a marketplace that offers origination of tokenized loans, sales and trading of those loans. And we started in the mortgage space. So we built a platform that enables our 250 partners which range from banks, credit unions, fintechs to originate assets in 5 days and for $1,000 versus industry average of $45,000 and $12,000.

So it's a really disruptive approach to mortgage and to asset generation more broadly, and it's a capital market that comes hand-in-hand with an origination technology. And because of that, we're able to offer a really attractive margin, capital-light profile, which I think has been shown up in a lot of the excitement and enthusiasm for what we're doing. So glad to be here. Thank you.

Excellent. So this is your first conference since taking over as CEO of Figure now being a public company. What are the early lessons from the IPO process and I guess, in the few months since you went public?

Yes. So I joined the company April 24, and I was an early investor in the company and the Chairman of the company, Mike Cagney, the founder, and I worked together at SoFi, where I was the Chief Revenue Officer. So that's a bit of a background for folks that don't know that. And we went public in September. And since then, it's been very much focused on execution. And I think we've used the opportunity to really demonstrate clarity in our story.

I think people will want to hear about this marketplace orientation that we offer, that capital light, they're looking at the growth and the margins. And I think we're talking to investors and spending time like we are here today to really listen to feedback and make sure that we're delivering that consistent story and also that consistent approach of starting where we are in a very small portion of the mortgage market today.

We do about somewhere between -- somewhere around $1 billion on average of originations a month. And there's $2 trillion of mortgage outstanding annually and the broader consumer credit space is that much bigger. And so we see really that we're in very early days and our ambitions are much broader beyond just where we started beyond mortgage to expanding not only to all of private credit, but also even to equities, which I know we're going to talk a little bit about later.

Perfect. So let's dig a little bit into strategy before we go into the business a little bit deeper. So I guess you already mentioned it a little bit, but the broad aspirations for Figure and I guess maybe to make it a little bit more nuanced here or just sort of your top 2, 3 strategic priorities over the next 18 to 24 months?

So strategic priority one is continuing to expand in the mortgage space. I think we're very differentiated in that. We've taken a HELOC product and used it to go after that $35 trillion of home equity that's outstanding. And we do that in a variety of ways. Our HELOC product is now 20% of that is first lien, for example, meaning it's not on top of an existing mortgage.

That HELOC product can be used to fund small businesses. It can be used for home improvement. It can be used to pay off existing mortgage debt or higher rate personal loan debt or credit card debt that's really high rates that are outstanding. And so it's a really flexible product and continuing to grow that into that $2 trillion, I'd say, is priority 1. Priority 2 is expanding product set within mortgage. We've started to do debt service covenant ratio loans, which are for investor properties. We've started to work in residential transition loans, which are also known as fix and flip.

So continuing to look at what's working about our marketplace, the fact that we can offer lean perfection with something like DART, digital asset registry technology, value of that really showed up with Tricolor this quarter, which we could come back to. So that's kind of the second priority is diversification. And then the third is our blockchain pillar. So we have a stablecoin YLDS, which we use to settle and service the loans in our marketplace, and that's growing volume really nicely.

You can check that out on the Provenance Explorer and Democratized Prime. That's our short-term overnight money marketplace, think about that like a commercial paper operating on blockchain rails, whereas Figure Connect is a term or permanent marketplace. This is a short term or overnight. And we're starting to see significant traction there. In fact, last week, we launched the ability for people in Solana to be able to lend into that Democratized Prime, but stay in the liquidity where they are on the Solana ecosystem, but then use a staked stablecoin to get into our marketplace. So I think we're seeing kind of core mortgage traction, but also lots of traction in asset diversification and in some of the newer blockchain products that we have.

Extremely exciting. So Figure, as you just talked about, focus on innovation across a variety of products. What do you think allows you at Figure to drive such rapid technology development with strong margins? Obviously, strong cost discipline.

So this has been coming up in this conference, and I think it's important to talk about one of the things that we've been really good about from my standpoint is we don't just focus on tokenization for tokenization's sake. We focus on liquidity, right? Just because you tokenize something does not create liquidity in that. And we have lots of liquidity. We've done $20 billion of what we do in mortgage, and there's been about $70 billion of transaction activity in that mortgage product.

And so there's a lot of transaction and a lot of liquidity. And so we really are focused on how do we make that core product useful in so many different applications, like small businessm for example, or like debt payoff. And in doing so, we're keeping those same technology rails that we have, that same product, but using it in a different way. Another example is like a home improvement customer that might use our product. They don't know anything about mortgage or Fannie Mae. They're competing with, say, like a personal loan they might otherwise use.

And so there are so many different use cases for us, and we're standardizing that use case across these 250 partners, adding liquidity and that lowers costs and means we get a lot of ROI on our tech investment. But at the same time, to your point, we do have a very innovative culture. I think one of the things that -- I remember when we IPO-ed, the NASDAQ person there was like, well, you guys are like still taking calls during your IPO and stuff. And I think that there is a lot of drive. We understand the market opportunity that's ahead. It's massive. We think all the capital markets will ultimately migrate to these rails, and it's a big opportunity, and we're very focused at the IPO just being a catalyst for us to move that much more aggressively and faster into this market.

So I want to touch on tokenization because that, as you've noted, is top of mind at this conference. But I'd like to start first maybe on HELOCs, the core product, and you talked about partners already. So you added 78 originating partners in the third quarter, which is more than the entirety of last year and the year before in each of those years and more than twice as much in the first half. So what drove the stronger origination? Is it a broader recognition of the product, something else? And I guess, how should we sort of think about that originating partner growth trajectory?

So we have a flywheel, right? Every marginal dollar that comes into our marketplace helps lower costs and increase liquidity for all participants. So you should expect some acceleration as we continue to grow and expand. I think in Q3, in particular, some of that growth is because of the SMB use case that we unlocked. And very specifically, what we did, and this, I think, does a really nice job of highlighting the way that we're differentiated and how we compete with someone like Fannie Mae, we decided that we wanted to offer our product to business customers as well.

We opened the technology to support a business bank account underwriting. For most people in the lending space, business bank account would mean self-employed, and that's typically going to be a much slower and more complicated to underwrite. We took a different approach. And importantly, when we do that, we have all of our capital market behind us ready to buy that loan because we're an integrated technology and capital market. We're like a Fannie Mae plus an LOS plus the securitization engine altogether. And what that means is we can shift and make changes to the product to support these use cases.

And so when we opened it up to SMBs, for example, we were able to add a bunch of people who are kind of waiting to offer this product as an alternative to SBA or as an alternative to a traditional SMB term loan, again, going back to anybody who has that $35 trillion of home equity, even if they're funding a small business, they're probably better off using their home equity because you're borrowing over 30 years with a lower rate, which is going to give you the lowest possible payment. So that is just a massive opportunity. And I think you saw a little bit of that unlock in the SMB specifically in Q3.

What sort of originating partners attracted to using the Figure platform? You've seen from what we can tell, fairly broad nonbank adoption. But what about banks? And then within that bank comment, maybe you could just break down between smaller versus larger banks?

Right. So we've got a very diversified group of partners, 250. Those range from fintechs, nonbanks, like you said, solar and then will include depositories, both traditional banks as well as credit unions, and we serve all of those. I think we are less penetrated. There's about 5,000 banks and 5,000 credit unions, and we're in really early innings there. I think the sweet spot for us has been the, call it, regionals that are looking to where can we add value to someone like a bank. Banks typically are not going to have the most efficient processes. They're not going to staff up rapidly or staff down rapidly, and so we can be a great outsource partner for them.

And I think it's important to note that the cost advantage we have in origination, that $1,000 versus that $12,000 industry average is going to be even more manifest inside a bank. One, because of the staffing challenges they have. But two, banks are unique and that they have to serve -- they don't have to do anything, but they're typically oriented to -- especially credit unions and banks to orient it to serve their existing customers. So if someone with, say, $100,000 mortgage that says, I want to do a $100,000 mortgage, a bank is going to lose a lot of money on that, but still want to do it and be accommodating, whereas a fintech or an independent mortgage bank might say, see you, right?

And so because they have to do that, that's our wedge in and to say, we can make that production profitable for you because on a $100,000 mortgage to pay $12,000 cost to originate is extremely prohibitive to use our process and do it in $1,000 is much more attractive. And so that lower balance mortgage process is our wedge into a lot of these depositories, whether they be bank or credit union, in particular, because they're so focused on serving their customers.

So maybe just one more on that. So the big banks have the CCAR stress test, and that's capitalizing for a 2008 type scenario. And one product that didn't perform particularly well in 2008 was HELOCs, right? And so the CCAR stress test punishes these big banks quite heavily in terms of capital. So they want to be there for their clients. It's an expensive product to offer. So there's even a capital concern on top of it. So how does the dialogue work? And what will be the value proposition to one of the largest banks out there?

Well, I think HELOC, and this speaks to the greenfield nature of what Figure does. In general, HELOC prior to Figure was kind of an unloved asset class. And I think if you go back to SoFi, right, student loan was also an unloved asset class prior to SoFi's entry in that, and there's some commonality there. So I think what you are citing is actually a further reason why the market wants to adopt something like Figure because we are bringing liquidity into a product that people used to see as an accommodation product, one they didn't want to do.

And I think very importantly, this product, this HELOC chassis is not only used for first lien -- excuse me, for second lien. In fact, 20% of what we do is first lien, and that is very different than when people think about kind of the HELOC you're talking about that is a product that people don't want to offer. We're saying, listen, a HELOC is just what we started with has the liquidity, is where we've invested a lot of technology and money into. So let us continue to grow that and use it for so many different types of lending. All HELOC means is that you have the ability to redraw, which is actually generally favorable to the borrower. Most people like that option.

Excellent. So this is financials conference, so we need to talk about rate sensitivity. So this is some argue the golden age of HELOCs, in that there's record home equity outstanding, but people can't necessarily tap that without having to refinance at much higher rates. So maybe just at a high level, could you walk us through the impacts to your business if long rates were to fall, let's say, 100 to 150 basis points?

Yes. So absolutely acknowledge that this has been a great time to be in the home equity space. You've had a combination of rapid growth in home prices, so lots of equity. You have people locked into lower rates. You have people not moving and therefore, doing home improvement. So there's a lot of good in that environment. I think Figure has been successful in a variety of rate environments. And if you look at our growth, it's been rapid, whether rates were falling, rising or flat.

In general, as rates flow down, say, the 100, 150 basis points that you're mentioning, that tends to increase borrowing. And so in an environment like that, I actually expect volume to go up because at the margin, you're looking at your payment and your payment is going down. We have floating rate HELOC, we have fixed rate. So we've got a variety of products on behalf of our partners to capture those different movements in the yield curve. I think even more importantly, though, when you look at like if there was to ever be a very booming mortgage market like we saw in 2021, which would probably require a more -- a lower -- even lower rate environment than you're talking about because there's so many people locked in at 2%, 3%.

But in that event, I actually think Figure would be the absolute choice for all of the $100,000, $200,000, $300,000 mortgages because there'll be so much demand in the system. People are going to have to figure out why I need to focus on the $500,000, $600,000, $700,000, $800,000 loans, where I can make money. I've got no ability to staff up and process all that. So I think you'll actually -- just like what you saw for Internet companies in -- with the onset of COVID and people rapidly had to get online in every aspect of their business, I think if there were to be an event like that, people will be flocking to Figure because they're going to need that capacity, those low cost, that automated seamless way to process all this volume. There'll be no other way to do it.

Really interesting. So that actually, I think, maybe brings me to my next question, which is first lien HELOCs. So what are first lien HELOCs? And I guess within that question, maybe you could talk a little bit about what's greenfield versus what you think could have been otherwise an unsecured consumer loan versus first mortgages or maybe something else?

Yes. So I think most of HELOC today is greenfield. You have that $35 trillion, again, very attractive rates, long terms, ability to pay off lots of debt, almost your home, if you have home equity then is likely to be the most efficient cost -- excuse me, the most efficient form of financing. But then when you get into what a first lien HELOC is and what we introduced over the summer is the ability to pay off an existing mortgage with our HELOC.

And so in the event you had a higher rate loan, maybe you were worse credit and your credit migrated up or you didn't put very much down and you've paid off, whatever the reason, if the prevailing rate today and in a falling rate environment this will be increasingly the case, if the prevailing rate today is lower than the existing you have, you can use our HELOC to pay off any existing lien, including a secured lien, whether that be a mortgage or a HELOC.

And I think what we've done with that product is we've said to our 250 partners, especially the ones that are in the mortgage space, whether they be banks or mortgage companies, don't go Fannie Mae, right, go through our process, our capital market, our approach because we're offering that $1,000 cost to originate that 5-day process and we're competing with the alternative, which is a much longer sales cycle and much more expensive capital market. Again, if you use our capital market, there's 80% reduction in third-party review because we put the information on a blockchain, for example. And so there's a lot of speed and efficiency that we gain. You're getting investor transparency and payouts within 5 days versus waiting 45 days for that Fannie Mae process.

So it's a much simpler and more transparent and more liquid process. And we're competing -- disruption tends to start at the bottom, right? And we're competing in these smaller balance mortgages, but there's lots of them. And when I joined in April 2024, average balance was $65,000 for Figure. It's now about $100,000. And so we're continuing to eat into that Fannie Mae business, especially in the first lien where we see even higher balances because we're offering a lower cost and more quick process to our partners, and we're just in the beginning. There's that $2 trillion annual of origination.

Got it. Okay. So maybe on the other loan products, you talked about one of them briefly, but I think the other 2 are DSCR loans and then crypto-backed loans. So maybe just talk about the value proposition and growth prospects for those 2?

Yes. I think this highlights the flywheel that we have from the investor standpoint. People are buying products from us on Figure Connect, which is essentially an auction system that allows us to deliver loans to the best buyer on behalf of our seller partners, the originators and people are looking for more, right? So when we -- if you think about DSCR, which was one of the larger non-QM products out there in terms of market size, we can -- it's a business that is not standardized.

There's no good loan origination system for the DSCR space. No one's built that product. So we can take the same approach, which is an integrated capital market and origination system to our same partners or partners that are aware of us and say, you can do more business with us. And then on the investor side, people like the reporting, they like the transparency. They like the blockchain approach to standardizing no humans in the loop, understanding the data, verified on chain. And so what that's doing is it's driving that lower cost into that same or into an adjacent market like DSCR.

On the crypto-backed loan side, you've seen a huge explosion in crypto ownership in -- across the world, and it's very natural that some people are going to want liquidity against that, especially because so much of that ownership is driven by people who believe in an increasing price opportunity and who, therefore, don't want to pay taxes on current gains.

And so if you think that there's going to be someone who's going to offer -- win the embedded crypto-backed loan space, right, partner with other people who want to offer a crypto-backed loan to their customer bases, I think Figure absolutely has the right to win that business based on what we've done in mortgage and based on what we've done in blockchain, we are clearly the person to partner with if you are, say, some fintech that wants to offer that service, a wealth manager that wants to offer that service or one of our existing customers that says, "Hey, by the way, do you own crypto? Do you want to borrow against that? There's a lot of people that do.

Third-party originated loans seems like an opportunity to add to the platform over time. I can think of asset classes like auto. Help us think about whether and when you'll begin to offer those and which asset classes you see as most attractive?

So I think because we believe that the future of the capital markets is going to be on Figure's rails, ultimately, we will not be able to expand asset classes as rapidly as -- we will not be able to have every single person adopt our loan origination software for whom assets we'd like on our marketplace, right? So the assets can scale faster than the people who will adopt our software. And we see that opportunity. And as a result, we're going to offer the ability to use our marketplace but not necessarily have to use our origination technology.

And the places where that's going to work best are the places where we can perfect the lean because if you go back to Tricolor and what happened there, it's really important that when you're a lender in order to make all this marketplace work, you know that you have that lean perfection and there was not fraud and there is -- that loan has not been double pledged and blockchain is a great place and way to do that. But in order to do that, if you didn't actually manufacture the loan, it's much easier to know about that if you can control the lean.

So that's natural for real estate. It's natural for auto. It's natural for parts of the SMB world where you can take a lean on things like IP, intellectual property, equipment, et cetera, inventory. And so that's where -- those are the places where you have the yields that are attractive plus the lean perfection where I think Figure can be an early mover in bringing asset classes that didn't necessarily use our origination software, but where we can still perfect the lean, standardize the capital markets and bring them into things like Figure Connect and Democratized Prime.

You mentioned the Tricolor situation. You definitely have a different approach to collateral management. We've talked about this, you and I, but...

I can't talk about it enough.

There you go. I'll give you the opportunity. So you have a different approach. And so how -- what are the lessons learned from the situation? And do you think that's driving more client interest in Figure?

I do. I think that we have had a few things happen in Q3 that really drove some milestones in terms of bringing investor attention to Figure. Obviously, our IPO, the Tricolor and first brand situation, which exposed the fact that in this world of warehouse lending, and I would consider our Democratized Prime platform, a competitor to warehouse lending, in these warehouse lending worlds, you do not know, and I've been on the other side of this, right? I've been at multiple fintechs that have gone off the ground. And it's all managed by spreadsheets, right?

And so it's natural that some loans could be double pledged. And whether it's willful misconduct or just inadvertent error, I think if you're on the other side of that as a lender, it's really severe and as we saw with Tricolor in particular. And so as a result, people are seeing the value of the digital padlock that Figure offers to confirm that there's been only -- there is only one owner of the loan. And when the loan moves throughout the capital market, that the blockchain is tracking the ownership of that loan automatically.

Another thing that we saw was the shutdown of the government and what that did, especially to small business market with the SBA. I think that was another big eye opener. And I think in general, you've seen lots of volatility around Fannie Mae itself. And there's been a lot of management changes there. There's been I think, talks of different types of loan products, et cetera.

And so what that does, I think, for people that are participating in our marketplace is say, where do I -- what's going to be the platform of liquidity, standardization, homogeneity and ultimately, prosperity in the future. And I think more and more people are seeing the value of what Figure does based on some of these exogenous factors that have shed light on kind of the value proposition of using a blockchain-based approach to the capital market.

You recently announced a tokenized secondary offering for Figure stock. Can you walk us through what you announced, the problem that it's solving and how should we think about tokenized equities within Figure's broader strategy?

So we launched a -- it's a nondilutive secondary offering, and it is -- think of it as a second share class of Figure stock that will trade natively on blockchain with decentralized custody. There's no DCCC. It's not an NMS security. So it's going to trade on -- Figure has its own transfer agent. And I think one of the things people may not realize about Figure is that Figure has actually built a competitor to Shareworks or Carta called Figure Equity Solutions, and we were actually running our own equity cap table on this product until we went public.

And I think that was because this has always been part of the story. There's always been a goal to tokenize equities in addition to tokenized debt. We named the product Democratized Prime because it competes with prime brokerage. And ultimately, the value proposition of a tokenized equity, the way that we're approaching it is that you can control the stock loan on the equity as an equity owner. And so when there is an interest in borrowing that equity, the majority of the economics are now going to accrue to the owner of the equity, which is very different than the status quo of prime brokerage.

And so one way I kind of think about what we're doing for asset ownership, whether it be equity or debt is we're doing for asset ownership kind of what the Internet did for content creation, right? We are bringing that control and that democratization to those people because of this blockchain-based capital market that we've built. And the other thing that you can do is then also offer cross-collateralization. So if you think about a traditional prime broker environment, you're not going to get cross-collateralization into other -- certainly other asset classes and maybe not even other securities of the same asset class.

Whereas when you have lean perfection, right, when you're not saying, oh, I wonder who actually owns this equity, for example, people that are tokenizing private equity stock, like do you actually know that you have a right to those cash flows, whereas here, we're saying because it's self-custody, because it's this technology, you actually know who has the ownership of that, which gives you the confidence as a lender to offer cross-collateralization in a marketplace like Democratized Prime.

So I have about 50 other questions on tokenized equity, but we only have 5 minutes. So let's talk about Democratized Prime and then YLDS as well. Could you explain how those 2 products work together and what the combination unlocks for both borrowers and investors?

Democratized Prime and YLDS?

Yes.

So the way they work -- so YLDS is Figure stablecoin, YLDS. It's -- as a reminder, it's a little different than the GENIUS Act stablecoins and that it's an SEC registered security. So it is actually able to pay YLDS. And one other thing I like to highlight about it that is a reason why a lot of banks are interested in it is that the proceeds that are invested in -- that are put into YLDS can be put both into treasuries and into tokenized deposits. So if a bank wanted to offer YLDS to its customers, it could keep those liabilities on its balance sheet.

And if you think about the regional banks that we've been talking about, if you're looking at who to partner with, I think Figure is a natural choice given what we've been doing on the asset side. And so YLDS is today, it's the oil of our capital market. It's what we're settling the loans in. And for example, if you buy YLDS through some of our -- sorry, if you buy loans or sell loans through a warehouse line through some of our partners, that transaction will be settled in YLDS and the ownership of the assets will come exactly atomically at the same time that the money is sent out.

And only a stablecoin, which is programmable money can offer something like that. So again, going back to Tricolor, you can start to understand why you could prevent something like double pledging by confirming that money only leaves the system at the same time asset ownership is conveyed. So that's kind of one. And then two, YLDS is also what we're using to bridge liquidity in places like Solana or Sui or Ondo, where you've seen us make partnership announcements. So for people that are in other platforms, not necessarily on Figure or Provenance, which is our L1, and they're looking for YLDS, I think we're best in the world at tokenized loans and YLDS.

If they want to get that into their -- where they are -- say they're in stablecoin on a Solana ecosystem, we can use YLDS to bridge, they can stake their liquidity and then come into something like Figure, lend in Democratized Prime and the borrowers, which would be our partners that have these assets can then take advantage of that liquidity and YLDS just sort of the rail from Democratized Prime to other ecosystems because Figure recognizes that there's lots of L1s out there, right? There's Tempo, there's Ethretrium, there's Solana, and there's lots of stablecoins out there. And so we want to focus on what we're best in the world at and then earn some additional economics as we own those rails between things.

Okay. Great. So you had robust adjusted EBITDA margins in the third quarter, 55% EBITDA margin. So how do you balance margins versus growth? And I guess the EBITDA profile that you expect going forward? Margin profile?

Yes. Margin is an output. So we don't target a specific margin when we run the business. It's an output of the fact that we are moving our business model to this capital-light marketplace Figure Connect, which started only in June 2024, as I mentioned, is already about 50% of the volume that we do. The incentives are such that partners of Figure are inclined to do more business with Figure Connect because they make more money.

We've actually sacrificed some top line revenue in favor of a higher quality, more capital-light, higher EBITDA margin revenue stream. And we've done that because we want to push that marketplace forward and push what we're doing, encourage partners to do more with us and ultimately build a sustainable marketplace that is, by its output metric, a high-margin business.

Okay. Great. So as we wrap up, maybe just lay out what, the 1 or 2 things you want investors to take away about Figures opportunity over the next few years?

I think that when I left my last company, Brex in 2024 in the winter, and I was thinking a lot about what to do. And I just kept coming back to how big of a market opportunity there is. Every single asset class within debt, within equity benefits from a more standardized and tokenized approach. And I think that it was just such a big opportunity that I thought this is massive, and this is the future capital market.

And I look at that whole market landscape and how malleable and basically how extensible the HELOC chassis that we started with into that broad marketplace, and I see just a huge amount of opportunity. So really exciting time for Figure, and I'm so grateful for you continuing to spend time and all of you in the audience learning about us. So thank you.

Great place to end. Thank you so much, Michael.

Thank you.

Okay. We are -- I'm getting the signal that we are live. We are getting started. And I have a feeling we'll have a very enthusiastic and alert audience this afternoon to talk about Figure, which is one of our 2 most recent IPOs on Nasdaq here at the conference today, doing exceptionally well and so excited to have this chat with Macrina today to learn a little bit more about Figure. So welcome.

Thank you for having me here, Brenda. So excited to meet our investors.

So this is your first conference since Figure became a public company. So for those who are not familiar with the company, why don't we begin the conversation with a good overview?

Sure. So we are Figure Technology Solutions. We went public in September of this year. What we do in a very high-level overview is that we provide a capital marketplace for private credit today using the blockchain technology. So our loans are native to the blockchain. And what Figure provides is a loan origination system that is differentiated and unique, and much faster than the overall mortgage industry. So we offer HELOC products that go on to the marketplace and our partners use our loan origination system to use the marketplace. And we have a place where private credit buyers can come into our marketplace to be able to buy these types of loans. And the technology and the standardization behind our marketplace is that, because the loans that are originated can be from [ Brandes' ] company or Figure itself. It's using the same technology. So it's homogenous and it's standardized. And that's how we can go on to a blockchain.

We have a layer 1 blockchain called Provenance that is providing the database foundation to have all of these loans on the blockchain. And what makes that easier for the capital marketplace is that the information is out in the public realm. So the data can be readily available on a second-by-second basis if you want to see the information as a loan buyer, or you can download the loan tapes on a day-to-day basis. In the traditional world, what happens is if you own private credit and you're owning a loan, a servicer provides the data to you on a monthly basis. And so you're always looking at history, whether that's 15 days old or 45 days old versus using Figure, you're using -- looking at information on a day-to-day basis. So it's very attractive to the loan buyers to use our marketplace.

That's perfect. Thank you for that. And so let's dig a little bit into your strategy. So what are the broad aspirations for Figure? And remind us of your top 2 to 3 strategic priorities for the next 18 months? I know it's hard. You just became a public company 2 months ago, but let's look into the broader horizon.

Sure. So we offer a marketplace called Figure Connect. So Figure Connect is something that we want to continue to broaden deeper in terms of more loans coming into the ecosystem, work with different partners. We currently have about 250 partners and we want to be able to continue to grow that. Our third quarter partner count increase was actually more than the first half. So we have seen the flywheel impact of being a public company, being a great marketplace for our origination partners to work with us.

The other side of the house would be working with a different type of marketplace. Because the Figure Connect marketplace today is really a permanent buy vehicle. So loan buyers would come in and buy the whole loan and take it permanently off of the balance sheet of other players. We want to also be able to provide shorter-term type of product to the marketplace. We call that Democratized Prime within Figure, and it acts like an overnight market where debt is provided to whoever is bringing collateral. So if I use our Figure loan product, as an example, you could be using the Figure loan product instead of going to a bank to provide you with a warehouse facility, you can actually use our Democratized Prime product and be able to lend out the loan using the collateral as a loan, and borrow the money from multiple different buyers.

And that's the reason we call it Democratized Prime because it could come from a Goldman Sachs or a Morgan Stanley, but it could also come from someone like yourself or myself if we wanted to lend $1,000 into the ecosystem.

Yes, that's definitely -- that's the future, right?

Yes decentralized finance, 100%.

And we're going to talk about tokenization at the end of this, but definitely, that all plays into it. Before we do that, let's focus on the core HELOC product. You had mentioned it earlier in your introduction where the key driver of growth appears to be adding the loan origination partners. What's driven the significant growth in origination partners over the last few quarters? And how should we think about the growth of origination partners going forward?

Sure. So if you are a partner that is working on Figure Connect, the part that you would be focused the most on is your customer acquisition and your customer relationship. Once you have a relationship with your customer and you want to be able to offer them a loan product, Figure brings on the different technologies behind the scenes, including the blockchain technology and a liquidity provider that has a certainty of takeout through our marketplace. And so what's attractive to our partners is that they just need to be able to bring the customers and use our origination system and be able to use our liquidity. And ultimately, if they wanted to, they could lend this out on Democratized Prime as well.

So we have more partners joining our marketplace because they don't have to worry about having a warehouse facility for themselves and dealing with different lawyers and banks that are using customized agreements. They also don't have to think about having a loan agreement, purchase agreement with the likes of many different hedge funds out there. And all of these agreements, I'm sure all of you go through the work as well is that these are unique agreements. It's not standardized. It's not the same agreement being used. But if you're a part of the Figure marketplace, it's one agreement. We don't have one hedge fund getting a different agreement to another hedge fund. The important thing is that we have every single buyer on the marketplace under one agreement. And so it takes out a lot of the concerns and risks and liquidity that these mortgage originators are bringing in-house. And so we are continuing to build the partner network.

I talked about mortgages, but a lot of our partners are nonmortgage companies. So if you are a large company that provides home improvement products, I don't want to say names, particularly, but I'm sure you can get a sense of what these companies are and at the point of sale, even if they don't have a mortgage origination license, they can actually work with Figure. And we can provide the back end to be able to work with our customers, give them a lower-priced, lower rate loan, which is better for the customer as well because today, they would have used a credit card and have a credit card debt that's in the teens in terms of interest rate or even more than that and they can come to Figure where our rates are, on average, 9%.

Let's drill in on that specific a little bit more. So we talked about a variety of different origination partners. So if you can drill into that a little bit more, so what sort of origination partner is attracted to the Figure platform? We've seen broadly nonbank adoption, which you just mentioned. But what about banks, small, big, both? Tell us a little bit more about that.

So we work with a variety of credit unions in the U.S. We also work with different types of brokers that have mortgage interest and also companies that may be able to originate because they have a mortgage license, but aren't able to have the equity, not just equity in the sense of shareholder equity, but funding to be able to provide for mortgage origination. So having all of those diverse partners, including regional banks work with us is -- actually makes a lot more sense. And to give an overview of why a bank would actually work with us, one is our loans take about 5 minutes, if all of the data is there to have a decision on whether you will be approved to take the loan. And that's really fast.

That's really fast.

Knowing that I've had a mortgage. I've had a HELOC and it takes a much longer time to be able to get a decision. And then the other part is our loans take as fast as 5 days to close versus -- and our average is about 9 to 10 days versus the industry average is around 45 days. And so if you're a bank who is really focused on the customer relationship, and many banks are, they have an offering an alternative. It's not that all of their customers need to come through Figure, they can actually use our product as a white label and be able to give the customer something very quickly as an approval and be able to fund within 9 to 10 days.

Wow, that's very -- it's tremendously fast.

My HELOC took 60 days.

Same. Painful, without -- just waiting to hear. Yes. So I think we all can sympathize with that. So let's just talk about overall innovation, right? I mean you're innovating -- you are innovation, but you're innovating specifically across a variety of financial services products. What allows you to drive such rapid technological developments in large TAMs, all while maintaining such a strong cost discipline and strong margins. So let's get into the nitty gritty CFO stuff.

Sure. So our co-founders actually are second-time co-founders. They cofounded a company called SoFi. So they have been in the industry for quite some time. So they understand lending quite well. And with the lessons learned in building out the technology and the product, they brought that to Figure. And so the vision of creating a marketplace built on blockchain technology, they could use a system that could be built on a modular basis. It's not that you're starting out fresh and like not thinking about what's going to be coming next and your regular startup, they actually had a vision of knowing what was going to be built. And so the modular nature of our technology is very helpful because if we wanted to originate a different type of product or add a different type of feature, or tweak certain things in our lending, we're able to do that in a very short amount of time. And I think that innovation using blockchain technology is very helpful.

The other part I would add is there are very few companies out there that use a layer 1 blockchain called Provenance to be able to originate the loans. And our founders actually created Provenance as well because they looked around the overall ecosystem and saw that there really wasn't a blockchain that could work with real assets that are digitized and tokenized. And so our Provenance blockchain is able to read the information and have the key terms minted on there. So it doesn't have any PII or anything like that, but it will show the loan balance. It will show the interest rate. It will show the term of the loan. So that type of information, if you think about it, I don't think bitcoin chain or Ethereum can actually house that information.

Yes. It was a [indiscernible] for SoFi, another NASDAQ-listed company. So we're very proud to have the founders bringing another one here to NASDAQ and continuing with that innovation. I'm going to drill back down to the question again though. So talk to us a little bit about cost discipline and your margins.

Sure. So we are very proud to say that our -- we have been GAAP net income positive since 2024. That is unique in many of the tech companies out there. Our adjusted EBITDA margin for Q3 came in at 55%. And if you think about our adjusted EBITDA, it's very straightforward. It's the regular things that you see in add-backs because I just wanted to mention that as people will be looking at the information. And the benefit of our adjusted EBITDA margin, and it continues to grow. Over the longer term, we actually want to get to 60% and plus is that we have the great technology that's been built. And so technology and product is not something that we focus on to continue to grow headcount.

So we have been able to maintain a smaller headcount and that's been very helpful in stabilizing our fixed costs. And so tech and product and G&A, so people like me, are in the fixed cost area. And then on the variable cost side of the house, as like any other company out there, we are looking at AI. That's been very helpful because we are a marketplace, and we are becoming capital-light. The loans aren't coming on to Figure's balance sheet. It's actually moving on to the marketplace. Our cost of funding is going down as well. So we have the benefit of variable costs going down and fixed costs staying pretty stable. And that really helps at the end of the day in terms of operating margins. Sorry, been talking so much.

No, no, that's great. And I have a longer question, so you can take a drink of water before I ask it. I'm going to ask 2 more questions, and then I'm going to open it up to the audience for their questions. I have a feeling there may be a few. I can see a lot of eye contact. I'm not multitasking. So clearly, they're very interested in this discussion.

So you started in traditional HELOCs, but you're expanding into other loan products. What are the more significant new products that you're looking at? How many of these greenfield loan products that might otherwise have been unsecured consumer loans or first mortgages or something else?

Sure. I talked about the duration of how long it takes for our loans to be funded. The part I missed earlier is that our loans cost about $750 to originate versus if you look at the overall industry, on average, it costs about $11,000 to $12,000 to originate. So we are actually opening up a greenfield opportunity to be able to originate smaller balance loans. So banks would not want to deal with $100,000 loan. Our loan size on average is $100,000. So it makes sense for us to originate smaller balance loans, and it penetrates a larger market. So I think that's an overall benefit that we do bring to the table.

And as part of that, because we have HELOCs, which can be second lien or third lien. In particular, we also have first lien HELOCs. So there is about $36 trillion of home equity in the U.S. and we are tapping into that $36 trillion of home equity by offering first lien HELOCs. And the volume for first lien HELOCs has tripled in dollars year-over-year. In terms of the overall percentage of our origination volume we're coming in around 17% for Q3. So we see that as a pretty significant opportunity because I'm sure you know HELOC, you think about second lien not something you think about as first lien. So that's a product that we think of a lot because it continues to grow.

We're also looking at SMB loans. These are small and medium business loans. And it is still collateralized by a home, a property, but we are seeing a lot of inbound from business owners who want to be able to use our type of mortgage product, HELOCs, and use our home as collateral. The underwriting is pretty much the same. It's just that because these are business owners, we're expanding the spectrum to be able to read the business accounts when we do the underwriting. Instead of just looking at personal bank account information to read what your average salary is. So we have expanded that product.

We're seeing a lot of interest come through from our partners. So we had a lot of partners joined in Q3. This is just a recent product that really launched in Q2, and we're seeing the traction in Q3. So very excited about continuing to expand there. And then if you think about our marketplace and digital tokenized assets, we can also offer crypto-backed loans. So we have cryptocurrency that is on our exchange. And that could also be used to generate loans and we're seeing that traction come through in Q3 as well. So we're really excited, various products...

Very exciting, lots of products. And so you are leading the witness here for me. So thank you for making it easy. You had just talked about crypto and crypto products and tokenization. So let's dive deeper into tokenized equities specifically, very hot topic in the markets right now. Lots of feelings from the corporates here on what that's going to look like for them. So remind us what your strategy is with this development and what differentiates Figure's tokenized equity product with some of the -- there's a lot of noise out there from other broker-dealers about tokenized equity. So talk to us about what you're doing that's different?

Sure. So first of all, just for the record so that everyone here who is an investor or a potential investor, our tokenized equity offering is secondary. So it's non-dilutive to any of the existing investors, and there's going to be no change in price, theoretically, if everything goes well. So we have filed an S-1 with the SEC for our tokenized blockchain equity. The difference is that our equity is actually truly native to the blockchain. So the equity that is being issued in the U.S. is with a DTC. So there is a company, you have to go through to be able to make sure the name of the investor changes, and it takes about 2 or 3 business days to be able to make that change happen.

So if I sell my shares to Brandes, it's not going to immediately say it's Brandes' shares, it's going to take a few days. If the token equity is native to the blockchain, what happens is if I transfer and sell my shares to you, it will take nanoseconds to be able to say it's your shares, and it's not my shares. And on top of that, because our equity is on the blockchain, we could use stable coin. And we have our own stable coin called YLDS that is registered with the SEC and is yielding. And that's why we are very original and called it by YLDS. That's the other thing.

And then Democratized Prime platform that I talked about earlier, you can actually bring your tokenized equity for collateral and be able to borrow and lever to be able to consolidate your debt or do other things that you want to do with your business. And even further, if you were a large asset manager, I stop myself from saying the names, then you can have all of your public equities actually come to the Figure exchange and trade as a blockchain equity. And what that does for you is that if you're lending out these stocks yourself instead of through an intermediary, you can actually earn the benefits and the interest by doing that yourself instead of giving it to somebody else that you're working with like a prime broker.

Collateral, collateral, collateral, right?

Yes. And we also have all the licenses to be able to do this. We have a broker dealer, we have a transfer agent. And we have also an SEC-registered alternative trading system.

Perfect. All right. Any questions from the audience? There we go. If you can hold on one second for the microphone, so that way we can capture it on the webcast, please.

And maybe if I can, a couple of questions on my side. The first one is, what's the liquidity on your marketplace once the mortgage or the HELOC instrument is there? Is it possible? What's the [ liquidity ] on the trading side, if people want to buy and sell the same instruments? And the second one, do you see the opportunity to expand outside the U.S.

Thank you. So the first question on, is there liquidity on the other side in terms of buyers. The U.S. private credit market is currently $2 trillion. And so we had $2.5 billion of volume in Q3, and it continues to grow. We were 70% year-over-year growth. But there are a lot of buyers on the other side who are interested in our type of paper because our performance of the loans have been quite good. As I mentioned earlier, it's on blockchain technology. So the information can be readily available. You can look at it daily if you wanted to. And so there is certainty of a performance on our loans.

On top of that, we also received a securitization AAA rating from S&P and Moody's. And so there is the major rating agencies that are looking at our information and the performance of our loans. And so there are a ton of investors who actually want to work with us, but it's a marketplace. So we want to make sure that it is balanced and we have the origination volume in matching with the buyers that are out there. So we are selective in continuing to add buyers to our marketplace.

And do you want to touch on expansion outside the U.S.?

Yes. So it's actually been really exciting for me to be here to meet investors outside of the U.S. because what we are seeing is the next question usually being asked is, can you bring that here? Can you use that blockchain technology and create a marketplace for different types of loans that are in Europe and the U.K. It's something for us to consider in the future. Immediately, our road map is in the U.S. because the TAM is so large and there is a lot for us to tap into. But it is a conversation that we'll continue to have. We do have presence in Ireland. We also have presence in the Cayman Islands. So it's not that we are just in the U.S. We are thinking about our product and our company globally as well.

Great. Thank you. Any other questions.

It's early days. I appreciate. So this may not be valid. But what do you see currently and what you envisage with default rates on your HELOCs?

Rates on HELOCs? Did you say?

Default rates.

So we are actually the servicer for most of the loans that are originated on our platform. So we do see the information, and it's also on the blockchain so we can harvest the information and look at it. Our loss rates are coming in less than 1%. So the performance has been quite strong. And we have been around for 8 years. So we have been seeing the consistent rates.

Great. Anything else? Okay. So let's wrap. We have 2 minutes left. Can you just give us an -- first of all, touch on anything that I've missed or forgotten to ask you. And after that, do you mind just giving us an outlook on what you're excited about for 2026 outside of what we discussed?

Sure. As a public company, we actually don't give guidance, but as the CFO, I do want to talk about financials a little bit. So our overall medium- to long-term goal is to get to a 60% adjusted EBITDA margin as we move our products onto our marketplace instead of Figure actually originating the loans ourselves, we also expect to become capital light. And I talked earlier about the fixed and variable cost advantage that we have and the reason why we think that we can go from a 50% plus EBITDA -- adjusted EBITDA margin to 60% plus. And we're really excited to show that execution to our investors.

In terms of what's to come in 2026, we are going to be very busy. We need to speak with the SEC on our tokenized equity and make sure that it gets through, talking to a lot of investors because they are interested in how it works using wallets and how the transactions can be done in a very quick manner. We want to continue to expand our partner network. Doing an IPO has been very helpful because it's been -- it's a brand moment for us and the partners recognize us a lot better and they can also trust that because we're a public company, there is some level of corporate governance and transparency that's provided on a regular basis. So the excitement and the synergies are enormous. So we're really, really happy to be -- continue to be working and expanding the network.

Perfect. I love the shout out to being a publicly traded company. So Macrina, thank you for joining us. I hope that you've had a successful trip in London. We look forward to welcoming you back for many, many more years to come. So thank you.

Thank you, Brenda. Thanks, everyone.

Welcome to the Figure Technology Solutions Special Event Conference Call. [Operator Instructions] Lastly, today's call is being recorded. I would now like to turn the call over to Craig Streem with Investor Relations.

Thank you, Cloe, and hi, everybody. Glad you're with us today. This is Craig Streem, Investor Relations at Figure. Joining me on today's call are Mike Cagney, Executive Chairman and Co-Founder of Figure; Michael Tannenbaum, our Chief Executive Officer; Macrina Kgil, our Chief Financial Officer; and Clare Hove, our Chief Operating Officer.

Certain statements made during today's call may represent forward-looking statements, which may vary materially from actual results. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our Form S-1 registration statement and set forth on Slide 3 of today's presentation, which we have posted in the IR section of our website. We are not undertaking any commitment to update these statements if conditions change, except as required by law.

A recording of the conversation today will be made available on our website following the conclusion of today's call. Following the conclusion of the prepared remarks, we will open the line for questions, and I encourage you to follow along in the posted presentation as we go through our remarks.

I also want to point out that any listener may submit a question during the webcast using the link at the Events tab on our website where they've connected to the presentation.

And with that, I will turn the call over to Mike Cagney. Mike, please go ahead.

Thanks, Craig. Good afternoon, everyone. We're excited to share details on a landmark development, Figure's launch for the first ever issue of a blockchain-native public equity security. This offering builds on the success of our traditional IPO earlier this year and marks a fundamental advance in how public securities can be issued, traded and financed.

Our blockchain-native equity allows investors to hold, transfer and collateralize Figure stock directly on the Provenance blockchain with 4 key advantages: faster bilateral settlement, 24/7 trading, cross collateralization of the security to other assets and the ability to lend or borrow the stock transparently.

It represents the true power of a decentralized approach to the equity capital markets, employing the best of blockchain technology to remove certain intermediaries and creating an infrastructure that's more efficient, transparent and aligned with investor interests.

Before I continue, it's important to clarify that this will be a nondilutive offering only to existing shareholders. In the transaction, certain existing shareholders who choose to participate will be selling their shares and, in turn, Figure will mint new blockchain stock, meaning that the total Figure share count will not be affected by the transaction.

On Slide 5, you'll see the contrast between the traditional NMS equity infrastructure and the blockchain-native equity approach for planning on pioneering with this transaction. In the status quo national market security system, equities move through a complex stack of intermediaries from custodians and clearing firms to prime brokers and introducing brokers.

There's a large amount of reliance on third parties in a trust-based paradigm where each party extracts rents at the expense of the equity holders. Our blockchain-native structure eliminates this complexity and reduces intermediary economics. Trades occur directly between self-custody wallets, our alternative trading system and ATS. Settlement occurs instantly and counterparties maintain direct control of their assets throughout the process we believe this model delivers material cost savings, better stock loan economics, increased borrower capability and a significantly improved user experience. It's a new capital markets infrastructure, one that no longer relies on legacy systems like DTCC, the centralized exchanges and the prime brokers.

On Slide 6, you'll see the benefits of Figure's approach outlined in more detail, in particular, when juxtaposed against some recent efforts by other tokenization efforts in the marketplace today. The proposed transaction, which we expect as a blueprint for other issues to offer or follow is a blockchain-native approach that has some very clear advantages. In terms of equity as collateral, shares of Figure's blockchain-native equity can be pledged, borrowed against or let within the decentralized finance protocol Democratized Prime on the Provenance blockchain. In our blockchain-native model, investors hold Figure shares directly in their own self-custody wallets. The same shares can then be used immediately as collateral to borrow YLDS Stablecoins, participate in liquidity pools or support margin exposure, all on-chain within Provenance's blockchain ecosystem.

In terms of U.S. retail availability, the reason we're able to offer this comes down to regulatory structure and registration. Our blockchain-native equity will be a fully registered share class common stock. We filed a Form S-1 registration statement with the SEC, meaning it's subject to the same investor protections disclosure standards and government's framework as our NASDAQ-listed shares.

24/7 trading is commonly mentioned as an advantage in tokenized markets. And while we do not view this to be significant, it has some advantages, and we're excited to offer it. Token self-custody is another example of removing third parties and enabling a truth-based ecosystem to replace the trust-based status quo. It allows investors to directly hold and control their shares without intermediaries, reducing counterparty risk, lowering cost and enabling instant settlement on-chain.

It also supports a direct, transparent stock loan marketplace for the prime broker locate services replaced by peer-to-peer borrow through defi effectively a limit order book for stock borrow. stablecoins settlement enables instant 24/7 clearing, reduces transaction and funding friction while also allowing nonchain liquidity to remain on-chain.

Importantly, this equity security provides the same voting rights and economic terms as our existing NASDAQ-listed equity, including dividend participation. Ensuring that the blockchain-native stock is fully pari passu with our existing NMS shares is essential. Our goal is to deliver a structure that is strictly better than the current system, not innovation at the expense of investor rights.

We've built a model where investors can hold Figure stock in their wallets, earn YLDS through stock loan, borrow against their stock and other digital assets and participate directly in governance all on public blockchain. It's a structural leap beyond any product currently available in the market.

Now I'm going to turn it over to Michael Tannenbaum, our CEO, to highlight on the next slide how this offering and approach ties into our broader Figure ecosystem.

Thanks, Mike. As shown on Slide 7, this offering isn't just an innovation in capital markets, it's also deeply strategic for Figure. Our blockchain-native equity becomes a pioneering building block for Democratized Prime, our DeFi platform on the Provenance blockchain. As I have said before, we specifically named it Democratized Prime to reflect its disruptive nature with respect to prime brokerage. Just as we created a flywheel effect with our tokenized loans and real-world assets, by now adding equity to service collateral, we create a similar flywheel effect, driving liquidity, enabling another vertical and encouraging market participants to embrace efficiency of true blockchain-native behavior.

This expansion integrates seamlessly into Figure's ecosystem, connecting our origination platform, alternative trading system and YLDS stablecoin to create a comprehensive self-reinforcing marketplace for real-world asset finance. Furthermore, we hope other issuers adopt this model and also issue blockchain-native share classes into our and the Provenance blockchain's market infrastructure, through which we will earn volume-based fees on both the infrastructure itself and on the financing. These conversations we are having with future issuers today are primarily with companies that are blockchain-native or adjacent, such as custodians, miners, digital asset treasuries and exchanges, but we also expect this infrastructure to be appealing to a broader set of companies.

Slide 8 shows the flow of transactions through our alternative trading system, or ATS, which integrates into the Provenance blockchain. First, through the ATS, shareholders can engage in bilateral self-settling trades that eliminate counterparty and settlement risk. Unlike traditional markets that require clearing intermediaries, all trades settle directly between self-custody wallets in real time 24/7. Second, through Democratized Prime, those same shareholders can lend shares of blockchain stock or excess Stablecoin liquidity back into the system, earning yield at a market clearing rate.

What's unique here is that liquidity, settlement and collateralization are unified within a single blockchain environment powered by YLDS, our SEC registered stablecoin. This is what we mean when we talk about bringing capital markets on-chain, not tokenizing existing securities for symbolic value, but actually enabling native issuance, trading and financing.

On Slide 9, you can see what this experience looks like from an investor's perspective across a variety of personas and use cases. The blockchain equity will be fully tradable through Figure's platform across multiple interfaces from mobile quick buy screens for retail investors to professional trading tools with limit orders and portfolio level margin management. Investors can log into Figure's marketplace directly or through integrated third-party wallets that have been KYCed.

Beyond simple trading, the blockchain equity can also be used as collateral within Democratized Prime. That means holders can borrow against their equity, lend it out for yield, all on-chain, all governed by transparent smart contracts and earning enhanced economics versus the current intermediated status quo. As shown in the demo screens, investors can see real-time lending pools on the Provenance blockchain with available supply, demand and algorithmically determined APRs, creating a true market for equity financing without intermediaries. This is an entirely new level of functionality for a public equity, a programmable security that participates directly in a digital financial ecosystem, not just in a brokerage account.

So I'll turn it back to Mike now to close us out before we open it up for questions.

Thanks, Michael. So I want to take a step back and highlight the significance of this transaction. What we're doing isn't just issuing a new share of stock. We're actually creating an entirely new equity capital markets. There's no DTCC is a common registry. It's happening on public blockchain. There's no centralized exchange like the NASDAQ or the NYSE. It's trading on our alternative trading system, which is self-custody and self-settle. So effectively functions like a decentralized exchange. There's no prime broker, you're using DeFi. There's no need for an introducing broker, you can effectively attach with the KYCed wallet to be able to trade.

So you're really disrupting the entire vertical stack. And we believe this is massively disruptive. When we started Figure back in 2018, our goal is to use blockchain to transform how capital markets work. We've certainly done that in the credit space, over $20 billion of loan origination on blockchain at this point and growing rapidly. This is our opportunity to do that in the equity space, and we ultimately see this extensible into every asset, whether it's commodities or currencies or crypto. And so we're excited to be at the forefront of this and excited to be driving this transaction.

So with that, we'll open it up for questions.

[Operator Instructions] Our first question is coming from James Yaro with Goldman Sachs.

So I'd just like to take a big picture lens here on what this means for the equity market. So we'll now have the, as you described it, the DTCC-driven equity market and now your equity market. So maybe you can just talk about fragmentation of the equity market as you see it or not. And how do you drive liquidity towards the Provenance blockchain?

Sure. Michael, do you want me to start?

Yes, I do.

So one of the things that we did when we were out on the IPO roadshow is we talked to what must have been something like 150 buy-side accounts. And what we said uniformly to all of them is they want to own the blockchain version of the equity. They want to own it because of the ability to cross-collateralize it, which extends the ability to borrow beyond traditional prime brokerage, and they want to own it because of the ability to control stock loan, where today, the prime broker through the opaque -- locate process as securities go special tends to take that economic out. And universally, everyone was like, this is great. We'd love to own the blockchain security. How you ensure liquidity, how you ensure it ties into the NASDAQ security.

And so what we've done and what we've identified and articulated in the S-1 is a mechanism in which we can swap the blockchain security for the NMS security and vice versa, the NMS security for the blockchain security. So what that does is on day 1, it brings whatever liquidity exists in the NASDAQ into the blockchain side of the equation. And so we expect that liquidity will be consistent across both platforms. If anything, liquidity will be enhanced because of the ability to move across both platforms.

But what we would hope is, over time, companies will move from a dual listing construct to just listing on blockchain. And we'd expect even in the circumstance where there is a dual listing that we could reduce that tether, eliminate it entirely and that the blockchain security would actually trade at a premium to the NMS security because it has greater utility value. So we're very focused day 1 to ensure that there isn't a sacrifice of utility -- of liquidity in trading on the blockchain. But over time, we actually believe this will be the preferred route because of the higher utility value of the security itself.

And Mike, one thing I think is probably helpful for the call. Sorry, James, if I cut you off. But I think it's helpful to acknowledge not only the interest that we have from other issuers, but also the interest we have from a broad number of market participants, including asset managers and broker-dealers who see this opportunity as well. And so it's definitely something that -- to the way that you opened the question, it is a new paradigm and a new ecosystem and one that is going to bring not only other issuers into this blockchain-based approach, but also those asset managers and broker-dealers that are excited about it as well.

Excellent. That's super helpful. And just a quick -- sorry, go ahead.

I was just going to say, just to reinforce, this isn't a construct where we believe these 2 systems coexist over the long term. This is a direct competitive attack to the current equity stack.

Okay. Maybe you could just talk about interoperability across blockchain. So obviously, this is on the Provenance blockchain, but you could also build tokens on other blockchains. How do you facilitate that interoperability across blockchain using the same mechanism that you have between the existing equity market and Provenance blockchain or some other mechanism?

You can take that one.

Yes, I'll start on that. So we do this today with YLDS. So with YLDS, we have an SEC registered public fixed income security that's effectively a yielding Stablecoin. And we recently announced that while YLDS was initially minted exclusively on Provenance blockchain, we now minted on Sui. We're now minting it -- or planning on minting it on Solana. We'll be minting it on Stellar and other networks as well. And the security has a unique construct because you have a transfer agent and the transfer agent can effectively burn token on one L1 network and mint on another L1 network without the need for a bridge. So rather than having to use Wormhole or IBC to effectively port the token over from Level 1 network to Level 1 network, the transfer agent can simply burn on one and mint on the other. And so it provides effectively a real-time, very low cost other than gas fees to the network mechanism to move the security across chains. And we think this provides a foundation for ultimately extensible application into broader DeFi products.

We'll take our next question from Rob Wildhack with Autonomous Research.

Looking through the slides and hearing your comments, a lot of incentives for the investors here, 24-hour trading, ability to lend, et cetera, et cetera. But could you unpack in a little more detail the incentive for a corporate or maybe an issuer to like list their stock through this venue, just exactly what the benefits they would get versus the traditional process might be?

I can start with just the opportunity to access retail and then Mike, I think you should build off that. When you're going through an issuance process, and we've seen this increasingly, there's a lot of benefit and kind of the way the equity markets are moving, people want to engage more with individual investors. And I think that from the issuer's perspective, especially folks that are blockchain adjacent, but also people that aren't, there is this opportunity to use a listing to kind of market your company, and there is a lot of excitement and interest in this approach. And so it's very much aligned with the way the equity markets are moving in that regard. And it is something that we experienced while we didn't do a blockchain native issuance for our first offering, although we wanted to, but it's a matter of timing and getting the attention. We see that as a really big motivating factor for folks. I know, Mike, that's something that's very important to you. So I'll let you elaborate.

Yes. I mean I think there's a couple of dynamics. I'd say 3 key points here. One is the blockchain nature of the security allows for a much broader access in terms of folks that might have difficulty with the traditional U.S. brokerage account being able to come on the chain and transact. And so that's going to drive up demand for the security. You also have the benefits we talked about earlier in the security intrinsic to it, the cross-collateralization capability and the stock loan capability that once untethered to the NMS security, we would expect the security to trade at a premium. So as an issuer, you would much rather issue the higher-yielding security than the lower-yielding security in terms of just net proceeds and economics.

But I also think that you don't want to discount the buy side's ability to push this. And if you look at Larry Fink, for example, he talks repeatedly about the tokenization of everything. And if BlackRock really wants the tokenization of everything, this is a great way to start. BlackRock goes to all its portfolio companies that holds and says, get your stock on blockchain. And we expect the buy side is going to play an important role here in driving this because of how much utility it accrues back to the investors.

Okay. Interesting. And then just on something you said there might see. Could you compare and contrast like the KYC AML general start-up processes for investors on Figure ATS versus more traditional brokerages or channels?

Yes. You're going to have the same KYC to trade on Figure's ATS because it's administered by Figure broker-dealer, Figure Securities. And as a broker-dealer has the same standard KYC requirements. I think that what becomes interesting and certainly is a discussion path with both the Clarity Act, the Ag Committee Act and the SEC is the extensibility of taking securities onto DeFi protocols and whether or not such actions require KYC when the mover is not a registered entity. A lot of people confuse the KYC requirement for the instrument and being a security doesn't imply KYC. What implies KYC is being a regulated entity moving that security. And so I think there's a lot of potential downstream applications in DeFi that should be clarified, no pun intended with the Clarity Act as we get legislation guidance in terms of how blockchain assets are traded and financed.

[Operator Instructions] We'll move next to Ryan Tomasello with KBW.

If you could just elaborate generally on the efforts you do have underway to educate other issuers and really sell them on these new capital markets rails if there's a formal sales effort underway. And then on the economics, if you can put a finer point just on how we should think about what that could look like to Figure to the extent other issues do follow suit over time if it's reliable to compare just to traditional broker-dealer economics and how we should be thinking about sizing this opportunity?

Yes. We can -- I'll start on the first part, and then I think Macrina is good to cover the economics portion. I think as we outlined in the prepared remarks, Figure has a history of building out marketplaces. We were the first to put consumer loans on blockchain. We were the first to securitize blockchain loans as examples. And so we see this current transaction as very much a reference for what can be. And we do -- we have had a bunch of dialogue with other issuers, but this is going to be operationally and one of the reasons why we have Clare, our COO, on the call, is to acknowledge the large amount of effort that we are undertaking to build this marketplace out.

And so while we do have lots of conversations, we expect this to be a reference point, and those conversations are accelerating, it will be some time. And so for example, when we report earnings next quarter, we don't necessarily expect that we're going to have material contribution from this. But this is a reference that we are building. It's a primitive for how the equity capital markets ultimately will work. And so you should expect that those issuer conversations that we're having today will translate into economic activity later into 2026.

And really, just to add to that in terms of economics, I would say the most important view that we have is this can be used as collateral as part of our overall Democratized Prime ecosystem. And as a reminder, that is about 50 basis points of the balance that is on the overall Democratized Prime marketplace. So that is one key part. In the future, we can also think through how we can be charging folks for onboarding onto our overall ATS. But that will be a very nominal fee is how we are thinking about it. And then lastly, as the market becomes more active and there are more equity tokens on our exchange, and we also have a lot more market makers, we can think about how we charge for the market makers as well.

Great. And then post this offering, you'll have equities in addition to consumer credit. So I guess from here, how would you rank order where you're most optimistic about expanding into new verticals? I mean you've alluded to FX, commodities, but just in general, how you're thinking about the opportunity set from here post equities.

I'll start by saying that in the debt and equity space, those are both enormous markets. So if you look at consumer credit and that really being extensible into other forms of credit and now equity, I think what -- the primitives that we've established are those that can expand into trillions of dollars of market activity and valuation. And so we do see a lot of opportunity in these markets. However, I know, Mike, we've talked as a company and you've talked as well about kind of the broader capital market, and we do see ultimately that this is going to be the future of how all capital markets work, not limited to just those asset classes. So I'll let you elaborate.

Yes. I mean I think you hit the key point, which is these 2 markets are enormous. And we continue to build into credit. We continue to build into first lien mortgage, for example, which is the largest private credit capital market in existence, largest credit marketplace behind U.S. treasuries. And the opportunity to build into equity where it's not just new issuance, it's the ability to convert existing equity, NMS-listed equity on to blockchain introduces a significant opportunity and one that we will lean in on. So while we're optimistic about the extension of this across all asset classes, I think these 2 are big ones and ones that we'll be very focused on certainly over the next year, next 12 months to continue to expand our vertical on the credit side and really build a real competitive position on the public equity side.

We have one question from the web. This new capital market system is taking on Wall Street in virtually every way. investment banks, trading desks, prime brokerage, et cetera. What sort of response are you anticipating from The Street?

I -- Mike, that's -- there's nothing I can say that will be as eloquent as you will on this topic.

I appreciate you handing that off to me. Look, I think that there's 2 camps in terms of how this impacts the Street. I think that the sell-side firms should recognize an enormous opportunity here. Certainly, they're losing some economic in the capacity of stock locate, for example, and what they do on stock loan. But that's more than offset, I believe, by the ability to cross-collateralize assets and significantly extend what they can lend credit against and eliminate the need of single name credit where they're doing asset-based lending as opposed to underwriting the borrower. And imagine a blockchain construct where rather than Goldman as my prime broker, Goldman just lends $0.80 on the dollar to figure stock and come one, come all. I think that introduces significant opportunity. And I think that the sell side is going to lean in.

I certainly think the buy side is a huge beneficiary of this. I don't see them pushing back on it. The ones who push back on this will be the intermediaries. And as we talked about in the origin of figure, intermediaries exist because we don't have truth in markets. We have the need for trust, and we can't trust anyone. So we have registries and we have 7 parties that sit in between a buyer and seller and a stock transaction, and we have collateral agents and custodians and all these things that really go away in a true bilateral blockchain-based world.

And certainly, they're going to fight. But I think the benefit is that if this was a wholesale replacement of everyone, if we were trying to get rid of Goldman Sachs and Morgan Stanley and Cantor and others as part of this transaction, there'd be one heck of a fight, but they're benefiting from the disintermediation we're doing. And I think as such, they should be very aligned with this change so that when the intermediary incumbents fight against this, they're not just fighting figure, they're fighting the broader street. And that's why we have a lot of confidence in our ability to not just execute in the year, but to drive real adoption.

For our next question, when you have shares trading on your ATS and NASDAQ, how should we think about the potential of inconsistent share prices between these 2 venues?

I think that's a good one for Clare.

Thanks, Michael. So as Mike alluded to earlier, we believe there is reason that the blockchain shares given the ability for cross-collateralization and stock loan to trade at a premium to the NMS. Aside from that potential premium, we believe the shares will likely trade largely in line. Mechanically, we will support that by having market makers on the platform, and we also support the ability to convert from blockchain shares to NMS and NMS to blockchain to support a minimal price discrepancy between the 2 share classes.

For our next question, how do you plan to attract and retain market makers and institutional participants for the blockchain native equity? And can you walk us through the conversion process between tokenized shares and Class A shares? And are there any operational or regulatory constraints?

Clare, why don't you start with that one and we can add?

Sure. I'll take the second half of that question first. The mechanics of conversion for tokenized to NMS is traders of the blockchain shares on our platform will be able to submit a request to convert the shares, at which point the blockchain shares will be encumbered and our FinOps team, our financial operations team, will work to send the shares to either a named TA or to a broker-dealer with a box at DTC to transmit from blockchain to NMS. Once that NMS transfer has occurred, the blockchain shares will be burned to ensure that it is nondilutive.

And then going the inverse from NMS to blockchain shares, individuals will be Able to request from their broker-dealer or again, from their TA to send shares, NMS shares to Figure's treasury account, at which point in time, we will mint blockchain shares into our ecosystem. We will also have the ability to support that process. When someone wants to convert from NMS to blockchain, they will alert our ecosystem as well so that we can ensure a one-for-one match between NMS and blockchain shares. And [indiscernible], could you remind me the -- sorry, go ahead.

No, I was going to say on the -- the beginning of the question was how do we attract institutional participants and therefore, retain market makers or at least I'm drawing that relationship, which is, I think institutional participants, in particular, are going to be attracted by the ability to control stock loan, for example, and also by the enhanced liquidity they'll get from cross-collateralization. And both of those concepts are applicable to retail and institutional. But as was mentioned in the prepared remarks and in some of this Q&A, we have seen a lot of interest from institutional participants and being able to control the equity and not necessarily be intermediated by the prime broker and have more control of both those economics and also the collateral. And so that activity will then naturally attract market makers. But I'll let you add anything else, Clare or Mike, to that point before we move on.

I think, certainly, the market makers are going to arbitrage any difference across NMS security and the blockchain security. So there's certainly a profit incentive for them to lean in early on as part of this.

For our next question. If you own the blockchain security, how does your vote get logged? What system are you using? Are the votes logged on-chain and visible publicly?

So yes, we're going to -- those votes will be visibly publicly and logged on-chain. And I think that we spent a lot of time talking about prime brokers as intermediaries, but equally relevant and where you do see a lot of constraints in the status quo equity market is around the voting and the proxy process and the confusion that, that can entail and you even see some litigation around the control that the proxy firms yield. And so we do think this is a place -- a way in which we're going to add value for equity holders and restore more control over that process. And this is also, to remind the audience, one of the ways in which we believe that our approach is better than other tokenized equity options because the stock, the security is pari passu with the traditional equity in that you do have both the voting rights as we're talking about today as well as the dividend rights.

We'll take a question from Rob Wildhack with Autonomous Research.

Just sort of related to what you were just talking about, Mike T. It sounds -- is Figure acting as the transfer agent and providing the proxy service for the blockchain shares? Or maybe to ask the question directly, are there any differences between who is the transfer agent and the proxy service provider under the blockchain shares compared to the current structure?

Yes, we are doing that. And Clare, feel free to elaborate, if you want, but we do have our own transfer Figure Equity Solutions.

Yes, that's right. So Figure Equity Solutions is TA for the digitally native securities and can support all the standard TA functions.

For our next question, if we lend using Figure's stock through Democratized Prime, is there any scenario we could lose the Figure stock as collateral?

No, there is no scenario where you would lose the Figure's stock as collateral. I think that we do support a cross-collateralization, which is one of the powerful value propositions of Democratized Prime because historically, you don't have cross-asset and often not even cross-equity collateralization and margin. And so that is something that blockchain, in particular, enables because of that lien perfection, which kind of going back to last week's call is one of the main aspects -- is one of the main value propositions of blockchain and why we use it, and that underpins the Democratized Prime ecosystem.

Yes. Just to add to that, any stock loan is going to be collateralized by YLDS or by other assets and it would be consistent in how we risk manage across all demo prime lending pools where we haven't incurred any losses nor do we expect to take any credit losses as it relates to that. So you'd have the same type of protection that you'd have in any demo prime pool.

Our next web question, when do you expect this offering to go live?

So Clare, I think you are closest to the timing.

So I think -- we are working through all the operational and logistics aspects of this. And as soon as we -- as soon as the markets open, we will move forward likely in the new year with this offering.

And just to add to what Clare mentioned, this is a public document that has been filed with the SEC yesterday. And so we do need to wait for the SEC to go through its process. The key part is though we recently just completed an IPO in September, so we will be actively working with the SEC to move this forward as fast as we can.

Our next web question, for governance, how do you handle proxy fights activism for an equity on chain?

I think that just given the rights are going to be consistent across both, we will -- at least for now, as we're operating both ecosystems, the votes will be collected through -- from the blockchain equity that we have as well as through the traditional process and then be aggregated accordingly.

For next web question, to the extent the ATF takes share from the market -- from the exchanges, wouldn't Figure be able to earn market data fees from the trading? Would the buy-side be interested in this?

Macrina, do you want to take this?

Figure should be -- sorry, I was on mute. Figure should be able to earn their market data fees from the trading side and be able to share with that. It is an infrastructure that we would build as more of a Phase 2 after we add on different types of equity onto our platform, but it is in our future in '26 or '27.

Our next web question, is Figure a qualified custodian that will satisfy the custody rule for registered investment advisers who have private funds that would like to participate in this proposed offering?

That may be a question we need to come back on. I don't know, Clare, if you know that one. If not, we can follow up directly with the person who asked this question.

We're working with qualified custodians in partnerships to ensure that RAs and RECs are able to support this offering.

And for our last question, are you planning to also bring private shares to the chain and not only public shares? Would regulators approve the approach?

Mike, I'll let you comment on that as you've focused a lot on what the uniqueness of our offering here.

Sure. I mean, look, a lot of early Figure investors remember that we actually have run secondary transactions for Figure equity on the ATS, on blockchain, but when the stock was private. So still when it was a Reg B security and a Reg B restricted legend on it. And our view was that this had extensibility into the broader private equity or private company stock ecosystem. But the challenge that we find there is that, that stock tends to trade much less frequently. It's hard to get market maker support. And so we're not sure how valuable the extensibility is into private shares. Certainly, some of the largest companies like a Stripe, for example, there's going to be interest and potentially the ability to have markets there.

But still, I doubt you're going to get consistent market making from it because of lack of borrow and other limitations. So we certainly have the ability to extend this out into private company stock, and we have done it already. So there isn't any regulatory approval we need to be able to lean in and use the ATS for that purpose. I'm just not sure how large that market is. I know a lot of our peers talk about it and reference it as a huge opportunity, but I'm not sure of running a limit order book for private company stock is actually that valuable.

Thanks, Mike. And thanks, everyone, for both the questions on today's call live as well as the ones submitted over the web. As you see from today's call, it is a very ambitious undertaking. It's something that it goes back to one of the slides we talked about last week in terms of this has been something we've talked about with a lot of the investment community and in our prepared remarks and materials. And it's something that is hard to do. It's hard to do new things, but there's valor and economics in doing so. And we're really excited about the ability to introduce a new asset class into our ecosystem and also to continue to lead the market forward in terms of how the capital markets can be and to restore the economics ultimately to the asset holders, whether they be equity or loan and fulfill that promise of blockchain that disrupts not only incumbents, but the intermediation that we've so often talked about. And so it's a really big opportunity. We're really grateful to the team internally that's building this out and grateful for all of you for your interest and enthusiasm, and we look forward to more.

Thank you. This concludes today's Figure Technology Solutions special event conference call. Please disconnect your lines at this time, and have a wonderful day.

Welcome to the Figure Technology Solutions Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Lastly, today's call is being recorded. I would now like to turn the call over to [ Craig Streem ] Investor Relations.

Thank you, Nicky. Good morning, everybody. Welcome to our third quarter 2025 earnings call. This is [ Craig Streem ] in the Investor Relations team at Figure. Joining me on today's call are Mike Cagney, Executive Chairman and Co-Founder of figure; Michael Tannenbaum, our Chief Executive Officer; and Macrina Kgil, our Chief Financial Officer.

In today's call, we will refer to certain non-GAAP measures, which are reconciled to GAAP measures in the earnings release we issued yesterday after the market closed and in the appendix to our supplemental slide presentation posted to our website. Non-GAAP measures are not intended to be a substitute for GAAP results. Certain statements made during today's call may contain forward-looking statements, which may vary materially from actual results.

Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings and set forth on Page 3 of the earnings presentation we've posted in the IR section of our website and in the risk factors we've identified in our third quarter 10-Q filed earlier today as well as in other SEC filings.

We're not undertaking any commitment to update these statements if conditions change, except as required by law. And a recording of the conversation will be made available on our website following the conclusion of today's call. Following the formal remarks, we will also open the line for questions, and I would encourage you to follow along in the posted earnings presentation as we go through our formal remarks.

And with that, I'll turn the call over to Michael Tannenbaum. Michael, please go ahead.

Thanks, Craig, and thanks to all of you who are joining us this morning. Let's begin by turning to Slide 4. As you saw in the earnings press release we issued after the close yesterday, we had a very strong third quarter with great results in all of our key performance metrics. Adjusted EBITDA, the measure that most clearly demonstrates the profitability of our business, reached $86 million in the quarter, an increase of 75% year-over-year and EBITDA margin reached 55%. Net income for the quarter was nearly $90 million, more than triple last year's quarter. Total consumer loan marketplace volume reached almost $2.5 billion in the third quarter, representing a 70% increase year-over-year. This growth reflects continued expansion across our origination partner network and increased utilization of Figure Connect for liquidity.

As more partners leverage the platform to fund and sell loans, we're seeing meaningful gains in both scale and efficiency. A standout example being first lien lending, where adoption has accelerated sharply among both new and existing partners. Firstly, volumes nearly tripled year-over-year, making it one of our fastest-growing products this quarter. Partners are leaning into Figure Connect as a liquidity solution, enabling faster funding, improved execution and lower cost versus traditional channels.

This momentum demonstrates how our marketplace model extends beyond home equity and into the broader consumer ecosystem, capturing a larger share of the housing finance value chain. We also continue to see encouraging progress from new product categories, which together contributed more than $80 million in volume in the third quarter. These include innovative blockchain-based solutions for crypto-backed loans, loans to small and medium businesses and debt service covenant ratio, or DSCR, loans. Each of these products leverages the same origination and trading infrastructure that powers our core marketplace. This combination of core growth and product innovation reinforces the scalability of the Figure ecosystem. By expanding both vertically within home lending and horizontally across adjacent asset classes, we're creating multiple avenues for growth and ensuring that Figure remains the leading blockchain marketplace for consumer credit origination and liquidity.

Now let's turn to Slide 5. Given it's our first earnings call as a public company, I want to share a bit about our evolution and how we have succeeded in delivering against what we see as a generational capital markets opportunity. From the beginning of the company, we've had a relentless focus on innovation and technology, in particular, on the use of blockchain to drive scale, achieve competitive differentiation and disrupt incumbents. With mortgage and home equity, we identified a greenfield product set where we could improve the product experience and capital market. But our ultimate objective has always been to create a true marketplace that will connect assets with the capital markets in a capital-light manner that generates the sort of margins you see in this quarter's results. Over time, we believe this will translate into lasting shareholder value.

On Slide 6, I'll start by going back to 2018 when we became one of the first entities to originate consumer loans on blockchain. In 2020, we did the first securitization of blockchain assets. In 2023, we did the first AAA-rated securitization of blockchain assets and now our securitizations have AAA ratings from both S&P and Moody's. To date, we've originated over $18 billion in loans on the Provenance blockchain and executed over $60 billion in blockchain transactions. We believe we are, by far, the largest player in the public blockchain real-world asset space and our lead is growing.

We began as a direct-to-consumer lender using our balance sheet to originate loans. We very quickly grew to a business-to-business to consumer platform and now have nearly 250 third parties, that's up a lot from last quarter who use our technology to originate blockchain-native assets. Originally, we used our balance sheet to bridge between our partners and the capital markets but we began to move away from that in June of 2024 with the launch of Figure Connect, where we allow our origination partners to access capital market liquidity directly.

Instead of intermediating with our balance sheet, our partners sell directly to the capital markets using our marketplace. This fee-based model is more profitable for us, and in addition, does not require us to use our equity capital. We went from 0 volume in the marketplace of June of 2024 to having it comprise almost half of our total consumer loan marketplace volume in this quarter.

Turning to Slide 7. I want to share a bit more about why blockchain is so important to our approach and how it has become the backbone of our entire strategy. We focus on 3 foundational elements of blockchain. Transactional efficiency, liquidity and lending and each of these is an essential element contributing to our ability to transform capital markets. Starting with transactional efficiency, we have found that blockchain has enabled us to save roughly 85 basis points in securitization costs by taking advantage of the immutability of putting loan attributes on blockchain, which has allowed us to reduce third-party review costs.

Moving to liquidity. We created via standardization an homogeneity in our loans. Every loan originated across our now almost 250 partners is done electronically end-to-end on the blockchain without human involvement in the data. Regardless of the partner, every loan is underwritten the same way, and all performance data is captured transparently. We've seen the value of this approach validated recently given some of the capital markets issues and fraud highlighted by the Tricolor and First Brands situation. Earlier, I mentioned $60 billion in transaction versus $18 billion in originations, which demonstrates that through Figure Connect, we're turning homogeneity and data integrity into real tradable liquidity. That's a breakthrough for a historically illiquid asset class and is quickly becoming one of Figure's strongest moats.

Finally, the last element is what we broadly characterize as lending, specifically how lean perfection and cross collateralization can provide greater economic efficiency for a variety of products. One way we're applying this directly is through Democratized Prime where our frictionless, short-term liquidity funding marketplace is delivering financing rates below those achievable in wholesale capital markets. This not only validates DeFI's potential efficiency, but also gives us a road map to extend this to other asset classes, something Mike Cagney will discuss later on this call.

Turning to Slide 8. you'll see the 2 core marketplaces that anchor the Figure ecosystem today, our consumer credit marketplace and our digital asset marketplace. These are the primary engines of our business model. The consumer credit marketplace supports our origination partners, which include banks, credit unions and mortgage companies. Every loan they originate is fully digitally standardized and executed on chain, creating homogeneity and transparency across the ecosystem. Our digital asset marketplace provides a connection point between the capital seekers I just spoke about and the capital providers who seek to earn the best possible return. Our digital asset marketplace is a global regulated exchange built on the same blockchain rails as our consumer credit network. Embedded within this marketplace is Democratized Prime, our decentralized short-term funding market.

Democratized Prime connects lenders and borrowers directly, eliminating traditional intermediaries. And importantly, it's not isolated from the rest of the platform. It can also finance the same loans originated by our consumer credit partners. These 2 marketplaces work together. One generates high-quality, real-world assets and the other provides the liquidity to fund them. Across both ecosystems, our revenue model is simple. We earn a fee-based take rate on ecosystem volume.

On the next slide, you can see the illustration of the life cycle of a loan within the Figure ecosystem and how we capture value at each stage. Let's use a credit union partner as an example. When their customer applies for a loan, a credit union connects directly to Figure's system through an API or web app and sends us just a few key data points. Things like income, property details and loan amount. Within seconds, our technology determines whether that loan meets prespecified underwriting parameters. If approved, Figure's platform automatically verifies both income and property value by linking to the consumer's bank account and third-party data sources. In nearly all cases, there's no human touch. The resulting data credit score, income and property valuation are written immutably to the blockchain forming a digital audit trail that dramatically reduces quality control costs as those loans move through the capital markets.

Loans are then aggregated and financed either through warehouse lines or increasingly on Democratized Prime before being sold to loan buyers. At sale, Figure earns a roughly 3% ecosystem fee which is deducted from proceeds, meaning our partners are not out of pocket. If the loan is later securitized through our platform, we earn an additional 40 basis points. Separately, we earn a 25 basis point annual servicing fee for as long as the loan remains outstanding, which typically runs about 5 years. Across this life cycle, automation and blockchain verification translate to meaningful cost savings in origination, diligence and secondary market execution. All efficiencies that directly strengthen the partner economics while creating recurring high-margin revenue for Figure. These improved economics for all parties involved have been a significant contributor to the growth and relationships you'll see on the next slide.

Our partner network is one of Figure's most powerful differentiators. Today, that network spans traditional banks and credit unions, more than half of the top 20 independent mortgage banks and a growing base of fintechs, solar and home improvement companies. As highlighted in our earnings release, this quarter, we onboarded one of the largest mortgage servicers in the United States to our marketplace. These partners rely on our infrastructure to originate and distribute consumer credit products more efficiently creating a nearly continuous flow of high-quality assets.

Because our partners can originate, fund and sell loans seamlessly, their economics improve and our overall reach continues to expand. As a result, over the past 5 years, partner-originated volume has grown at roughly a 74% CAGR. This network is a core part of our flywheel, broadening access to borrowers while also increasing liquidity for investors across our platform.

Turning to Slide 12, expanding the supply side to meet this demand for credit is an important part of our mission to be a marketplace for these products. We are achieving this through Figure Connect, a purpose-built marketplace that enables buying and selling of standardized blockchain-native assets for all counterparties in the transaction. We now have a diverse range of participants on the platform. These are high-grade institutional counterparties such as banks, asset managers and insurers looking for transparent data-rich credit exposure that settles faster and more efficiently than anything available in traditional markets.

On this same note, in Q3, we added 7 new buyers to our securitization program, including a prominent sovereign wealth fund who has become a programmatic buyer, benefiting our broader ecosystem. In short, Figure Connect is transforming what used to be a fragmented and opaque process into an always-on data transparent and institutionally funded marketplace, redefining how real-world assets move throughout the capital markets.

Before concluding on Slide 13, I want to also note that in the conversations with investors, we frequently hear we have a high "do versus say ratio". This slide summarizes some of the operational proof points we have been highlighting recently. The first is expanding our consumer loan marketplace to first lien, which is up almost 3x year-over-year and is rapidly proliferating through our partner ecosystem. The second is the progress on our blockchain pillars with our blockchain native equity listing and our growth in our stablecoin yields or YLDS. The third is the ubiquity we have been building for our YLDS stablecoin, including recent expansions into the Sui and Solana ecosystems. We are committed to continued delivery on the growth of our marketplace and our vision of bringing the capital markets on chain.

So before I hand it over to Mike, I want to take a step back and put this quarter in context. What you've heard today, strong financial results, growing partner adoption and continued product innovation, all reflect the strength of Figure's platform and the durability of our business model. We're executing with discipline, scaling a capital-light marketplace and translating technology investment into measurable financial performance. At the same time, we're still in the early stages of an even larger opportunity, which is transforming the capital markets themselves.

The traction we're seeing in Democratized Prime, the expansion of YLDS and the upcoming equity initiatives underscore how blockchain is driving real change here at Figure. I'm incredibly proud of the progress our team has made and confident in the foundation we've built for sustainable long-term growth. With that, I'll turn it over to Mike Cagney to share his perspective on the broader opportunity ahead and the next phase of innovation at Figure.

Thanks, Michael. I want to start off my remarks today by reminding the investors about the enormous opportunity we're executing into at Figure. This quarter was exceptional. We optimized for the long term in our approach to product technology investment and corresponding shareholder value. We're transforming the capital markets with blockchain, and we see the opportunity to build a $100 billion or more market capitalization company in this field. We built our consumer loan marketplace in a series of very deliberate, methodical steps over the past 7 years. And as Michael pointed out, that's clearly paying dividends for us today. The early progress you're seeing in YLDS and Democratized Prime is just that. It's early progress, but we're confident that over time, we will continue to build out these products and many more we've not even revealed yet.

On Slide 15, Democratized Prime, our DeFi lending product is an important part of our future. And in many ways, it's the most scalable platform, the most natural place for both third-party assets and our ecosystem. Many of you heard me talk about the liability flight from banks to stablecoin, which will in turn drive demand for DeFi as alternative funding sources. We believe Democratized Prime is well positioned to benefit from that flight. Democratized Prime competes directly with traditional capital allocators that intermediate between sources and uses of capital, directly connecting borrowers and lenders and reduces significant time and cost benefits. We stood up at a number of loan marketplaces on Democratized Prime, and importantly, the funding cost there is lower than traditional warehouse lines. We see a significant opportunity to use Democratized Prime to offer warehouse into our existing Figure Connect lending partners eliminating the 90-day diligence, minimum fees, excessive legal costs that they have to face with the banks in lieu of a lightning fast, cheaper financing solution.

The economic model of Democratized Prime is compelling as it generates incremental pure margins since it operates as a decentralized exchange-like marketplace rather than a balance sheet business. This continues our broader trend of introducing capital-light, higher-margin products that expand the ecosystem's velocity and profitability. Over time, we see Democratized Prime becoming the preferred liquidity venue not only for assets originating within our consumer credit network, but also for blockchain native real-world assets more broadly and a direct extension of the structural efficiencies we built across the Figure platform. And as we add additional blockchain ecosystem connectivity to YLDS, like you're seeing with Sui and Solana, we have a natural platform to access to Democratized Prime for their ecosystems.

On Slide 16, earlier this week, we announced a partnership with Solana to deploy our yield-bearing stable coin YLDS on the Solana blockchain, the second major blockchain partnership for YLDS after Sui and that we've announced since the IPO. This collaboration brings together Solana speed, throughput and composability with YLDS regulatory anchor design and attractive transparent returns. The step also supports our broader strategy at Figure, building modern capital markets infrastructure that bridges traditional finance and decentralized systems. YLDS is not just a token, it's a regulated financial infrastructure asset designed to support fiat movement on and off chain and enable a seamless flow of yield and liquidity across our ecosystem and other LLMs. The Solana and Sui deployments extend that capability into one of the most active blockchain developer communities, opening up new rails for innovation, adoption and scale.

Finally, I'm pleased to share one major strategic marker that further accelerates how we are reinventing capital markets as we continue to build out the blockchain ecosystem Michael referred to. Yesterday, we announced that we filed a confidential S-1 for the upcoming launch of a blockchain-native equity share class on Provenance blockchain. This offering is a nondilutive secondary transaction and represents the first public equity class to exist entirely on blockchain infrastructure. We'll share more about this offering in a call with the analysts and investor community next Tuesday, November 18 after the market closes, at which time we expect our registration statement will be public. This is a watershed moment for Figure for Provenance blockchain and for capital markets more broadly, and one we believe will define how asset classes are created, financed and traded for decades to come.

With that, I'll turn it over to Macrina to walk through our financial results for the quarter.

Thanks, Mike. Turning to Slide 18. Let's take a closer look at our financial performance this quarter. As a reminder, at Figure, we focus on 3 key metrics: volume, revenue and EBITDA. Starting with volume, our total ecosystem activity continues to grow rapidly. Notably, our consumer loan marketplace volume reached a record level nearing $2.5 billion this quarter. Importantly, volume on Figure Connect made up nearly half of the total consumer loan marketplace volume as we continue on our path to building out our capital-light marketplace with limited balance sheet exposure.

Moving to revenue. Adjusted net revenue reached $156 million in the quarter, an increase of 42% from the third quarter of last year. Adjusted net revenue benefited from the higher level of ecosystem volume I just mentioned, partially offset by lower take rates from partner branded volume as we shift more volume away from Figure branded. I would remind you that Figure-branded volume generates a higher growth take rate in revenue with higher operating expenses. Overall, our partner branded volume, especially volume from Figure Connect brings us higher adjusted EBITDA margin.

Turning to our profitability. Figure achieved an adjusted EBITDA of $86 million for the quarter, up 75% year-over-year, representing an adjusted EBITDA margin of 55.4% compared to 44.9% in the prior year period. That's over a 10-point improvement in margin, driven by operational efficiency, automation and the continued shift toward our marketplace. On the expense side, we continue to demonstrate meaningful operating efficiency. Our fixed costs, which include technology and product development as well as G&A functions like finance, legal and capital markets, have remained stable from pre-IPO levels relative to our revenue growth. The investments in technology that we've made over the last 7 years allows us to add new product verticals without significant incremental development costs.

Variable costs that move with our volumes have benefited from continued reduction in funding costs in addition to automation and AI applications embedded throughout the business. Variable expenses as a percentage of adjusted net revenue declined from 36% to 28% year-over-year, highlighting the efficiency of our marketplace model and transition away from using our balance sheet.

On the next slide, there are trends I want to make sure you are aware of. As we look ahead to the remainder of '25 and early '26, it's important to note the typical seasonality in home equity loan origination volumes that we expect to see in the fourth and first quarters based on historical information from '23 and '24. According to a third-party data source, Q4 and Q1 volumes historically trended below the annual average, lower than the yearly baseline. This pattern is consistent with what we've seen historically as demand for lending tends to moderate heading into the year-end holiday period and through the winter months. We see that consumers typically defer major financial decisions such as home improvements or debt consolidation during the late fall and winter as household budgets shift toward holiday spending and travel. That said, we believe our diversified partner base and capital-light marketplace model position Figure to navigate these dynamics effectively.

Before we close, I want to highlight the 3 long-term financial goals that guide our strategy shown on the next slide. First, adjusted EBITDA margin. We are targeting annual margins above 60%, reflecting the scalability of our model as more activity moves to Figure Connect, and as Democratized Prime adoption continues to grow. These initiatives fundamentally reduce the need for balance sheet capital, increase transaction velocity and drive a higher contribution margin with each incremental dollar of volume and balance. Our progress this year with adjusted EBITDA margin reaching nearly 55% this quarter demonstrates that level is achievable in the longer term.

Second, capital light. Figure is moving to a marketplace model and as partners increasingly originate, fund and sell loans through our platform, our role becomes that of an infrastructure provider, capturing recurring marketplace economics without tying up capital. The transition to third-party and on chain funding through Figure Connect and Democratized Prime continues to reduce the use of our own balance sheet while maintaining liquidity and flexibility across the ecosystem.

And third, operating efficiency. We've maintained a disciplined cost structure with limited increases in fixed expenses even as revenue and volume have scaled substantially. Our technology investments, particularly in AI and process automation have reduced variable costs as a percentage of revenue and allowed us to support more partners, more products and more transaction volume without proportional increases in headcount or spend. We believe we are uniquely positioned as the future of capital markets with an integrated platform that uses blockchain to originate, finance and trade real-world assets at a fraction of traditional cost. As we continue to grow our partner networks and develop our decentralized finance capabilities, we expect to deliver sustained volume growth, stable and attractive take rates and expanding operating margins over time.

I'd like to thank everyone for joining us today and for your continued interest in Figure. Nicky, we're now available for questions.

[Operator Instructions] Our first question is coming from Dan Dolev with Mizuho.

Amazing quarter. I mean you're really crushing it. You obviously crushed all of our expectations. So maybe a question for you, Michael and Mike, what is either of you most excited about in the business right now? Because there seems to be so many moving parts and so many great things. Kind of I think investors want to know what's the most exciting thing for you guys. And great results again.

Thanks, Dan. I'll start, and then I'll let Mike add what he's most excited about. For me, it's very simple. Our existing and future customers are coming to us rather than us going to them, asking us how they can use our blockchain tech to improve their business, which I think is definitely exciting. I spend a lot of my time on partner acquisition and growth. And when I joined this company, blockchain for most of our partners was very much in the background. I've referred to it kind of similar to cloud technology where it just works. But increasingly, I see that our origination partners want to have conversations about our blockchain ecosystem more directly. They're considering YLDS, our stablecoin and Demo Prime in addition to our tokenized loans, and they see the connection between these things. So that go-to-market and sort of that dynamic is very exciting. Mike, I would be interested to hear from you.

So I think you know my -- what I'm most excited about. I think the press release yesterday announcing that we're issuing equity native to public blockchain is a huge transformational opportunity. It's an opportunity to build an entirely new capital market ecosystem. And then unfortunately, I can't spend a ton of time talking about that today, but we're going to spend a lot of time talking about that next Tuesday. But I think that's a real leap of us demonstrating that the value proposition that Michael articulated earlier in the call, the transactional efficiency, the liquidity and the capital financing DeFI aspects of blockchain are applicable not just to the credit asset class, which I think we've clearly demonstrated, but to other asset classes as well and equity being the next one on the agenda for us.

Our next question is coming from James Yaro with Goldman Sachs.

Also congrats on the IPO as well as on the strong results coming out of the gate here. I'd love to just touch on your product road map. What's the order of prioritization of your products from here? And then maybe if you could comment on the TAM and profitability of those top few products? And what do you see as being meaningful to results among these new products over the next, let's say, 2 to 3 years?

Thanks, James. That's a good question. I'll start by saying that we have a huge $185 billion plus market opportunity in front of us. We see all consumer credit and asset classes, as Mike just mentioned, beyond consumer credit as addressable. From the core standpoint of our HELOC product, we're executing into $35 trillion of home equity. And there is just a huge amount of runway in that product. Importantly, though, as you heard us mention in the prepared remarks, we've seen a lot of traction as well in the first lien aspect of the business, which is a -- which is the largest consumer credit asset class.

And so that is something that we're pushing really hard, and we'll continue to do so in the coming quarters. In terms of the blockchain ecosystem pillars, namely Democratized Prime and YLDS, we're also making significant progress and really excited in the coming months to share some ways that we're going to be bringing more liquidity and ubiquity to those products, particularly some of the liquidity you see in other blockchain ecosystems, bringing that into our Demo Prime marketplace. So Mike, I don't know if you want to elaborate on that a bit.

No, I think we're going to continue to invest in Demo Prime. It's a core aspect of what we're trying to deliver on in terms of capital market disruption. Then as I mentioned in Dan's comment or question, the application of equity native chain is really an extension of the existing infrastructure that we have. Obviously, it's an extremely novel transaction, but it's one that's tapping into again, the transactional efficiency, liquidity and financing benefits we've demonstrated on the credit side. So we really look at this as just an extension, but an important part of the road map.

Yes, I'd like to add because it's -- could I just -- we called it Democratized Prime, which I think that name Democratized Prime is a reference to prime brokerage. So it really connects kind of all the pieces of our ecosystem, right? The cross-collateralization you could get across crypto, tokenized loans, tokenized equity. And so that name was very intentional, and you'll be hearing more about that in the future. Next?

Super helpful. Maybe if you could just perhaps touch on the Figure Connect outlook. 46% of your volume on our estimates came from Connect this past quarter, which was better than at least we had anticipated. How do you think about the -- what that could comprise and over what time frame?

Sure. James, thank you for being on the call. How we think about Connect is we've made progress. We opened up Connect in June of 2024. Within 2025, we are already reaching very close to 50% of Connect volume across our overall consumer loan marketplace volume. We do think that in the mid- to near term, 60% of Connect volume is quite doable, and we're working hard with our partners to get there. .

Our next question is coming from Patrick Moley with Piper Sandler.

Congrats on the IPO. So you saw really impressive partner growth in the quarter. So I was hoping you could elaborate on that. Can you help us get a better sense for the composition of those new partners in terms of size and the types of loans you'd expect them to be originating. And then how should we think about the time that it's going to take for those new partners to reach what you'd expect to be kind of a realistic run rate from them?

Yes. The partner growth was really impressive. I think the biggest aspect of partner growth for the quarter was growth in the SMB segment. That's because there -- it's completely greenfield, and we actually saw not only tailwinds because of the government shutdown and the small business administration being closed, but also just broad recognition of the opportunity and what we're doing and the applicability into the SMB use case. That was coupled with a product improvement that we released that allowed us to underwrite small and medium business bank accounts.

But more broadly, we are constantly onboarding a range of partners that range in size. And I think one of the nice things that add stability to our business is that we bring on people that can get up and running in as fast as 2 weeks. And then we bring on enterprise parties that are doing more of a years long in some cases, sales cycle and implementation, and we have all of that capability in-house. This quarter, you saw us add a major servicer, one of the largest, if not the largest in the United States.

We also added an extremely large independent mortgage bank. And we also added one of the players that has done a partnership with Robinhood and so we do expect to see some volume from there as well. And so we're continuing to add a diversified group of partners and that range in size and now also end market with the SMB additions.

Our next question is coming from Ryan Tomasello with KBW.

Congrats on the strong quarter out of the gate. I wanted to ask about Democratize Prime and YLDS. If you could just discuss the strategies you're leaning into to drive adoption there. I think one of the opportunities, it sounds like you've alluded to in the past is given the ecosystem you have, the possibility of promoting some incentives to existing origination partners as well as the underlying consumer borrowers to jump-start usage of those products. So if you can just elaborate on what the strategy is there?

Sure. I'll start, and I'll let Mike add as he's very close to Democratized Prime. In terms of the marketplace, where we're focused today is on the funding side. We originate, as you can see from the results this quarter, a very large number of tokenized loans each month. And ultimately, we see Democratized Prime as serving not only those loans but third-party loans as well. So it's a really massive opportunity. It's, frankly, the most scalable in many ways because of our ability to work and support with third-party assets.

And so now our focus is on building out the funding side where we want to make sure that there is sufficient liquidity for these assets because when you're building out a marketplace, which is something that Figure has a lot of success in doing, you need to kind of control one side of the marketplace and then add others. And so we have the asset side down, and we're looking to increase funding. Mike, anything you would add there?

Yes. I think as it relates to YLDS, the announcement with Sui and Solana are important in terms of the direction we're taking with YLDS. YLDS started as a Provenance security and Provenance doesn't have the builder community that both Sui and Solana have. And so bringing a security into those ecosystems where you have a fiat on/off ramp and a yielding stablecoin for purposes of payments, cross-border remit, collateral, we think is a significant opportunity, and we expect to get significant acceleration off of that. We're also making headway with YLDS in terms of collateral on exchanges. I think you'll see some announcements from us as we go into the second half -- or at the end of this year as it relates to that and that's natural. We would expect that YLDS would be a superior collateral type versus USDC because of the yielding nature for it.

On Democratized Prime, as Michael said, we have the ability to put billions of dollars of assets on there. What we're looking at now is the funding side, and we're doing this in lockstep fashion. So we can't drop $1 billion of assets and then expect the capital to show up. Conversely, we can't drop $1 billion of capital unless we're ready to put the assets to work. What we're very focused on in terms of the capital side is replicating what Athena and others have done in liquid staking protocols where we have an underlying yielding asset. In this case, a home equity line of credit or lending against such asset as the yield-generating feature for that as opposed to something Athena does, which is the drop between the spot and forward market and the yield that's there, which is extremely volatile as the market is seeing today. And so we expect that we have an enormous opportunity to drive asset generation through that yielding liquid staking protocol construct. And we believe that's going to add a significant amount of dollars in Democratized Prime.

Great. Appreciate all that color. And then in terms of the value proposition of tokenization, you've clearly demonstrated that within the consumer credit asset class thus far. But if you're able to give us just your general thoughts on what you see that value proposition being for tokenized equities given the stronger liquidity and transparency in that asset class at least relative to consumer credit. So what are the additional benefits you see being unlocked from tokenization there?

Well, without getting too much into the structure because most of that's going to be covered on next Tuesday's call, and I do encourage everyone to join because I think it's very innovative, and we'll give a lot more detail. But I think one of the focuses and you've heard both Mike and I talk about this is a lot of the existing market today is focused on kind of tokenizing but not necessarily adjusting the full blockchain infrastructure behind that tokenization and what we're about to unveil will be a little bit more fundamental. So that's, I think, hopefully enough to make you interested in joining next Tuesday.

I can add to that a little bit in a more general construct. I think that a lot of our peers are discussing tokenization of equities and what they're doing is promoting the idea of taking a DTCC security and doing a blockchain representation of that. And the value prop they allude to is 24/7 trading. And I don't think 24/7 trading is that appealing to the broader market. And I don't think the market makers want to make market 24/7. And so I think it's a little bit of a red herring in terms of why there's value here. If you go back to the 3 value props of blockchain that Michael talked through earlier, there's transactional efficiency, and there's some transactional benefit you get with a blockchain native equity. The transfer agent costs, for example, is lower, but it's not enough to move the needle.

There's a liquidity benefit at the margin in that you do have 24 hours -- 24/7 trading. But again, I think we were looking to lift FTX out of bankruptcy. They had a U.S. equity [ perp ] business that traded 24/7. And that's all that mattered, that business would have been flying and it was and it was going sideways. I think the real value in putting equity on blockchain is the DeFI construct, the ability to cross collateralize your stock with other assets like Bitcoin, like Figure loans, for example, and build unique borrowing pools through processes like Democratized Prime, where you access leverage in a way that traditional prime brokerage can't service.

And even more importantly, the ability to lend that stock out. So rather than the opaque locate market we have today, where the prime broker earns the benefit when the security goes on special and pays an extraordinary yield, you have a straight-up limit order book, a limit order book where you put the stock out for loan and you decide what you want to get paid for it. And that's enough that should drive anyone on the buy side to want to own the blockchain version of that security. There's considerations about liquidity and how do you keep the price in lockstep. Again, Michael alluded, we'll talk to that in depth next Tuesday, in particular, how we're doing this for our issuance. But I think this is the future of how capital markets, equity capital markets are going to work. And just as we did with lending, where we pioneered it with our own product, we think we'll do the same thing here on equity.

We will move next with Rob Wildhack with Autonomous Research.

Just a quick one to start. I appreciate the comments on seasonality. Do you think we should expect the quarter-over-quarter cadence in 2025 to reflect what happened in 2024? Or are there any differences that we should be aware of this year? And then same question heading into 2026.

Rob, this is Macrina. So as you saw our Q3 was outsized growth compared to last year, and we have been trending really well with our IPO and all of the efforts with partners. I do expect some level of seasonality in Q4 and also into Q1, but I do want to balance out that we have been having great success with our partners. We're seeing a lot of interest. So for us, it's more of a balanced approach.

Okay. And then bigger picture, you guys have really emphasized the lower cost to originate and faster time to close as big advantages. I think this quarter, we've seen or heard several other fintechs either growing in or expanding their own HELOC businesses, some even with automated appraisals, income verification, things like that. So I was hoping you could talk a bit more about the sources of your advantage like how much of the better Figure process comes from the blockchain-based infrastructure versus maybe more traditional tech improvements? Because I think the extent to which it's the former could matter a lot for your defensibility there.

The thing to remember about what we do is we've built an alternative capital market that has deep liquidity ratings, tokenization and it brings -- we use blockchain as a tool to bring the transparency and to bring the immutability of the data. And for example, as we mentioned, highlighted this quarter with Tricolor, the lean perfection. And so having that data and the ability to track the true provenance of the loan is critical to building out that capital market.

And so we're doing something very different than everybody else in the space. And HELOC is just kind of a primitive to that marketplace. And the reason is because we've built an alternative capital market on blockchain rails. And to be very specific, when we make a change to our technology, it's integrated into the capital market. So what we do is if we decide to push an automation like we did with small business bank account, it's our capital market and technology that are working together, and it's that point of integration between those 2 that unlocks the really high margins that you see this quarter, the capital-light marketplace and the growth that you're seeing.

Our next question comes from Dan Fannon with Jefferies.

I wanted to discuss the outlook for the non-HELOC loan growth. I think it was roughly $80 million in the quarter. Can you talk about how you see that progressing as the products expand? And which of the products you mentioned in the release were really -- was there an outsized driver of those loans?

We're seeing significant growth in first lien, as we mentioned, 3x year-over-year. And that is the primary focus for figure of the new products that you've heard us mention because of the, frankly, market size and opportunity for our partners -- existing partners to grow. That said, the SMB and crypto backed loans are also extremely important to the growth story, HELOC loans has been grown as well around the 3x year-over-year number. And what we're seeing is just the beginning of that marketplace as we expect to pursue the same B2B2C approach that we did in the mortgage market. And so today, that's mainly direct to consumer. And then in SMB, as we add more and more partners and build that go-to-market engine, we do expect to see significant growth there as well.

Great. And as a follow-up, you mentioned the government shutdown as being a catalyst for some SMBs joining. Can you talk about just the outlook for new origination partners given the strength we saw in the adds in the third quarter and maybe how you're seeing those conversations in the outlook in terms of potential additions over the next several quarters.

Yes. So the opportunity is definitely much broader than that specific shutdown. But the parallel is interesting because in mortgage, you have Fannie Mae; in small and medium business, you have the SBA, and we are an alternative blockchain-based capital market to both. And so we think this is a huge opportunity to bring that transparency. Again, back to the earlier question, what makes us different, right? It's the combined technology with the blockchain transparent capital market. And that is a solution that is relevant not only for mortgage, not only for SMB, but for tons of asset classes. But SMB is where we are being pulled. And I think that the current market environment there is just adding further tailwinds.

[Operator Instructions] We will move next with Craig Siegenthaler with Bank of America.

So a follow-up on Dan's first question. On the first lien growth, is that a first lien HELOC? Or is that a first lien primary? And then I wanted to get an update on your appetite to expand outside of HELOC because I saw you referenced debt service covenant ratio loans in your prepared remarks. I think that's a pretty small TAM, but I'm wondering what about resident transition loans, auto loans and also primary first liens, non HELOCs. Could we see Figure move into some of these other potentially larger TAM segments in the future?

Yes. So I'll start on the first lien question. And it is a first lien HELOC. We distinguish that because the use case is very different. Oftentimes, when people think about a HELOC, they think about a mortgage on top of an existing first whereas the first lien HELOC that we originate via our partners is used to pay off an existing loan, often because the rate is higher than the prevailing rate. And it's also -- so it's a true replacement for a cash out refinance or a rate and term refinance to use traditional mortgage parlance. There's also 40% of homeowners that own their home free and clear, and so don't have an existing lien. So that's the first lien opportunity. And where we really see growth in there, just to be even more specific, is among especially small balance first lien because the cost to originate for Figure is $1,000, whereas industry average is $1,200.

And so if you look at a, say, $200,000 mortgage that's a really material savings, and that's why we are seeing partner adoption. In fact, we are seeing some partners adopt first lien that don't use our HELOC products. So it's really massive growth. I do want to correct the record on the TAM of DSCR. That actually is one of the largest, if not the largest components of non-QM. I believe there's over $20 billion annual securitization of DSCR.

But I will just use this opportunity to remind everyone that the capital market that we're building, and I think the SMB use case represents this the best is one that transcends any one specific asset class. We really see this as the beginning. Our ambitions are much broader than just mortgage or HELOC. And so you'll see more next week in the coming quarters, but we're definitely really excited about the business that we're building and its broad reach into the U.S. capital markets.

For a follow-up again on HELOC. I wanted to hear a little more details on your value proposition for large banks especially large banks that originate and hold HELOCs on their balance sheet, they might not receive the full value of the Figure Connect value proposition. And also with large banks, is it a headwind that you're really only offering capabilities in one lending segment because they might want solutions across all the consumer loan classes that they play in.

So this actually gets to kind of what I was saying I'm most excited about, and I think it would be good for Mike to expand here as well because there's this broad thesis that we have at Figure which is that you're going to have liabilities moving into stablecoin, which are tokenized liabilities, and therefore, assets themselves will need to be funded with those. And so if you think about the broad capital market as one where assets have been moving out of the banking system for the last 20 to 30 years, that will continue and accelerate with stable coin.

And so for a large bank, actually, what's happening is they're going to want to tokenize their assets to access those viabilities that are tokenized and Democratized Prime is actually a perfect way to do so. And so this is part of our broader macro thesis and it's being borne out in the conversations we're having, Mike is having, the sales team is having. I don't know if you'd add anything there, Mike.

Yes. I mean I think that we got an interesting perspective in late '22, early '23, when we had some liability flight out of the banking system and the regionals and the super regionals were especially impacted by that. They were all selling assets at fire sale prices that had a cascading series of events that ultimately led to bank failure and the need for the FDIC and the treasury to step in with some extraordinary measures to stabilize the market.

And the treasury is today talking about $2 trillion going to a stablecoin or $6 trillion going into stablecoin. And they're not talking about where that's coming from, which is clearly demand deposits. And we're in a discussion with a lot of banks, a lot of regional and super regionals about this across 2 factors. One is to Michael's point, the ability to originate blockchain-native assets and access that DeFI ecosystem, which paradoxically is just the reallocation of that capital pulled out of the demand deposit put into stablecoin and then reapplied in DeFi to generate yield. And we think there's an enormous opportunity and low balance first lien is a great use case for us to bring to those banks because they don't do that loan today.

So it's a greenfield opportunity for them and an ability for them to get a front row seat as to how blockchain works. The second thing that we're doing where we're getting traction is around the ability to use yields defensively, where when JPMorgan comes with JP coin and tries to approach those deposits, the bank can offer up a yielding alternative where with YLDS we, just like any Genius Act coin we can hold treasuries and bank deposits, we have the ability to hold bank deposits back to that bank. So if a regional bank customer buys YLDS, and it comes through that regional bank, we can hold that deposit back at the bank balance sheet, therefore, not keeping the liability within the bank itself.

And we think both of those are significant opportunities for us, especially as we're getting the Genius Act coming online, you're starting to see more noise out of Chase. I think Chase is going to make very aggressive moves here at the expense of regional and super regionals. And I think we're well positioned to bring both some defensive and certainly in certain circumstances, offensive capabilities into those banks, with the combination of on-chain asset origination and access to DeFi through Democratized Prime but also YLDS as a defensive measure for -- or an alternative to a nonyielding stablecoin.

And this concludes today's Figure Technology Solutions Third Quarter 2025 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.

Good afternoon. My name is James Yaro, and I cover brokers, crypto and investment banks here at Goldman Sachs Equity Research. With us, we have Michael Tannenbaum, CEO of Figure Technologies (sic) [ Technology ], a position he took over in 2024. He successfully led the company through its recent IPO, prior to which he was COO at Brex and held senior positions at both Brex and SoFi. We also have Macrina Kgil, who is Figure's CFO and has been CFO at a variety of financial institutions previously to Figure. Thank you for spending time with us, Michael and Macrina.

Before we get into questions, I'll read out the following disclosure. We're required to make certain disclosures in public appearance about Goldman Sachs relations to the companies that we discuss, disclosures relate to investment, banking relations, compensation received or 1% or more ownership. We are prepared to [ re-read ] disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to [ U.S. ] clients on our firm portals. Disclosures and updates to those disclosures are also available by ticker on the firm's public website at www.gs.com/research/hedge.html.

Okay. Great. So I want to start with how we got here. We've seen a number of issues crop up at consumer intermediaries, including First Brands, Tricolor and Cantor Group, allegedly related to fraud and collateral related financing arrangements. Both First Brands and Tricolor have since filed for bankruptcy. Michael, you recently put out a post on Figure's website on collateral management monitoring and how Figure's technology changes that. Generally, across the industry, how does lenders' collateral management and monitoring work today without the blockchain? Can you dig in a little bit into the actual nuts and bolts of how that works, the management monitoring works today? And as I think it's a little bit opaque to us as analysts and investors.

Got it. Thanks, James. Thanks for having us. Just for the group reminder, Figure is the largest originator of real-world assets, which are physical or traditional assets like a mortgage that are tokenized and live digitally on a blockchain. And we dominate that space and the broader mortgage space there, but our ambitions are broader across all the capital markets. And blockchain, which we will talk a lot about, prevents the kinds of issues that you just mentioned, James. And so to your question specifically, collateral management in the traditional ecosystem is still manual, paper-based process where loan collateral, such as like loan files are often even held in file cabinets. Electronic notes are increasingly used, but they're not the norm. And the attributes of these notes, sort of the details of a loan are typically, actually managed in a spreadsheet, which is sometimes called like a collateral tape. And that's sent back and forth between lenders and borrowers as part of loan purchases and as part of financing transactions. So to be specific, the way it would work if an originator A wants to say, finance its assets from lender B, originator would share a spreadsheet with the details of the loans. The lender would review and confirm that the collateral meets their requirements, any concentration limits and then send a wire. So that's how it works today. It's sort of an e-mail spreadsheet-based manual process where that spreadsheet typically will reflect either paper-based or electronic documents that aren't necessarily linked to that spreadsheet itself. So just to kind of start there.

In your post, you talked about the current system being a trust-based one, I think that was the term precisely. What are the limitations to collateral monitoring today? And why is it so hard to verify the collateral being there?

Yes. We talk a lot about displacing trust with truth. And so the system that I just outlined, there's nothing really that links those loan files to the promissory notes, right? The Excel spreadsheet isn't necessarily linked to the details of the notes. It's really about the lender believing the originator and then auditing or performing quality control periodically after the fact. There's nothing that confirms that these loans have not already been pledged elsewhere, whether by accident or malfeasance. And so there's often a shipment of physical collateral files. For example, in mortgage, there's actual physical files, and that will come after the proceeds have been disbursed. And lastly, a relevant point is that without stablecoin atomic settlement, which is something Figure does, there will always be a period between wire delivery and when the collateral has been sent. And so when you say these things out loud as I'm doing now, it sounds crazy, but this is how the world works. It's all about spreadsheets and wires and waiting for collateral and then checking things after the fact. And so in the legacy world, those assets, they tend to -- they travel to the rights owners, right, the owners of the asset once you send the loan. And so that's relevant in the sense that the data of the database that maintains the asset travels as the owner changes. So just being very specific, as a -- if I buy a loan, I am now creating the authoritative copy of those loans and I'm controlling that spreadsheet. And whatever happened before I own the loan is just a matter of when I bought it, but then any modifications that I may either make purposely or accidentally, now this becomes the source of the truth, whereas we're obviously going to talk about blockchain, but in that context, there's a single source of truth. So this is the root cause of situations like Tricolor. And even if you go from a paper versus to a digital process, it doesn't necessarily solve the problem. The assets still are controlled by the current rights holder, but there is no necessary -- there's no one necessarily source of truth.

Excellent. Let's turn to your technology now, Michael. Firstly, can you walk us through the steps of a Figure loan being originated all the way to those loans being tokenized onto the Provenance blockchain?

Yes, I'm going to let Macrina actually take this one.

Sure. So we offer a loan origination system to underwrite standardized and homogenous loan for Figure and also firm partners. And when a borrower applies for a loan, the loan goes through the process within our loan origination system, and then the loan is approved on average 9 days as fast as 5 days. And at the time of origination, the loan itself would be registered with the county under a Figure DART entity, and then it's reported on DART, our Digital Asset Registry, which is a lien and eNote registry. So all loans originated using Figure's loan origination system are really created on the Provenance Blockchain. It's not recorded in a private database or rely on paper documents. It goes on to the blockchain. And the key characteristics of the loan are stored in an encrypted object store. So nothing is public that you can see that needs to be stored within the encrypted object store. It is hashed onto the blockchain and this all happens very instantaneously, usually within a nanosecond.

There are 2 aspects of the technology you alluded to in the post that I think are very important as it relates to on-chain verification, which are Figure Portfolio Manager and DART. Can you explain how both of these specific items work, ensure that all the parties to transactions see the same ledger and verify transactions?

So unlike in the traditional world where assets go to the rights holders and are represented in different databases at different times, we represent our assets with tokens and these assets always stay on the blockchain. It's the rights holders that come to the assets. If someone wants to acquire the asset, they then come to the blockchain, establish an account, often called a wallet and have the owner execute a transaction on the blockchain, which associates the buyer and the buyer's wallet with that token. Later, the buyer can execute a transaction on the blockchain to associate the loan token with yet another wallet and sell the asset to a new buyer. So the first buyer can then disappear and never use the blockchain again, but those actions are there forever and there for everyone to see forever. So this public blockchain protocol ensures that nobody can replicate a token on the blockchain. No one can forge an asset. There's only one owner associated with the token at any time. No one can double sell. There can only be one encumbrance, think of that as a digital padlock. And so no one can double pledge, again, going back to Tricolor. And a token with an encumbrance or a digital padlock on it cannot move into another wallet until that encumbrance is removed. So you cannot sell a pledged loan. And once you have this basic functionality, the rest is relatively easy. The blockchain is the source of truth. All of our ecosystem participants have the obligation to reflect all transactions, sales and pledges on the blockchain and to pass that same obligation along to any future buyer of the assets. And we enforce this through both contractual means and through technological means. So specifically to your question, that you have the portfolio manager system, which is a Figure product, that is the interface that our clients use to see their rights or ownership and transact these rights. The Portfolio Manager reads the blockchain to see what rights you have, also [ known as ] what loans you own, what loans have been pledged to you and writes to the blockchain to carry out your orders such as sell or pledge or release the encumbrance, et cetera. And DART is our lean and eNote registry. It works with Portfolio Manager. It reads the transactions that Portfolio Manager writes on the blockchain and updates its registry automatically and accurately and immediately. So I'd like to say it sort of listens to the blockchain, not that it has ears, but it knows all the transaction activity and it's updating that. And then lastly, we have an eVault where all the documents associated with the loan are stored. The -- traditionally, as I talked about, loan files move from one party to another in paper form or an electronic form via ship, via e-mail or SFTP or some combination. But this is not the case with the Figure platform. All the loan files are stored on an eVault, so they always exist, you're looking them up rather than sending them around. So there's a lot less room for malfeasance and error.

Let's turn to lien perfection. Can you talk to us a little bit about how Figure perfects liens and how that technology allows for on-chain verification?

So from a legal standpoint, DART operates similar to MERS, which is the mortgage electronic registry system. It's an ICE product. Leans are issued in the name of DART Collateral Manager, LLC and then as the nominee for the original lender and its successors and future assignes, and the original lender is listed as the lean beneficiary in the DART system. What makes DART novel, so it's a way of sort of assigning a loan upfront and then transacting. That part is not novel. What makes DART novel is the way in which it receives input. Other registries like MERS expect one of the transacting parties to submit a data feed to report the transactions within a relatively loose time frame that is only specified contractually and cannot be enforced technologically. This approach -- that approach sort of relies on the honor system and opens windows for fraud. In contrast, DART takes its input directly from the blockchain, as I outlined, where the transaction processing system, which is the Portfolio Manager application, records the transaction immediately upon execution. DART actively listens to the blockchain for transactions it needs to reflect in its registry. So transactions reflected on DART are always accurate and they are -- they reflect exactly as they were executed without alterations from human errors or malfeasance, and it's done automatically and immediately, as I mentioned before. And so DART's automatic reflection of transactions also does create some operational efficiency because it eliminates the need for transacting parties to provide a data feed and also eliminates these periodic reconciliations that actually something like MERS requires. And so reviewing the DART registry is routinely part of the diligence checks that our clients perform, often done by their custodians. And so it's a much simpler process. And it plays another important role actually in the Figure ecosystem, because we're defining the next generation of capital markets, we are causing a very major disruption in this conservative sector in the sort of county recorders space, but that world is not going to move to blockchain at any time soon, even though if you kind of go back to the early days of blockchain, there was a lot of talk about county records and title insurance. That was a big part of the excitement around blockchain initially. But we know that, that world is not moving to blockchain anytime soon. And so DART's role that we play is important when you think about broader disruption because for disruption to reach its full economic potential, the disruptor must find a way to enable the migration of legacy installed base, right? If you try to make the legacy forward compatible, you're limited by the current technology. But instead, you typically want to make technology backward compatible, right? So an iPhone, as an example, replicated the dial pad of a physical phone. You couldn't try instead to turn a desk phone into a smartphone. So that's kind of what we're doing with DART, right? We're not going to be able to make the counties forward compatible with blockchain. Instead, we're making the new technology backward compatible with the counties. We bridge digital assets with the legacy world of paper instruments. And I think that technology shift is one of the reasons why we've had such robust adoption and have been able to push the market forward. I think that's something that Figure does really well.

I think it's safe to say that many lenders out there are kicking the tires on their books and trying to verify collateral. Does your technology allow for easier collateral verification and auditing and perhaps, why?

Yes. I mean the simple answer is, absolutely. In the aftermath of Tricolor, we saw an increased number of requests for granting of DART access, credentials to users working on behalf of warehouse lenders. And so oftentimes, those would be custodians. And from informal discussions, we learned that this increase in requests was the result of the warehouses performing additional inventory checks of the collateral across all of their assets. So not just assets in the Figure ecosystem, we were sort of a byproduct of that. On one occasion, we were asked to provide access credentials to a person in the afternoon so that, that person could complete an audit report for all of the warehouses holdings on the Figure platform by the close of business. Needless to say, that person completed their report with time to spare because of how easy Figure makes auditing and verification, right, through that Portfolio Manager product. The warehouse lenders know what to do and they know where to look. Figure's Portfolio Manager enables you to see all of your rights. So the assets you own reminder, assets have been pledged to you instantaneously. DART allows you to instantaneously verify that your name is listed as the beneficiary for the relevant legal instruments like liens, e-Notes, et cetera. And what's even more important is that you can have the confidence in these reviews. You don't have to cross-check with other sources to develop confidence in the data. The blockchain systems reflect that common view of the world, right? There's no e-mails or paper going across, as we've talked about, there's one blockchain. Everybody is looking at it. And furthermore, the various systems in the Figure ecosystem are constantly cross-checking the information against each other in the background. Whereas, as I mentioned earlier, MERS, as an example, requires you to periodically, I think it's monthly, download your entire MERS database and certify that there are no discrepancies between the MERS registry and your enterprise records, whereas Portfolio Manager and DART eliminate the need for any of that. So when you start to think about Tricolor and what happened for First Brands and you think like, okay, and granted MERS is mortgage and one of those is auto and one of those is supply chain. But the point being is there are supplier payments. But the point is that you can't -- you can imagine if one of the checks and balances is, please certify that you did, in fact, download your entire MERS database and certify there's no discrepancies, you can see where that falls apart.

And so I'd also, James, if you will, allow me to just take a quick opportunity to talk about servicing, loan servicing in this context. Loan servicing, what I mean here is the payments of -- for loans, collecting payments and also managing delinquency. And although we now have some third-party servicers in our ecosystem, Figure still services most of our own loans. So there are some third parties, but we do most of it ourselves. And in this typical servicing construct, P&I payments, crypto principal interest payments from consumer borrowers are received in an omnibus account, like a centralized account and then applied accordingly with remittance monthly. However, you all on the call have likely heard about yields, which is the settlement currency we have introduced that comes with all the benefits of an SEC-approved security with the flexibility and programmability of stablecoin. So that's our stablecoin. Yield is backed by short-term treasuries, pays interest and has a fixed exchange rate with fiat. And yields opens up tremendous opportunities for transparency and servicing. If the relevant parties, such as the asset owner and the warehouse, allow the funds in the custodial account to be held in yields, it becomes very easy to sequester funds accordingly, and the servicer can then use the encumbrances recorded on the blockchain to determine the account or wallet to which the funds from a consumer's payment should be applied. And so this will provide better separation of funds and better security. Reminder, the legacy process is just dumping in random ACH payments into one master account and then trying to apply them. And so this is really just the tip of the iceberg. The deposit of a custodial funds into a yields account for the warehouse lender enables the warehouse to monitor the flow of funds continuously. The unpaid principal balance for the loans pledged as collateral to a warehouse are also then, therefore, updated in real time and they will real-time process the consumer's payment. So if any of the loans were double pledged, the funds from consumers' P&I payments could be applied to the custodial account of only one of the pledges. So there would be an abnormality detected, right? Because, again, it's all back to how do we prevent something like this happening. And you can have -- when you're servicing a stablecoin, the matching of assets would be another way to prevent something like the Tricolor example. And so you get a lot more transparency in asset performance and funds movement through Figure's technology and yields is ushering in a new era of transparency and auditing and due diligence. So I think what that shows you is we're continuing to build tools that -- when people think of stablecoin, often they're talking about money movement, but stablecoin as applied to our ecosystem is really powerful as another way, not only is it much more operationally efficient, which is one of the takeaways here, but it's also a way to prevent these kinds of problems. And I think it's why you're going to see more and more assets migrate towards our capital market.

Excellent. So Michael, you touched before briefly on title insurance. So I want to dig in a little bit on that. You've talked previously about how your technology does not require title insurance for loans. Maybe you could just dig in a little bit on that. How does Figure's technology obviate the need for title insurance? And are you ensuring the title yourself?

Yes. So title insurance performs a number of functions in the mortgage process, in addition to ensuring that the property has free and clear title -- excuse me, that the loan has free and clear title to the property through the owner, and therefore, the loan is not encumbered. And Figure's process does the same. We identify encumbrances to the title at the county level. We search for liens, we pay off existing liens, but we just don't wrap that in an insurance product or frankly, pay someone to do so. So it's part of our kind of low-cost nature in what we do. But instead, we confirm that the lien is clean upfront or we make it so via payoffs, and then we use DART to track the ownership of that lien. So we don't necessarily need the title insurance in our model if these loan steps are taken. And for people that are closer to the mortgage space, they'll probably be aware that the title insurance is -- goes hand-in-hand with the agency process, right, Fannie Mae and Freddie Mac. And what's interesting about Figure is we're building our own capital market that's not just specific to mortgage, but has a lot of mortgage assets, it's a competitor to what Fannie Mae Freddie Mac have built, and it's all on blockchain. And so we don't feel that we need this given all the things I've been talking about, we actually view that as not necessary and potentially at a cost versus the low-cost products that we push.

All right. Turning to the blockchain. So if more lenders and originators do move on to the blockchain, but they all use their own proprietary blockchains. And admittedly, there's been fragmentation in the number of blockchains out there, even in recent months. Does this make the system more complex given lack of interoperability? And how would, in your view, this interoperability problem be solved over time?

Yes. Well, so Figure uses Provenance, which is a public blockchain. It's open to everybody. That having been said, you do raise an excellent point about this proliferation of blockchain. I was actually just talking to someone. I called it a Cambrian explosion of blockchains and stablecoins. And so in technological innovation, it is very common to have this fan-out of solutions in the early days of adoption, and we are still in the early days of blockchain adoption. As adoption progresses, the winning applications crown the winning technologies and there's a natural whittling down process of technologies through attrition, consolidation, et cetera. And we believe that public blockchains have a fundamental advantage since they enable broader market participation, the traction of our Demo Prime efforts support that view. And we also believe that our market position as the leader in real-world assets, reminder, we have about $18 billion plus of assets growing fast with over $65 billion in transactions. These are all available on the Provenance Explorer. That will be crown because of that traction as one of the winners. But I don't think that the world is going to ever get to a single blockchain. There will be a few blockchains and the interconnection technology will make things interoperable. So technology diversity will actually become less of a problem. And if you look at Figure, we recently announced, for example, our Sui announcement where our yield stablecoin is now available in that ecosystem and we're bringing liquidity from those other blockchains to the assets on the Figure platform where we have such a market leader position -- leadership position, excuse me, in RWA. And I think people are very interested and eager to invest in our assets. So you'll see more and more technology that allows us to go towards those pools of liquidity and bring them on to our blockchain, making these things interoperable. And so I think a phase of technological breakthrough, they're typically almost always followed by a much longer phase of incremental innovation that cumulatively does have as much impact on progress as the breakthrough phase. So if you think about it about a ATM networks, say, in the '80s and early '90s, there was a bunch of these, Cirrus, Plus, MAC. My guy would have had to look for a logo prior to using his ATM card to make sure. And nobody worries about that anymore, right? And this is what's going to happen to blockchain. So I tend to view the interoperability challenges more like a nuisance than a major roadblock to somebody like Figure executing this vision we have for the capital markets.

Excellent. Okay. With that, we're about out of time here. So thank you so much, Michael, Macrina. We really appreciate your time, and I look forward to talking to you on the earnings call in just a few weeks.

Thank you, James. Really appreciate the [indiscernible].