Figure Technology Solutions, Inc. (FIGR) Q3 2025 Earnings Call Transcript

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Overview

The earnings report shows strong financial performance with a 70% YoY increase in consumer loan volume and a 42% rise in net revenue. The company is expanding its partner network and product offerings, particularly in blockchain and HELOC markets. Despite some vague management responses, the overall sentiment is positive due to growth in key areas and a strong market strategy. The focus on innovative products and partnerships suggests potential for future growth, likely leading to a positive stock price movement.

Key Financial Performance

Adjusted EBITDA $86 million in the quarter, an increase of 75% year-over-year. EBITDA margin reached 55%. The increase is attributed to operational efficiency, automation, and the shift toward a capital-light marketplace model.

Net Income Nearly $90 million for the quarter, more than triple last year's quarter. The increase is due to strong financial performance and growth in key areas.

Total Consumer Loan Marketplace Volume Almost $2.5 billion in the third quarter, representing a 70% increase year-over-year. Growth reflects expansion across the origination partner network and increased utilization of Figure Connect for liquidity.

First Lien Lending Volumes Nearly tripled year-over-year. Growth driven by accelerated adoption among new and existing partners, leveraging Figure Connect as a liquidity solution.

New Product Categories Volume Contributed more than $80 million in the third quarter. Includes blockchain-based solutions for crypto-backed loans, loans to small and medium businesses, and DSCR loans.

Adjusted Net Revenue $156 million in the quarter, an increase of 42% from the third quarter of last year. Growth driven by higher ecosystem volume, partially offset by lower take rates from partner-branded volume.

Variable Expenses as a Percentage of Adjusted Net Revenue Declined from 36% to 28% year-over-year. Improvement due to reduction in funding costs, automation, and AI applications.

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Operating Highlights

New Product Categories: Contributed more than $80 million in volume in Q3, including blockchain-based solutions for crypto-backed loans, loans to small and medium businesses, and DSCR loans.

Blockchain-based Equity Share Class: Filed a confidential S-1 for the launch of a blockchain-native equity share class, marking the first public equity class to exist entirely on blockchain infrastructure.

Democratized Prime: A DeFi lending product offering lower funding costs than traditional warehouse lines, generating incremental pure margins and expanding the ecosystem's profitability.

YLDS Stablecoin: Expanded into Sui and Solana ecosystems, supporting fiat movement on and off chain and enabling liquidity across the ecosystem.

Consumer Loan Marketplace Volume: Reached nearly $2.5 billion in Q3, with Figure Connect comprising almost half of the total volume.

Partner Network Expansion: Onboarded one of the largest mortgage servicers in the U.S. and added 7 new buyers to the securitization program, including a prominent sovereign wealth fund.

Operational Efficiency: Variable expenses as a percentage of adjusted net revenue declined from 36% to 28% year-over-year due to automation and AI applications.

Adjusted EBITDA Margin: Improved to 55.4% in Q3, up from 44.9% in the prior year period, driven by operational efficiency and a shift toward a capital-light marketplace model.

Blockchain Adoption: Achieved $60 billion in blockchain transactions to date, with $18 billion in loans originated on the Provenance blockchain.

Capital-Light Marketplace Transition: Shifted to a fee-based model with Figure Connect, reducing balance sheet exposure and increasing profitability.

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Risk or Challenges

Regulatory Risks: The company is subject to regulatory scrutiny and compliance requirements, as highlighted in their SEC filings and risk factors. Any changes in regulations or failure to comply could adversely impact operations and financial performance.

Seasonality in Loan Origination: The company anticipates lower home equity loan origination volumes in Q4 and Q1 due to seasonal trends, which could impact revenue and profitability during these periods.

Competitive Pressures: The company faces competition from traditional financial institutions and other blockchain-based platforms, which could affect its market share and pricing power.

Dependence on Partner Ecosystem: The company's business model heavily relies on its partner network for loan origination and funding. Any disruption or loss of key partners could significantly impact operations.

Economic Uncertainty: Macroeconomic factors such as interest rate fluctuations, inflation, and consumer spending behavior could affect loan demand and the company's financial performance.

Technology and Cybersecurity Risks: As a blockchain-based platform, the company is exposed to risks related to technology failures, cybersecurity breaches, and data integrity issues, which could undermine trust and operational efficiency.

Transition to Capital-Light Model: The shift to a capital-light marketplace model involves operational and strategic risks, including the potential for lower take rates and challenges in scaling new products like Democratized Prime.

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Guidance & Outlook

Seasonality in Home Equity Loan Origination: The company expects typical seasonality in home equity loan origination volumes in the fourth and first quarters, with volumes historically trending below the annual average during these periods. This is attributed to consumers deferring major financial decisions during the late fall and winter months.

Adjusted EBITDA Margin Target: The company is targeting annual adjusted EBITDA margins above 60% in the long term, driven by the scalability of its model, increased activity on Figure Connect, and adoption of Democratized Prime.

Capital-Light Marketplace Model: The company is transitioning to a capital-light marketplace model, reducing the need for balance sheet capital as partners increasingly originate, fund, and sell loans through the platform. This shift is expected to enhance transaction velocity and drive higher contribution margins.

Operating Efficiency: The company aims to maintain a disciplined cost structure with limited increases in fixed expenses, leveraging technology investments in AI and process automation to support more partners, products, and transaction volume without proportional increases in headcount or spend.

Democratized Prime: The company sees significant opportunity in its DeFi lending product, Democratized Prime, which offers lower funding costs than traditional warehouse lines and operates as a decentralized exchange-like marketplace. This product is expected to become the preferred liquidity venue for blockchain-native real-world assets.

Blockchain-Native Equity Share Class: The company announced the upcoming launch of a blockchain-native equity share class on Provenance blockchain, representing the first public equity class to exist entirely on blockchain infrastructure. This is expected to redefine how asset classes are created, financed, and traded.

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Shareholder Return Plan

Dividends: Michael Cagney mentioned that the company's approach to product technology investment and corresponding shareholder value is paying dividends today. However, there is no specific mention of a formal dividend program or payout to shareholders.

Share Buyback: There is no mention of a share buyback program in the transcript.

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Key Q&A

Q:What is the most exciting aspect of the business for the management team?

A:Michael Tannenbaum is excited about the increasing interest from existing and future customers in using their blockchain technology to improve their businesses. Michael Cagney is most excited about issuing equity native to public blockchain, which he sees as a transformational opportunity to build a new capital market ecosystem.

Q:What is the prioritization of products and their market potential?

A:The company sees a $185 billion+ market opportunity, with a focus on HELOC products addressing $35 trillion in home equity. They are also pushing into the first lien business, the largest consumer credit asset class. Additionally, they are making progress in their blockchain ecosystem pillars, Democratized Prime and YLDS, aiming to bring more liquidity and ubiquity to these products.

Q:What is the outlook for Figure Connect and its contribution to volume?

A:Figure Connect, launched in June 2024, has reached close to 50% of the overall consumer loan marketplace volume by 2025. The company aims to achieve 60% of Connect volume in the mid- to near term.

Q:What is the composition and growth outlook for new partners?

A:The company saw significant partner growth, especially in the SMB segment, driven by greenfield opportunities and product improvements. They onboard partners ranging from small businesses to large enterprises, with some partners getting up and running in as fast as 2 weeks. Recent additions include a major servicer, a large independent mortgage bank, and a partner associated with Robinhood.

Q:What strategies are being used to drive adoption of Democratized Prime and YLDS?

A:The focus is on building out the funding side of the marketplace to ensure sufficient liquidity. YLDS is being integrated into ecosystems like Sui and Solana to leverage their builder communities. The company is also working on using YLDS as collateral on exchanges and replicating liquid staking protocols for Democratized Prime.

Q:What is the value proposition of tokenized equities?

A:The value lies in the DeFi construct, enabling cross-collateralization with other assets and creating unique borrowing pools. Tokenized equities also allow for a transparent and efficient stock lending process, replacing the opaque locate market. The company plans to unveil more details in an upcoming call.

Q:What is the expected seasonality in 2025 and beyond?

A:The company expects some level of seasonality in Q4 2025 and Q1 2026 but is optimistic due to strong partner interest and success.

Q:What differentiates Figure's HELOC process from competitors?

A:Figure's HELOC process integrates blockchain-based infrastructure with traditional technology, enabling transparency, immutability, and high margins. The integration of technology and capital markets allows for cost-effective and efficient operations.

Q:What is the outlook for non-HELOC loan growth?

A:The company is focusing on first lien HELOCs, which grew 3x year-over-year, and sees significant opportunities in SMB and crypto-backed loans. They aim to replicate their B2B2C approach in these markets.

Q:What is the value proposition for large banks using Figure's platform?

A:Large banks can tokenize their assets to access tokenized liabilities and use YLDS as a defensive measure against liability flight. The platform offers opportunities in low-balance first lien loans and access to DeFi through Democratized Prime.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details about the structure and benefits of tokenized equities, deferring the discussion to a future call. They also used vague language when discussing the broader macro thesis and the potential of their blockchain ecosystem without providing concrete examples or data.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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