Figure Technology Solutions, Inc. (FIGR) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary highlights strong financial performance, product expansion, and strategic partnerships, with a focus on blockchain and AI integration. The Q&A session reinforces this optimism, with management addressing concerns effectively and showcasing growth in mortgage and blockchain markets. The $200 million share repurchase program and positive guidance further bolster sentiment. Despite flat growth in Q2, the overall outlook remains positive, driven by strategic initiatives and strong partner interest, suggesting a positive stock price movement in the near term.

Key Financial Performance

Consumer Loan Marketplace Volume $2.9 billion in Q1 2026, up from $1.4 billion in Q1 2025, representing over 110% year-over-year growth. Growth attributed to new partners, depository activity, and business purpose products.

Revenue $167 million in Q1 2026, an increase of 92% year-over-year. Growth driven by higher consumer loan marketplace volume and servicing and interest income.

Adjusted EBITDA Margin 50% in Q1 2026, up from 33% in Q1 2025. Improvement due to capital-light marketplace dynamics and operational efficiencies.

First Lien Volume 20% of total volume in Q1 2026, up from 14% in Q1 2025. Growth driven by cost efficiency in originating smaller loans and expansion into larger markets.

Take Rate 3.8% in Q1 2026, in line with guidance of 3.5%-4%. Reflects mix shift towards first lien loans and market variability.

Democratized Prime Balances $368 million in Q1 2026, reflecting 80% quarter-over-quarter growth. Growth driven by third-party borrowers and expansion into new asset classes.

YLDS Balances $598 million in Q1 2026, reflecting 80% quarter-over-quarter growth. Growth attributed to adoption by banks and expansion into DeFi protocols.

Operations and Processing Costs 74 basis points as a percent of volume in Q1 2026, down from 93 basis points in Q1 2025. Improvement due to AI-driven efficiency initiatives.

Loans Held for Sale $500 million at the end of Q1 2026, up $100 million since year-end. Increase due to strategic retention to support Democratized Prime marketplace.

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Operating Highlights

Blockchain Ecosystem: Figure is building a capital market ecosystem native to blockchain with three verticals: debt and structured finance, equity and non-debt digital assets, and capital and financing markets. They launched Forge to transform whole loans into liquid participation units and Agora as the first Forge third-party partner.

On-Chain Public Equity Network (OPEN): Launched OPEN to capture blockchain value proposition in public equities. It allows stocks to be registered on blockchain, enabling self-custody, self-clearing, and access to DeFi for lend and borrow.

Consumer Loan Marketplace Growth: Achieved over 110% year-over-year growth in consumer loan marketplace volume, reaching $2.9 billion in Q1 2026. Added 80 new partners, including the seventh largest mortgage lender in the U.S.

First Lien Market Expansion: First lien volume now accounts for 20% of total volume, up from 19% last quarter. Focused on small balance loans with significantly lower origination costs.

SMB and DSCR Loans: Rapid expansion in SMB channel with $60 million volume in Q1. DSCR and residential transition loans grew 70%, targeting a $100 billion annual origination market.

AI Integration: Implemented AI-driven workflows for data onboarding, document validation, and underwriting checks. Achieved a 25% increase in engineering project completion and 70% chat containment.

Operational Efficiency: Operations and processing costs declined 20% as a percentage of volume due to AI-driven efficiency improvements.

TradFi Capital Integration: Working to bring traditional finance capital into Democratized Prime to scale DeFi ecosystem.

Regulatory Advocacy: Advocating with SEC to enhance YLDS utility by satisfying transfer agent requirements with wallet addresses.

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Risk or Challenges

Regulatory Challenges: The company is advocating to the SEC and via CLARITY to satisfy transfer agent requirements with wallet addresses for YLDS. This regulatory uncertainty could impact the utility and adoption of YLDS.

Market Competition: The company faces competitive pressures in the first lien market, which is 25x larger than the second lien space. Additionally, there is a risk of being late to partner with key players in the market.

Economic and Geopolitical Volatility: Volatility in interest rate expectations and complex geopolitical environments could impact take rates and overall financial performance.

Blockchain Ecosystem Scaling: Building out the blockchain ecosystem, including Democratized Prime and OPEN, requires significant upfront investments and faces challenges in scaling third-party borrower volume and lender supply.

Operational Risks: The company is retaining loans longer than usual to support the build-out of Democratized Prime, which has increased interest expenses and impacted adjusted EBITDA margins.

Adoption of New Technologies: Rapid AI adoption and the integration of AI with blockchain systems require significant resources and could face execution risks.

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Guidance & Outlook

Consumer Loan Marketplace Volume: Q2 '26 CLM volume guidance is in the range of $3.8 billion to $4.1 billion, supported by strong activity levels and onboarding of high-volume partners.

First Lien Volume: First lien volume now accounts for 20% of total volume, up from 19% last quarter. The company is focusing on the sub-$300,000 first lien loan marketplace, leveraging cost advantages.

Democratized Prime: Plans to add 8 to 10 third-party originators in 2026, with potential to exceed this goal. The company aims to scale balances to tens to hundreds of billions in the medium term. Focus on bringing TradFi capital to the platform to scale DeFi.

OPEN (On-Chain Public Equity Network): Maintains a robust pipeline of issuers, with OpenWorld being the second issuer to file a registration statement with the SEC. The company aims to establish proof-of-point for borrow benefits to shareholders.

AI Integration: Developing AI-enabled workflows for tasks like data onboarding, document validation, and underwriting checks. AI-driven efficiency improvements expected to impact operations in the second half of 2026.

Blockchain Ecosystem: Focus on growing the first lien market, bringing USDC and USDT utility to YLDS, and scaling Democratized Prime. The company is also working on solutions for wallet-centric experiences to enhance blockchain adoption.

Take Rate: Net take rate for Q1 '26 was 3.8%, in line with guidance of 3.5% to 4%. The company expects take rates to be influenced by mix shifts, particularly with growth in first lien volume.

Revenue and Profitability: Adjusted net revenue for Q1 '26 was $167 million, up 92% year-over-year. Adjusted EBITDA margin was 50%, with a focus on contribution profit and absolute dollar economics.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you talk about the market opportunity for DSCR compared to traditional HELOCs and its future potential?

A:Michael Tannenbaum explained that DSCR and residential transition loans target investment-oriented business cases, such as renovations or fix-and-flip projects. These markets are traditionally manual and fragmented, creating opportunities for modernization. He highlighted the $35 trillion home equity market and noted that residential transition loans align well with Democratized Prime due to their high rates, collateralization by homes, and short-term nature.

Q:How could potentially lower bank risk weights for mortgages support volumes on Figure?

A:Michael Tannenbaum stated that lower risk weights could incentivize banks to reenter the mortgage space, which is currently dominated by nonbanks. Figure provides flexibility for banks to originate and hold mortgages or use them for CRA eligibility. He emphasized that Figure Connect could serve as the ultimate pipeline for banks to aggregate mortgages if bank balance sheets become a long-term opportunity for holding mortgages.

Q:What are your aspirations in the first lien purchase mortgage market, and what needs to be built to tap into this market?

A:Michael Tannenbaum described the first lien purchase mortgage market as a medium-term goal with a large addressable market. He mentioned ongoing development with larger partners who have expressed interest in this area, aiming to integrate the entire capital market on-chain.

Q:Can you elaborate on the upselling process to Figure Connect and the pace of switching non-connect volume to Connect?

A:Michael Tannenbaum explained that the upselling process is volume-based, with conversations starting around $5 million to $10 million of monthly volume. He highlighted the alignment of incentives, where partners earn more economics and Figure becomes balance sheet light with higher EBITDA margins. He also mentioned the ecosystem of products like Democratized Prime that facilitate the transition to Figure Connect.

Q:What drove the traction with traditional depositories like Flagstar, and how does the sales motion differ from fintech partners?

A:Michael Tannenbaum attributed the traction to Figure's scale, profitability, and years in business, which make banks more likely to work with them. He noted that banks are interested in outsourcing to Figure's on-chain solution due to their inability to handle boom-and-bust cycles. Flagstar's partnership was built on a long-standing relationship, and Figure's ability to offer competitive products in the sub-$300,000 first lien category was a key factor.

Q:What is the near-term outlook for expenses, and how should we model for the rest of 2026?

A:Minchung Kgil stated that variable expenses will grow as a percentage of volume, while fixed expenses are expected to remain stable. Interest expenses are anticipated to decrease as loans on Democratized Prime are reduced over the coming quarters.

Q:Why does the volume outlook for Q2 suggest flat growth compared to April, and is there anything to read into this?

A:Minchung Kgil explained that the guidance takes a balanced approach, considering the ramp-up time for larger partners, which is typically 3 to 6 months. The company may be conservative in its outlook but expects to meet its guidance.

Q:What factors contributed to the flat take rate sequentially despite interest rate volatility and growth in lower take rate products?

A:Michael Tannenbaum explained that the take rate is influenced by various factors, including mix shifts to Figure Connect, first lien products, and B2B, as well as partner-specific take rates and overall execution. The 3.8% take rate reflects these dynamics and is considered strong despite volatility.

Q:Do you feel like you're gaining share in the HELOC market, and how would you characterize your share gain in your addressable market?

A:Michael Tannenbaum stated that Figure does not consider the HELOC market relevant to its operations, as much of its work is greenfield. He characterized share gain as a combination of new partner growth and taking market share from Fannie and Freddie, particularly in the sub-$300,000 first lien category, which was previously unaddressed.

Q:How does the outlook for new partners compare to earlier in the year, and has the ramp-up time for larger customers changed?

A:Michael Tannenbaum stated that the pipeline remains strong and consistent with earlier in the year. He noted that implementations and onboarding have been improved by technology and visibility as a public company, with no extension in ramp-up timelines.

Q:Can you provide more detail on the funding partner mix, particularly the asset manager slice?

A:Michael Tannenbaum mentioned a rotation into Figure and consumer loans due to weakness in software and private credit. He highlighted executions in late March and early April as reflecting this trend.

Q:How should we think about the mix of products given recent rate changes?

A:Michael Tannenbaum emphasized that Figure's platform is strong regardless of rate environments. Higher rates push demand for second lien products, while lower rates favor first lien products. The sub-$300,000 first lien category is less rate-sensitive due to its greenfield nature.

Q:Review of Unclear Management Responses

A:No questions were identified where management avoided giving a direct answer or provided unclear responses.

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Earnings Word Cloud

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The earnings call highlights strong financial performance with significant year-over-year growth in consumer loan marketplace volume, adjusted net revenue, and adjusted EBITDA. The Agora partnership presents a promising opportunity in the auto finance sector. Despite some uncertainty in management's responses, particularly regarding monetization specifics, the overall sentiment is positive due to strategic partnerships, robust financial metrics, and optimistic guidance on future growth.

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