Figure Technology Solutions (NASDAQ:FIGR) reported second-quarter results marked by triple-digit growth in consumer loan marketplace volume, expanding adoption of its Figure Connect tokenized loan marketplace and a higher share of fee-based revenue.
Consumer loan marketplace volume reached $4.3 billion, up 132% from $1.8 billion a year earlier and 4% above the company’s guidance range, Chief Executive Officer Michael Tannenbaum said. Adjusted net revenue increased 95% year over year to $218 million, while adjusted EBITDA rose 126% to $119 million. The company reported an adjusted EBITDA margin of 55%, compared with 47% in the prior-year period.
Figure Connect Takes Larger Role
Figure Connect represented 65% of consumer loan marketplace volume in the quarter, rising from 56% in the preceding quarter and 42% a year earlier. The marketplace allows partners and investors to transact through the company’s blockchain-based infrastructure, and management characterized it as the most capital-light of the company’s operating channels.
“This quarter marked two years since the June 24 launch of our tokenized loan marketplace, Figure Connect, which now represents 65% of our consumer loan marketplace volume,” Tannenbaum said. He added that the company now expects Connect to approach 70% of volume over the medium term, versus a prior estimate of 60%.
The company had 489 partners on its platform at quarter end, up 102 from the previous quarter. Tannenbaum said growth came from independent mortgage banks, servicers, depositories and fintech small-business partners. One new partner joined directly through Figure Connect and became either the company’s largest or second-largest partner depending on the month, he said.
Partner-branded volume accounted for 83% of marketplace volume. Kgil said ecosystem and technology fees became the largest contributor to adjusted net revenue for the first time, reflecting the mix shift toward Connect.
Management said the company’s net take rate was 3.6% during the quarter, toward the lower end of its previously discussed 3.5% to 4% range. Tannenbaum attributed the lower rate to Connect’s increasing share of business, the impact of higher interest rates on gain-on-sale revenue and strong year-over-year growth in first-lien loan volume.
During the question-and-answer session, Tannenbaum said the decline was not caused by pricing cuts. Instead, he said, larger partners can reach lower pricing tiers as their volumes increase. The company expects take rate to remain near the lower end of its range in the third quarter.
Loan Performance and Democratized Prime
Figure said its underwriting standards have not been loosened amid rapid growth. Kgil said weighted-average FICO scores at origination increased to 756 year to date from 737 in 2020, while weighted-average combined loan-to-value declined to 62.1%. Average loan size increased to $96,000 from $52,000 over the same period.
The company said AAA spreads on its HELOC securitization shelf narrowed to roughly 135 basis points year to date from approximately 255 basis points in 2023, across 22 priced deals. Its securitized collateral base nearly doubled year over year to $7.7 billion, while the buyer base expanded from about three buyers in 2023 to more than 100 unique note buyers.
Democratized Prime, Figure’s financing platform for loan originators, ended the quarter with $392 million in matched offers. The platform had $170 million of third-party assets as of the week before the call, primarily tied to growth from the company’s Agora partnership, Kgil said.
Figure retained approximately $360 million of loans on its balance sheet at quarter end to support Democratized Prime. Total loans on the balance sheet were about $600 million, with the remainder including loans originated directly to consumers or held temporarily while being aggregated for sale through Connect, Kgil said.
Kiavi Deal, New Verticals and Outlook
Figure said it has begun receiving regulatory approvals for its acquisition of Kiavi and anticipates closing the transaction by year-end. Tannenbaum said the deal is expected to add 40% to marketplace volume and $100 million of EBITDA, with an under-four-year unlevered payback period.
The acquisition would add residential transition loans and debt-service-coverage-ratio products to Figure’s marketplace. Management said Kiavi’s post-renovation home-loan valuation technology could help establish greater liquidity and standardization in residential transition lending.
The company also highlighted growth in home-equity products used for small-business financing and home-improvement purposes. Those channels had a $470 million annualized volume run rate as of June, with small-business volume rising 57% sequentially, according to Tannenbaum.
Figure ended the quarter with $1.44 billion in cash and cash equivalents. Subsequent to quarter end, it closed a $600 million rated senior-notes offering carrying an 8.5% interest rate. Kgil said the financing fully funds the planned Kiavi acquisition and broadens the company’s funding sources.
For the third quarter, Figure forecast consumer loan marketplace volume of $4.8 billion to $5.2 billion. July volume totaled $1.7 billion, and Kgil said historical seasonal patterns in August and September support guidance centered near $5 billion. The guidance does not include potential growth from the Kiavi transaction, which management expects to close in the second half of the year.
About Figure Technology Solutions (NASDAQ:FIGR)
Figure is building the future of capital markets using blockchain-based technology. Figure’s proprietary technology powers next-generation lending, trading and investing activities in areas such as consumer credit and digital assets. Our application of the blockchain ledger allows us to better serve our end-customers, improve speed and efficiency, and enhance standardization and liquidity. Using our technology, we continue to develop dynamic, vertically-integrated marketplaces across the approximately $2 trillion consumer credit market and the rapidly growing approximately $4 trillion cryptocurrency and digital asset market.
