Figure Technology Solutions, Inc. Class A Common Stock (FIGR) Q2 2026 Earnings Report, Transcript and Summary

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.