Pagaya Technologies Ltd
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
PGY$17.50+0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001883085-24-000090
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001883085-24-000190
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 160 previous paragraphs and 172 current paragraphs.
108 unchanged; 44 reworded; 19 added; 6 removed; 2 previous and 1 current paragraphs rearranged.
Tables are not compared: 25 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
Income tax benefit for the three months ended September 30, 2024 increased $10.4 million, compared to the same period in 2023. The increase was primarily driven by discrete tax expenses related to a change in the reserve estimate for an uncertain tax position related to credit loss on investments in loans and securities during the three months ended September 30, 2024.
Current report
Comparison of Nine Months Ended September 30, 2024 and 2023
Current report
Income tax expense for the nine months ended September 30, 2024 decreased $2.5 million, compared to the same period in 2023. The decrease was primarily driven by discrete tax expenses related to a change in the reserve estimate for an uncertain tax position related to credit loss on investments in loans and securities during the nine months ended September 30, 2024.
Current report
Exchangeable Senior Notes
Current report
On October 1, 2024, Pagaya US Holding Company LLC (“Pagaya US”), a wholly-owned subsidiary of the Company, issued $160 million in aggregate principal amount of 6.125% exchangeable senior notes due 2029 (the “Notes”). The issuance was in connection with a purchase agreement dated September 26, 2024, with certain initial purchasers. The Company intends to use the net proceeds from the Notes to repay higher-cost debt and reduce interest expense, with the remainder allocated for general corporate purposes.
Current report
The Notes bear interest at a rate of 6.125% per annum, payable semiannually in arrears on April 1 and October 1 of each year, beginning April 1, 2025, and mature on October 1, 2029, unless earlier repurchased, redeemed, or exchanged. The Notes are exchangeable for cash, Class A Ordinary Shares of the Company, or a combination of both, at the Company’s discretion, subject to certain conditions.
Current report
The Notes are senior, unsecured obligations of Pagaya US and are fully and unconditionally guaranteed on a senior, unsecured basis by the Company. The Notes rank equally in right of payment with other senior, unsecured indebtedness and are structurally subordinated to all existing and future liabilities of Pagaya US’s subsidiaries.
Current report
Under specific conditions, noteholders have the option to exchange their Notes for Class A Ordinary Shares if certain market performance thresholds are met. These include, among others, the sale price of the Class A Ordinary Shares exceeding 130% of the initial exchange price for a specified number of trading days.
Current report
Pagaya US may redeem the Notes in whole or in part on or after October 5, 2027, subject to specific trading price thresholds. Redemption of the Notes could trigger certain provisions that adjust the exchange rate in favor of the holders.
Current report
Critical Accounting Policies and Estimates
Current report
The preparation of our condensed consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Current report
During the nine months ended September 30, 2024, we have reassessed the critical accounting policies and estimates as described in Part II, Item 7, “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 and determined that in addition to the updates below relating to fair value (previously identified as “Loans and investments in securities”), we no longer consider revenue recognition, consolidation and variable interest entities or recoverability of deferred tax assets to be critical accounting estimates as the application of the relevant US GAAP accounting policies does not involve significant levels of uncertainty.
Current report
We believe that the accounting policies discussed below are critical to our financial results and the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because the information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate could have a material impact on our financial condition or results of operations. For further information, see Note 2 to our audited consolidated financial statements in our Annual Report on Form 10-K, which was filed with the SEC on April 25, 2024. It should be noted that future events rarely develop exactly as forecasted, and estimates require regular review and adjustment.
Current report
Fair Value
Current report
Investments in loans and securities, which include whole loans and notes and residual interests in securitizations, are measured at fair value on a recurring basis. The estimate of fair value of these financial assets requires significant judgment. We use a discounted cash flow model to estimate the fair value of these financial assets based on the present value of estimated future cash flows. The cash flow model uses both observable and unobservable inputs and reflects our best estimates of the assumptions a market participant would use to calculate fair value of the particular financial asset. Primary inputs that require significant judgment include discount rates, net credit loss expectations, and expected prepayment rates.
Current report
As it relates to net credit loss expectations, the most significant unobservable input, management considers a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, recovery rates and current economic conditions. We also take into consideration certain qualitative factors, in which we adjust our quantitative baseline using our best judgment to consider the inherent uncertainty regarding future economic conditions and consumer loan performance.
Current report
Additionally, we determine whether an impairment has resulted from a credit loss or other factors. We determine whether a credit loss exists by considering information about the collectability of the instrument, current market conditions, and reasonable and supportable forecasts of economic conditions. We recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss.
Current report
The underlying assumptions, estimates, and assessments we use to provide for fair value are assessed and updated quarterly, as necessary, to reflect our view of current conditions, which can result in changes to the fair value of investments in loans and securities. It is possible that we will experience material differences in the fair value of investments in loans and securities.
Current report
Prior to 2023, we wrote down the amortized cost basis of the investment if it was more likely than not we would be required, or we intended to sell the investment before recovery of its amortized cost basis, or we did not expect to collect cash flows sufficient to recover the amortized cost basis of the investment.
Removed paragraphs (6)
Previous report
Sales and marketing costs for the three months ended June 30, 2024 decreased $1.2 million, or 8%, compared to the same period in 2023, primarily driven by a $1.0 million decrease in compensation expenses due to decreased headcount. Also contributing to the decrease was a $0.3 million decrease in expenses related to marketing.
Previous report
Income tax expense for the three months ended June 30, 2024 increased $9.5 million, compared to the same period in 2023. The increase was primarily driven by geographical mix of taxable net income.
Previous report
Comparison of Six Months Ended June 30, 2024 and 2023
Previous report
Income tax expense for the six months ended June 30, 2024 increased $7.8 million, compared to the same period in 2023. The increase was primarily driven by geographical mix of taxable net income.
Previous report
Critical Accounting Estimates
Previous report
Our significant accounting policies and their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements included in our Annual Report on Form 10-K. Management has reassessed the critical accounting policies and estimates as disclosed in Note 2 to the audited consolidated financial statements included in our Annual Report on Form 10-K and determined that there were no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2024.
Reworded paragraphs (44)
Previous wording
We believe our historical growth has been significantly influenced by improvements to our AI technology, which are in turn driven both by the deepening of our proprietary data network and the strengthening of our AI technology. As our existing Partners grow their usage of our network, new Partners join our network, and as we expand our network into new asset classes, the value of our data asset increases. Our technology improvements thus benefit from a flywheel effect that is characteristic of AI technology, in that improvements are derived from a continually increasing base of training data for our technology. We have found, and we expect to continue to experience, that more data leads to more efficient pricing and greater Network Volume. Since inception, we have evaluated more than $2.2 trillion in application volume.
Current wording
We believe our historical growth has been significantly influenced by improvements to our AI technology, which are in turn driven both by the deepening of our proprietary data network and the strengthening of our AI technology. As our existing Partners grow their usage of our network, new Partners join our network, and as we expand our network into new asset classes, the value of our data asset increases. Our technology improvements thus benefit from a flywheel effect that is characteristic of AI technology, in that improvements are derived from a continually increasing base of training data for our technology. We have found, and we expect to continue to experience, that more data leads to more efficient pricing and greater Network Volume. Since inception, we have evaluated more than $2.4 trillion in application volume.
Previous wording
Regardless of market conditions, the availability and pricing of funding from investors is critical to our growth. We have diversified our investor network and will continue to seek to further diversify our investor base. In the six months ended June 30, 2024, our top 5 ABS investors contributed approximately 50% of our total ABS funding, which remained constant compared to 50% in the year ended December 31, 2023.
Current wording
Regardless of market conditions, the availability and pricing of funding from investors is critical to our growth. We have diversified our investor network and will continue to seek to further diversify our investor base. In the nine months ended September 30, 2024, our top 5 ABS investors contributed approximately 53% of our total ABS funding compared to 50% in the year ended December 31, 2023.
Previous wording
We collect and analyze operating and financial data of our business to assess our performance, formulate financial projections and make strategic decisions. In addition to total revenues, net operating income (loss), other measures under U.S. GAAP, and certain non-GAAP financial measures (see discussion and reconciliation herein titled “Reconciliation of Non-GAAP Financial Measures”), we consider Network Volume to be a key operating metric we use to evaluate our business. The following table sets forth our Network Volume for the three and six months ended June 30, 2024 and 2023.
Current wording
We collect and analyze operating and financial data of our business to assess our performance, formulate financial projections and make strategic decisions. In addition to total revenues, net operating income (loss), other measures under U.S. GAAP, and certain non-GAAP financial measures (see discussion and reconciliation herein titled “Reconciliation of Non-GAAP Financial Measures”), we consider Network Volume to be a key operating metric we use to evaluate our business. The following table sets forth our Network Volume for the three and nine months ended September 30, 2024 and 2023.
Previous wording
We believe the Network Volume metric to be a suitable proxy for our overall scale and reach, as we generate revenue primarily on the basis of Network Volume. Network Volume is primarily driven by our relationships with our Partners and SFR Partners, and we believe that this has benefited from continuous improvements to our proprietary technology, enabling our network to more effectively identify assets for acquisition by the Financing Vehicles, thereby providing additional investment opportunities to investors. Network Volume is comprised of assets across several asset classes, including personal loans, auto loans, residential real estate, and point of sale receivables.
Current wording
We believe the Network Volume metric to be a suitable proxy for our overall scale and reach, as we generate revenue primarily on the basis of Network Volume. In addition, Network Volume directly influences Fee Revenue Less Production Cost (FRLPC), a key non-GAAP measure we use to assess operational efficiency. The growth in Network Volume highlights the scalability of our business, which, in turn, affects our operational leverage and profitability. Network Volume is primarily driven by our relationships with our Partners and SFR Partners. We believe that Network Volume has benefited from continuous improvements to our proprietary technology, enabling our network to more effectively identify assets for acquisition by the Financing Vehicles, thereby providing additional investment opportunities to investors. As a result, the expansion of Network Volume provides insights into the effectiveness of our business strategies and the ability to leverage operational efficiencies across different asset classes. Network Volume is comprised of assets across several asset classes, including personal loans, auto loans, residential real estate, and point-of-sale receivables.
Previous wording
Total revenue and other income, increased by $54.7 million, or 28%, to $250.3 million for the three months ended June 30, 2024 from $195.6 million for the three months ended June 30, 2023. The increase was primarily driven by an increase in revenue from fees, partially offset by decreases in interest income and investment income.
Current wording
Total revenue and other income, increased by $45.5 million, or 21%, to $257.2 million for the three months ended September 30, 2024 from $211.8 million for the three months ended September 30, 2023. The increase was primarily driven by an increase in revenue from fees, partially offset by decreases in interest income and investment income.
Previous wording
Revenue from fees for the three months ended June 30, 2024 increased by $56.9 million, or 31%, to $242.6 million, compared to the same period in 2023. The increase was primarily due to a $54.3 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $167.5 million for the three months ended June 30, 2023 to $221.8 million for the three months ended June 30, 2024. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 19.1% from $2.0 billion for the three months ended June 30, 2023 to $2.3 billion for the three months ended June 30, 2024. These increases were partially offset by a decrease in capital markets execution fees earned from our ABS transactions affected by tighter economic environment during the three months ended June 30, 2024.
Current wording
Revenue from fees for the three months ended September 30, 2024 increased by $47.8 million, or 24%, to $249.3 million, compared to the same period in 2023. The increase was primarily due to a $45.1 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $184.0 million for the three months ended September 30, 2023 to $229.1 million for the three months ended September 30, 2024. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 11.3% from $2.1 billion for the three months ended September 30, 2023 to $2.4 billion for the three months ended September 30, 2024. These increases were partially offset by a decrease in capital markets execution fees earned from our ABS transactions affected by tighter economic environment during the three months ended September 30, 2024.
Previous wording
Contract fees, comprised of administration and management fees, performances fees, and servicing fees, increased by $2.7 million from $18.2 million for the three months ended June 30, 2023 to $20.8 million for the three months ended June 30, 2024, reflecting an increase in net asset values of the assets held by certain Financing Vehicles driven by continued business growth.
Current wording
Contract fees, comprised of administration and management fees, performances fees, and servicing fees, increased by $2.7 million from $17.4 million for the three months ended September 30, 2023 to $20.1 million for the three months ended September 30, 2024, reflecting an increase in net asset values of the assets held by certain Financing Vehicles driven by continued business growth.
Previous wording
Interest income decreased by $2.0 million, or 20%, to $8.2 million for the three months ended June 30, 2024 from $10.2 million for the three months ended June 30, 2023. The decrease in interest income was directly related to our risk retention holdings and related securities held in our consolidated VIEs as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” The decrease in interest income was primarily the result of changes in structure and composition of asset portfolio, partially offset by higher interest income on our cash balances.
Current wording
Interest income decreased by $1.6 million, or 16%, to $8.7 million for the three months ended September 30, 2024 from $10.4 million for the three months ended September 30, 2023. The decrease in interest income was directly related to our risk retention holdings and related securities held in our consolidated VIEs as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” The decrease in interest income was primarily the result of changes in structure and composition of asset portfolio, partially offset by higher interest income on our cash balances.
Previous wording
Investment income (loss) decreased by $0.2 million to a loss of $0.4 million for the three months ended June 30, 2024, reflecting an unfavorable impact from the change in valuation of certain proprietary investments.
Current wording
Investment income (loss) decreased by $0.7 million to a loss of $0.8 million for the three months ended September 30, 2024, reflecting an unfavorable impact from the change in valuation of certain proprietary investments.
Previous wording
Production costs increased by $25.0 million, or 21%, to $145.6 million for the three months ended June 30, 2024 from $120.6 million for the three months ended June 30, 2023. This increase was predominantly due to increases in Network Volume and to a lesser extent the composition of the asset classes that make up our Network Volume, as well as new Partners onboarded to our network.
Current wording
Production costs increased by $20.2 million, or 16%, to $149.0 million for the three months ended September 30, 2024 from $128.8 million for the three months ended September 30, 2023. This increase was predominantly due to increases in Network Volume and to a lesser extent the composition of the asset classes that make up our Network Volume, as well as new Partners onboarded to our network.
Previous wording
Technology, data and product development costs for the three months ended June 30, 2024 increased $4.3 million, or 24%, compared to the same period in 2023. The increase was primarily driven by a $4.4 million increase in depreciation of capitalized software, inclusive of impairment charges, and a $0.6 million increase in overhead allocation and other miscellaneous costs. These increases were partially offset by a $0.9 million decrease in compensation expenses.
Current wording
Technology, data and product development costs for the three months ended September 30, 2024 decreased $1.4 million, or 8%, compared to the same period in 2023. The decrease was primarily driven by a $4.2 million decrease in compensation expenses, partially offset by a $2.2 million increase in depreciation of capitalized software, inclusive of impairment charges and a $0.8 million increase in professional expenses.
Previous wording
During the three months ended June 30, 2024 and 2023, we capitalized $5.9 million and $7.5 million of software development costs, respectively. Depreciation expense, including impairment charges, for capitalized software development costs was $7.9 million and $3.5 million during the three months ended June 30, 2024 and 2023, respectively.
Current wording
During the three months ended September 30, 2024 and 2023, we capitalized $5.7 million and $7.0 million of software development costs, respectively. Depreciation expense, including impairment charges, for capitalized software development costs was $6.6 million and $4.4 million during the three months ended September 30, 2024 and 2023, respectively.
Previous wording
General and administrative costs for the three months ended June 30, 2024 increased $11.4 million, or 22%, compared to the same period in 2023. Excluding a $13.4 million loss from loan purchases during the three months ended June 30, 2024, general and administrative costs decreased $2.0 million, primarily driven by a $1.5 million decrease in miscellaneous costs, including overhead allocations, and a $0.6 million decrease in professional expenses.
Current wording
General and administrative costs for the three months ended September 30, 2024 increased $4.4 million, or 8%, compared to the same period in 2023. Excluding a $12.8 million loss from loan purchases during the three months ended September 30, 2024, general and administrative costs decreased $8.4 million, primarily driven by a $5.1 million decrease in compensation expenses, a $1.6 million decrease in professional expenses, and a $1.9 million decrease in overhead allocation and other miscellaneous costs.
Previous wording
Other expense, net for the three months ended June 30, 2024 increased $56.3 million compared to the same period in 2023. The increase was primarily due to a higher credit-related impairment loss of $44.9 million on certain investments, driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value. We are not exposed economically to a significant portion of these fair value changes as certain investments are held within consolidated VIEs. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” Also contributing to the increase was higher interest expenses of $14.3 million due to higher interest rates and increased borrowings to support business growth, partially offset by a $2.3 million favorable impact from the changes in fair value remeasurement of warrants.
Current wording
Other expense, net for the three months ended September 30, 2024 increased $60.9 million compared to the same period in 2023. The increase was primarily due to a higher credit-related impairment loss of $40.6 million on certain investments, driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value. We are not exposed economically to a portion of these fair value changes as certain investments are held within consolidated VIEs. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” Also contributing to the increase was higher interest expenses of $17.5 million due to higher interest rates and increased borrowings to support business growth.
Previous wording
Net loss attributable to noncontrolling interests for the three months ended June 30, 2024 increased $7.1 million compared to the same period in 2023. The increase was driven by the net loss generated by our consolidated VIEs associated with our risk retention holdings. This amount represented the net income (loss) of the consolidated VIEs to which we had no economic right and was the result of interest income of $1.4 million generated from risk retention holdings offset by the credit-related impairment loss of $9.2 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Expense, Net.”
Current wording
Net loss attributable to noncontrolling interests for the three months ended September 30, 2024 decreased $17.4 million compared to the same period in 2023. The decrease was driven by the net loss generated by our consolidated VIEs associated with our risk retention holdings. This amount represented the net income (loss) of the consolidated VIEs to which we had no economic right and was the result of interest income of $1.2 million generated from risk retention holdings offset by the credit-related impairment loss of $7.9 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Expense, Net.”
Previous wording
Total revenue and other income, increased by $113.4 million, or 30%, to $495.6 million for the six months ended June 30, 2024 from $382.3 million for the six months ended June 30, 2023. The increase was primarily driven by an increase in revenue from fees, partially offset by decreases in interest income and investment income.
Current wording
Total revenue and other income, increased by $158.8 million, or 27%, to $752.9 million for the nine months ended September 30, 2024 from $594.0 million for the nine months ended September 30, 2023. The increase was primarily driven by an increase in revenue from fees, partially offset by decreases in interest income and investment income (loss).
Previous wording
Revenue from fees for the six months ended June 30, 2024 increased by $118.7 million, or 33%, to $479.6 million, compared to the same period in 2023. The increase was primarily due to a $115.6 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $321.5 million for the six months ended June 30, 2023 to $437.1 million for the six months ended June 30, 2024. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 25% from $3.8 billion for the six months ended June 30, 2023 to $4.8 billion for the six months ended June 30, 2024. Capital execution fees earned from our ABS transactions for the six months ended June 30, 2023 remained relatively flat compared to the same period in 2023.
Current wording
Revenue from fees for the nine months ended September 30, 2024 increased by $166.5 million, or 30%, to $728.9 million, compared to the same period in 2023. The increase was primarily due to a $160.7 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $505.5 million for the nine months ended September 30, 2023 to $666.2 million for the nine months ended September 30, 2024. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 20% from $5.9 billion for the nine months ended September 30, 2023 to $7.1 billion for the nine months ended September 30, 2024. Capital execution fees earned from our ABS transactions for the nine months ended September 30, 2023 remained relatively flat compared to the same period in 2023.
Previous wording
Contract fees, comprised of administration and management fees and performance fees, increased by $3.1 million from $39.4 million for the six months ended June 30, 2023 to $42.5 million for the six months ended June 30, 2024, reflecting an increase in net asset values of the assets held by certain Financing Vehicles driven by continued business growth.
Current wording
Contract fees, comprised of administration and management fees and performance fees, increased by $5.8 million from $56.9 million for the nine months ended September 30, 2023 to $62.7 million for the nine months ended September 30, 2024, reflecting an increase in net asset values of the assets held by certain Financing Vehicles driven by continued business growth.
Previous wording
Interest income decreased by $4.7 million, or 23%, to $15.9 million for the six months ended June 30, 2024 from $20.6 million for the six months ended June 30, 2023. The decrease in interest income was directly related to our risk retention holdings and related securities held in our consolidated VIEs as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” The decrease in interest income was primarily the result of changes in structure and composition of the investments in loans and securities portfolio, partially offset by higher interest income on our cash balances.
Current wording
Interest income decreased by $6.3 million, or 20%, to $24.7 million for the nine months ended September 30, 2024 from $31.0 million for the nine months ended September 30, 2023. The decrease in interest income was directly related to our risk retention holdings and related securities held in our consolidated VIEs as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” The decrease in interest income was primarily the result of changes in structure and composition of the investments in loans and securities portfolio, partially offset by higher interest income on our cash balances.
Previous wording
Investment income decreased by $0.6 million to $0.1 million for the six months ended June 30, 2024 from $0.7 million for six months ended June 30, 2023, reflecting a less favorable impact from the change in valuation of certain proprietary investments.
Current wording
Investment income (loss) decreased by $1.4 million to a loss of $0.7 million for the nine months ended September 30, 2024 from an income of $0.7 million for nine months ended September 30, 2023, reflecting an unfavorable impact from the change in valuation of certain proprietary investments.
Previous wording
Production costs increased by $44.8 million, or 18%, to $290.5 million for the six months ended June 30, 2024 from $245.7 million for the six months ended June 30, 2023. This increase was predominantly due to increases in Network Volume and to a lesser extent the composition of the asset classes that make up our Network Volume, as well as new Partners onboarded to our network.
Current wording
Production costs increased by $65.0 million, or 17%, to $439.4 million for the nine months ended September 30, 2024 from $374.5 million for the nine months ended September 30, 2023. This increase was predominantly due to increases in Network Volume and to a lesser extent the composition of the asset classes that make up our Network Volume, as well as new Partners onboarded to our network.
Previous wording
Technology, data and product development costs for the six months ended June 30, 2024 increased $2.5 million, or 6%, compared to the same period in 2023. The increase was primarily driven by a $6.0 million increase in depreciation of capitalized software, inclusive of impairment charges, and a $1.6 million increase in overhead allocation and other miscellaneous costs. These increases were partially offset by a $4.0 million decrease in compensation expenses and a $1.2 million decrease in server costs.
Current wording
Technology, data and product development costs for the nine months ended September 30, 2024 increased $1.1 million, or 2%, compared to the same period in 2023. The increase was primarily driven by a $8.2 million increase in depreciation of capitalized software, inclusive of impairment charges, and a $1.6 million increase in overhead allocation and other miscellaneous costs. These increases were partially offset by a $8.1 million decrease in compensation expenses and a $1.5 million decrease in server costs.
Previous wording
During the six months ended June 30, 2024 and 2023, we capitalized $12.2 million and $13.6 million of software development costs, respectively. Depreciation expense, including impairment charges, for capitalized software development costs was $13.5 million and $7.5 million during the six months ended June 30, 2024 and 2023, respectively.
Current wording
During the nine months ended September 30, 2024 and 2023, we capitalized $17.8 million and $20.5 million of software development costs, respectively. Depreciation expense, including impairment charges, for capitalized software development costs was $20.1 million and $11.9 million during the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
Sales and marketing costs for the six months ended June 30, 2024 decreased $5.3 million, or 18%, compared to the same period in 2023, primarily driven by a $4.3 million decrease in compensation expenses due to decreased headcount and a $0.9 million decrease in expenses related to marketing and miscellaneous costs.
Current wording
Sales and marketing costs for the nine months ended September 30, 2024 decreased $5.2 million, or 13%, compared to the same period in 2023, primarily driven by a $4.6 million decrease in compensation expenses and a $0.5 million decrease in marketing and other miscellaneous costs.
Previous wording
General and administrative costs for the six months ended June 30, 2024 increased $23.4 million, or 22%, compared to the same period in 2023. Excluding a $18.4 million loss from loan purchases during the six months ended June 30, 2024, general and administrative costs increased $4.9 million, primarily driven by a $6.6 million increase in professional and transaction-related expenses supporting business initiatives, partially offset by a $1.2 million decrease in compensation expenses and a $0.5 million decrease in miscellaneous costs, including overhead allocations.
Current wording
General and administrative costs for the nine months ended September 30, 2024 increased $27.7 million, or 18%, compared to the same period in 2023. Excluding a $31.2 million loss from loan purchases during the nine months ended September 30, 2024, general and administrative costs decreased $3.5 million, primarily driven by a $6.3 million decrease in compensation expenses and a $2.0 million decrease in miscellaneous costs, including overhead allocations, partially offset by a $5.0 million increase in professional and transaction-related expenses supporting business initiatives.
Previous wording
Other expense, net for the six months ended June 30, 2024 increased $23.7 million, compared to the same period in 2023. The increase was primarily due to a higher interest expenses of $26.7 million due to higher interest rates and increased borrowing to support business growth, and a higher credit-related impairment loss of $2.1 million on certain investments, driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value. We are not exposed economically to a significant portion of these fair value changes as certain investments are held within consolidated VIEs. For further information, please see “—Net Income (Loss) Attributable to Noncontrolling Interests.” These increases were partially offset by a $4.0 million favorable impact from the changes in fair value remeasurement of warrants.
Current wording
Other expense, net for the nine months ended September 30, 2024 increased $84.5 million, compared to the same period in 2023. The increase was primarily due to a higher interest expenses of $44.2 million due to higher interest rates and increased borrowing to support business growth, and a higher credit-related impairment loss of $42.8 million on certain investments, driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value. We are not exposed economically to a portion of these fair value changes as certain investments are held within consolidated VIEs. For further information, please see “—Net Income (Loss) Attributable to Noncontrolling Interests.” These increases were partially offset by a $4.1 million favorable impact from the changes in fair value remeasurement of warrants.
Previous wording
Net loss attributable to noncontrolling interests for the six months ended June 30, 2024 decreased by $20.2 million, or 52%, compared to the same period in 2023. The decrease was driven by the net loss generated by our consolidated VIEs associated with our risk retention holdings. This amount represented the net income (loss) of the consolidated VIEs to which we had no economic right and was the result of interest income of $3.2 million generated from risk retention holdings offset by the credit-related impairment loss of $21.4 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Expense, Net.”
Current wording
Net loss attributable to noncontrolling interests for the nine months ended September 30, 2024 decreased by $37.6 million, or 60%, compared to the same period in 2023. The decrease was driven by the net loss generated by our consolidated VIEs associated with our risk retention holdings. This amount represented the net income (loss) of the consolidated VIEs to which we had no economic right and was the result of interest income of $4.5 million generated from risk retention holdings offset by the credit-related impairment loss of $29.3 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Expense, Net.”
Previous wording
FRLPC, Adjusted Net Income (Loss) and Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023 are summarized below (in thousands):
Current wording
FRLPC, Adjusted Net Income (Loss) and Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 are summarized below (in thousands):
Previous wording
As of June 30, 2024 and December 31, 2023, the principal sources of liquidity were cash, cash equivalents and restricted cash of $267.9 million and $222.5 million, respectively. We believe these sources will be sufficient to meet our current liquidity needs for the next twelve months, from the date of issuance of the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, and be sufficient to support our future cash needs, however, we can provide no assurance that our liquidity and capital resources will meet future funding requirements.
Current wording
As of September 30, 2024 and December 31, 2023, the principal sources of liquidity were cash, cash equivalents and restricted cash of $181.0 million and $222.5 million, respectively. We believe these sources will be sufficient to meet our current liquidity needs for the next twelve months, from the date of issuance of the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, and be sufficient to support our future cash needs, however, we can provide no assurance that our liquidity and capital resources will meet future funding requirements.
Previous wording
“Ordinary Share Offering,” as well as the issuance of up to an additional 1,666,666 Series A Preferred Shares. The ownership interest of our shareholders will be, or could be, diluted as a result of sales or issuances of equity or debt securities, and the terms of any such securities may include liquidation or other preferences that adversely affect the rights of our shareholders of Class A Ordinary Shares. We intend to support our liquidity and capital position by pursuing diversified sources of financing, including debt financing, secured borrowings, or equity financing. The rates, terms, covenants and availability of such additional financing is not guaranteed and will be dependent on not only macro-economic factors, but also on Pagaya-specific factors such as the results of our operations and the returns generated by loans originated with the assistance of our AI Technology.
Current wording
We expect to fund our operations with existing cash and cash equivalents, cash generated from operations, including cash flows from investments in loans and securities, and additional secured borrowings, including repurchase agreements. We may also raise additional capital, including through borrowings under the new credit facility that we entered into in February 2024 (see further description of the new credit facility below in the section titled “Credit Agreement”) or through the sale or issuance of equity or debt securities, as described below in the sections titled “The Committed Equity Financing,” “Shelf Registration Statement” and “Ordinary Share Offering,” as well as the issuance of up to an additional 1,666,666 Series A Preferred Shares. The ownership interest of our shareholders will be, or could be, diluted as a result of sales or issuances of equity or debt securities, and the terms of any such securities may include liquidation or other preferences that adversely affect the rights of our shareholders of Class A Ordinary Shares. We intend to support our liquidity and capital position by pursuing diversified sources of financing, including debt financing, secured borrowings, or equity financing. The rates, terms, covenants and availability of such additional financing is not guaranteed and will be dependent on not only macro-economic factors, but also on Pagaya-specific factors such as the results of our operations and the returns generated by loans originated with the assistance of our AI Technology.
Previous wording
As of August 8, 2024, the price of our Class A Ordinary Shares was $15.10 per share. We believe the likelihood that warrant holders will exercise their public warrants and private placement warrants that were issued and exchanged for EJFA Private Placement Warrants in the EJFA Merger, and therefore the amount of cash proceeds that we would receive, is dependent upon the market price of Class A Ordinary Shares. If the market price for our Class A Ordinary Shares is less than $138 per share, we believe warrant holders will be unlikely to exercise on a cash basis their public warrants and private placement warrants that were issued and exchanged for EJFA Private Placement Warrants in the EJFA Merger. To the extent the public warrants and private placement warrants are exercised by warrant holders, ownership interest of our shareholders will be diluted as a result of such issuances. Moreover, the resale of Class A Ordinary Shares issuable upon the exercise of such warrants, or the perception of such sales, may cause the market price of our Class A Ordinary Shares to decline and impact our ability to raise additional financing on favorable terms. See“Risk Factors—We have and may need to continue to raise additional funds in the future, including but not limited to, through equity, debt, secured borrowings, or convertible debt financings, to support business growth, and those funds may be unavailable on acceptable terms, or at all. As a result, we may be unable to meet our future capital requirements, which could limit our ability to grow and jeopardize our ability to continue our business” and “Risk Factors—Risks Related to Ownership of our Class A Ordinary Shares and Warrants” in our Annual Report on Form 10-K, which was filed with the SEC on April 25, 2024.
Current wording
As of November 11, 2024, the price of our Class A Ordinary Shares was $16.89 per share. We believe the likelihood that warrant holders will exercise their public warrants and private placement warrants that were issued and exchanged for EJFA Private Placement Warrants in the EJFA Merger, and therefore the amount of cash proceeds that we would receive, is dependent upon the market price of Class A Ordinary Shares. If the market price for our Class A Ordinary Shares is less than $138 per share, we believe warrant holders will be unlikely to exercise on a cash basis their public warrants and private placement warrants that were issued and exchanged for EJFA Private Placement Warrants in the EJFA Merger. To the extent the public warrants and private placement warrants are exercised by warrant holders, ownership interest of our shareholders will be diluted as a result of such issuances. Moreover, the resale of Class A Ordinary Shares issuable upon the exercise of such warrants, or the perception of such sales, may cause the market price of our Class A Ordinary Shares to decline and impact our ability to raise additional financing on favorable terms. See“Risk Factors—We have and may need to continue to raise additional funds in the future, including but not limited to, through equity, debt, secured borrowings, or convertible debt financings, to support business growth, and those funds may be unavailable on acceptable terms, or at all. As a result, we may be unable to meet our future capital requirements, which could limit our ability to grow and jeopardize our ability to continue our business” and “Risk Factors—Risks Related to Ownership of our Class A Ordinary Shares and Warrants” in our Annual Report on Form 10-K, which was filed with the SEC on April 25, 2024.
Previous wording
During the three months ended June 30, 2024, the Company did not issue any shares under the Equity Financing Purchase Agreement. During the six months ended June 30, 2024, 298,057 shares were issued under the Equity Financing Purchase Agreement for net proceeds of $5.2 million.
Current wording
During the three months ended September 30, 2024, 516,512 shares were issued under the Equity Financing Purchase Agreement for net proceeds of $6.7 million, and related fee of $0.2 million was expensed. During the nine months ended September 30, 2024, 814,569 shares were issued under the Equity Financing Purchase Agreement for net proceeds of $11.9 million, and related fee of $0.4 million was expensed. On September 25, 2024, the Company terminated the Equity Financing Purchase Agreement.
Previous wording
Our primary uses of cash in operating activities are for ordinary course of business, with the primary use related to employee and personnel-related expenses. As of June 30, 2024, we had 591 employees, including 149 full-time Darwin employees, compared to 712 on December 31, 2023. During the second quarter of 2024, we reduced our headcount by over 20% across our Israel and U.S. offices. This reduction in workforce enabled us to streamline our operations resulting in cost savings.
Current wording
Our primary uses of cash in operating activities are for ordinary course of business, with the primary use related to employee and personnel-related expenses. As of September 30, 2024, we had 534 employees, including 146 full-time Darwin employees, compared to 712 on December 31, 2023. During the second quarter of 2024, we reduced our headcount by over 20% across our Israel and U.S. offices. This reduction in workforce enabled us to streamline our operations resulting in cost savings.
Previous wording
Net cash provided by operating activities for the six months ended June 30, 2024 was $36.0 million, an increase of $61.5 million from net cash used in operating activities of $25.5 million for the same period in 2023. This reflects our net loss including noncontrolling interests of $114.3 million, adjusted for non-cash charges of $129.1 million, and net cash inflows of $21.2 million from changes in our operating assets net of operating liabilities.
Current wording
Net cash provided by operating activities for the nine months ended September 30, 2024 was $34.5 million, an increase of $43.8 million from net cash used in operating activities of $9.4 million for the same period in 2023. This reflects our net loss including noncontrolling interests of $188.6 million, adjusted for non-cash charges of $232.4 million, and net cash inflows of $9.4 million from changes in our operating assets net of operating liabilities.
Previous wording
Non-cash charges primarily consisted of (1) impairment losses on investments in loans and securities, which increased by $1.6 million driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value (we are not exposed economically to a portion of these fair value changes as certain investments are held within consolidated VIEs), (2) share-based compensation, which decreased by $3.1 million, (3) depreciation and amortization, which increased by $5.4 million primarily from capitalized software, and (4) fair value adjustment to warrant liability, which decreased by $4.0 million driven by changes in the market price of our Class A Ordinary Shares.
Current wording
Non-cash charges primarily consisted of (1) impairment losses on investments in loans and securities, which increased by $40.3 million driven by changes in the fair value of investments in loans and securities as a result of fluctuations in key inputs to the discounted cash flow models used to determine fair value (we are not exposed economically to a portion of these fair value changes as certain investments are held within consolidated VIEs), (2) share-based compensation, which decreased by $11.5 million, (3) depreciation and amortization, which increased by $7.3 million primarily from capitalized software, and (4) fair value adjustment to warrant liability, which decreased by $4.1 million driven by changes in the market price of our Class A Ordinary Shares.
Previous wording
Our net cash flows resulting from changes in operating assets and liabilities increased by $42.1 million to net cash inflows of $21.2 million for the six months ended June 30, 2024 compared to net cash outflows of $20.9 million for the same period in 2023, reflecting cost saving initiatives.
Current wording
Our net cash flows resulting from changes in operating assets and liabilities increased by $13.0 million to net cash outflows of $9.4 million for the nine months ended September 30, 2024 compared to net cash outflows of $22.4 million for the same period in 2023, reflecting cost saving initiatives.
Previous wording
For the six months ended June 30, 2024, net cash used in investing activities of $351.3 million was primarily attributable to purchases of risk retention assets of $408.5 million, which increased by $135.1 million driven by business growth, partially offset by proceeds received from existing risk retention assets of $66.8 million, which decreased by $24.5 million.
Current wording
For the nine months ended September 30, 2024, net cash used in investing activities of $462.7 million was primarily attributable to purchases of risk retention assets of $538.7 million, which increased by $102.5 million driven by business growth, partially offset by proceeds received from existing risk retention assets of $89.9 million, which decreased by $44.2 million.
Previous wording
For the six months ended June 30, 2024, net cash provided by financing activities of $362.4 million was primarily attributable to $230.4 million of net proceeds from issuance of long-term debt, net of repayments, $90.0 million of net proceeds from the ordinary share offering, $128.5 million from secured borrowings executed to finance certain risk retention assets, net of repayments, and $5.3 million of proceeds from the issuance of our Class A Ordinary Shares under the Equity Financing Purchase Agreement. These net cash inflows were partially offset by $90.0 million of repayments of the SVB revolving credit facility.
Current wording
For the nine months ended September 30, 2024, net cash provided by financing activities of $387.9 million was primarily attributable to $227.2 million of net proceeds from issuance of long-term debt, net of repayments, $90.0 million of net proceeds from the ordinary share offering, $137.0 million from secured borrowings executed to finance certain risk retention assets, net of repayments, and $11.9 million of proceeds from the issuance of our Class A Ordinary Shares under the Equity Financing Purchase Agreement. These net cash inflows were partially offset by $75.0 million of repayments of the SVB revolving credit facility.
Previous wording
On February 2, 2024, the Company entered into a certain Credit Agreement (the “Credit Agreement”) which provides for a 5-year senior secured revolving credit facility (the “Revolving Credit Facility”) in an initial principal amount of $25 million, which subsequently increased to $35 million, and a 5 year senior secured term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Facilities”) in an initial principal amount of $255 million.
Current wording
On February 2, 2024, the Company entered into a certain Credit Agreement (the “Credit Agreement”) which provides for a 5-year senior secured revolving credit facility (the “Revolving Credit Facility”) in an initial principal amount of $25 million, which subsequently increased to $35 million, and a 5 year senior secured term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Facilities”) in an initial principal amount of $255 million. On November 5, 2024, the Company amended the Credit Agreement to increase the Term Loan Facility by $72 million, bringing the total principal amount to $327 million. The additional funding under the Term Loan Facility is subject to the same terms and conditions as the original term loan.
Previous wording
The Facilities replace the SVB Revolving Credit Facility. In addition to replacing the SVB Revolving Credit Facility, proceeds of borrowings under the Facilities may be used for general corporate purposes of the Company and its subsidiaries. As of the date of this filing, no borrowings have been made under the Revolving Credit Facility.
Current wording
The Facilities replace the SVB Revolving Credit Facility. In addition to replacing the SVB Revolving Credit Facility, proceeds of borrowings under the Facilities may be used for general corporate purposes of the Company and its subsidiaries.
Showing the first 40 of 44 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Sales and marketing costs for the three months ended September 30, 2024 remained relatively flat compared to the same period in 2023.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
We expect to fund our operations with existing cash and cash equivalents, cash generated from operations, including cash flows from investments in loans and securities, and additional secured borrowings, including repurchase agreements. We may also raise additional capital, including through borrowings under the new credit facility that we entered into in February 2024 (see further description of the new credit facility below in the section titled “Credit Agreement”) or through the sale or issuance of equity or debt securities, as described below in the sections titled “The Committed Equity Financing,” “Shelf Registration Statement” and
Previous report — wording carried elsewhere
Financing Rate (subject to a 1.00% floor) plus a margin of 7.50%. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility at a rate per annum of 0.25% and is payable quarterly in arrears.