Pagaya Technologies Ltd
For the period ended Dec 31, 2024. Filed Mar 12, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 12, 2025
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-K
Period ended 2023-12-31; filed 2024-04-25.
0001883085-24-000060
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-12.
0001883085-25-000050
Item 7. Management's 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 179 previous paragraphs and 169 current paragraphs.
107 unchanged; 39 reworded; 22 added; 28 removed; 5 previous and 1 current paragraphs rearranged.
Tables are not compared: 18 previous and 16 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 (22)
Current report
We expect economic cycles to affect our financial performance and related metrics. Macroeconomic conditions, including persistent inflation, elevated interest rates, supply chain constraints, geopolitical tensions, climate-related disruptions, and evolving global conflicts, may affect consumer demand for financial products, our Partners’ ability to generate and convert customer application volume, and the availability and cost of funding from investors through our Financing Vehicles. The war in Israel and Gaza, which escalated following the October 7, 2023, attacks by a terrorist organization primarily based in the Gaza Strip remains a source of uncertainty. While the conflict has not materially disrupted our operations to date, its potential to intensify or expand, coupled with related instability in the Middle East, could adversely impact regional and global economic conditions, energy prices, and investor confidence. Such developments may increase volatility in financial markets, elevate operating costs, or constrain funding availability, potentially affecting our business, financial condition, results of operations, and prospects. We continue to monitor the situation closely, though no significant direct impact has been observed as of the date of this Report. The Russia-Ukraine conflict, ongoing since February 2022, persists with no clear resolution as of early 2025. While we have not experienced material impacts on our business from this conflict, prolonged hostilities or further escalation, such as expanded sanctions, disruptions to energy markets, or broader economic fallout, could exacerbate global inflationary pressures and supply chain challenges. These factors may indirectly influence consumer credit demand, investor appetite for risk assets, and our Network Volume. We assess this risk as manageable but remain vigilant given its potential to contribute to wider economic disruptions. Macroeconomic pressures, including sustained high interest rates and inflation, continue to shape our operating environment. Central banks, including the Federal Reserve, have maintained elevated rates into 2025 to combat inflationary trends, increasing borrowing costs and potentially straining borrowers’ ability to service debt. This could lead to higher delinquencies, defaults, and charge-offs, reducing investor returns and dampening demand for assets generated on our platform. Inflation, though moderating from its 2022-2023 peak, remains above historical norms, driving up operating costs such as employee compensation, financing expenses, and technology investments. These pressures have been partially offset by operational efficiencies and growth in application volume from our Partners, supporting net growth in Network Volume despite a higher cost of capital. Global supply chain disruptions, exacerbated by geopolitical tensions and extreme weather events linked to climate change, continue to challenge economic stability. These disruptions may indirectly a…
Excerpt shortened here; the source contains the full paragraph.
Current report
(4) In our fourth quarter of 2024 earnings press release, we reported non-GAAP diluted EPS of $0.83 based on 83.9 million diluted shares. Due to an error in calculating the dilutive effect of exchangeable notes issued in the fourth quarter of 2024, the corrected non-GAAP diluted EPS is $0.92, based on 72.5 million diluted shares.
Current report
Technology, data and product development costs in the year ended December 31, 2024 increased $2.2 million, or 3%, compared to the same period in 2023. Excluding $1.2 million contributions from Theorem in the current period, technology, data and product development costs increased $1.0 million, the increase was primarily driven by a $9.2 million increase in software depreciation expense, including a $0.8 million increase in impairment charge for capitalized software development costs, and a $1.8 million increase in overhead allocation and other miscellaneous costs, partially offset by a $10.2 million decrease in personnel-related expenses.
Current report
During the year ended December 31, 2024 and 2023, we capitalized $23.0 million and $26.5 million of software development costs, respectively. Depreciation expense, including impairment charges, for capitalized software development costs was $26.5 million and $17.2 million for the year ended December 31, 2024 and 2023, respectively.
Current report
Excluding $0.8 million contribution from Theorem in the current period, sales and marketing costs remained relatively flat, decreased by a $0.2 million, compared to the same period in 2023.
Current report
General and administrative costs in the year ended December 31, 2024 increased by $37.4 million, or 18%, compared to the same period in 2023. Excluding $1.6 million contribution from Theorem, general and administrative costs increased $35.8 million, primarily driven by a $38.7 million increase in loss from loan purchases and a $11.9 million increase in consulting expenses, partially offset by a $4.1 million decrease in acquisition-related expenses, a $4.9 million decrease in personnel-related costs and a $3.9 million decrease in insurance expenses.
Current report
Other Expenses Net
Current report
Income tax expense increased by $9.0 million, or 58%, to $24.6 million for the year ended December 31, 2024 from $15.6 million for the year ended December 31, 2023. The increase was primarily driven by discrete tax expenses related to a change in the reserve related to credit loss on investments in loans and securities for the year ended December 31, 2024.
Current report
Net Loss Attributable to Noncontrolling Interests
Current report
FRLPC has grown during 2023 and 2024 primarily as a result of our ability to monetize the value creation inherent in our lending product. Approximately 50% of our lending partnerships are generating FRLPC from both our lending and investor products, while the remaining 50% are only generating FRLPC from our investor products.
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 used 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 of Pagaya US and the Company and are structurally subordinated to all existing and future liabilities of Pagaya US’s subsidiaries.
Current report
The initial exchange rate of the Notes is 71.4669 Class A Ordinary Shares per $1,000 principal amount of Notes (which is equivalent to an initial exchange price of approximately $13.99 per share). The exchange rate will be subject to adjustment upon the occurrence of certain events. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the indenture governing the Notes) or if Pagaya US redeems the Notes, Pagaya US will, in certain circumstances, increase the exchange rate by a number of additional Class A Ordinary Shares for a holder who elects to convert its Notes in connection with such make-whole fundamental change or to convert its Notes called for redemption during the related redemption exchange period.
Current report
Prior to the close of business on the business day immediately preceding July 2, 2029, the Notes will be exchangeable at the option of the holders only upon the satisfaction of specified conditions. These conditions 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. On or after July 2, 2029 until the close of business on the second scheduled trading day immediately preceding October 1, 2029, the Notes will be exchangeable at the option of the holders at any time regardless of the specified conditions.
Current report
Pagaya US may redeem the Notes in whole or in part on or after October 5, 2027, only if the last reported sale price per Class A Ordinary Share exceeds 130% of the exchange price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Current report
If a “fundamental change” (as defined in the indenture governing the Notes) of the Company occurs, then, subject to a limited exception, noteholders may require Pagaya US to repurchase their Notes for cash. The repurchase price will be equal to the principal amount of
Current report
The preparation of our 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
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, expected prepayment rates and consideration of any optional redemption features in our investment securities.
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
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.
Removed paragraphs (28)
Previous report
We expect economic cycles to affect our financial performance and related metrics. Macroeconomic conditions, including, but not limited to the evolving conflict in Israel, rising interest rates, inflation, supply chain disruptions, labor shortages, bank failures, U.S. deficit concerns, and the Russian invasion of Ukraine, may impact consumer demand for financial products, our Partners’ ability to generate and convert customer application volume, as well as the availability of funding from our investors through the Financing Vehicles. On October 7, 2023, a terrorist organization primarily based in the Gaza Strip launched a series of attacks on Israel, igniting a war with Israel. The conflict is rapidly evolving and developing, and the intensity and duration of the current war and any escalation is difficult to predict, as are its economic impacts on the Company’s business and operations and on regional and global political and economic conditions in general. Although the Company’s business operations have not been materially impacted due to this evolving conflict as of the date of this Report, our business, financial condition, results of operations and prospects may be adversely affected due to the ongoing nature of this conflict. The recent rise in inflation and corresponding rapid rise in interest rates may increase financing costs and adversely impact the ability of borrowers to service their debt, which could lead to deterioration of the credit performance of loans and impact investor returns, and therefore may result in lower demand from investors for assets generated on our platform and lead to constraints on our ability to fund new
Previous report
Network Volume. In addition, rising inflation may create an escalation in our operating costs, including employee compensation, financing costs, and general corporate expenses, which could reduce our cash flow and operating income. As of the date of this report, we have not experienced material impacts to our business performance from inflationary pressure. Higher interest rates often lead to higher payment obligations, which may reduce the ability of borrowers to remain current on their obligations and therefore, lead to increased delinquencies, defaults, customer bankruptcies, charge-offs, and decreasing recoveries. Any impact to investor returns may lead to an adverse impact on our earnings. The increased risk-free rate of return may impact investor demand for risk assets such as consumer credit, which may constrain our ability to raise new funding for Network Volume. While our ability to raise new funding has not been materially impacted, the cost of capital has increased due to the higher interest rate environment which has led to a reduction in conversion ratio to meet investor return hurdles, more than offset by an increase in application volume to our network from our Partners, resulting in net growth in Network Volume this year. We continue to closely monitor the ongoing Russia-Ukraine conflict and its global impacts. While the outcome remains highly uncertain, we do not believe the ongoing Russia-Ukraine conflict will have a material impact on our business and results of operation. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted. Adverse developments that affect financial institutions, transactional counterparties or other third parties, such as bank failures and protracted U.S. federal debt ceiling negotiations, or concerns or speculation about any similar events or risks, could lead to credit downgrades and market-wide liquidity problems, which in turn may cause Partners and their customers and other third parties to become unable to meet their obligations under various types of financial arrangements as well as general disruptions or instability in the financial markets, which may adversely affect our business. A prolonged economic downturn may also adversely affect the performance of assets that Financing Vehicles acquire from our network. At the same time, such events, including the COVID-19 pandemic or the inflationary environment, provide key data that we can utilize to improve our AI technology, and they may also help to validate the outcomes our network drives for both Partners and investors. For a further discussion of uncertainties and other factors that could impact our operating results, see “Item 1A.—Risk Factors” section in this Annual Report.
Previous report
Technology, data and product development costs in the year ended December 31, 2023 decreased $76.6 million, or 51%, compared to the same period in 2022. Excluding Darwin’s contribution of $4.7 million for the 2023 period, technology, data and product development costs decreased $81.3 million for the year ended December 31, 2023, primarily driven by a $82.9 million decrease in compensation expenses, including a $69.3 million decrease in share-based compensation due to the absence of the acceleration of vesting of certain performance awards which occurred during the year ended December 31, 2022 and decreased headcount during the year ended December 31, 2023.
Previous report
Sales and marketing costs in the year ended December 31, 2023 decreased by $54.4 million, or 52%, compared to the same period in 2022. This decrease was primarily due to a $51.3 million decrease in compensation expenses, including a $45.2 million decrease in share-based compensation due to the absence of the acceleration of vesting of certain performance awards which occurred during the year ended December 31, 2022 and a decreased headcount in the 2023 period. Also contributing to the decrease was a $3.1 million decrease in expenses related to marketing.
Previous report
General and administrative costs in the year ended December 31, 2023 decreased by $90.9 million, or 31%, compared to the same period in 2022. Excluding Darwin’s contribution of $24.1 million for the 2023 period, general and administrative costs decreased $115.0 million for the year ended December 31, 2023, primarily driven by a $62.7 million decrease in compensation expenses, including a $59.9 million decrease in share-based compensation due to the absence of the acceleration of vesting of certain performance awards which occurred during the year ended December 31, 2022 and a decreased headcount in the 2023 period. Also contributing to the decrease was a $53.2 million decrease in expenses related to the public company readiness, legal and other business-related professional services.
Previous report
Other Income (Expense), Net
Previous report
Income tax expense decreased by $0.8 million, or 5%, to $15.6 million for the year ended December 31, 2023 from $16.4 million for the year ended December 31, 2022. The decrease was primarily driven by geographical mix of taxable net income.
Previous report
The per share purchase price for the shares of Class A Ordinary Shares that we elect to sell to B. Riley Principal Capital II pursuant to the Equity Financing Purchase Agreement, if any, will be determined by reference to the VWAP as defined within the Equity Financing Purchase Agreement, less a fixed 3% discount the VWAP for such Purchase Valuation Period (as defined in the Equity Financing Purchase Agreement). We cannot issue to B. Riley Principal Capital II more than 3,344,967 shares of Class A Ordinary Shares, which number of shares is approximately 9% of outstanding Class A Ordinary Shares immediately prior to the execution of the Equity Financing Purchase Agreement.
Previous report
The net proceeds under the Equity Financing Purchase Agreement to the Company will depend on the frequency and prices at which we sell shares of our stock to B. Riley Principal Capital II.
Previous report
The Equity Financing Purchase Agreement and the Equity Financing Registration Rights Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. The foregoing descriptions of the Equity Financing Purchase Agreement and the Equity Financing Registration Rights Agreement do not purport to be complete and are qualified in their entirety by the full text of such agreements, which are incorporated herein by reference to Exhibits 10.8 and 4.7, respectively, to this Annual Report.
Previous report
Ordinary Share Offering
Previous report
Termination of SVB Credit Facility
Previous report
In connection with entering into the Credit Agreement, the Company repaid and replaced all outstanding obligations with respect to, and terminated the commitments under the SVB Credit Agreement (as such is defined below) dated as of September 2, 2022 (as amended by that certain First Amendment, dated as of November 7, 2023), among the Company, as a borrower, Pagaya US as a borrower, the lenders party thereto and Silicon Valley Bank, as administrative agent.
Previous report
As background, on September 2, 2022, we entered into that certain Senior Secured Revolving Credit Agreement (the “SVB Credit Agreement”) by and among Pagaya, as the borrower, the lenders from time to time party thereto and Silicon Valley Bank (“SVB”) , as administrative agent and collateral agent, which provides for a 3-year senior secured revolving credit facility (the “SVB Revolving Credit Facility”) in an initial principal amount of $167.5 million, which included a sub-limit for letters of credit in an initial aggregate principal amount of $50.0 million, of which up to a U.S. dollar equivalent of $20.0 million could be issued in NIS.
Previous report
Facility at any time and from time to time without premium or penalty, subject only to the payment of customary “breakage” costs. No amortization payments were required to be made in respect of borrowings under the SVB Revolving Credit Facility.
Previous report
The SVB Credit Agreement contained customary negative covenants, which included, among other things, limitations on the ability of the Company and its consolidated subsidiaries to incur indebtedness, grant liens, engage in certain fundamental changes, make certain dispositions and investments, enter into sale and leaseback transactions and make restricted payments and other distributions. The SVB Credit Agreement contained the following financial maintenance covenants, which would be tested on the last day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2022: (i) a minimum Consolidated Adjusted Quick Ratio (as defined in the SVB Credit Agreement) of 1.25:1.00 and (ii) Consolidated Total Revenue (as defined in the Credit Agreement) not less than the amounts set forth in the SVB Credit Agreement. The SVB Credit Agreement also included affirmative covenants customary for a credit facility of its type, including customary reporting covenants.
Previous report
On November 7, 2023, we entered into an amendment to the SVB Revolving Credit Facility. The amendment did not alter the SVB Revolving Credit Facility amount, maturity, or participating lenders. The amendment was limited, in material respects, to (i) adding Pagaya US Holdings Company LLC, a wholly-owned subsidiary of the Company, as a co-borrower, (ii) revising the customary negative covenants to provide more flexibility to the Company and our consolidated subsidiaries to incur indebtedness, grant liens, and make certain investments; and (iii) changing one of our financial maintenance covenants to use Adjusted EBITDA as the relevant metric, rather than Total Revenue.
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 elsewhere in this Annual Report. We have prepared our financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates are prepared using our best judgment, after considering past and current events and economic conditions. While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third-parties. Actual results may differ from these estimates. See “Item 1A.—Risk Factors” for a discussion of the possible risks that may affect these estimates.
Previous report
Revenue Recognition
Previous report
The Company adopted ASC 606, which follows a five-step model to recognize revenue consisting of identifying contracts with customers, the performance obligations promised in those contracts, determining and allocating the transaction price to the obligations, and recognizing revenue when the Company satisfies its obligations. The timing of revenue recognition varies by service and is described above in “Components of Results of Operations” and within the notes to the audited financial statements.
Previous report
We consider revenue recognition to be a critical accounting policy given the focus on revenue by management and our investors.
Previous report
Investments in Loans and Securities
Previous report
The Company has variable interests in certain related securitization vehicles that it sponsors, and it consolidates the financial results of those vehicles where the Company has a controlling interest in them. In order to have a controlling interest, the Company evaluates whether it has both the power to direct the activities of the VIEs that most significantly impact their economic performance and the obligation to absorb the losses or receive benefits of the VIE that could potentially be significant.
Previous report
In performing the evaluation, we are required to apply judgment, including in identifying the activities that most significantly impact a VIE’s economic performance and determining the significance of our obligation to absorb losses or receive benefits. The factors we consider in assessing significance include: the design and capitalization structure of the VIE; subordination of interests; payment priority; relative share of interests held within the VIE’s capital structure; and the nature of or reason behind our interest in the entity.
Previous report
Recoverability of Deferred Tax Assets
Previous report
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.
Previous report
We consider a number of factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss, and other carryforwards. These factors include forecasts of future income for each of our businesses, and actual and planned business and operational changes, both of which include assumptions about future macroeconomic and company-specific conditions and events.
Previous report
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made.
Reworded paragraphs (39)
Previous wording
Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the results of operations for the year ended December 31, 2022 in comparison to the year ended December 31, 2021 have been omitted. For such omitted discussions, refer to Pagaya’s Operating Results included in the Annual Report on Form 20-F filed with the SEC on April 20, 2023.
Current wording
Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the results of operations for the year ended December 31, 2023 in comparison to the year ended December 31, 2022 have been omitted. For such omitted discussions, refer to Pagaya’s Operating Results included in the Annual Report on Form 10-K filed with the SEC on April 25, 2024.
Previous wording
We are technically a “foreign private issuer” under U.S. Securities and Exchange Commission rules. Consequently, we are subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. That said, as previously disclosed on January 16, 2024, we have decided to voluntarily file on U.S. domestic issuer forms with the SEC beginning in 2024. Accordingly, the Company will be filing its quarterly reports on Form 10-Q, current reports on Form 8-K, and its annual reports on Form 10-K, and will no longer report on forms 20-F and 6-K. In addition, the Company intends to comply with Regulation FD and the SEC’s proxy rules, and the Company's officers, directors, and 10% shareholders will now also begin reporting on Forms 3, 4 and 5, as applicable.
Current wording
We are technically a “foreign private issuer” under U.S. Securities and Exchange Commission rules. Consequently, we are subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. That said, as previously disclosed on January 16, 2024, we have decided to voluntarily file on U.S. domestic issuer forms with the SEC beginning in 2024. Since then the Company has been filing its quarterly reports on Form 10-Q, current reports on Form 8-K, and its annual reports on Form 10-K, and will no longer report on forms 20-F and 6-K. In addition, the Company intends to comply with Regulation FD and the SEC’s proxy rules, and the Company's officers, directors, and 10% shareholders will now also begin reporting on Forms 3, 4 and 5, as applicable.
Previous wording
We devote significant time to, and have a team that focuses on, onboarding and managing Partners to our network. We believe that our success in adding new Partners to our network is driven by our distinctive value proposition: driving significant revenue uplift to our Partners at limited incremental cost or credit risk to the Partner. Our success adding new Partners has contributed to our overall Network Volume growth and driven our ability to rapidly scale new asset classes. In 2022, we onboarded six new Partners, including Klarna and Ally Financial. Approximately $1.1 billion of Network Volume was generated by these new Partners and channels on our network during the year ended December 31, 2023. During 2023, we expanded our network with four new Partners, including U.S. Bank, a top 5 auto captive, Exeter Finance and Westlake Financial.
Current wording
We devote significant time to, and have a team that focuses on, onboarding and managing Partners to our network. We believe that our success in adding new Partners to our network is driven by our distinctive value proposition: driving significant revenue uplift to our Partners at limited incremental cost or credit risk to the Partner. Our success adding new Partners has contributed to our overall Network Volume growth and driven our ability to rapidly scale new asset classes. In 2024, we expanded our network with several new Partners, including OneMain Financial and Avvance, the point-of-sale leading solution offered by US Bank and Elavon.
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 $1.8 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 $2.6 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 year ended December 31 2023, our top 5 ABS investors contributed approximately 50% of our total ABS funding, compared to 70% in the year ended December 31, 2022.
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 year ended December 31, 2024, our top 5 ABS investors contributed approximately 54% of our total ABS funding, compared to 50% in the year ended December 31, 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. We believe 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
Network AI fees. Network AI fees can be further broken down into two fee streams: AI integration fees and capital markets execution fees. We earn AI integration fees for the creation and delivery of the assets that comprise our Network Volume. Multiple funding channels are used to enable the purchase of network assets from our Partners, such as ABS. Capital markets execution fees are earned when a pre-funded, Pagaya-sponsored ABS vehicle is sold by underwriters.
Current wording
Network AI fees. Network AI fees can be further broken down into two fee streams: AI integration fees and capital markets execution fees. We earn AI integration fees for the creation and delivery of the assets that comprise our Network Volume. Multiple funding channels are used to enable the purchase of network assets from our Partners, such as ABS, pass-through and forward flow transactions. Capital markets execution fees are earned when a pre-funded, Pagaya-sponsored ABS vehicle is sold by underwriters.
Previous wording
Contract fees. Contract fees primarily include administration and management fees, and performance fees. Administration and management fees are contracted upon the establishment of Financing Vehicles and are earned and collected over their remaining lives. Performance fees are earned when certain Financing Vehicles exceed contractual return hurdles and a significant reversal in the amount of cumulative revenue recognized is not expected to occur.
Current wording
Contract fees. Contract fees primarily include administration and management fees, and performance fees. Administration and management fees are contracted upon the establishment of Financing Vehicles and are earned as the Financing Vehicles purchase loans and as the Company provides services over their remaining lives. Performance fees are earned when certain Financing Vehicles exceed contractual return hurdles and a significant reversal in the amount of cumulative revenue recognized is not expected to occur.
Previous wording
Share-based compensation for the year ended December 31, 2022 included compensation of $172.2 million related to the vesting of certain performance-based options, which was included in technology, data and product development, sales and marking, and general and administrative expenses. Certain of the performance awards, provided to certain founders and directors, do not contain any time-based employment requirements and are only subject to certain stock performance conditions. Share-based compensation for the year ended December 31, 2021 included compensation of $56.8 million related to the amount paid in excess of the estimated fair value of ordinary shares as of the date of the transactions in connection with a secondary sale.
Current wording
Share-based compensation for the year ended December 31, 2022 included compensation of $172.2 million related to the vesting of certain performance-based options, which was included in technology, data and product development, sales and marking, and general and administrative expenses.
Previous wording
(3) See “Reconciliation of Non-GAAP Financial Measures” elsewhere within this “Operating and Financial Review and Prospects”for a reconciliation of this and Adjusted EBITDA.
Current wording
(3) See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this and Adjusted EBITDA.
Previous wording
Total revenue and other income, increased by $63.1 million, or 8%, to $812.1 million for the year ended December 31, 2023 from $748.9 million for the year ended December 31, 2022. 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 $220.2 million, or 27%, to $1,032.2 million for the year ended December 31, 2024 from $812.1 million for the year ended December 31, 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 increased by $87.4 million, or 13%, to $772.8 million for the year ended December 31, 2023 from $685.4 million for the year ended December 31, 2022. The increase was primarily due to a $97.1 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $599.0 million for the year ended December 31, 2022 to $696.0 million for the year ended December 31, 2023. The increase in Network AI fees was primarily driven by a favorable impact from AI integration fees earned from contractual fee arrangements with certain Partners which did not exist during the year ended December 31, 2022, coupled with the growth in Network Volume, which increased by 14% from $7.3 billion for the year ended December 31, 2022 to $8.3 billion for the year ended December 31, 2023. 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 year ended December 31, 2023.
Current wording
Revenue from fees increased by $231.7 million, or 30%, to $1,004.6 million for the year ended December 31, 2024 from $772.8 million for the year ended December 31, 2023. The increase was primarily due to a $220.1 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $696.0 million for the year ended December 31, 2023 to $916.1 million for the year ended December 31, 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 17% from $8.3 billion for the year ended December 31, 2023 to $9.7 billion for the year ended December 31, 2024. These increases were partially offset by a slight decrease in capital markets execution fees earned from our ABS transactions during the year ended December 31, 2024.
Previous wording
Contract fees, comprised of administration and management fees and performance fees, decreased by $9.7 million from $86.4 million for the year ended December 31, 2022 to $76.8 million for the year ended December 31, 2023, reflecting a decline in net asset values of the assets held by certain Financing Vehicles primarily driven by an increase in redemptions in such vehicles.
Current wording
Contract fees, comprised of administration and management fees, performances fees, and servicing fees, increased by $11.7 million from $76.8 million for the year ended December 31, 2023 to $88.5 million for the year ended December 31, 2024, reflecting $4.4 million contributions from Theorem Technology, Inc. (“Theorem”) and 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 $19.0 million, or 33%, to $38.7 million for the year ended December 31, 2023 from $57.8 million for the year ended December 31, 2022. 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 $6.5 million, or 17%, to $32.3 million for the year ended December 31, 2024 from $38.7 million for the year ended December 31, 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, and lower interest income on our cash balances.
Previous wording
Investment income decreased by $5.3 million to $0.5 million for the year ended December 31, 2023 from $5.8 million for year ended December 31, 2022, reflecting a less favorable impact from the change in valuation of certain proprietary investments.
Current wording
Investment income decreased by $5.1 million to a loss of $4.6 million for the year ended December 31, 2024, reflecting an unfavorable impact from the change in valuation of certain proprietary investments.
Previous wording
Production costs increased by $57.9 million, or 13%, to $508.9 million for the year ended December 31, 2023 from $451.1 million for the year ended December 31, 2022. 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 $88.7 million, or 17%, to $597.7 million for the year ended December 31, 2024 from $508.9 million for the year ended December 31, 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
Other expense, net for the year ended December 31, 2023 increased by $131.9 million, compared to the same period in 2022. The increase was primarily due to a higher credit-related impairment loss of $97.6 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 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.” Also contributing to the increase were higher interest expenses of $25.7 million due to higher interest rates and increased borrowing to support business growth, and a $12.9 million unfavorable impact from the changes in fair value remeasurement of warrants.
Current wording
Other expense, net for the year ended December 31, 2024 increased by $331.2 million, compared to the same period in 2023. The increase was primarily due to a higher credit-related impairment loss of $279.5 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 consolidate certain VIEs which hold investments in securities which experienced a credit-related impairment loss of $50.1 million for the year ended December 31, 2024 that are not attributable to Pagaya, but rather are attributable to the VIEs noncontrolling interests. For further information, please see “—Net Income (Loss) Attributable to Noncontrolling Interests.” Also contributing to the increase were higher interest expenses of $59.3 million due to increased borrowing to support business growth, partially offset by a $4.2 million favorable impact from the changes in fair value remeasurement of warrants.
Previous wording
Net Income (loss) attributable to noncontrolling interests in the year ended December 31, 2023 decreased by $77.8 million, or 815%, compared to the same period in 2022. 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 $14.5 million generated from risk retention holdings offset by the credit-related impairment loss of $82.8 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Income (Expense), net.”
Current wording
Net loss attributable to noncontrolling interests in the year ended December 31, 2024 decreased by $24.0 million, or 35%, 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 portion of net loss of the consolidated VIEs which was not attributable to Pagaya, but rather to the noncontrolling interest holders. For the year ended December 31, 2024, the net loss attributable to noncontrolling interests reported interest income of $5.6 million generated from risk retention holdings offset by the credit-related impairment loss of $50.1 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—Other Income (Expense), net.”
Previous wording
As of December 31, 2023 and December 31, 2022, the principal sources of liquidity were cash, cash equivalents and restricted cash of $222.5 million and $337.1 million, respectively. Our unique pre-funded model, where we raise and deploy capital without the need to use on-balance sheet warehouse credit facilities, gives us agility to manage and grow through economic cycles. See “Securitizations” section below.
Current wording
As of December 31, 2024 and December 31, 2023, the principal sources of liquidity were cash, cash equivalents and restricted cash of $226.5 million and $222.5 million, respectively.
Previous wording
Our primary requirements for liquidity and capital resources are to purchase and finance risk retention requirements, invest in technology, data and product development and to attract, recruit and retain a strong employee base, as well as to fund potential strategic transactions, including acquisitions, if any. We intend to continue to make strategic investments to support our business plans. Accordingly, the majority of our assets are long-term as presented in the following tables which also provides the geographical area of the assets (in thousands):
Current wording
Our primary requirements for liquidity and capital resources are to purchase and finance risk retention requirements, invest in technology, data and product development and to attract, recruit and retain a strong employee base, as well as to fund potential strategic transactions, including acquisitions, if any. We intend to continue to make strategic investments to support our business plans.
Previous wording
We do not have capital expenditure commitments as the vast majority of our capital expenditures relate to the capitalization of certain compensation and non-compensation expenditures used in the development and improvement of our proprietary technology. We expect capital expenditures during fiscal 2024 to be consistent with fiscal 2023. This estimate is based on our current business plan and expectations and assumptions in light of current macroeconomic conditions. We have based these estimates on assumptions that may prove to be wrong and could use our available capital resources sooner than we currently expect, and future capital requirements and the adequacy of available funds will depend on many factors, including those described below as well as in “Item 1A.—Risk Factors” in this Annual Report. Our capital expenditures for fiscal years 2023, 2022 and 2021 amounted to $20.2 million, $22.4 million and $6.6 million, respectively.
Current wording
We do not have capital expenditure commitments as the vast majority of our capital expenditures relate to the capitalization of certain compensation and non-compensation expenditures used in the development and improvement of our proprietary technology.
Previous 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.
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 credit facility(see further description of the 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 “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
In addition, we will receive the proceeds from any exercise of any public warrants and private placement warrants in cash. Each public warrant and each private placement warrant that was issued and exchanged for each EJFA Private Placement Warrant in the EJFA Merger entitles the holder thereof to purchase one Class A Ordinary Share at a price of $138 per share. The aggregate amount of proceeds could be up to $169.6 million if all such warrants are exercised for cash. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity.
Current wording
In addition, we will receive the proceeds from any exercise of any public warrants and private placement warrants in cash. Each public warrant and each private placement warrant that was issued and exchanged for each EJFA Private Placement Warrant in the EJFA Merger entitles the holder thereof to purchase one Class A Ordinary Share at a price of $138 per share (as adjusted for the 1-for-12 reverse share split). Following the 1-for-12 reverse share split effective March 2024, each warrant entitles the holder to purchase 1/12 of a Class A Ordinary Share (or equivalently, 12 warrants are required to obtain 1 Class A Ordinary Share). The aggregate amount of proceeds could be up to $169.6 million if all such warrants are exercised for cash. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity.
Previous wording
As of February 29, 2024, the price of our Class A Ordinary Shares was $17.76 per share (as adjusted to reflect the Reverse Share Split). 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“Item 1A.—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 “Item 1A.—Risk Factors—Risks Related to Ownership of our Class A Ordinary Shares and Warrants” in this Annual Report.
Current wording
As of March 11, 2025, the price of our Class A Ordinary Shares was $9.89 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“Item 1A.—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 “Item 1A.—Risk Factors—Risks Related to Ownership of our Class A Ordinary Shares and Warrants” in this Annual Report.
Previous wording
As consideration for B. Riley Principal Capital II’s commitment to purchase shares of Class A Ordinary Shares at our direction upon the terms and subject to the conditions set forth in the Equity Financing Purchase Agreement, upon execution of the Equity Financing Purchase Agreement, we issued 3,878 shares of Class A Ordinary Shares to B. Riley Principal Capital II. Expense of $1 million related to these shares was recognized within other income (loss), net in our consolidated statements of operations. During the year ended December 31, 2023, 1,587,157 shares were issued under the Equity Financing Purchase Agreement for net proceeds of $27.2 million.
Current wording
During the year ended December 31, 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. During the year ended December 31, 2023, 1,587,157 shares were issued under the Equity Financing Purchase Agreement for net proceeds of $27.2 million, and related fee of $0.7 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 December 31, 2023, we had 712 employees, including 142 full-time Darwin employees, compared to 809 on December 31, 2022. During the first and second quarters of 2023, 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 December 31, 2024, we had 553 employees, compared to 712 on December 31, 2023. During the first and second quarters 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 year ended December 31, 2023 was $9.6 million, an increase of $49.6 million from net cash used in operating activities of $40.0 million for the year ended December 31, 2022. This reflects our net loss including noncontrolling interests of $196.7 million, adjusted for non-cash charges of $227.2 million, partially offset by net cash outflows of $20.9 million used in changes in our operating assets net of operating liabilities.
Current wording
Net cash provided by operating activities for the year ended December 31, 2024 was $66.5 million, an increase of $56.9 million from net cash provided by operating activities of $9.6 million for the year ended December 31, 2023. This reflects our net loss including noncontrolling interests of $445.7 million, adjusted for non-cash charges of $510.1 million and net cash inflows of $2.1 million provided by 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 $75.1 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 $170.6 million due to the absence of the acceleration of vesting of certain performance awards which occurred during the year ended December 31, 2022, (3) depreciation and amortization, which increased by $12.8 million primarily from capitalized software, and (4) fair value adjustment to warrant liability, which increased by $12.9 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 $279.5 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, of which $50.1 million is not attributable to Pagaya, but rather attributable to the VIEs noncontrolling interests, (2) share-based compensation, which decreased by $9.6 million, (3) depreciation and amortization, which increased by $9.6 million primarily from capitalized software, and (4) fair value adjustment to warrant liability, which decreased by $4.2 million driven by changes in the market price of our Class A Ordinary Shares.
Previous wording
Our net cash outflows resulting from changes in operating assets and liabilities decreased by $21.1 million to $20.9 million for the year ended December 31, 2023 compared to $41.9 million for the year ended December 31, 2022, reflecting cost savings.
Current wording
Our net cash flows resulting from changes in operating assets and liabilities increased by $23.0 million to net cash inflows of $2.1 million for the year ended December 31, 2024 compared to net cash outflows $20.9 million for the same period in 2023, reflecting cost saving initiatives.
Previous wording
For the year ended December 31, 2023, net cash used in investing activities of $412.7 million was primarily attributable to purchases of risk retention assets of $566.2 million, which increased by $210.5 million driven by business growth, partially offset by proceeds received from existing risk retention assets of $172.1 million, which also increased by $59.2 million.
Current wording
For the year ended December 31, 2024, net cash used in investing activities of $498.6 million was primarily attributable to purchases of risk retention assets of $693.9 million, which increased by $127.8 million driven by business growth and management’s decision to purchase more than the required minimum risk retention holdings and the acquisition of Theorem Technology, Inc. of $9.1 million, partially offset by proceeds received from existing risk retention assets of $227.8 million, which also increased by $55.7 million.
Previous wording
For the year ended December 31, 2023, net cash provided by financing activities of $289.1 million was primarily attributable to $132.1 million from secured borrowings executed to finance certain risk retention assets, net of repayments, $75.0 million from revolving credit facility, $74.3 million of proceeds from the issuance of redeemable convertible preferred shares and $27.9 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 distributions to noncontrolling interests of $23.8 million, net of contributions.
Current wording
For the year ended December 31, 2024, net cash provided by financing activities of $436.7 million was primarily attributable to $325.2 million of proceeds from issuance of long-term debt, net of issuance costs, $152.0 million of proceeds from issuance of exchangeable senior notes and $90.0 million of proceeds from sale of ordinary shares. These cash inflows were partially offset by $90.0 million of repayments of the SVB revolving credit facility and $14.0 million of repayment of the long-term debt.
Previous wording
On February 2, 2024, the Company entered into 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 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. In November 2024, the Company amended the Credit Agreement to increase the Term Loan Facility by $100 million, bringing the total principal amount to $355 million. The Company also increased an aggregate principal amount of the Revolving Credit Facility of $15 million, bringing the total principal amount of the Revolving Credit Facility to $50 million. In February 2025, the Company further increased the aggregate principal amount of the Revolving Credit Facility by $8 million, resulting in a total principal amount of the Revolving Credit Facility of $58 million.
Previous wording
The Facilities replace the SVB Revolving Credit Facility (as defined below). 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.
Previous wording
The foregoing descriptions of the Credit Agreement are qualified in their entirety by reference to the full and complete terms thereof, which are incorporated herein by reference to Exhibit 10.7 of this Annual Report.
Current wording
The foregoing descriptions of the Credit Agreement are qualified in their entirety by reference to the complete terms thereof, which are incorporated herein by reference to Exhibit 10.7. As of December 31, 2024, the Company had an outstanding balance of $321.3 million, which is recorded within current portion of long-term debt and long-term debt on the consolidated balance sheet, and the Company had letters of credit issued in the amount of $24.3 million, and $25.7 million of remaining capacity available under the Revolving Credit Facility. The Company believes it is in compliance with all covenants.
Previous wording
During the normal course of business, we enter into certain lease contracts with lease terms through 2032. As of December 31, 2023, the total remaining contractual obligations are approximately $63.0 million, of which $9.8 million is for the next 12 months. During the year ended December 31, 2023, we entered into a purchase commitment with our third-party cloud computing web services provider, which included an annual purchase commitment of $4.6 million for the period from October 2023 through September 2025. As of December 31, 2023, the total remaining contractual obligations are approximately $8.5 million, of which $4.9 million is for the next 12 months. We may pay more than the minimum purchase commitment based on usage.
Current wording
During the normal course of business, we enter into certain lease contracts with lease terms through 2032. As of December 31, 2024, the total remaining contractual obligations are approximately $47.1 million, of which $9.3 million is for the next 12 months. In 2023, we entered into a purchase commitment with our third-party cloud computing web services provider, which included an annual purchase commitment of $4.6 million for the period from October 2023 through September 2025. As of December 31, 2024, the total remaining contractual obligations are approximately $3.6 million, all of which is for the next 12 months. We may pay more than the minimum purchase commitment based on usage.
Previous wording
In the ordinary course of business, the Company may provide indemnifications or loss guarantees of varying scope and terms to customers and other third parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments may not be subject to a cap. As of December 31, 2023, there have been no known events or circumstances that have resulted in a material indemnification liability and the Company did not incur material costs to defend lawsuits or settle claims related to these indemnifications. For certain contracts meeting the definition of a guarantee or a derivative, the guarantor must recognize, at inception, a liability for the fair value of the obligation undertaken in issuing the guarantee. In addition, the guarantor must disclose the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, if there were a default by the guaranteed parties. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. As of December 31, 2023, the maximum potential amount of undiscounted future payments the Company could be required to make under these guarantees totaled $26.0 million. In accordance with the guarantee contracts, the maximum potential payment amount has been segregated and recognized within restricted cash in the consolidated balance sheet.
Current wording
These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments may not be subject to a cap. As of December 31, 2024, there have been no known events or circumstances that have resulted in a material indemnification liability and the Company did not incur material costs to defend lawsuits or settle claims related to these indemnifications. For certain contracts meeting the definition of a guarantee or a derivative, the guarantor must recognize, at inception, a liability for the fair value of the obligation undertaken in issuing the guarantee. In addition, the guarantor must disclose the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, if there were a default by the guaranteed parties. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. As of December 31, 2024, the maximum potential amount of undiscounted future payments the Company could be required to make under these guarantees totaled $35.0 million. In accordance with the guarantee contracts, the maximum potential payment amount has been segregated and recognized within restricted cash in the consolidated balance sheet.
Previous wording
Consolidation and Variable Interest Entities (VIEs)
Current wording
In 2024, we have reassessed the critical accounting policies 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.
Previous wording
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 consolidated financial statements included elsewhere in this Annual Report. For all of these estimates, it should be noted that future events rarely develop exactly as forecasted, and estimates require regular review and adjustment.
Current wording
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 this Annual Report on Form 10-K. It should be noted that future events rarely develop exactly as forecasted, and estimates require regular review and adjustment.
Previous wording
Investments in loans and securities are classified as available for sale and presented at fair value based on discounted cash flows. 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 an allowance for credit losses, up to the amount of the impairment when appropriate. We recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss.
Current wording
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.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
In the ordinary course of business, the Company may provide indemnifications or loss guarantees of varying scope and terms to customers and other third parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties.
Rearranged previous paragraphs (5)
Previous report — wording carried elsewhere
Net Income Attributable to Noncontrolling Interests
Previous report — wording carried elsewhere
The SVB Revolving Credit Facility replaced the 2021 Credit Facility. Borrowings under the SVB Revolving Credit Facility bore interest at a rate per annum equal to either (i) a base rate (determined based on the prime rate and subject to a 1.00% floor) plus a margin of 1.75% or (ii) an adjusted term Secured Overnight Financing Rate (subject to a 0.00% floor) plus a margin of 2.75%. A commitment fee accrued on any unused portion of the commitments under the Revolving Credit Facility at a rate per annum of 0.25% and was payable quarterly in arrears. The Company could voluntarily prepay borrowings under the SVB Revolving Credit
Previous report — wording carried elsewhere
The Company’s obligations under the SVB Credit Agreement were guaranteed by certain of the Company’s material, wholly-owned subsidiaries (collectively, the “Guarantors”) and were secured by a first priority lien on substantially all assets of the Company and the Guarantors, subject to certain customary exceptions.
Previous report — wording carried elsewhere
The SVB Credit Agreement included events of default related to, among other things, failure to pay amounts due under the SVB Credit Agreement, breaches of representations, warranties or covenants, defaults under other material indebtedness, certain events of bankruptcy or insolvency, material judgment defaults and change of control, in each case, subject to customary cure periods where appropriate.
Previous report — wording carried elsewhere
As of December 31, 2023, the Company had $90.0 million drawn, letters of credit issued in the amount of $10.05 million, and $67.45 million of remaining borrowing capacity available under the SVB Revolving Credit Facility. The Company is in compliance with all covenants.