Pagaya Technologies .(PGY) - 2024 Q3 - Quarterly Report

Financial Performance - Total assets increased to $1,370.8 million as of September 30, 2024, compared to $1,208.4 million as of December 31, 2023[9] - Revenue from fees for the nine months ended September 30, 2024, was $728.9 million, up from $562.4 million in the same period in 2023[11] - Net loss attributable to Pagaya Technologies Ltd. for the nine months ended September 30, 2024, was $163.5 million, compared to $114.0 million in the same period in 2023[11] - Total revenue and other income for the nine months ended September 30, 2024, was $752.9 million, up from $594.0 million in the same period in 2023[11] - Operating income for the nine months ended September 30, 2024, was $35.1 million, compared to an operating loss of $35.1 million in the same period in 2023[11] - Comprehensive loss attributable to Pagaya Technologies Ltd. for the nine months ended September 30, 2024, was $254.4 million, compared to $109.3 million in the same period in 2023[13] - Net loss for the period ending September 30, 2024, was $74.231 million, compared to a net loss of $188.572 million in the same period in 2023[15] - Net loss including noncontrolling interests for the period ending September 30, 2024, was $(188.572) million, compared to $(176.702) million in 2023[18] - Net loss attributable to Pagaya Technologies Ltd. ordinary shareholders for the three months ended September 30, 2024 was $55.7 million for Class A and $11.7 million for Class B, compared to $16.7 million and $5.1 million respectively for the same period in 2023[118] - Net loss per share for the three months ended September 30, 2024 was $0.93 for both Class A and Class B, compared to $0.36 for the same period in 2023[118] - Net loss attributable to Pagaya Technologies Ltd. ordinary shareholders for the nine months ended September 30, 2024 was $133.8 million for Class A and $29.7 million for Class B, compared to $86.4 million and $27.6 million respectively for the same period in 2023[118] - Net loss per share for the nine months ended September 30, 2024 was $2.35 for both Class A and Class B, compared to $1.91 for the same period in 2023[118] - Net Loss Attributable to Pagaya Technologies Ltd. for the three months ended September 30, 2024, was $(67,476), compared to $(21,752) in 2023[204] Cash Flow and Liquidity - Cash and cash equivalents decreased to $147.1 million as of September 30, 2024, from $186.5 million as of December 31, 2023[9] - Net cash provided by operating activities for the period ending September 30, 2024, was $34.457 million, compared to $(9.372) million used in 2023[18] - Net cash used in investing activities for the period ending September 30, 2024, was $(462.677) million, compared to $(316.088) million in 2023[18] - Net cash provided by financing activities for the period ending September 30, 2024, was $387.906 million, up from $276.763 million in 2023[18] - Cash, cash equivalents, and restricted cash at the end of the period were $181.047 million, down from $284.178 million in 2023[19] - Cash, cash equivalents, and restricted cash as of September 30, 2024, were $181.0 million, compared to $222.5 million as of December 31, 2023[205] Investments and Loans - Investments in loans and securities increased to $912.1 million as of September 30, 2024, from $714.3 million as of December 31, 2023[9] - Investments in loans and securities available for sale had a total fair value of $923.4 million as of September 30, 2024, with gross unrealized losses of $94.2 million[56] - The company's total investments in loans and securities available for sale had a fair value of $716.8 million as of December 31, 2023, with gross unrealized losses of $13.4 million[57] - Proceeds from sales, maturities, and prepayments of investments in loans and securities were $23.1 million for the three months ended September 30, 2024, and $89.9 million for the nine months ended September 30, 2024[62] - Additions to the allowance for credit losses were $79.2 million for the three months ended September 30, 2024, and $159.1 million for the nine months ended September 30, 2024[62] - The balance of the allowance for credit losses at the end of the period was $252.9 million as of September 30, 2024[63] - The company's total allowance for credit losses increased to $252.9 million as of September 30, 2024, up from $100.9 million at the beginning of the period, driven by additions to the allowance for credit losses not previously recorded of $112.3 million and write-offs of $7.1 million[64] - Investments in loans and securities (Level 3) as of September 30, 2024, total $874.8 million, with significant unobservable inputs including a weighted average discount rate of 15.0%, loss rate of 16.9%, and prepayment rate of 10.4%[91][93] Debt and Liabilities - Total liabilities increased to $753.8 million as of September 30, 2024, from $468.4 million as of December 31, 2023[9] - Secured borrowings outstanding balance increased to $408.7 million as of September 30, 2024, up 50.4% from $271.7 million as of December 31, 2023[45] - The outstanding principal balance under the Receivables Facility grew to $30.4 million as of September 30, 2024, a 49.8% increase from $20.3 million as of December 31, 2023[47] - The Company entered into a Credit Agreement on February 2, 2024, providing a $35 million Revolving Credit Facility and a $255 million Term Loan Facility[48] - The Receivables Facility maximum principal amount was increased from $32 million to $45 million in June 2024, with the term extended until June 2026[47] - As of September 30, 2024, the company had an outstanding balance of $230.2 million in long-term debt, with future maturities totaling $245.4 million[52][53] - The company had letters of credit issued in the amount of $15.2 million and $4.8 million of remaining capacity under the Revolving Credit Facility as of September 30, 2024[53] - On November 5, 2024, the company entered into Amendment No. 2 to the Credit Agreement, incurring incremental term loans of $72 million, bringing the total principal amount of the Term Loan Facility to $327 million[123] Equity and Shareholders - Total shareholders' equity as of September 30, 2024, was $542.775 million, a decrease from $665.749 million at the end of 2023[15] - Accumulated deficit increased to $706.1 million as of September 30, 2024, from $542.6 million as of December 31, 2023[9] - Accumulated deficit increased to $706.121 million as of September 30, 2024, from $542.637 million at the end of 2023[15] - Additional paid-in capital rose to $1.258862 billion as of September 30, 2024, up from $1.101914 billion at the end of 2023[15] - Issuance of ordinary shares upon exercise of share options generated $1.736 million in additional paid-in capital[15] - Share-based compensation contributed $13.89 million to additional paid-in capital[15] - Other comprehensive income (loss) for the period ending September 30, 2024, was a loss of $19.179 million[15] - Non-controlling interests decreased to $80.466 million as of September 30, 2024, from $106.028 million at the end of 2023[15] - Issuance of ordinary shares from the Equity Financing Purchase Agreement added $6.894 million to additional paid-in capital[15] - Return of capital to interests in consolidated VIEs resulted in a $2.574 million reduction in total shareholders' equity[15] - Total shareholders' equity as of September 30, 2023, was $671.852 million, with retained earnings (accumulated deficit) at $(528.219) million[16] - The Company has 60,160,631 Class A Ordinary Shares and 12,652,310 Class B Ordinary Shares outstanding as of September 30, 2024[96] - Class B Ordinary Shares are entitled to 10 votes per share and can be converted to Class A Ordinary Shares at any time[97] - The Company implemented a reverse share split at a ratio of 1-for-12, effective March 8, 2024[98] - Total shares of ordinary share reserved increased from 39,638,471 as of December 31, 2023 to 43,789,368 as of September 30, 2024[99] - Shares available for future grant of equity awards increased from 5,231,186 to 9,186,943 due to automatic increase under the 2022 Share Incentive Plan[99] - The company issued 7,500,000 Class A Ordinary Shares in March 2024, raising approximately $90.0 million in net proceeds[103] - Share options decreased from 4,250,988 to 3,489,238, with a weighted average exercise price of $6.4 and aggregate intrinsic value of $20.9 million as of September 30, 2024[105] - RSUs increased from 3,034,203 to 3,155,558, with unrecognized compensation expense of $32.0 million expected to be recognized over 1.1 years[109] - Options to restricted shares decreased slightly from 20,046,080 to 19,970,330, with unrecognized compensation expense of $13.1 million expected to be recognized over 1.4 years[110] - 59,145 shares were issued under the ESPP in the nine months ended September 30, 2024, with $0.4 million in related compensation expense[111] Revenue and Fees - Revenue from fees for the nine months ended September 30, 2024, was $728.9 million, up from $562.4 million in the same period in 2023[11] - Network AI fees totaled $229.1 million for the three months ended September 30, 2024, a 24.5% increase from $184.0 million in the same period in 2023[34] - Contract fees reached $20.1 million for the three months ended September 30, 2024, up 15.5% from $17.4 million in the same period in 2023[37] - Total revenue from fees, net, was $249.3 million for the three months ended September 30, 2024, a 23.8% increase from $201.4 million in the same period in 2023[41] - Four customers, including three related parties, collectively represented approximately 65% of total revenue for the three months ended September 30, 2024[44] - The company's fees receivable balances are predominantly with agreements with customers, subject to normal credit risks deemed not significant by management[43] - The Company had no material contract assets, contract liabilities, or deferred contract costs recorded as of September 30, 2024 or December 31, 2023[41] - The company's revenues are primarily derived from Network Volume, which is the gross dollar value of assets originated by Partners with the assistance of AI technology[137] - The company generates revenue from Network AI fees, contract fees, interest income, and investment income, with Network AI fees including AI integration fees and capital markets execution fees[154][155] - Total revenue and other income increased by $45.5 million, or 21%, to $257.2 million for the three months ended September 30, 2024, driven by a $47.8 million increase in revenue from fees[167] - Revenue from fees increased by $47.8 million, or 24%, to $249.3 million for the three months ended September 30, 2024, primarily due to a $45.1 million increase in Network AI fees[168] - Revenue from fees for the three months ended September 30, 2024, was $249,283, compared to $201,447 in 2023, a 23.7% increase[203] - Total revenue and other income increased by $158.8 million (27%) to $752.9 million for the nine months ended September 30, 2024, primarily driven by a $166.5 million (30%) increase in revenue from fees[182] - Revenue from fees increased by $166.5 million (30%) to $728.9 million for the nine months ended September 30, 2024, primarily due to a $160.7 million increase in Network AI fees[183] Expenses and Costs - Production Costs are highly correlated to Network Volume and include expenses for transferring Network Volume from Partners into Financing Vehicles[159] - Production costs increased by $20.2 million, or 16%, to $149.0 million for the three months ended September 30, 2024, driven by increases in Network Volume and new Partners onboarded[174] - Production costs for the three months ended September 30, 2024, were $148,965, compared to $128,792 in 2023, a 15.7% increase[203] - Production costs increased by $65.0 million (17%) to $439.4 million for the nine months ended September 30, 2024, driven by increases in Network Volume and new Partners onboarded[189] - Technology, data and product development costs decreased by $1.4 million, or 8%, to $16.7 million for the three months ended September 30, 2024, primarily due to a $4.2 million decrease in compensation expenses[175] - Technology, data and product development costs increased by $1.1 million (2%) to $57.9 million for the nine months ended September 30, 2024, primarily due to higher depreciation of capitalized software[190] - Sales and marketing costs remained relatively flat at $11.4 million for the three months ended September 30, 2024, compared to the same period in 2023[177] - Sales and marketing costs decreased by $5.2 million (13%) to $35.0 million for the nine months ended September 30, 2024, primarily driven by lower compensation expenses[192] - General and administrative costs increased by $4.4 million, or 8%, to $57.8 million for the three months ended September 30, 2024, excluding a $12.8 million loss from loan purchases[178] - General and administrative costs increased by $27.7 million (18%) to $185.3 million for the nine months ended September 30, 2024, excluding a $31.2 million loss from loan purchases[193] - Other expense, net increased by $60.9 million (129%) to $108.1 million for the three months ended September 30, 2024, driven by a $40.6 million credit-related impairment loss and higher interest expenses of $17.5 million[179] - Other expense, net increased by $84.5 million (64%) to $215.7 million for the nine months ended September 30, 2024, primarily due to higher interest expenses and credit-related impairment losses[194] - Impairment loss on certain investments for the three months ended September 30, 2024, was $81,827, compared to $9,130 in 2023[204] Taxes and Compensation - The company's effective tax rate was 13.4% for Q3 2024, compared to 2.5% in Q3 2023, primarily due to discrete tax expenses related to uncertain tax positions[115] - Share-based compensation expense totaled $12.3 million for Q3 2024, a decrease from $20.7 million in Q3 2023[112] - The company has PTE status in Israel, subjecting income to a reduced tax rate of 12% through 2024[113] - Share-based compensation for the three months ended September 30, 2024, was $12,333, compared to $20,737 in 2023[204] - Share-based compensation for the period ending September 30, 2024, was $45.852 million, down from $57.312 million in 2023[18] Strategic Investments and Acquisitions - The company plans to continue strategic investments in technology, data, product development, and potential acquisitions[206] - On October 22, 2024, the company completed the acquisition of Theorem Technology, Inc. for approximately $17.5 million, consisting of $10.0 million cash and 504,440 Class A Ordinary Shares[122] AI and Technology - The company's proprietary technology uses machine learning models that require human intervention, testing, validation, and governance approvals before any changes can be made[138] - AI technology enables Partners to increase loan originations by up to 25% in some cases[143] - The company invests in technology, data, and product development to maintain and develop its network and AI technology[160] Partners and Network Volume - In 2022, the company onboarded six new Partners, including Klarna and Ally Financial, and in 2023, added four new Partners, including U.S. Bank and Westlake Financial[144] - The company has evaluated over $2.4 trillion in application volume since inception[145] - Top 5 ABS investors contributed approximately 53% of total ABS funding in the nine months ended September 30, 2024, compared to 50% in the year ended December 31, 2023[146] - Network Volume