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Pagaya Technologies .(PGY) - 2025 Q2 - Quarterly Report

Part I - Financial Information Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2025, show a significant turnaround to profitability, with total assets growing to $1.40 billion and net income reaching $16.7 million for Q2 2025, a substantial improvement from a net loss in the prior year Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $1.40 billion from $1.29 billion at year-end 2024, primarily due to growth in investments in loans and securities, while total liabilities rose to $856.8 million and total shareholders' equity improved to $468.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,399,043 | $1,291,072 | | Cash and cash equivalents | $182,986 | $187,921 | | Investments in loans and securities | $870,061 | $778,409 | | Total Liabilities | $856,814 | $775,276 | | Secured borrowing | $265,557 | $176,089 | | Long-term debt | $314,547 | $321,317 | | Total Shareholders' Equity | $467,979 | $441,546 | Condensed Consolidated Statements of Operations The company achieved a significant turnaround in profitability, reporting a net income attributable to Pagaya of $16.7 million for Q2 2025, compared to a net loss of $74.8 million in Q2 2024, driven by a 31% increase in revenue from fees to $317.7 million and a substantial rise in operating income to $56.5 million from $5.0 million year-over-year Q2 Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenue from fees | $317,714 | $242,594 | | Total Revenue and Other Income | $326,398 | $250,344 | | Operating Income | $56,469 | $5,027 | | Net Income (Loss) Attributable to Pagaya | $16,655 | $(74,785) | | Diluted EPS | $0.20 | $(1.04) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities significantly increased to $91.8 million from $27.0 million in the same period of 2024, while net cash used in investing activities decreased to $152.2 million and net cash provided by financing activities was $74.7 million Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,777 | $27,004 | | Net cash used in investing activities | $(152,192) | $(342,330) | | Net cash provided by financing activities | $74,652 | $362,434 | Notes to the Consolidated Financial Statements The notes detail the company's accounting policies and provide further information on financial statement items, highlighting strong growth in Network AI fees, the composition of debt, and a significant subsequent event involving the issuance of $500 million in Senior Notes to refinance existing debt - Revenue from fees is primarily composed of Network AI fees ($285.9 million in Q2 2025) and Contract fees ($31.8 million in Q2 2025)4243 - As of June 30, 2025, total borrowings stood at approximately $727.6 million, comprising secured borrowings, long-term debt, and exchangeable notes52 - Subsequent to the quarter's end, on July 28, 2025, the company issued $500 million in Senior Notes and used the proceeds to repay $332.1 million of its long-term debt, incurring a $24 million loss on extinguishment137138 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the strong Q2 2025 performance to a 13.6% YoY growth in Network Volume to $2.6 billion and improved economics with partners, achieving a net income of $16.7 million and Adjusted EBITDA of $86.3 million, while strengthening its balance sheet by issuing $500 million in senior notes post-quarter Key Operating Metric The company's key operating metric is Network Volume, defined as the gross dollar value of assets originated by partners using Pagaya's AI technology, serving as a primary indicator of scale and revenue generation capability Network Volume Growth (in millions) | Period | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $2,648 | $2,331 | 13.6% | | Six Months Ended June 30 | $5,048 | $4,750 | 6.3% | Results of Operations For Q2 2025, total revenue increased 30% YoY to $326.4 million, driven by a 31% rise in fee revenue and a 13.6% increase in Network Volume, leading to a significant swing in profitability with operating income reaching $56.5 million and net income of $16.7 million - Q2 2025 revenue from fees increased by $75.1 million (31%) YoY, primarily due to a $64.1 million increase in Network AI fees driven by higher Network Volume and improved partner economics191192 - General and administrative costs for Q2 2025 decreased by $24.1 million (37%) YoY, mainly due to lower losses from loan purchases and reduced compensation expenses202 - Other expense, net, decreased by $38.3 million YoY, largely due to a $38.0 million reduction in credit-related impairment losses on investments203 Reconciliation of Non-GAAP Financial Measures The company highlights non-GAAP metrics to provide a clearer view of core performance, with Fee Revenue Less Production Cost (FRLPC) growing to $126.2 million, Adjusted Net Income to $50.6 million, and Adjusted EBITDA rising to $86.3 million in Q2 2025 Non-GAAP Financial Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Fee Revenue Less Production Cost (FRLPC) | $126,249 | $96,992 | | Adjusted Net Income | $50,624 | $7,188 | | Adjusted EBITDA | $86,283 | $50,305 | Liquidity and Capital Resources As of June 30, 2025, the company had $242.0 million in cash and equivalents, and subsequently issued $500 million in Senior Unsecured Notes in July 2025 to repay existing debt, optimizing its capital structure and ensuring sufficient liquidity for the next twelve months - Principal sources of liquidity as of June 30, 2025, were cash, cash equivalents, and restricted cash totaling $242.0 million231 - In July 2025, the company issued $500 million in Senior Notes at 8.875% to repay existing debt, including a term loan with an 11.95% interest rate, thereby optimizing its debt profile253257 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are credit risk on its $870 million investments in loans and securities, interest rate risk affecting floating-rate borrowings and loan performance, and immaterial foreign exchange risk related to Israeli Shekel expenses - The company is exposed to credit risk on its $870 million portfolio of investments in loans and securities as of June 30, 2025285 - Interest rate risk exists due to floating-rate debt facilities and the potential for higher rates to negatively impact borrower performance and securitization economics287288 Controls and Procedures Based on an evaluation as of June 30, 2025, the company's disclosure controls and procedures were deemed effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective292 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025293 Part II - Other Information Legal Proceedings The company is not currently a party to any legal proceedings that would be expected to have a material adverse effect on its business, financial condition, or results of operations - As of the filing date, Pagaya is not involved in any material legal proceedings297 Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K have been reported300 Other Information During the second quarter of 2025, Tami Rosen, a director and the company's Chief Development Officer, established a new Rule 10b5-1 trading plan to sell a maximum of 149,610 shares, with the plan ending on March 31, 2026 - On May 29, 2025, director and Chief Development Officer Tami Rosen entered into a new 10b5-1 plan to sell up to 149,610 shares304