Pagaya Technologies .(PGY) - 2023 Q1 - Quarterly Report

Executive Summary & Financial Highlights Pagaya reported strong financial performance for both the full year and fourth quarter of 2022, exceeding guidance and demonstrating resilience in a challenging credit environment Full Year and Fourth Quarter 2022 Performance Pagaya reported strong growth in Network Volume and Total Revenue for both Q4 and FY22, exceeding guidance, and achieved near break-even Adjusted EBITDA for the full year, though net loss was significantly impacted by share-based compensation Key Financial Highlights (FY22 vs. FY21, 4Q22 vs. 4Q21) | Metric | FY22 | FY21 | Change (YoY) | 4Q22 | 4Q21 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Network Volume ($ billion) | $7.3 | - | 49% | $1.8 | - | 10% | | Total Revenue and Other Income ($ million) | $748.9 | $474.6 | 58% | $192.9 | $154.7 | 25% | | Net Loss Attributable to Pagaya Shareholders ($ million) | ($302.3) | ($91.2) | - | ($34.0) | ($10.5) | - | | Adjusted Net Loss ($ million) | ($32.7) | $37.3 | - | ($3.7) | $0.4 | - | | Adjusted EBITDA ($ million) | ($4.8) | $45.9 | - | ($9.0) | ($2.8) | - | - Net loss was significantly impacted by share-based compensation expense of $241.7 million in FY22 and $18.7 million in 4Q22[2][20] CEO Commentary CEO Gal Krubiner highlighted 2022 as a record year with significant revenue growth and network expansion, including new strategic partners, while navigating a challenging credit environment and aiming for sustainable profitability on an adjusted EBITDA basis in 2023 - 2022 was a record year for Pagaya, achieving over $7 billion in network volume and 58% revenue growth to $749 million, approximately 7 times its 2020 revenue[1] - The company delivered near break-even adjusted EBITDA while operating in the most challenging credit and rate environment in its history, and strengthened its position by going public, onboarding large strategic partners (Visa, Klarna, a top 3 auto lender), and elevating its SFR offering with an acquisition[1] - For 2023, Pagaya will remain focused on driving further expansion and monetization of its network and achieving sustainable profitability on an adjusted EBITDA basis[1] 2022 Business Highlights & Strategic Initiatives Pagaya achieved significant network expansion, enhanced partner and investor outcomes through AI-driven insights, and demonstrated strong capital raising and operating efficiency throughout 2022 Network Expansion & Product Development Pagaya expanded its network by adding 6 new partners in 2022, including a top 3 auto lender and Klarna, and enhanced its single-family rental (SFR) offering through the acquisition of Darwin Homes, creating a fully integrated property technology platform - Pagaya expanded its network by adding 6 partners in 2022, including a top 3 auto lender and Klarna in the Company's point-of-sale product[7] - The Company's solution is now connected to approximately 20,000 franchise and independent auto dealerships, with approximately $110 billion in auto application volume evaluated in 2022[7] - Pagaya expanded its single-family rental ("SFR") offering with the acquisition of Darwin Homes, creating a technologically sophisticated, fully integrated property technology platform[7] Enabling Better Outcomes for Partners & Investors The company saw a 98% increase in applications evaluated in 2022, while proactively reducing its conversion ratio by nearly 50% year-over-year, optimizing for investor returns by shifting the portfolio to a more resilient borrower archetype - Continued strong application flow from existing and new partners, with over 53 million applications evaluated in 2022, representing 98% growth compared to the prior year[7] - With the benefit of AI-driven insights, the Company proactively reduced its conversion ratio by nearly 50% year-over-year, optimizing for investor returns by shifting the portfolio to a more resilient borrower archetype[7] Capital Raising & Operating Efficiency Pagaya raised over $7 billion in funding for financing vehicles in FY22 and improved its operating expense ratio from 43% in the first half of 2022 to 39% in the second half of 2022, demonstrating disciplined cost management - Raised over $7 billion in funding into financing vehicles in FY22[7] - The Company's operating expense ratio, defined as operating expenses excluding stock-based compensation expense as a percentage of total revenue & other income, declined from 43% in the first half of 2022 to 39% in the second half of 2022[7] 2023 Financial Outlook Pagaya provides its financial projections for both the first quarter and full year 2023, indicating continued growth in network volume and revenue, alongside a strategic move towards adjusted EBITDA profitability First Quarter 2023 Outlook For the first quarter of 2023, Pagaya expects Network Volume between $1.7 billion and $1.8 billion, Total Revenue between $175 million and $180 million, and Adjusted EBITDA between negative $5 million and $0 First Quarter 2023 Financial Projections | Metric | Range | | :-------------- | :-------------------------------- | | Network Volume ($ billion) | Expected to range between $1.7 and $1.8 | | Total Revenue ($ million) | Expected to range between $175 and $180 | | Adjusted EBITDA ($ million) | Expected to range between negative $5 and $0 | Full Year 2023 Outlook For the full year 2023, the company projects Network Volume between $7.5 billion and $8.0 billion, Total Revenue between $775 million and $825 million, and Adjusted EBITDA between $10 million and $25 million, indicating a move towards profitability Full Year 2023 Financial Projections | Metric | Range | | :-------------- | :-------------------------------- | | Network Volume ($ billion) | Expected to range between $7.5 and $8.0 | | Total Revenue ($ million) | Expected to range between $775 and $825 | | Adjusted EBITDA ($ million) | Expected to range between $10 and $25 | Company Information This section provides details on Pagaya's webcast for financial results and an overview of the company's mission and technological approach Webcast Information Pagaya held a webcast and conference call on February 15, 2023, to discuss its financial results, with a live webcast available via its Investor Relations website and a replay available for 90 days - The Company held a webcast and conference call on February 15, 2023, at 8:30 a.m. Eastern Time[5] - A live webcast of the call was available via the Investor Relations section of the Company's website at investor.pagaya.com, with a replay available for 90 days[5][6] About Pagaya Technologies Pagaya Technologies is a global AI-driven financial technology company that leverages machine learning and a vast data network to provide comprehensive consumer credit and residential real estate solutions, aiming to expand access to life-changing financial products and services - Pagaya Technologies Ltd. is a global technology company delivering artificial intelligence infrastructure for the financial ecosystem, making life-changing financial products and services available to more people nationwide[1][8] - The company uses machine learning, a vast data network, and a sophisticated AI-driven approach to provide comprehensive consumer credit and residential real estate solutions for its partners, their customers, and investors[8] - Pagaya's proprietary API and capital solutions integrate into its network of partners to deliver seamless user experiences and greater access to the mainstream economy, with offices in New York and Tel Aviv[8] Legal & Financial Disclosures This section outlines important legal disclaimers regarding forward-looking statements and provides detailed explanations of the non-GAAP financial measures used by Pagaya Cautionary Note About Forward-Looking Statements This section warns that the document contains forward-looking statements subject to known and unknown risks and uncertainties, which may cause actual results to differ materially from projections, advising investors not to place undue reliance on these statements as the company assumes no obligation to update them - This document contains forward-looking statements that involve known and unknown risks, uncertainties, and other important factors that may cause the Company's actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied[9] - Risks and uncertainties include factors relating to the Company's ability to attract new partners, maintain trust, sustain revenue growth, implement technology, funding arrangements, market interest rates, economic conditions, and litigation[9] - These forward-looking statements reflect the Company's views as of the date of the report, and investors should not place undue reliance on them, as the Company assumes no obligation and does not intend to update them[9] Non-GAAP Financial Measures Pagaya uses non-GAAP financial measures like Adjusted Net Income (Loss) and Adjusted EBITDA to provide additional insights into its financial performance, emphasizing ongoing operations and underlying profitability, while acknowledging their limitations compared to GAAP and recommending review in conjunction with GAAP measures - Management uses non-GAAP financial measures (Adjusted Net Income (Loss) and Adjusted EBITDA) to provide investors with additional information about financial performance and enhance understanding of results by highlighting ongoing operations and underlying profitability[10][11][15] - Non-GAAP financial measures have limitations as they have no standardized meaning prescribed by GAAP and may not be directly comparable to similarly titled measures used by other companies[11] - Management encourages investors to review financial information in its entirety, not to rely on any single financial measure, and to view Adjusted Net Income (Loss) and Adjusted EBITDA in conjunction with their respective related GAAP financial measures[11][15] Definition of Adjusted Net Income (Loss) Adjusted Net Income (Loss) excludes share-based compensation, changes in warrant liability fair value, and non-recurring business combination expenses - Adjusted Net Income (Loss) is defined as net income (loss) attributable to Pagaya Technologies Ltd.'s shareholders excluding share-based compensation expense, change in fair value of warrant liability, and non-recurring expenses associated with the business combination[12] Definition of Adjusted EBITDA Adjusted EBITDA excludes share-based compensation, warrant liability fair value changes, non-recurring merger expenses, interest, depreciation, and income taxes - Adjusted EBITDA is defined as net income (loss) attributable to Pagaya Technologies Ltd.'s shareholders excluding share-based compensation expense, change in fair value of warrant liability, non-recurring expenses associated with the Merger, interest expense, depreciation expense, and provision for income taxes[13] Rationale for Using Non-GAAP Measures Non-GAAP measures exclude non-cash or unpredictable items to provide clearer insights into core operations, aiding management in decision-making and performance evaluation - These items are excluded from Adjusted Net Income (Loss) and Adjusted EBITDA because they are noncash in nature, or their amount and timing are unpredictable, not driven by core results of operations, and render comparisons with prior periods and competitors less meaningful[14] - Adjusted Net Income (Loss) and Adjusted EBITDA are key measurements used by management internally to make operating decisions, evaluate performance, and perform strategic planning and annual budgeting[15] Non-GAAP Outlook Disclosure The fiscal year outlook is provided on a non-GAAP basis, and reconciliation to GAAP Net Loss is not feasible due to unpredictable items outside the company's control - The fiscal year outlook is provided on a non-GAAP basis, and the Company cannot reconcile its expected Adjusted EBITDA to expected Net Loss Attributable to Pagaya without unreasonable effort[16] - Certain items that impact net income (loss) and other reconciling items are out of the Company's control and/or cannot be reasonably predicted at this time, which unavailable information could have a significant impact on the Company's GAAP financial results[16] Contact Information This section provides contact details for investor relations and media inquiries at Pagaya Technologies Investors & Analysts Jency John serves as the Head of Investor Relations for Pagaya, with contact available via email - Investors & Analysts can contact Jency John, Head of Investor Relations, at IR@pagaya.com[17][18] Media & Press Emily Passer is the Head of PR & External Communications for Pagaya, available for media inquiries via email - Media & Press can contact Emily Passer, Head of PR & External Communications, at Press@pagaya.com[18] Unaudited Consolidated Financial Statements This section presents Pagaya's unaudited consolidated financial statements, including statements of operations, financial position, and cash flows for the specified periods Consolidated Statements of Operations The Consolidated Statements of Operations show Pagaya's revenue, costs, and net loss for the three months and year ended December 31, 2022, compared to 2021, highlighting significant increases in total revenue and operating expenses, leading to a larger operating and net loss Key Consolidated Statements of Operations Figures (in thousands) | Metric | 4Q22 | 4Q21 | FY22 | FY21 | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Revenue from fees | $178,173 | $144,262 | $685,414 | $445,866 | | Total Revenue and Other Income | $192,890 | $154,730 | $748,928 | $474,588 | | Total Costs and Operating Expenses | $219,587 | $156,916 | $1,000,433 | $480,397 | | Operating Loss | ($26,697) | ($2,186) | ($251,505) | ($5,809) | | Loss Attributable to Pagaya Technologies Ltd. | ($33,998) | ($10,456) | ($302,321) | ($91,151) | | Net loss per share (Basic and Diluted) | ($0.05) | ($0.08) | ($0.69) | ($0.69) | Share-Based Compensation Breakdown (in thousands) | Category | 4Q22 | 4Q21 | FY22 | FY21 | | :------------------------ | :------- | :------- | :------- | :------- | | Research and development | $4,886 | $800 | $81,337 | $27,042 | | Selling and marketing | $3,843 | $1,048 | $58,377 | $18,458 | | General and administrative | $9,953 | $2,963 | $101,975 | $22,285 | | Total | $18,682 | $4,811 | $241,689 | $67,785 | Consolidated Statements of Financial Position The Consolidated Statements of Financial Position present Pagaya's assets, liabilities, and shareholders' equity as of December 31, 2022, and 2021, showing a substantial increase in total assets, primarily driven by investments in loans and securities, and a significant rise in total shareholders' equity Key Consolidated Statements of Financial Position Figures (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--------------------------------------------------- | :------------- | :------------- | | Total Assets | $1,045,079 | $590,258 | | Total Liabilities | $279,656 | $105,859 | | Total Pagaya Technologies Ltd. Shareholders' Equity | $553,520 | $1,292 | | Total Shareholders' Equity | $765,423 | $177,352 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows detail the cash inflows and outflows from operating, investing, and financing activities for the years ended December 31, 2022, and 2021, indicating a shift from positive to negative cash flow from operations in 2022, offset by significant cash provided by financing activities Key Consolidated Statements of Cash Flows Figures (in thousands) | Metric | FY22 | FY21 | | :------------------------------------------ | :----------- | :----------- | | Net cash (used in) provided by operating activities | ($40,000) | $49,811 | | Net cash used in investing activities | ($265,419) | ($140,740) | | Net cash provided by financing activities | $437,920 | $289,624 | | Net increase in cash, cash equivalents and restricted cash | $132,501 | $198,695 | | Cash, cash equivalents and restricted cash, end of period | $337,076 | $204,575 | Reconciliation of Non-GAAP Financial Measures This section provides a detailed reconciliation of Pagaya's GAAP financial results to its non-GAAP financial measures, Adjusted Net Income (Loss) and Adjusted EBITDA Adjusted Net Income (Loss) and Adjusted EBITDA Reconciliation This section provides a detailed reconciliation of GAAP Net Loss Attributable to Pagaya Technologies Ltd. to non-GAAP Adjusted Net Income (Loss) and Adjusted EBITDA for both the fourth quarter and full year 2022 and 2021, showing the specific adjustments made for items such as share-based compensation and fair value adjustments to warrant liability Reconciliation of Non-GAAP Financial Measures (in thousands) | Metric | 4Q22 | 4Q21 | FY22 | FY21 | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Net Loss Attributable to Pagaya Technologies Ltd. | ($33,998) | ($10,456) | ($302,321) | ($91,151) | | Adjustments: | | | | | | Share-based compensation | 18,682 | 4,811 | 241,689 | 67,785 | | Fair value adjustment to warrant liability | (1,680) | 1,542 | (11,088) | 53,019 | | Other than temporary impairment loss on certain investments | 8,836 | — | 8,836 | — | | Impairment of goodwill and other intangible assets | 3,209 | — | 3,209 | — | | Non-recurring expenses | 1,268 | 4,483 | 27,011 | 7,606 | | Adjusted Net Income (Loss) | ($3,683) | $380 | ($32,664) | $37,259 | | Further Adjustments for EBITDA: | | | | | | Interest expenses | 1,716 | — | 5,136 | — | | Provision for income tax | (9,204) | (3,542) | 16,400 | 7,875 | | Depreciation and amortization | 2,217 | 326 | 6,294 | 815 | | Adjusted EBITDA | ($8,954) | ($2,836) | ($4,834) | $45,949 |