Exhibit 99.1
Pagaya Reports Second Quarter and First Half 2022 Results
2Q’22 Network Volume and Total Revenue grow 79% and 83%, respectively, in the second quarter,
Adjusted EBITDA of $4.9 million
1H’22 Total Revenue of $352.1 million, Adjusted EBITDA of $9.3 million
Provides full-year 2022 outlook
New York, NY and Tel Aviv, Israel – August 16, 2022 – Pagaya Technologies Ltd. (NASDAQ: PGY) (“Pagaya” or the “Company”), a global technology company delivering artificial intelligence infrastructure for the financial
ecosystem, today announced financial results for the second quarter and the first half of 2022 and provided its full-year 2022 outlook.
“In our first quarter reporting as a public company, we are proud to report continued strong network volume and total revenue growth. These results reflect the strength of a proprietary A.I. network that drives better
outcomes and a B2B2C business model that delivers consistent growth through macro cycles,” said Gal Krubiner, Chief Executive Officer of Pagaya. “Looking ahead, we will remain focused on our ambition to be the trusted A.I. partner for the banking
system.”
Second Quarter 2022 Financial Highlights
All comparisons are made versus the same period in 2021 unless otherwise stated
|
• |
Network Volume increased 79% to $1.9 billion, reflecting strong growth from existing partnerships across all products
|
|
• |
Total revenue and other income increased 83% to $181.5 million, primarily due to increased fee revenue from Network Volume growth
|
|
• |
Net loss attributable to Pagaya shareholders of $146.3 million, impacted by share-based compensation of $146.0 million. Adjusted net income of $3.5 million, which excludes share-based compensation expense, change in
fair value of warrant liability, and non-recurring expenses
|
|
• |
Adjusted EBITDA of $4.9 million, reflecting ongoing investments in the long-term growth and scalability of the business
|
Recent Business Highlights
|
• |
Business combination with EJF Acquisition Corp. closed on June 22, 2022, with an upsized PIPE investment of $350 million; Class A ordinary shares and public warrants began trading on Nasdaq on June 23, 2022 under the symbols “PGY” and
“PGYWW,” respectively
|
|
• |
Onboarded large U.S. bank with over $100 billion in assets as a major partner in auto
|
|
• |
On July 1, 2022, former Barclays Bank UK CEO, Ashok Vaswani, joined Pagaya as President, bringing 30+ years of financial services experience to help take the Company into its next chapter of growth
|
|
• |
Continued strong application flow, with 63 million applications cumulatively evaluated from the beginning of 2019 through 2Q’22
|
|
• |
Raised approximately $1.8 billion in investor capital into financing vehicles, across new ABS issuances and privately managed funds
|
The following table summarizes the Company’s outlook for full-year 2022:
| |
FY22
|
|
Network Volume
|
Expected to range between $7.2 billion and $7.8 billion
|
|
Total Revenue
|
Expected to range between $700 million and $725 million
|
|
Adjusted EBITDA
|
Expected to range between negative $20 million and positive $10 million
|
Webcast
The Company will hold a webcast and conference call today, August 16, 2022 at 8:30 a.m. Eastern Time. A live webcast of the call will be available via the Investor Relations section of the Company’s website at
investor.pagaya.com. To listen to the live webcast, please go to the site at least five minutes prior to the scheduled start time in order to register, download and install any necessary audio software. Shortly before the call, a copy of the
accompanying presentation will be made available on the Company’s website. Shortly after the call, a replay of the webcast will be available for 90 days on the Company’s website.
The conference call can also be accessed by dialing 1-877-407-9208 or 1-201-493-6784. The telephone replay can be accessed by dialing 1-844-512-2921 or 1-412-317-6671 and providing the conference ID# 13731631. The
telephone replay will be available starting shortly after the call until August 30, 2022. A replay will also be available on the Investor Relations website following the call.
About Pagaya Technologies
Pagaya is a financial technology company working to reshape the lending marketplace by using machine learning, big data analytics, and sophisticated AI-driven credit and analysis technology. Pagaya was built to provide
a comprehensive solution to enable the credit industry to deliver their customers a positive experience while simultaneously enhancing the broader credit ecosystem. Its proprietary API and capital solutions seamlessly integrate into its next-gen
infrastructure network of partners to deliver a premium customer user experience and greater access to credit.
For more information on Pagaya's technology, services, and careers, please visit Pagaya.com.
Cautionary Note About Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. These forward-looking statements generally are identified by the words “anticipate”, “believe”, “continue”, “can,” “could”, “estimate”, “expect”, “intend”, “may”, “opportunity”, “future”, “strategy”, “might”, “outlook”, “plan”,
“possible”, “potential”, “predict”, “project”, “should”, “strive”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions. All statements other than statements of historical fact are forward-looking statements, including
statements regarding: the Company's strategy and future operations, including the Company's partnerships with certain key providers; the development, innovation, introduction and performance of, and demand for, the Company's products and services;
the Company’s ability to focus on its ambition to be the trusted A.I. partner for the banking system, the Company’s ability to continue to invest in the long-term growth and scalability of its business, the Company's future growth, investments, brand
awareness, financial position, gross market value, revenue, transaction costs, operating income, provision for credit losses, and cash flows; and general economic trends and trends in the Company's industry and markets, and the Company’s financial
outlook for the full year of 2022. These forward-looking statements 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 by the forward-looking statements. Risks, uncertainties and assumptions include factors relating to: the Company's ability to attract new partners and to retain and grow its
relationships with existing partners to support the underlying investment needs for its securitizations and funds products; the need to maintain a consistently high level of trust in its brand; the concentration of a large percentage of its
investment revenue with a small number of partners and platforms; its ability to sustain its revenue growth rate or the growth rate of its related key operating metrics; its ability to improve, operate and implement its technology, its existing
funding arrangements for the Company and its affiliates that may not be renewed or replaced or its existing funding sources that may be unwilling or unable to provide funding to it on terms acceptable to it, or at all; the performance of loans
facilitated through its model; changes in market interest rates; its securitizations, warehouse credit facility agreements; the impact on its business of general economic conditions, including, but not limited to rising interest rates, inflation,
supply chain disruptions, exchange rate fluctuations and labor shortages; the effect of and uncertainties related to the COVID-19 pandemic (including any government responses thereto); the financial performance of its partners, and fluctuations in
the U.S. consumer credit and housing market; its ability to grow effectively through strategic alliances; seasonal fluctuations in our revenue as a result of consumer spending and saving patterns; pending and future litigation, regulatory actions
and/or compliance issues including with respect to the merger with EJF Acquisition Corp.; and other risks that are described in and the Company’s Form 6-K filed on August 16, 2022 and subsequent filings with the U.S. Securities and Exchange
Commission. These forward-looking statements reflect the Company's views with respect to future events as of the date hereof and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, investors should not place
undue reliance on these forward-looking statements. The forward-looking statements are made as of the date hereof, reflect the Company’s current beliefs and are based on information currently available as of the date they are made, and the Company
assumes no obligation and does not intend to update these forward-looking statements.
Financial Information; Non-GAAP Financial Measures
Some of the financial information and data contained in this press release and Form 6-K, such as Adjusted EBITDA, have not been prepared in accordance with United States generally accepted accounting principles
(“GAAP”). To supplement the consolidated financial statements prepared and presented in accordance with GAAP, management uses the non-GAAP financial measures Adjusted Net Income and Adjusted EBITDA to provide investors with additional information
about our financial performance and to enhance the overall understanding of the results of operations by highlighting the results from ongoing operations and the underlying profitability of our business. Management believes it provides an additional
tool for investors to use in comparing our core financial performance over multiple periods with the performance of other companies. However, non-GAAP financial measures have limitations in their usefulness to investors because they have no
standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to,
similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance
with GAAP. To address these limitations, management provides a reconciliation of Adjusted Net Income and Adjusted EBITDA to net income (loss) attributable to Pagaya Technologies Ltd.’s shareholders. Management encourages investors and others to
review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted Net Income and Adjusted EBITDA in conjunction with its respective related GAAP financial measures.
Non-GAAP financial measures include the following item:
Adjusted Net Income 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 with EJF Acquisition Corp. (the “Merger”).
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.
These items are excluded from our Adjusted Net Income and Adjusted EBITDA measures because they are noncash in nature, or because the amount and timing of these items is unpredictable, is not driven by core results of
operations and renders comparisons with prior periods and competitors less meaningful.
We believe Adjusted Net Income and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our results of operations, as well as providing a useful measure for
period-to-period comparisons of our business performance. Moreover, we have included Adjusted Net Income and Adjusted EBITDA because these are key measurements used by our management internally to make operating decisions, including those related to
operating expenses, evaluate performance, and perform strategic planning and annual budgeting. However, this non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for or
superior to financial information presented in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies. The tables below provide reconciliations of Adjusted EBITDA to their most directly
comparable GAAP amounts, Net Loss Attributable to Pagaya Technologies Ltd.
In addition, outlook for the fiscal year, where adjusted, is provided on a non-GAAP basis, which Pagaya will continue to identify as it reports its future financial results. The Company cannot reconcile its expected
Adjusted EBITDA to expected Net Loss Attributable to Pagaya Technologies Ltd. under “2022 Outlook” without unreasonable effort because certain items that impact net income and other reconciling metrics 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.
Investors & Analysts
Jency John
Head of Investor Relations
IR@pagaya.com
Media & Press
Emily Passer
VP, Head of PR & External Communications
Press@pagaya.com
PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(In thousands, except share and per share data)
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from fees
|
|
$
|
163,302
|
|
|
$
|
92,179
|
|
|
$
|
321,627
|
|
|
$
|
173,455
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
17,252
|
|
|
|
6,969
|
|
|
|
29,461
|
|
|
|
9,801
|
|
|
Investment income (loss)
|
|
|
995
|
|
|
|
(58
|
)
|
|
|
995
|
|
|
|
12
|
|
|
Total Revenue and Other Income
|
|
|
181,549
|
|
|
|
99,090
|
|
|
|
352,083
|
|
|
|
183,268
|
|
|
Costs and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
104,980
|
|
|
|
62,592
|
|
|
|
197,260
|
|
|
|
99,774
|
|
|
Research and development(1)
|
|
|
65,110
|
|
|
|
8,562
|
|
|
|
88,736
|
|
|
|
39,412
|
|
|
Sales and marketing(1)
|
|
|
50,604
|
|
|
|
6,228
|
|
|
|
63,650
|
|
|
|
28,403
|
|
|
General and administrative(1)
|
|
|
111,479
|
|
|
|
11,338
|
|
|
|
163,073
|
|
|
|
34,107
|
|
|
Total Costs and Operating Expenses
|
|
|
332,173
|
|
|
|
88,720
|
|
|
|
512,719
|
|
|
|
201,696
|
|
|
Operating Income (Loss)
|
|
|
(150,624
|
)
|
|
|
10,370
|
|
|
|
(160,636
|
)
|
|
|
(18,428
|
)
|
|
Other income (loss), net
|
|
|
13,159
|
|
|
|
(9,198
|
)
|
|
|
13,472
|
|
|
|
(18,771
|
)
|
|
Income (Loss) Before Income Taxes
|
|
|
(137,465
|
)
|
|
|
1,172
|
|
|
|
(147,164
|
)
|
|
|
(37,199
|
)
|
|
Income tax expense (benefit)
|
|
|
(2,404
|
)
|
|
|
1,627
|
|
|
|
(2,590
|
)
|
|
|
7,793
|
|
|
Net Loss
|
|
|
(135,061
|
)
|
|
|
(455
|
)
|
|
|
(144,574
|
)
|
|
|
(44,992
|
)
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
11,213
|
|
|
|
5,419
|
|
|
|
19,972
|
|
|
|
7,546
|
|
|
Net Loss Attributable to Pagaya Technologies Ltd.
|
|
$
|
(146,274
|
)
|
|
$
|
(5,874
|
)
|
|
$
|
(164,546
|
)
|
|
$
|
(52,538
|
)
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Pagaya Technologies Ltd.
|
|
$
|
(146,274
|
)
|
|
$
|
(5,874
|
)
|
|
$
|
(164,546
|
)
|
|
$
|
(52,538
|
)
|
|
Less: Deemed dividend distribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,612
|
)
|
|
Net loss attributed to Pagaya Technologies Ltd.
|
|
$
|
(146,274
|
)
|
|
$
|
(5,874
|
)
|
|
$
|
(164,546
|
)
|
|
$
|
(76,150
|
)
|
|
Net loss per share attributable to Pagaya Technologies Ltd.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(2)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
|
Diluted(2)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
|
Non-GAAP adjusted net income(3)
|
|
$
|
3,481
|
|
|
$
|
5,281
|
|
|
$
|
7,587
|
|
|
$
|
25,596
|
|
|
Non-GAAP adjusted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(2)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
Diluted(2)
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(2)
|
|
|
621,680,496
|
|
|
|
594,168,810
|
|
|
|
616,371,816
|
|
|
|
563,664,856
|
|
|
Diluted(2)
|
|
|
846,420,843
|
|
|
|
743,246,506
|
|
|
|
851,569,948
|
|
|
|
629,922,341
|
|
(1) The following table sets forth share-based compensation for the periods indicated below:
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
Research and development
|
|
$
|
54,383
|
|
|
$
|
567
|
|
|
$
|
60,243
|
|
|
$
|
25,074
|
|
|
Sales and marketing
|
|
|
35,998
|
|
|
|
406
|
|
|
|
38,889
|
|
|
|
16,779
|
|
|
General and administrative
|
|
|
55,689
|
|
|
|
889
|
|
|
|
63,573
|
|
|
|
17,264
|
|
|
Total share-based compensation in operating expenses
|
|
$
|
146,070
|
|
|
$
|
1,862
|
|
|
$
|
162,705
|
|
|
$
|
59,117
|
|
(2) Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split and the conversion of preferred shares into ordinary shares, effected on June 22, 2022.
(3) See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this and adjusted EBITDA, another non-GAAP financial measure.
PAGAYA TECHNOLOGIES LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(In thousands)
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
|
Net Loss Attributable to Pagaya Technologies Ltd.
|
|
$
|
(146,274
|
)
|
|
$
|
(5,874
|
)
|
|
$
|
(164,546
|
)
|
|
$
|
(52,538
|
)
|
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
146,070
|
|
|
|
1,862
|
|
|
|
162,705
|
|
|
|
59,117
|
|
|
Fair value adjustment to warrant liability
|
|
|
(13,737
|
)
|
|
|
9,293
|
|
|
|
(13,268
|
)
|
|
|
19,017
|
|
|
Non-recurring expenses
|
|
|
17,422
|
|
|
|
—
|
|
|
|
22,696
|
|
|
|
—
|
|
|
Adjusted Net Income
|
|
$
|
3,481
|
|
|
$
|
5,281
|
|
|
$
|
7,587
|
|
|
$
|
25,596
|
|
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
3,177
|
|
|
|
—
|
|
|
|
3,177
|
|
|
|
—
|
|
|
Income tax expense (benefit)
|
|
|
(2,404
|
)
|
|
|
1,627
|
|
|
|
(2,590
|
)
|
|
|
7,793
|
|
|
Depreciation and amortization
|
|
|
671
|
|
|
|
156
|
|
|
|
1,148
|
|
|
|
282
|
|
|
Adjusted EBITDA
|
|
$
|
4,925
|
|
|
$
|
7,064
|
|
|
$
|
9,322
|
|
|
$
|
33,671
|
|
PAGAYA TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF JUNE 30, 2022 AND DECEMBER 31, 2021
(In thousands)
| |
|
(Unaudited)
|
|
|
(Audited)
|
|
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2022
|
|
|
2021
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
414,968
|
|
|
$
|
190,778
|
|
|
Restricted cash
|
|
|
10,010
|
|
|
|
7,000
|
|
|
Short-term deposits
|
|
|
—
|
|
|
|
5,020
|
|
|
Fees receivable
|
|
|
35,066
|
|
|
|
32,332
|
|
|
Investments in loans and securities
|
|
|
4,173
|
|
|
|
5,142
|
|
|
Prepaid expenses and other current assets
|
|
|
7,918
|
|
|
|
6,263
|
|
|
Total current assets
|
|
|
472,135
|
|
|
|
246,535
|
|
|
Restricted cash
|
|
|
4,770
|
|
|
|
6,797
|
|
|
Fees receivable
|
|
|
31,171
|
|
|
|
19,208
|
|
|
Investments in loans and securities
|
|
|
382,708
|
|
|
|
277,582
|
|
|
Equity method and other investments
|
|
|
19,083
|
|
|
|
14,841
|
|
|
Right-of-use asset
|
|
|
41,797
|
|
|
|
—
|
|
|
Property and equipment, net
|
|
|
24,971
|
|
|
|
7,648
|
|
|
Deferred tax assets, net
|
|
|
27,078
|
|
|
|
5,681
|
|
|
Deferred offering costs
|
|
|
—
|
|
|
|
11,966
|
|
|
Prepaid expenses and other assets
|
|
|
158
|
|
|
|
—
|
|
|
Total non-current assets
|
|
|
531,736
|
|
|
|
343,723
|
|
|
Total Assets
|
|
$
|
1,003,871
|
|
|
$
|
590,258
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,922
|
|
|
$
|
11,580
|
|
|
Accrued expenses and other liabilities
|
|
|
39,870
|
|
|
|
17,093
|
|
|
Secured borrowing - current
|
|
|
28,007
|
|
|
|
—
|
|
|
Operating lease liability - current
|
|
|
6,423
|
|
|
|
—
|
|
|
Income taxes payable - current
|
|
|
11,760
|
|
|
|
—
|
|
|
Total current liabilities
|
|
|
88,982
|
|
|
|
28,673
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
19,795
|
|
|
|
27,469
|
|
|
Secured borrowing - non-current
|
|
|
96,273
|
|
|
|
37,905
|
|
|
Operating lease liability - non-current
|
|
|
31,911
|
|
|
|
—
|
|
|
Income taxes payable
|
|
|
13,461
|
|
|
|
11,812
|
|
|
Total non-current liabilities
|
|
|
161,440
|
|
|
|
77,186
|
|
|
Total liabilities
|
|
|
250,422
|
|
|
|
105,859
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital(1)
|
|
|
857,680
|
|
|
|
420,217
|
|
|
Accumulated deficit
|
|
|
(276,424
|
)
|
|
|
(111,878
|
)
|
|
Total Pagaya Technologies Ltd. Shareholders’ Equity
|
|
|
581,256
|
|
|
|
308,339
|
|
|
Noncontrolling interests
|
|
|
172,193
|
|
|
|
176,060
|
|
|
Total shareholders’ Equity
|
|
|
753,449
|
|
|
|
484,399
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
1,003,871
|
|
|
$
|
590,258
|
|
(1) Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split and the conversion of preferred shares into ordinary shares, effected on June 22, 2022.
PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(In thousands)
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(144,574
|
)
|
|
$
|
(44,992
|
)
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Equity method income (loss)
|
|
|
(995
|
)
|
|
|
(12
|
)
|
|
Depreciation and amortization
|
|
|
1,148
|
|
|
|
282
|
|
|
Share-based compensation
|
|
|
162,705
|
|
|
|
59,117
|
|
|
Fair value adjustment to warrant liability
|
|
|
(13,268
|
)
|
|
|
19,017
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Fees receivable
|
|
|
(14,697
|
)
|
|
|
(10,676
|
)
|
|
Deferred tax assets, net
|
|
|
(21,397
|
)
|
|
|
(1,921
|
)
|
|
Prepaid expenses and other assets
|
|
|
(1,813
|
)
|
|
|
(25,763
|
)
|
|
Right-of-use asset
|
|
|
(41,797
|
)
|
|
|
—
|
|
|
Accounts payable
|
|
|
(8,658
|
)
|
|
|
2,914
|
|
|
Accrued expenses and other liabilities
|
|
|
5,963
|
|
|
|
1,895
|
|
|
Operating lease liability
|
|
|
38,334
|
|
|
|
—
|
|
|
Income tax accrual
|
|
|
13,409
|
|
|
|
9,402
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(25,640
|
)
|
|
|
9,263
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale/maturity/prepayment of:
|
|
|
|
|
|
|
|
|
|
Investments in loans and securities
|
|
|
50,090
|
|
|
|
42,106
|
|
|
Short-term deposits
|
|
|
5,020
|
|
|
|
—
|
|
|
Equity method and other investments
|
|
|
453
|
|
|
|
954
|
|
|
Payments for the purchase of:
|
|
|
|
|
|
|
|
|
|
Investments in loans and securities
|
|
|
(154,247
|
)
|
|
|
(118,825
|
)
|
|
Property and equipment
|
|
|
(1,657
|
)
|
|
|
(885
|
)
|
|
Equity method and other investments
|
|
|
(3,700
|
)
|
|
|
(23,000
|
)
|
|
Short-term deposits
|
|
|
—
|
|
|
|
(91,082
|
)
|
|
Net cash used in investing activities
|
|
|
(104,041
|
)
|
|
|
(190,732
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock in PIPE, net of issuance costs
|
|
|
291,872
|
|
|
|
—
|
|
|
Proceeds from issuance of redeemable convertible preferred shares, net
|
|
|
—
|
|
|
|
193,496
|
|
|
Proceeds from secured borrowing
|
|
|
94,094
|
|
|
|
—
|
|
|
Proceeds from revolving credit facility
|
|
|
26,000
|
|
|
|
—
|
|
|
Proceeds received from noncontrolling interests
|
|
|
29,522
|
|
|
|
83,788
|
|
|
Proceeds from exercise of stock options
|
|
|
446
|
|
|
|
17
|
|
|
Distribution made to noncontrolling interests
|
|
|
(53,361
|
)
|
|
|
(33,368
|
)
|
|
Distribution made to revolving credit facility
|
|
|
(26,000
|
)
|
|
|
—
|
|
|
Distribution made to secured borrowing
|
|
|
(7,719
|
)
|
|
|
—
|
|
|
Net cash provided by financing activities
|
|
|
354,854
|
|
|
|
243,933
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
225,173
|
|
|
|
62,464
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
204,575
|
|
|
|
5,880
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
429,748
|
|
|
$
|
68,344
|
|
Exhibit 99.3
PAGAYA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” and the historical audited annual
consolidated financial statements as of and for the year ended December 31, 2021 and 2020, and the related notes included in our Registration Statement on Form F-1, filed with the Securities and Exchange Commission (the “SEC”) on July 20, 2022 (the
“Registration Statement”). Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks
and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of our Registration Statement and any of our subsequent filings with the SEC, our actual results could differ materially from the results
described in or implied by the forward-looking statements contained in the following discussion and analysis. In this section “we,” “us,” “our” and “Pagaya” refer to Pagaya Technologies Ltd.
Company Overview
Pagaya makes life-changing financial products and services available to more people.
We have built, and we are continuing to scale, a leading AI and data network for the benefit of financial services providers, their customers, and investors. Financial services and other service providers integrated in
our network, which we refer to as our ‘‘Partners,’’ range from high-growth financial technology companies to incumbent banks and financial institutions, auto finance providers and property related service providers. Partners benefit from our network to extend financial products to their customers, in turn helping those customers fulfill their financial needs and dreams. These assets originated by Partners with the
assistance of Pagaya’s AI technology are eligible to be acquired by Financing Vehicles1. During
2021, certain Financing Vehicles began purchasing single-family rental properties identified by our AI and data network.
In recent years, investments in digitization have improved the front-end delivery of financial products, upgrading customer experience and convenience. Notwithstanding these advances, we believe underlying approaches
to the determination of credit worthiness for financial products are often outdated and overly manual. In our experience, providers of financial services tend to utilize a limited number of factors to make decisions, operate with siloed technology
infrastructure and have data limited to their own experience. As a result, we believe financial services providers approve a smaller proportion of their application volume than is possible with the benefit of modern technology, such as our AI
technology and data network.
At our core, we are a technology company that deploys sophisticated data science, machine learning and AI technology to drive better results across the ecosystem. We believe our solution drives a “win-win-win” for
Partners, their customers and potential customers, and investors. First, by utilizing our network, Partners receive direct benefits from our network by approving a greater share of customer applications, which we believe drives superior revenue
growth, enhanced brand affinity, opportunities to promote other financial products and decreased unit-level customer acquisition costs. Partners realize these benefits without taking on incremental risk or requiring incremental funding. Second,
Partners’ customers benefit from enhanced and more convenient access to financial products. Third, investors gain exposure to assets originated by Partners with the assistance of our AI technology and acquired by the Financing Vehicles through our
network.
Recent Developments
On June 22, 2022 (the “Closing Date”), we consummated the previously announced business combination pursuant to the Merger Agreement, by and among Pagaya, EJFA, and Merger Sub (the “Merger”).
On the Closing Date, the following transactions occurred pursuant to the terms of the Merger Agreement:
|
•
|
(i) immediately prior to the Effective Time, each Pagaya Preferred Share was converted into Pagaya Ordinary Shares in accordance with Pagaya’s organizational
documents, (ii) immediately following the Preferred Share Conversion but prior to the Effective Time, Pagaya adopted the Pagaya Articles, (iii) immediately following such adoption but prior to the Effective Time, Pagaya effected the Stock
Split, with the three founders of Pagaya (including any trusts the beneficiary of which is a founder of Pagaya and to the extent that a founder of Pagaya has the right to vote the shares held by such trust) (the “ each receiving Class B
Ordinary Shares, which carry voting rights in the form of 10 votes per share of Pagaya, and the other shareholders of Pagaya receiving Class A Ordinary Shares, which are economically equivalent to the Class B Ordinary Shares and carry
voting rights in the form of one vote per share of Pagaya, in accordance with Pagaya’s organizational documents;
|
1 Financing Vehicles refers to (i) funds managed or advised by Pagaya or
one of its affiliates, (ii) securitization vehicles sponsored or administered by Pagaya or one of its affiliates and (iii) other similar vehicles.
|
•
|
at the Effective Time, Merger Sub merged with and into EJFA, with EJFA continuing as the surviving company after the Merger, and, as a result of the Merger, the
Surviving Company became a direct, wholly-owned subsidiary of Pagaya; and
|
|
•
|
at the Effective Time, (i) each EJFA Class B Ordinary Share issued and outstanding immediately prior to the Effective Time other than all shares of EJFA held by
EJFA, Merger Sub or Pagaya or any of its subsidiaries at that time, was no longer outstanding and was converted into the right of the holder thereof to receive one Class A Ordinary Share after giving effect to the Capital Restructuring,
(ii) each EJFA Class A Ordinary Share issued and outstanding immediately prior to the Effective Time other than all shares of EJFA held by EJFA, Merger Sub or Pagaya or any of its subsidiaries at that time was no longer outstanding and was
converted into the right of the holder thereof to receive one Class A Ordinary Share after giving effect to the Capital Restructuring, (iii) each issued and outstanding EJFA Warrant was automatically and irrevocably assumed by Pagaya and
converted into a Pagaya Warrant
|
On the Closing Date, immediately following the Merger, the Surviving Company merged with and into Merger Sub II, with Merger Sub II continuing as the surviving company after the Second Merger.
PIPE Investment
On September 15, 2021, concurrently with the execution of the Merger Agreement, Pagaya and EJF Debt Opportunities Master Fund, LP entered into the EJF Subscription Agreement, and Pagaya subsequently entered into
subscription agreements with certain other investors. Pursuant to the Subscription Agreements, the investors agreed to purchase, and Pagaya agreed to sell to the investors, an aggregate of 35 million Class A Ordinary Shares, at a purchase price of
$10.00 per share and an aggregate purchase price of $350 million, on the terms and subject to the conditions set forth in the Subscription Agreements. The Subscription Agreements contained customary representations and warranties of Pagaya, on the
one hand, and the investors, on the other hand, and customary conditions to closing, including the consummation of the transactions contemplated by the Merger Agreement. The PIPE Investment closed immediately prior to the Effective Time.
Emerging Growth Company Status
We qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities
and the prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a
Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can
elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which
means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of our financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the Closing Date, (b) in which we have an annual total gross revenue of at
least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary equity that is held by non-affiliates exceeds $700 million as of the last business day of the second fiscal quarter of
such fiscal year; and (ii) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS
Act.
Foreign Private Issuer Exemptions
We report as 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. As a result, we are not be required to file our annual report on Form 20-F until 120 days after the end of each fiscal year and we will furnish reports on Form 6-K to the SEC regarding
certain information required to be publicly disclosed by us in Israel or that is distributed or required to be distributed by us to our shareholders. Based on our foreign private issuer status, we will not be required to (i) file periodic reports and
financial statements with the SEC as frequently or as promptly as a U.S. company whose securities are registered under the Exchange Act, (ii) comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material
information or (iii) comply with SEC rules relating to proxy solicitation in connection with shareholder meetings and presentation of shareholder proposals. In addition, among other matters, based on our foreign private issuer status, our officers,
directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Pagaya Ordinary
Shares.
Our Economic Model
Pagaya’s revenues are primarily derived from Network Volume. Network Volume represents the assets that our Partners originate with the assistance of our AI technology and are acquired by Financing Vehicles through our
network. We source capital from investors who invest in Financing Vehicles. We earn revenue primarily in the form of fees that we are paid when Network Volume is acquired by Financing Vehicles. These fees include premiums that Financing Vehicles pay
for access to our AI technology. We also earn a smaller portion of our revenues from fees related to the establishment and administration of certain Financing Vehicles.
We incur costs when Network Volume is acquired by the Financing Vehicles. These costs, which we refer to as ‘‘Production Costs,’’ compensate our Partners for acquiring and originating assets. Accordingly, the amount
and growth of our Production Costs are highly correlated to Network Volume.
Additionally, we have built, and we are continuing to scale, what we believe to be one of the world’s largest data science and AI organizations focused on assisting our Partners as they make decisions to extend credit
to consumers or the identification and purchase of single-family rental houses. Headcount, technology overhead and development expenses related to this network represent
the significant portion of our expenses outside of Production Costs.
Key Factors Affecting Our Performance
Expanded Usage of Our Network by Our Existing Partners
We continually seek to grow Network Volume. Our AI technology enables our Partners to convert a larger proportion of their application volume into originated loans than they could do on their own, expanding their
ecosystem and generating incremental revenues. As such, our Partners have historically scaled rapidly upon utilizing our network and continue to advance after initially scaling. We must continue to deliver value and are proud of the fact that we have
retained 100% of Partners since our inception in 2016. Furthermore, for those Partners that have benefited from using our AI technology and data network since the end of fiscal 2020, the last four quarters have generated an average of 130% more
quarterly Network Volume when compared to the final quarter of 2020.
Adoption of Our Network by Partners
We devote significant time, and have a team that focuses on, recruiting new 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.
Continued Improvements to Our AI Technology
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 asset and the strengthening of our AI technology. As our existing Partners expand their usage of our network, and new Partners join our network, 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 models. As more data leads to improved AI technology and models, we have found, and we expect to
continue to experience, that our AI technology leads to more efficient pricing and greater Network Volume, including the purchase of single-family rental houses.
In addition to the accumulation of data, we make improvements to our models by leveraging the experience of our research and development specialists. Our research team is central to accelerating the sophistication of
our AI technology and expanding into new markets and use cases. We are reliant on these professionals’ success in making these improvements to our models over time.
We believe that advances in our AI technology will be key to our continued growth.
Availability of Funding from Investors
The availability of funding from investors is critical to our growth, as Financial Vehicles only acquire an asset if funding is available for that specific asset. We continue to seek to diversify funding channels and
counterparties as our business grows.
Performance of Assets Originated with the Assistance of Our AI Technology
The availability of funding from investors is a function of demand for consumer credit and real estate assets, as well as the performance of such assets originated with the assistance of our AI technology and purchased
by Finance Vehicles. We believe that investors in Financing Vehicles view our AI technology as an important component in delivering assets that meet their investment criteria. To the extent that assets acquired by the Financing Vehicles underperform
investors’ expectations, the availability of funding may be adversely affected.
Impact of Macroeconomic Cycles
We expect economic cycles to affect our financial performance and related metrics. Economic conditions, including, but not limited to rising interest rates, inflation, supply chain disruptions and labor shortages, 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. 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 2022
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.
Key Operating Metrics
We collect and analyze operating and financial data of our business to assess our performance, formulate financial projections and make strategic decisions. In addition to total revenues, net, operating income (loss),
other results under GAAP, and certain non-GAAP financial measures (see discussion and reconciliation herein at page 13, “Reconciliation of Non-GAAP Financial Measures.” The following table sets forth a key operating metric we use to evaluate our
business.
| |
Three Months Ended June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2022
|
|
2021
|
|
% Change
|
|
2022
|
|
2021
|
|
% Change
|
| |
(in millions, except percentages)
|
|
Network Volume(1)
|
$
|
1,947 |
|
$
|
1,088 |
|
79%
|
|
$
|
3,597 |
|
$
|
1,762 |
|
104%
|
(1) Prior period amounts have been updated to conform to current period presentation.
Network Volume
We believe the Network Volume metric to be a good proxy for our overall scale and reach, as we generate revenue primarily on the basis of Network Volume. Network Volume is driven by our relationships with our Partners,
and we believe that this has benefited from continuous improvements to our AI technology, enabling our technology to more effectively identify more assets for acquisition by the investors through the Financing Vehicles. Network Volume is comprised of
assets across several asset classes, including personal loans, auto loans, real estate, credit card receivables and point of sale receivables.
Components of Results of Operations
Revenue
We generate revenue from network AI fees, contract fees, interest income and investment income. Network AI fees and contract fees are presented together as Revenue in the consolidated financial statements. Revenue from
fees is recognized after applying the five-step model consistent with ASC 606.
Network AI fees. Network AI fees are earned and collected from Financing Vehicles upon the generation of Network Volume and upon
their establishment. Generally, these fees include premiums that Financing Vehicles pay for Network Volume originated by our Partners when our Partners benefit from the use of our AI technology and data network in the origination of such Network
Volume.
Contract Fees. Contract fees primarily include administration and management fees, and performance fees. Administration and management fees are contracted upon the establishment
of individual pools of capital 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.
We also earn interest income related to our risk retention holdings and investment income associated with our ownership interest in certain Financing Vehicles.
Costs and Operating Expenses
Cost and operating expenses consist of Production Costs. research and development, sales and marketing expenses, and general and administrative expenses. Salaries and personnel-related costs, including benefits, bonuses, share-based compensation, and outsourcing comprise a significant component of several of these expense categories. A portion of our non-share-based compensation expense and, to a lesser
extent, certain operating expenses (excluding Production Costs) are denominated in the Israeli New Shekel (NIS), which could result in variability in our operating expenses which are presented in U.S. Dollars.
Production Costs
Production Costs are primarily comprised of fees we pay our Partners when Network Volume is transferred into Financing Vehicles. Accordingly, the amount and growth of our Production Costs are highly correlated to Network Volume. Additionally, but to a lesser extent, Production Costs also include expenses we incur to renovate single family residence assets.
Research and Development
Research and development expenses primarily comprise costs associated with the maintenance and ongoing development of our network and technology including
personnel, allocated costs, and other development-related expenses. Research and development costs are expensed as incurred. We expect these costs to increase as we continue to hire new employees in order to support our anticipated growth. We
believe continued investments in research and development are important to attain our strategic objectives. Accordingly, we expect research and development costs to increase in absolute dollars. As we intend to continue scaling our research and
development initiatives, these expenses are expected to grow in proportion to our total revenue and other income.
Sales and Marketing
Sales and marketing expenses, related to Partner onboarding and development, as well as investor and potential investor management, are comprised primarily of salaries and personnel-related costs, as well as the costs
of certain professional services, and allocated overhead. Sales and marketing expenses are expensed as incurred. We expect that sales and marketing expenses will increase at the very least as a percentage of revenue in relation to the expansion of
sales and marketing efforts to drive growth and diversification. Furthermore, sales and marketing expenses in absolute dollars and as a percentage of total revenue and other income may fluctuate from period to period based on total revenue and other
income trends, as well as the timing of our investments in our sales and marketing functions. These investments may vary in scope and scale over future periods depending on our strategic business plan, which may cause opportunities to present
themselves in various markets.
General and Administrative
General and administrative expenses primarily comprise personnel-related costs for our executives, finance, legal and other administrative functions, professional fees for external legal, accounting and other
professional services and allocated overhead costs. General and administrative expenses are expensed as incurred. We expect that our general and administrative expenses will increase in
absolute dollars for the foreseeable future as we grow our business. We also anticipate additional cost and expenses associated with the administrative maintenance of being a publicly listed company.
Other Income (Loss), Net
Other Income (loss), net primarily consists of changes in the fair value of warrant liabilities and, historically, the change in the fair value of the option associated with Series D preferred shares.
Income Tax Expense
We account for taxes on income in accordance with ASC 740, “Income Taxes.” We are eligible for certain tax benefits in Israel under the Law for the Encouragement of Capital Investments, 5919-1959, or the Investment Law
at a reduced tax rate of 12%. Accordingly, as we generate taxable income in Israel, our effective tax rate is expected to be lower than the standard corporate tax rate for Israeli companies, which is 23%. Our taxable income generated outside of
Israel or derived from other sources in Israel which is not eligible for tax benefits will be subject to the regular corporate tax rate in its respective tax jurisdictions.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests in our consolidated statements of operations is a result of our investments in certain of our consolidated variable interest entities
(‘‘VIEs’’) and consists of the portion of the net income of these consolidated entities that is not attributable to Pagaya.
Results of Operations
The following table sets forth operating results for the periods indicated:
| |
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Revenue
|
|
|
|
|
|
|
|
|
Revenue from fees
|
$
|
163,302 |
|
$
|
92,179 |
|
$
|
321,627 |
|
$
|
173,455 |
|
Other Income
|
|
|
|
|
|
|
|
|
Interest income
|
17,252
|
|
6,969
|
|
29,461
|
|
9,801
|
|
Investment income (loss)
|
995
|
|
(58)
|
|
995
|
|
12
|
|
Total Revenue and Other Income
|
181,549
|
|
99,090
|
|
352,083
|
|
183,268
|
|
Costs and Operating Expenses
|
|
|
|
|
|
|
|
|
Production costs
|
104,980
|
|
62,592
|
|
197,260
|
|
99,774
|
|
Research and development(1)
|
65,110
|
|
8,562
|
|
88,736
|
|
39,412
|
|
Sales and marketing(1)
|
50,604
|
|
6,228
|
|
63,650
|
|
28,403
|
|
General and administrative(1)
|
111,479
|
|
11,338
|
|
163,073
|
|
34,107
|
|
Total Costs and Operating Expenses
|
332,173
|
|
88,720
|
|
512,719
|
|
201,696
|
|
Operating Income (Loss)
|
(150,624)
|
|
10,370
|
|
(160,636)
|
|
(18,428)
|
|
Other income (loss), net
|
13,159
|
|
(9,198)
|
|
13,472
|
|
(18,771)
|
|
Income (Loss) Before Income Taxes
|
(137,465)
|
|
1,172
|
|
(147,164)
|
|
(37,199)
|
|
Income tax expense (benefit)
|
(2,404)
|
|
1,627
|
|
(2,590)
|
|
7,793
|
|
Net Loss
|
(135,061)
|
|
(455)
|
|
(144,574)
|
|
(44,992)
|
|
Less: Net income attributable to noncontrolling interests
|
11,213
|
|
5,419
|
|
19,972
|
|
7,546
|
|
Net Loss Attributable to Pagaya Technologies Ltd.
|
$
|
(146,274) |
|
$
|
(5,874) |
|
$
|
(164,546) |
|
$
|
(52,538) |
|
Per share data:
|
|
|
|
|
|
|
|
|
Net loss attributable to Pagaya Technologies Ltd.
|
$
|
(146,274) |
|
$
|
(5,874) |
|
$
|
(164,546) |
|
$
|
(52,538) |
|
Less: Deemed dividend distribution
|
—
|
|
—
|
|
—
|
|
(23,612)
|
|
Net loss attributed to Pagaya Technologies Ltd.
|
$
|
(146,274) |
|
$
|
(5,874) |
|
$
|
(164,546) |
|
$
|
(76,150) |
|
Net loss per share attributable to Pagaya Technologies Ltd.:
|
|
|
|
|
|
|
|
|
Basic(2)
|
$
|
(0.24) |
|
$
|
(0.01) |
|
$
|
(0.27) |
|
$
|
(0.14) |
|
Diluted(2)
|
$
|
(0.24) |
|
$
|
(0.01) |
|
$
|
(0.27) |
|
$
|
(0.14) |
|
Non-GAAP adjusted net income(3)
|
$
|
3,481 |
|
$
|
5,281 |
|
$
|
7,587 |
|
$
|
25,596 |
|
Non-GAAP adjusted net income per share:
|
|
|
|
|
|
|
|
|
Basic(2)
|
$
|
0.01 |
|
$
|
0.01 |
|
$
|
0.01 |
|
$
|
0.05 |
|
Diluted(2)
|
$
|
0.00 |
|
$
|
0.01 |
|
$
|
0.01 |
|
$
|
0.04 |
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic(2)
|
621,680,496
|
|
594,168,810
|
|
616,371,816
|
|
563,664,856
|
|
Diluted(2)
|
846,420,843
|
|
743,246,506
|
|
851,569,948
|
|
629,922,341
|
(1) The following table sets forth share-based compensation for the periods indicated below:
| |
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
| |
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Research and development
|
$
|
54,383 |
|
$
|
567 |
|
$
|
60,243 |
|
$
|
25,074 |
|
Sales and marketing
|
35,998
|
|
406
|
|
38,889
|
|
16,779
|
|
General and administrative
|
55,689
|
|
889
|
|
63,573
|
|
17,264
|
|
Total share-based compensation in operating expenses
|
$
|
146,070 |
|
$
|
1,862 |
|
$
|
162,705 |
|
$
|
59,117 |
(2) Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split and the conversion of preferred shares into ordinary shares, effected on June 22, 2022.
(3) See “Reconciliation of Non-GAAP Financial Measures” elsewhere within this MD&A (starting on page 13) for a reconciliation of this and adjusted EBITDA.
Share-based compensation for the three and six months ended June 30, 2022 included $125.6 million of expense related to the acceleration of vesting of certain performance awards upon the completion of the Merger. These 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 six months ended June 30, 2021 included $56.8 million of expense related to the amount paid in excess of the estimated fair value of ordinary share as of the date of the transactions in
connection with a secondary sale of Pagaya Ordinary Shares.
Comparison of Three Months Ended June 30, 2022 and 2021
Total Revenue and Other Income
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Revenue from fees
|
$
|
163,302 |
|
$
|
92,179 |
|
$
|
71,123 |
|
77%
|
|
Interest income
|
17,252
|
|
6,969
|
|
10,283
|
|
148%
|
|
Investment income
|
995
|
|
(58)
|
|
1,053
|
|
NM
|
|
Total Revenue and Other Income
|
$
|
181,549 |
|
$
|
99,090 |
|
$
|
82,459 |
|
83%
|
Total revenue and other income increased by $82.5 million, or 83%, to $181.5 million for the three months ended June 30, 2022 from $99.1 million for the three months ended June 30, 2021. The increase was primarily driven by an increase in revenue
from fees, which in turn is primarily related to the increase in Network Volume.
Revenue from fees increased by $71.1 million, or 77%, to $163.3 million for the three months ended June 30, 2022 from $92.2 million for the three months ended June 30, 2021. The increase is directly correlated with the
growth in Network Volume, which increased by 79% from $1.1 billion for the three months ended June 30, 2021 to $1.9 billion for the three months ended June 30, 2022. Network Volume is a function of supply from existing and new Partners, as well as
market demand for credit assets. Market demand for credit assets, as represented by assets held by Financing Vehicles, grew 33% to $3.4 billion as of June 30, 2022 from $2.5 billion as of June 30, 2021.
Interest income increased by $10.3 million, or 148%, to $17.3 million for the three months ended June 30, 2022 from $7.0 million for the three months ended June 30, 2021. The increase in interest income is directly
related to our risk retention holdings held in the Company’s consolidated VIEs as well as certain risk retention holdings held directly by the Company’s consolidated subsidiaries.
Investment income increased by $1.1 million to $1.0 million for the three months ended June 30, 2022 from a loss of $0.1 million for the three months ended June 30, 2021. Investment income during the three months ended June 30, 2022 primarily
relates to the returns from certain seed investments which did not exist during the three months ended June 30, 2021.
Costs and Operating Expenses
| |
Three Months Ended June 30,
|
| |
2022
|
|
2021
|
| |
(in thousands)
|
|
Production costs
|
$
|
104,980 |
|
$
|
62,592 |
|
Research and development
|
65,110
|
|
8,562
|
|
Sales and marketing
|
50,604
|
|
6,228
|
|
General and administrative
|
111,479
|
|
11,338
|
|
Total Costs and Operating Expenses
|
$
|
332,173 |
|
$
|
88,720 |
Production Costs
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Production costs
|
$
|
104,980 |
|
$
|
62,592 |
|
$
|
42,388 |
|
68%
|
Production costs increased by $42.4 million, or 68%, to $105.0 million for the three months ended June 30, 2022 from $62.6 million for the three months ended June 30, 2021. This increase was primarily due to increases
in Network Volume.
Research and Development
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Research and development
|
$
|
65,110 |
|
$
|
8,562 |
|
$
|
56,548 |
|
660%
|
Research and development costs increased by $56.5 million, or 660%, to $65.1 million for the three months ended June 30, 2022 from $8.6 million for the three months ended June 30, 2021. This increase was primarily due
to a $52.5 million increase in personnel-related expenses, including a $53.8 million increase in share-based compensation expenses which include amounts capitalized, due to the growth in employees and the share-based compensation expense incurred
during the three months ended June 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the business combination with EJF Acquisition Corp.
pursuant to a certain Agreement and Plan of Merger dated as of September 15, 2021 (the "Merger Agreement", and such transaction, the "Merger"), and a $2.9 million increase in professional services. Headcount in research and development increased by
143% between June 30, 2021 and June 30, 2022.
Sales and Marketing
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Sales and marketing
|
$
|
50,604 |
|
$
|
6,228 |
|
$
|
44,376 |
|
713%
|
Sales and marketing costs increased by $44.4 million, or 713%, to $50.6 million for the three months ended June 30, 2022 from $6.2 million for the three months ended June 30, 2021. This increase was primarily due to a
$42.7 million increase in personnel-related expenses, including a $35.6 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the three months ended June 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the Merger, and a $1.1 million increase in overhead allocation and other miscellaneous
costs. Headcount in sales and marketing increased by 72% between June 30, 2021 and June 30, 2022.
General and Administrative
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
General and administrative
|
$
|
111,479 |
|
$
|
11,338 |
|
$
|
100,141 |
|
883%
|
General and administrative costs increased by $100.1 million, or 883%, to $111.5 million for the three months ended June 30, 2022
from $11.3 million for the three months ended June 30, 2021. This increase was primarily due to a $67.2 million increase in personnel-related expenses, including a $54.8 million increase in share-based compensation expenses, due to the growth in
employees and the share-based compensation expense incurred during the three months ended June 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the Merger, a $21.8 million increase in expenses
related to the public company readiness, legal and other business-related professional services, a $9.8 million increase in miscellaneous costs, including overhead allocations, and a $1.4 million increase in computer maintenance and communications
expenses. Headcount in general and administrative increased by 166% between June 30, 2021 and June 30, 2022.
Other Income (Loss), net
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Other income (loss), net
|
$
|
13,159 |
|
$
|
(9,198) |
|
$
|
22,357 |
|
NM
|
Other income (loss), net increased by $22.4 million to $13.2 million for the three months ended June 30, 2022 from a (loss) of $9.2 million for the three months ended June 30, 2021. The increase was primarily due to a
$23.0 million favorable impact from the changes in fair value remeasurement of warrants.
Income Tax Expense
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Income tax expense (benefit)
|
$
|
(2,404) |
|
$
|
1,627 |
|
$
|
(4,031) |
|
(248)%
|
Income tax expense decreased by $4.0 million, or 248%, to a benefit of $2.4 million for the three months ended June 30, 2022 from an expense of $1.6 million for the three months ended June 30, 2021. The decrease was
mainly due to the decrease in GAAP income before taxes.
Net Income Attributable to Noncontrolling Interests
| |
Three Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Net income attributable to noncontrolling interests
|
$
|
11,213 |
|
$
|
5,419 |
|
$
|
5,794 |
|
107%
|
Net income attributable to noncontrolling interests increased by $5.8 million, or 107%, to $11.2 million for the three months ended June 30, 2022 from $5.4 million for the three months ended June 30, 2021. The increase
was driven by the net income generated from our consolidated VIEs associated with our risk retention holdings. This amount represents the net income of the consolidated VIEs to which we have no economic right and primarily relates to interest income
earned on risk retention holdings.
Comparison of Six Months Ended June 30, 2022 and 2021
Total Revenue and Other Income
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Revenue from fees
|
$
|
321,627 |
|
$
|
173,455 |
|
$
|
148,172 |
|
85%
|
|
Interest income
|
29,461
|
|
9,801
|
|
19,660
|
|
201%
|
|
Investment income
|
995
|
|
12
|
|
983
|
|
8,192%
|
|
Total Revenue and Other Income
|
$
|
352,083 |
|
$
|
183,268 |
|
$
|
168,815 |
|
92%
|
Total revenue and other income increased by $168.8 million, or 92%, to $352.1 million for the six months ended June 30, 2022 from $183.3 million for the six months ended June 30, 2021. The increase was primarily driven
by an increase in revenue from fees, which in turn is primarily related to the increase in Network Volume.
Revenue from fees increased by $148.2 million, or 85%, to $321.6 million for the six months ended June 30, 2022 from $173.5 million for the six months ended June 30, 2021. The increase is directly correlated with the
growth in Network Volume, which increased by 104% from $1.8 billion for the six months ended June 30, 2021 to $3.6 billion for the six months ended June 30, 2022. Network Volume is a function of supply from existing and new Partners, as well as
market demand for credit assets. Market demand for credit assets, as represented by assets held by Financing Vehicles, grew 33% to $3.4 billion as of June 30, 2022, from $2.5 billion as of June 30, 2021.
Interest income increased by $19.7 million, or 201%, to $29.5 million for the six months ended June 30, 2022 from $9.8 million for the six months ended June 30, 2021. The increase in interest income is directly related
to our risk retention holdings held in the Company’s consolidated VIEs as well as certain risk retention holdings held directly by the Company’s consolidated subsidiaries..
Investment income increased by $1.0 million, or 8,192%, to $1.0 million for the six months ended June 30, 2022 from $0.0 million for six months ended June 30, 2021. Investment income during the six months ended June
30, 2022 primarily relates to the returns from certain seed investments which did not exist during the six months ended June 30, 2021.
Cost and Operating Expenses
| |
Six Months Ended
June 30,
|
| |
2022
|
|
2021
|
| |
(in thousands)
|
|
Production costs
|
$
|
197,260 |
|
$
|
99,774 |
|
Research and development
|
88,736
|
|
39,412
|
|
Sales and marketing
|
63,650
|
|
28,403
|
|
General and administrative
|
163,073
|
|
34,107
|
|
Total Costs and Operating Expenses
|
$
|
512,719 |
|
$
|
201,696 |
Production Costs
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Production costs
|
$
|
197,260 |
|
$
|
99,774 |
|
$
|
97,486 |
|
98%
|
Production costs increased by $97.5 million, or 98%, to $197.3 million for the six months ended June 30, 2022 from $99.8 million for the six months ended June 30, 2021. This increase was primarily due to increases in
Network Volume.
Research and Development
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Research and development
|
$
|
88,736 |
|
$
|
39,412 |
|
$
|
49,324 |
|
125%
|
Research and development costs increased by $49.3 million, or 125%, to $88.7 million for the six months ended June 30, 2022 from $39.4 million for the six months ended June 30, 2021. This increase was primarily due to
a $41.4 million increase in personnel-related expenses, including a $35.2 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the six months ended June 30,
2022 related to the acceleration of vesting of certain performance awards upon the completion of the Merger, a $5.2 million increase in professional services, and a $3.3 million increase in server costs. Headcount in research and development
increased by 143% between June 30, 2021 and June 30, 2022.
Sales and Marketing
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Sales and marketing
|
$
|
63,650 |
|
$
|
28,403 |
|
$
|
35,247 |
|
124%
|
Sales and marketing costs increased by $35.2 million, or 124%, to $63.7 million for the six months ended June 30, 2022 from $28.4 million for the six months ended June 30, 2021. This increase was primarily due to a
$31.9 million increase in personnel-related expenses, including a $22.1 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the six months ended June 30, 2022
related to the acceleration of vesting of certain performance awards upon the completion of the Merger, and a $2.1 million increase in overhead allocation and other miscellaneous costs. Headcount in sales and marketing increased by 72% between
June 30, 2021 and June 30, 2022.
General and Administrative
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
General and administrative
|
$
|
163,073 |
|
$
|
34,107 |
|
$
|
128,966 |
|
378%
|
General and administrative costs increased by $129.0 million, or 378%, to $163.1 million for the six months ended June 30, 2022 from
$34.1 million for the six months ended June 30, 2021. This increase was primarily due to a $68.2 million increase in personnel-related expenses, including a $46.3 million increase in share-based compensation expenses, due to the growth in employees
and the share-based compensation expense incurred during the six months ended June 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the Merger, a $39.7 million increase in expenses related to the
public company readiness, legal and other business-related professional services, a $18.7 million increase in miscellaneous costs, including overhead allocations, and a $2.4 million increase in computer maintenance and communications expenses.
Headcount in general and administrative increased by 166% between June 30, 2021 and June 30, 2022.
Other Income (Loss), Net
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Other income (loss), net
|
$
|
13,472 |
|
$
|
(18,771) |
|
$
|
32,243 |
|
NM
|
Other income (loss), net increased by $32.2 million to $13.5 million for the six months ended June 30, 2022 from other expense, net of $18.8 million for the six months ended June 30, 2021. The increase was primarily
due to a $32.3 million favorable impact from the changes in fair value remeasurement of warrants.
Income Tax Expense (Benefit)
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Income tax expense (benefit)
|
$
|
(2,590) |
|
$
|
7,793 |
|
$
|
(10,383) |
|
(133)%
|
Income tax expense decreased by $10.4 million, or 133%, to a benefit of $2.6 million for the six months ended June 30, 2022 from $7.8 million for the six months ended June 30, 2021. The decrease was mainly due to the
decrease in GAAP income before taxes.
Net Income Attributable to Noncontrolling Interests
| |
Six Months Ended June 30,
|
|
|
|
|
| |
2022
|
|
2021
|
|
Change
|
|
% Change
|
| |
(in thousands, except percentages)
|
|
Net income attributable to noncontrolling interests
|
$
|
19,972 |
|
$
|
7,546 |
|
$
|
12,426 |
|
165%
|
Net Income attributable to noncontrolling interests increased by $12.4 million, or 165%, to $20.0 million for the six months ended June 30, 2022 from $7.5 million for the six months ended June 30, 2021. The increase
was driven by the net income generated from our consolidated VIEs associated with our risk retention holdings. This amount represents the net income of the consolidated VIEs to which we have no economic right and primarily relates to interest income
earned on risk retention holdings.
Reconciliation of Non-GAAP Financial Measures
To supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use the non-GAAP financial measures Adjusted Net Income and Adjusted EBITDA (each as defined below) to provide
investors with additional information about our financial performance and to enhance the overall understanding of the results of operations by highlighting the results from ongoing operations and the underlying profitability of our business. We are
presenting these non-GAAP financial measures because we believe it provides an additional tool for investors to use in comparing our core financial performance over multiple periods with the performance of other companies.
However, these non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting
rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, these non-GAAP financial measures
should be viewed as supplementing, and not as an alternative or substitute for, our consolidated financial statements prepared and presented in accordance with GAAP.
To address these limitations, we provide a reconciliation of Adjusted Net Income and Adjusted EBITDA to net income (loss) attributable to Pagaya’s shareholders. We encourage investors and others to review our financial
information in its entirety, not to rely on any single financial measure and to view Adjusted Net Income and Adjusted EBITDA in conjunction with their respective related GAAP financial measures.
Adjusted Net Income and Adjusted EBITDA
Adjusted Net Income and Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 are summarized below (in thousands):
| |
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Adjusted Net Income
|
$
|
3,481 |
|
$
|
5,281 |
|
$
|
7,587 |
|
$
|
25,596 |
|
Adjusted EBITDA
|
$
|
4,925 |
|
$
|
7,064 |
|
$
|
9,322 |
|
$
|
33,671 |
Adjusted Net Income is defined as net income (loss) attributable to Pagaya’s shareholders excluding share-based compensation expense, change in fair value of warrant liability, and non-recurring expenses associated
with the Merger. Adjusted EBITDA is defined as net income (loss) attributable to Pagaya’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.
These items are excluded from our Adjusted Net Income and Adjusted EBITDA measures because they are noncash in nature, or because the amount and timing of these items is unpredictable, is not driven by core results of
operations and renders comparisons with prior periods and competitors less meaningful.
We believe Adjusted Net Income and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our results of operations, as well as providing a useful measure for
period-to-period comparisons of our business performance. Moreover, we have included Adjusted Net Income and Adjusted EBITDA because these are key measurements used by our management internally to make operating decisions, including those related to
operating expenses, evaluate performance, and perform strategic planning and annual budgeting. However, this non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for or
superior to financial information presented in accordance with GAAP and may be different from similarly titled non-GAAP financial measures used by other companies.
The following table presents a reconciliation of net income (loss) attributable to Pagaya shareholders, the most directly comparable GAAP measure, to Adjusted Net Income and Adjusted EBITDA (in thousands):
| |
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net Loss Attributable to Pagaya Technologies Ltd.
|
$
|
(146,274) |
|
$
|
(5,874) |
|
$
|
(164,546) |
|
$
|
(52,538) |
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
146,070
|
|
1,862
|
|
162,705
|
|
59,117
|
|
Fair value adjustment to warrant liability
|
(13,737)
|
|
9,293
|
|
(13,268)
|
|
19,017
|
|
Non-recurring expenses
|
17,422
|
|
—
|
|
22,696
|
|
—
|
|
Adjusted Net Income
|
$
|
3,481 |
|
$
|
5,281 |
|
$
|
7,587 |
|
$
|
25,596 |
|
Adjusted to exclude the following:
|
|
|
|
|
|
|
|
|
Interest expenses
|
3,177
|
|
—
|
|
3,177
|
|
—
|
|
Income tax expense (benefit)
|
(2,404)
|
|
1,627
|
|
(2,590)
|
|
7,793
|
|
Depreciation and amortization
|
671
|
|
156
|
|
1,148
|
|
282
|
|
Adjusted EBITDA
|
$
|
4,925 |
|
$
|
7,064 |
|
$
|
9,322 |
|
$
|
33,671 |
Liquidity and Capital Resources
Sources and Uses of Funds
As of June 30, 2022, the principal sources of liquidity were cash, cash equivalents and restricted cash of $429.7 million and cash flow provided by financing activities. Shareholders’ equity related to Pagaya is
approximately $581 million. Prior to the Merger and PIPE investment, we financed the majority of the operating and capital needs through the private sales of equity securities.
Our primary requirements for liquidity and capital resources are to finance risk retention requirements, invest in research and development and to attract, recruit, and retain a strong employee base to support our
growth strategy. We believe that our sources of liquidity and capital resources will be sufficient to meet our working capital and capital expenditures for at least the next 12 months and for the foreseeable future.
Future Sources of Liquidity and Capital Risks
There are numerous risks to the financial results, liquidity and capital raising, some of which may not be quantified in the Company’s current liquidity forecasts. The principal factors that could impact liquidity and
capital needs are a prolonged inability to adequately access funding in the capital markets or in bilateral agreements, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the
introduction of new and enhanced products, and the continuing market adoption of the Company’s network. We intend to support our liquidity and capital position by pursuing diversified sources of funding, including new securitization vehicles, to
provide committed liquidity in case of prolonged market fluctuations.
We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require
additional financing, we may not be able to raise such financing on terms acceptable to us or at all. Additionally, as a result of any of these actions, we may be subject to restrictions and covenants in the agreements governing these transactions
that may place limitations on us and may be required to pledge collateral as security. If we are unable to raise additional capital or generate cash flows necessary to expand operations and invest in continued innovation, we may not be able to
compete successfully, which would harm our business, operations and financial condition. It is also possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of the significant
judgments or estimates could prove to be materially incorrect.
Future Capital Requirements
During the normal course of business, we enter into certain lease contracts with lease terms through 2032. As of June 30, 2022, the total remaining non-cancellable contractual obligations is approximately $80.5
million.
Cash Flow
The following table presents summarized consolidated cash flow information for the periods presented (in thousands):
| |
Six Months Ended June 30,
|
| |
2022
|
|
2021
|
|
Net cash (used in) provided by operating activities
|
$
|
(25,640) |
|
$
|
9,263 |
|
Net cash used in investing activities
|
$
|
(104,041) |
|
$
|
(190,732) |
|
Net cash provided by financing activities
|
$
|
354,854 |
|
$
|
243,933 |
Operating Activities
Our primary uses of cash in operating activities are for research and development, sales and marketing, general and administrative, and Production Costs. As of June 30, 2022, we had 799 employees compared to 621 on
December 31, 2021. During the six months ended June 30, 2022, we increased our headcount and personnel-related costs across the business to support our growth expansion strategy. We expect our headcount to continue to increase given our focus on
growth and expansion.
Net cash provided by operating activities decreased by $34.9 million, or 377%, to $25.6 million net cash used in operating activities for the six months ended June 30, 2022 from $9.3 million net cash provided by
operating activities for the six months ended June 30, 2021. The decrease was mainly due to a $99.6 million decreased in net income and a $6.5 million decrease in operating assets and liabilities, partially offset by a $71.2 million increase in
non-cash charges.
Investing Activities
Our primary uses of cash in investing activities are primarily comprised of cash used in equity method investments and purchase of tangible fixed assets (property, equipment, and software) in support of research and
development programs.
Net cash used in investing activities decreased by $86.7 million, or 45%, to $104.0 million for the six months ended June 30, 2022 from $190.7 million for the six months ended June 30, 2021. The decrease was primarily
due to a $91.1 million decrease in investment in short-term deposits, a $19.3 million decrease in investment in equity method and other investments, a $8.0 million increase in amount received from investment in loans and securities, and a $5.0
million increase in amount received from short-term deposits. These are partially offset by a $35.4 million increase in investment in loans and securities.
Financing Activities
Our main source of cash from financing activities is proceeds from the issuance of ordinary shares.
Net cash provided by financing activities increased by $110.9 million, or 45%, to $354.9 million for the six months ended June 30, 2022 from $243.9 million for the six months ended June 30, 2021. The increase was
primarily due to a $98.4 million increase in proceeds from the issuance of ordinary shares and $86.4 million of proceeds from secured borrowing, net of payments. These increases were partially offset by a $54.3 million decrease in proceeds received
from noncontrolling interests and a $20.0 million increase in distribution made to noncontrolling interests.
Indebtedness
On December 23, 2021, we entered into the Credit Agreement, by and among Pagaya, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which provides for a $150.0 million
senior secured revolving credit facility (the “Revolving Credit Facility”) maturing on December 23, 2023. On March 15, 2022, we entered into Amendment No. 1 to Credit Agreement (the “ Amendment No. 1”), pursuant to which Silicon Valley Bank provided
an increase to the commitments under the Revolving Credit Facility in a principal amount of $30.0 million, which resulted in the aggregate principal amount of commitments under the Revolving Credit Facility increasing to $180.0 million. This is our
inaugural multi-lender credit facility and we expect to refine our credit arrangements in the future. Proceeds of borrowings under the Revolving Credit Facility may be used to finance the Company’s working capital needs, permitted acquisitions or for
general corporate purposes of the Company and its subsidiaries. As of August 15, 2022, there are no outstanding borrowings under the Revolving Credit Facility and at this time we do not anticipate the need for any material borrowings.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Company’s option, (i) a base rate, (determined based on the prime rate but, in any event, not less than the adjusted
term Secured Overnight Financing Rate (the “SOFR Rate”)) plus a margin of 1.50%, (ii) an adjusted term SOFR Rate (subject to a 0.00% floor) plus a margin of 2.50% or (iii) an adjusted daily simple SOFR Rate (subject to a 0.00% floor) plus a margin of
2.50%. The Company may voluntarily prepay borrowings under the Revolving Credit 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 are required to
be made in respect of borrowings under the Revolving Credit Facility.
Obligations under the Credit Agreement are secured by a first priority lien on cash collateral in an amount equal to 110% of the principal amount of any loans borrowed under the Credit Agreement, which will be
maintained in a deposit account subject to a control agreement in favor of the administrative agent (the “Cash Collateral”). The Credit Agreement contains customary negative covenants; however, as long as the Company is not in default and no event of
default under the Credit Agreement has occurred nor is continuing, the Company maintains the required Cash Collateral and the Company is in compliance with the financial covenants in the Credit Agreement, these covenants will not apply. The negative
covenants include, among other things, limitations on the ability of the Company and certain of its subsidiaries to incur indebtedness, grant liens, engage in certain fundamental changes, make certain dispositions and investments or enter into sale
and leaseback transactions. The Credit Agreement also includes affirmative covenants customary for a credit facility of its type. The Credit Agreement includes events of default related to, among other things, failure to pay amounts due under the
Credit Agreement, breaches of representations, warranties or covenants, defaults under material indebtedness, certain events of bankruptcy or insolvency and judgment defaults, in each case, subject to customary cure periods where appropriate.
The Credit Agreement requires the Company to comply with certain financial covenants, including maintaining (i) a minimum tangible net worth and (ii) liquidity of not less than $80.0 million.
The foregoing descriptions of the Credit Agreement, including Amendment No. 1, are qualified in their entirety by reference to the full and complete terms thereof, which
are incorporated herein by reference to Exhibit 10.15 and Exhibit 10.16, respectively, of Pagaya’s Registration Statement on Form F-4 filed with the SEC on April 7, 2022.
Off-Balance Sheet Arrangements
In the ordinary course of business, we engage in activities with unconsolidated VIEs, including our sponsored securitization vehicles, which we contractually administer. To comply with risk retention regulatory
requirements, we retain at least 5% of the credit risk of the securities issued by these securitization vehicles. From time to time, we may, but are not obligated to, repurchase collateral of the securitization vehicles. Such purchases could expose
us to loss. For additional information, refer to Note 6 to the consolidated financial statements included in our Registration Statement and subsequent amendments.
Recent Accounting Pronouncements
See Note 2 to the consolidated financial statements included in our Registration Statement.
Critical Accounting Policies and Estimates
Our significant accounting policies and their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements included in our Registration Statement. See Note 2 to the consolidated financial statements included in our Registration Statement.
Quantitative and Qualitative Discussions of Market Risk
We are exposed to market risks in the ordinary course of our business, which primarily relate to fluctuations in credit risks, liquidity risks and interest rates. We are exposed to market risk directly through
investments in loans and securities held on our consolidated balance sheets and access to the securitization markets. As the Company holds their investments to maturity, such fluctuations to date have not been significant. As of June 30, 2022, there
have been no material changes in our exposure to market risk from December 31, 2021, a description of which may be found in our Registration Statement. See “Risk Factors” included in the Registration Statement for a discussion of how difficult
conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.
