UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2022

Commission File Number: 001-41430

Pagaya Technologies Ltd.
(Exact Name of Registrant as Specified in Its Charter)

Azrieli Sarona Bldg, 54th Floor
121 Derech Menachem Begin
Tel-Aviv 6701203, Israel
+972 (3) 715 0920
(Address of principal executive offices)

 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐



Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐







CONTENTS

On November 10, 2022, Pagaya Technologies Ltd. (“Pagaya”) issued a press release titled “Pagaya Reports Third Quarter 2022 Results,” in which Pagaya reported its results of operations for the quarter and nine months ended September 30, 2022. A copy of that press release is furnished as Exhibit 99.1 hereto. Pagaya’s Unaudited Condensed Consolidated Interim Financial Statements for the Three Months and Nine Months Ended September 30, 2022 included as Exhibit 99.2 of this Report on Form 6-K (the “Report”), and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months and Nine Months Ended September 30, 2022 included as Exhibit 99.3 of this Report, shall be deemed to be incorporated by reference into the registration statement on Form S-8 (File No. 333-265739), of Pagaya and any related prospectuses, as such registration statements and prospectuses may be amended from time to time, and to be a part thereof from the date on which this Report is filed, to the extent not superseded by documents or reports subsequently furnished.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “expect,” “plan,” “anticipate,” “estimate,” “intend” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. These forward-looking statements are based on Pagaya’s expectations and assumptions as of the date of this Report. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those expressed or implied by these forward-looking statements. For a discussion of risk factors that may cause Pagaya’s actual results to differ from those expressed or implied in the forward-looking statements in this Report, you should refer to Pagaya’s filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section contained herein. Except as required by law, Pagaya undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing Pagaya’s views as of any date subsequent to the date of this Report.




EXHIBIT INDEX

Exhibit No.
Description
Press release, dated November 10, 2022, titled “Pagaya Reports Third Quarter 2022 Results”
   
99.2
Unaudited Condensed Consolidated Interim Financial Statements for the Three Months and Nine Months Ended September 30, 2022
   
99.3
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months and Nine Months Ended September 30, 2022



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
PAGAYA TECHNOLOGIES LTD.
 
 
By:
/s/ Gal Krubiner
 
Name:
Gal Krubiner
 
Title:
Chief Executive Officer
 
 
By:
/s/ Michael Kurlander
 
Name:
Michael Kurlander
 
Title:
Chief Financial Officer



Date: November 10, 2022



Exhibit 99.1


Pagaya Reports Third Quarter 2022 Results

3Q’22 Network Volume grows 26% year-over-year to $1.9 billion
Total Revenue grows 49% year-over-year to reach record $204 million
Adjusted EBITDA of ($5.2) million

New York, NY and Tel Aviv, Israel – November 10, 2022 – Pagaya Technologies Ltd. (NASDAQ: PGY) (“Pagaya”,  the “Company” or “we” ), a global technology company delivering artificial intelligence infrastructure for the financial ecosystem, today announced financial results for the third quarter ending September 30, 2022 and updates to its full-year 2022 outlook.

“We delivered another quarter of strong network volume and total revenue growth year-over-year, resulting in the highest quarterly revenue in our 6-year history. These results reflect the power of the network infrastructure we have created, the “rails” that connect our partners, investors, and consumers across the country,” said Gal Krubiner, Chief Executive Officer of Pagaya. “We believe we have built a unique business, led by an experienced management team, that will enable us to navigate the current macroeconomic cycle and continue executing on our mission.”

Third Quarter 2022 Financial Highlights
All comparisons are made versus the same period in 2021 unless otherwise stated

Network Volume increased 26% to $1.9 billion, reflecting strong growth from existing partnerships and newer  products

Total revenue and other income increased 49% to $204.0 million, mainly due to increased fee revenue from Network Volume growth

Net loss attributable to Pagaya shareholders of $74.8 million, impacted by share-based compensation of $60.3 million. Adjusted net loss of $14.4 million, which excludes share-based compensation expense, a change in fair value of warrant liability and non-recurring expenses

Adjusted EBITDA of negative $5.2 million, reflecting lower margins in newer programs, financial markets volatility and ongoing investment in the business

Recent Business Highlights

Network expansion: Monthly application flow from existing partners grew by approximately 20% from January to September 2022. Top 3 Auto partner onboarded in May enabling further expansion in Auto product, with dealership representation in over 70% of all U.S. franchise dealerships. Top-tier PoS partner onboarded onto the Company’s platform

Consistently raising capital: Raised over $2 billion of investor capital into financing vehicles in the third quarter, in both public and private capital markets. Triple-A rating achieved from Moody’s and DBRS on Company's most recent single-family-rental ABS transaction

Strengthening Pagaya’s network infrastructure: Continued strong application flow from existing and new partners, with 77 million applications evaluated from the beginning of 2019 through the third quarter of 2022. 41 million applications evaluated in the first nine months of 2022, representing 120% growth compared to the same period last year


Full-Year 2022 Outlook
 
The Company is maintaining its prior outlook for full-year 2022, with Network Volume and Adjusted EBITDA expected to be at the low end of their respective ranges.

 
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, November 10, 2022 at 5:00 p.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 1-888-396-8064 or 1-416-764-8649. The telephone replay can be accessed by dialing 1-844-512-2921 or 1-412-317-6671 and providing the conference ID# 00585771. The telephone replay will be available starting shortly after the call until November 24, 2022.  A replay will also be available on the Investor Relations website following the call.

About Pagaya Technologies
Pagaya (NASDAQ: PGY) is a global technology company making life-changing financial products and services available to more people nationwide, as it reshapes the financial services ecosystem. By using machine learning, a vast data network and a sophisticated AI-driven approach, Pagaya provides comprehensive consumer credit and residential real estate solutions for its partners, their customers, and investors. Its proprietary API and capital solutions integrate into its network of partners to deliver seamless user experiences and greater access to the mainstream economy. Pagaya has offices in New York, Tel Aviv and Boston. For more information, 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”, “will,” “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 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 (Loss) 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 (Loss) and Adjusted EBITDA to net income (loss) attributable to Pagaya’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 (Loss) and Adjusted EBITDA in conjunction with its respective related GAAP financial measures.



Non-GAAP financial measures include the following item:
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 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 (Loss) 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 (Loss) 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 (Loss) 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 Net Loss Attributable to Pagaya Technologies Ltd., its most directly comparable GAAP amount.

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 under “Full-Year 2022 Outlook” without unreasonable effort because 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.

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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, except share and per share data)
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2022
   
2021
   
2022
   
2021
 
Revenue
 
   
             
Revenue from fees
 
$
185,614
   
$
128,149
   
$
507,241
   
$
301,604
 
Other Income
                               
Interest income
   
13,666
     
8,455
     
43,127
     
18,256
 
Investment income (loss)
   
4,675
     
(14
)
   
5,670
     
(2
)
Total Revenue and Other Income
   
203,955
     
136,590
     
556,038
     
319,858
 
Costs and Operating Expenses
                               
Production costs
   
129,115
     
81,731
     
326,375
     
181,505
 
Research and development(1)
   
38,643
     
11,932
     
127,379
     
51,344
 
Sales and marketing(1)
   
26,579
     
9,161
     
90,229
     
37,564
 
General and administrative(1)
   
73,790
     
18,961
     
236,863
     
53,068
 
Total Costs and Operating Expenses
   
268,127
     
121,785
     
780,846
     
323,481
 
Operating Income (Loss)
   
(64,172
)
   
14,805
     
(224,808
)
   
(3,623
)
Other income (loss), net(2)
   
3,233
     
(32,768
)
   
9,846
     
(51,539
)
Income (Loss) Before Income Taxes
   
(60,939
)
   
(17,963
)
   
(214,962
)
   
(55,162
)
Income tax expense(2)
   
6,065
     
3,624
     
25,604
     
11,417
 
Net Loss
   
(67,004
)
   
(21,587
)
   
(240,566
)
   
(66,579
)
Less: Net income attributable to noncontrolling interests
   
7,785
     
6,570
     
27,757
     
14,116
 
Net Loss Attributable to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(28,157
)
 
$
(268,323
)
 
$
(80,695
)
Per share data:
                               
Net loss attributable to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(28,157
)
 
$
(268,323
)
 
$
(80,695
)
Less: Undistributed earnings allocated to participated securities
   
     
(3,153
)
   
(12,205
)
   
(13,494
)
Less: Deemed dividend distribution
   
     
     
     
(23,612
)
Net loss attributed to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(31,310
)
 
$
(280,528
)
 
$
(117,801
)
Net loss per share attributable to Pagaya Technologies Ltd.:
                               
Basic and Diluted(3)
 
$
(0.11
)
 
$
(0.16
)
 
$
(0.73
)
 
$
(0.61
)
Non-GAAP adjusted net income (loss)(4)
 
$
(14,440
)
 
$
11,283
   
$
(28,981
)
 
$
36,879
 
Non-GAAP adjusted net income per share:
                               
Basic(3)
 
$
(0.02
)
 
$
0.06
   
$
(0.08
)
 
$
0.19
 
Diluted(3)
 
$
(0.02
)
 
$
0.03
   
$
(0.08
)
 
$
0.11
 
Weighted average shares outstanding:
                               
Basic(3)
   
679,431,901
     
196,023,981
     
381,831,895
     
194,490,947
 
Diluted(3)
   
964,179,889
     
439,122,774
     
666,968,467
     
345,551,431
 
(1) The following table sets forth share-based compensation for the periods indicated below:
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
Research and development
 
$
16,208
   
$
1,168
   
$
76,451
   
$
26,242
 
Sales and marketing
   
15,645
     
631
     
54,534
     
17,410
 
General and administrative
   
28,449
     
2,058
     
92,022
     
19,322
 
Total share-based compensation in operating expenses
 
$
60,302
   
$
3,857
   
$
223,007
   
$
62,974
 
(2)
Amounts for the nine months ended September 30, 2022 include certain adjustments for the second quarter of 2022 relating to deferred tax assets and warrant liability, which were not originally recorded as of and for the three and six months ended June 30, 2022.
(3)
Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split effected on June 22, 2022.
(4)
See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this and adjusted EBITDA, another non-GAAP measure.



PAGAYA TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(In thousands)
   
September 30,
   
December 31,
 
   
2022
   
2021
 
Assets
 
(Unaudited)
   
(Audited)
 
Current assets:
           
Cash and cash equivalents
 
$
327,896
   
$
190,778
 
Restricted cash
   
34,161
     
7,000
 
Short-term deposits
   
     
5,020
 
Fees and other receivables
   
52,122
     
32,332
 
Investments in loans and securities
   
2,446
     
5,142
 
Prepaid expenses and other current assets
   
22,512
     
6,263
 
Total current assets
   
439,137
     
246,535
 
Restricted cash
   
4,762
     
6,797
 
Fees and other receivables
   
31,250
     
19,208
 
Investments in loans and securities
   
442,840
     
277,582
 
Equity method and other investments
   
25,807
     
14,841
 
Right-of-use asset
   
66,366
     
 
Property and equipment, net
   
28,202
     
7,648
 
Deferred tax assets, net
   
8,501
     
5,681
 
Deferred offering costs
   
     
11,966
 
Prepaid expenses and other assets
   
2,706
     
 
Total non-current assets
   
610,434
     
343,723
 
Total Assets
 
$
1,049,571
   
$
590,258
 
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
2,483
   
$
11,580
 
Accrued expenses and other liabilities
   
40,343
     
17,093
 
Operating lease liability - current
   
8,983
     
 
Secured borrowing - current
   
26,251
     
 
Income taxes payable - current
   
10,924
     
 
Total current liabilities
   
88,984
     
28,673
 
Non-current liabilities:
               
Warrant liability
   
3,080
     
27,469
 
Secured borrowing - non-current
   
87,503
     
37,905
 
Operating lease liability - non-current
   
53,501
     
 
Income taxes payable - non-current
   
22,773
     
11,812
 
Total non-current liabilities
   
166,857
     
77,186
 
Total liabilities
   
255,841
     
105,859
 
Redeemable convertible preferred shares
   
     
307,047
 
Shareholders’ equity:
               
Additional paid-in capital
   
947,381
     
113,170
 
Accumulated deficit
   
(380,201
)
   
(111,878
)
Total Pagaya Technologies Ltd. Shareholders’ Equity
   
567,180
     
1,292
 
Noncontrolling interests
   
226,550
     
176,060
 
Total shareholders’ Equity
   
793,730
     
177,352
 
Total Liabilities and Shareholders’ Equity
 
$
1,049,571
   
$
590,258
 



PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (In thousands)
 
Nine Months Ended September 30,
 
 
2022
   
2021
 
Cash flows from operating activities
 
       
Net loss
 
$
(240,566
)
 
$
(66,579
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
Equity method income (loss)
   
(5,670
)
   
2
 
Depreciation and amortization
   
4,077
     
489
 
Share-based compensation
   
223,007
     
62,974
 
Fair value adjustment to warrant liability
   
(9,408
)
   
51,477
 
Issuance of ordinary shares related to commitment shares
   
1,000
     
 
Loss from investment in loans and securities
   
10,706
     
 
Change in operating assets and liabilities:
               
Fees and other receivables
   
(31,832
)
   
(16,929
)
Deferred tax assets, net
   
(2,820
)
   
(2,979
)
Prepaid expenses and other assets
   
(18,530
)
   
(17,221
)
Right-of-use asset
   
2,322
     
 
Accounts payable
   
(9,097
)
   
4,242
 
Accrued expenses and other liabilities
   
23,250
     
8,265
 
Operating lease liability
   
(6,204
)
   
 
Income tax payable
   
21,885
     
14,059
 
Net cash (used in) provided by operating activities
   
(37,880
)
   
37,800
 
Cash flows from investing activities
               
Proceeds from the sale/maturity/prepayment of:
               
Investments in loans and securities
   
88,538
     
27,935
 
Short-term deposits
   
5,020
     
 
Equity method and other investments
   
453
     
925
 
Payments for the purchase of:
               
Investments in loans and securities
   
(261,806
)
   
(142,146
)
Property and equipment
   
(18,266
)
   
(1,517
)
Equity method and other investments
   
(5,749
)
   
(22,991
)
Short-term deposits
   
     
(51,446
)
Net cash used in investing activities
   
(191,810
)
   
(189,240
)
Cash flows from financing activities
               
Proceeds from sale of ordinary shares in connection with the Business Combination and PIPE Investment, net of issuance costs
   
291,872
     
 
Proceeds from issuance of redeemable convertible preferred shares, net
   
     
172,645
 
Proceeds from issuance of ordinary share warrants, net
   
     
20,807
 
Proceeds from secured borrowing
   
94,094
     
 
Proceeds received from noncontrolling interests
   
92,988
     
129,970
 
Proceeds from revolving credit facility
   
26,000
     
 
Proceeds from exercise of stock options
   
1,480
     
171
 
Distribution made to noncontrolling interests
   
(70,255
)
   
(54,457
)
Distribution made to revolving credit facility
   
(26,000
)
   
 
Distribution made to secured borrowing
   
(18,245
)
   
 
Payment for deferred offering costs
   
     
(4,278
)
Net cash provided by financing activities
   
391,934
     
264,858
 
Net increase in cash, cash equivalents and restricted cash
   
162,244
     
113,418
 
Cash, cash equivalents and restricted cash, beginning of period
   
204,575
     
5,880
 
Cash, cash equivalents and restricted cash, end of period
 
$
366,819
   
$
119,298
 
Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated statements of financial position to the amounts shown in the statements of cash flow above:
               
Cash and cash equivalents
 
$
327,896
   
$
101,236
 
Restricted cash - current
   
34,161
     
12,000
 
Restricted cash - non-current
   
4,762
     
6,062
 
Total cash, cash equivalents, and restricted cash
 
$
366,819
   
$
119,298
 



PAGAYA TECHNOLOGIES LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2022
   
2021
   
2022
   
2021
 
Net Loss Attributable to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(28,157
)
 
$
(268,323
)
 
$
(80,695
)
Adjusted to exclude the following:
                               
Share-based compensation
   
60,302
     
3,857
     
223,007
     
62,974
 
Fair value adjustment to warrant liability
   
(3,000
)
   
32,460
     
(9,408
)
   
51,477
 
Non-recurring expenses
   
3,047
     
3,123
     
25,743
     
3,123
 
Adjusted Net Income (Loss)
   
(14,440
)
   
11,283
     
(28,981
)
   
36,879
 
Adjusted to exclude the following:
                               
Interest expenses
   
243
     
     
3,420
     
 
Income tax expense
   
6,065
     
3,624
     
25,604
     
11,417
 
Depreciation and amortization
   
2,929
     
207
     
4,077
     
489
 
Adjusted EBITDA
 
$
(5,203
)
 
$
15,114
   
$
4,120
   
$
48,785
 




Exhibit 99.2

PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(In thousands)

   
September 30,
   
December 31,
 
   
2022
   
2021
 
Assets
 
(Unaudited)
   
(Audited)
 
Current assets:
           
Cash and cash equivalents
 
$
327,896
   
$
190,778
 
Restricted cash
   
34,161
     
7,000
 
Short-term deposits
   
     
5,020
 
Fees and other receivables (including related party receivables of $43,340 and $32,332 as of September 30, 2022 and December 31, 2021, respectively)
   
52,122
     
32,332
 
Investments in loans and securities
   
2,446
     
5,142
 
Prepaid expenses and other current assets (including related party assets of $15,500 and $1,367 as of September 30, 2022 and December 31, 2021, respectively)
   
22,512
     
6,263
 
Total current assets
   
439,137
     
246,535
 
Restricted cash
   
4,762
     
6,797
 
Fees and other receivables (including related party receivables of $30,701 and $19,208 as of September 30, 2022 and December 31, 2021, respectively)
   
31,250
     
19,208
 
Investments in loans and securities
   
442,840
     
277,582
 
Equity method and other investments
   
25,807
     
14,841
 
Right-of-use asset
   
66,366
     
 
Property and equipment, net
   
28,202
     
7,648
 
Deferred tax assets, net
   
8,501
     
5,681
 
Deferred offering costs
   
     
11,966
 
Prepaid expenses and other assets
   
2,706
     
 
Total non-current assets
   
610,434
     
343,723
 
Total Assets
 
$
1,049,571
   
$
590,258
 
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
2,483
   
$
11,580
 
Accrued expenses and other liabilities (including related party liabilities of $537 and $2,510 as of September 30, 2022 and December 31, 2021, respectively)
   
40,343
     
17,093
 
Operating lease liability - current
   
8,983
     
 
Secured borrowing - current
   
26,251
     
 
Income taxes payable - current
   
10,924
     
 
Total current liabilities
   
88,984
     
28,673
 
Non-current liabilities:
               
Warrant liability
   
3,080
     
27,469
 
Secured borrowing - non-current
   
87,503
     
37,905
 
Operating lease liability - non-current
   
53,501
     
 
Income taxes payable - non-current
   
22,773
     
11,812
 
Total non-current liabilities
   
166,857
     
77,186
 
Total liabilities
   
255,841
     
105,859
 
Redeemable convertible preferred shares
           
307,047
 
Shareholders’ equity:
               
Ordinary shares
   
     
 
Additional paid-in capital
   
947,381
     
113,170
 
Accumulated deficit
   
(380,201
)
   
(111,878
)
Total Pagaya Technologies Ltd. Shareholders’ Equity
   
567,180
     
1,292
 
Noncontrolling interests
   
226,550
     
176,060
 
Total shareholders’ Equity
   
793,730
     
177,352
 
Total Liabilities and Shareholders’ Equity
 
$
1,049,571
   
$
590,258
 


PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, except share and per share data)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2022
   
2021
   
2022
   
2021
 
Revenue
 
   
             
Revenue from fees (including related party revenues of $171,300 and $128,149 for the three months ended September 30, 2022 and 2021, respectively, and $492,300 and $301,604 for the nine months ended September 30, 2022 and 2021, respectively)
 
$
185,614
   
$
128,149
   
$
507,241
   
$
301,604
 
Other Income
                               
Interest income
   
13,666
     
8,455
     
43,127
     
18,256
 
Investment income (loss)(1)
   
4,675
     
(14
)
   
5,670
     
(2
)
Total Revenue and Other Income
   
203,955
     
136,590
     
556,038
     
319,858
 
Costs and Operating Expenses
                               
Production costs
   
129,115
     
81,731
     
326,375
     
181,505
 
Research and development
   
38,643
     
11,932
     
127,379
     
51,344
 
Sales and marketing
   
26,579
     
9,161
     
90,229
     
37,564
 
General and administrative
   
73,790
     
18,961
     
236,863
     
53,068
 
Total Costs and Operating Expenses
   
268,127
     
121,785
     
780,846
     
323,481
 
Operating Income (Loss)
   
(64,172
)
   
14,805
     
(224,808
)
   
(3,623
)
Other income (loss), net(2)
   
3,233
     
(32,768
)
   
9,846
     
(51,539
)
Income (Loss) Before Income Taxes
   
(60,939
)
   
(17,963
)
   
(214,962
)
   
(55,162
)
Income tax expense(2)
   
6,065
     
3,624
     
25,604
     
11,417
 
Net Loss
   
(67,004
)
   
(21,587
)
   
(240,566
)
   
(66,579
)
Less: Net income attributable to noncontrolling interests
   
7,785
     
6,570
     
27,757
     
14,116
 
Net Loss Attributable to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(28,157
)
 
$
(268,323
)
 
$
(80,695
)
Per share data:
                               
Net loss attributable to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(28,157
)
 
$
(268,323
)
 
$
(80,695
)
Less: Undistributed earnings allocated to participated securities
   
     
(3,153
)
   
(12,205
)
   
(13,494
)
Less: Deemed dividend distribution
   
     
     
     
(23,612
)
Net loss attributed to Pagaya Technologies Ltd.
 
$
(74,789
)
 
$
(31,310
)
 
$
(280,528
)
 
$
(117,801
)
Net loss per share attributable to Pagaya Technologies Ltd.:
                               
Basic and Diluted(3)
 
$
(0.11
)
 
$
(0.16
)
 
$
(0.73
)
 
$
(0.61
)
Weighted average shares outstanding:
                               
Basic and Diluted(3)
   
679,431,901
     
196,023,981
     
381,831,895
     
194,490,947
 
(1) Includes income from proprietary investments.
(2) Amounts for the nine months ended September 30, 2022 include certain adjustments for the second quarter of 2022 relating to deferred tax assets and warrant liability, which were not originally recorded as of and for the three and six months ended June 30, 2022.
(3) Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split effected on June 22, 2022.


PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, except share amounts)

                                                 
   
Redeemable Convertible Preferred Shares
   
Ordinary Shares
 
                                 
 
Shares(1)
 
 
Amount
   
Shares(1)
 
 
Amount
 
 
Additional Paid-In Capital
 
 
Retained Earnings (Accumulated Deficit)
 
 
Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit)
   
Non-Controlling Interests
   
Total Shareholders’ Equity
 
Balance – June 30, 2021
   
402,666,012
     
$
278,626
     
191,056,558
     
$
     
$
103,930
     
$
(73,265
)
   
$
30,665
   
$
142,911
   
$
173,576
 
Issuance of Preferred D shares upon exercise of warrants
   
1,000,616
       
6,009
                                             
             
 
Issuance of ordinary shares upon exercise of share options
                     
2,857,595
                 
92
                 
92
             
92
 
Share-based compensation
                                         
3,857
                 
3,857
             
3,857
 
Contributions of interests in consolidated VIEs
                                                             
     
46,182
     
46,182
 
Return of capital to interests in consolidated VIEs
                                                             
     
(21,089
)
   
(21,089
)
Net income (loss)
                                                   
(28,157
)
     
(28,157
)
   
6,570
     
(21,587
)
Balance – September 30, 2021
   
403,666,628
     
$
284,635
     
193,914,153
     
$
     
$
107,879
     
$
(101,422
)
   
$
6,457
   
$
174,574
   
$
181,031
 


   
Redeemable Convertible Preferred Shares
   
Ordinary Shares
 
                                 
 
Shares(1)
 
 
Amount
   
Shares(1)
 
 
Amount
 
 
Additional Paid-In Capital
 
 
Retained Earnings (Accumulated Deficit)
 
 
Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit)
   
Non-Controlling Interests
   
Total Shareholders’ Equity
 
Balance – December 31, 2020
   
321,805,961
     
$
105,981
     
190,397,142
     
$
     
$
315
     
$
2,885
     
$
3,200
   
$
84,945
   
$
88,145
 
Issuance of Series D convertible preferred shares, net of issuance costs of $11
   
45,853,065
       
36,639
                                             
             
 
Issuance of Series E convertible preferred shares, net of issuance costs of $158
   
35,006,986
       
136,006
                                             
             
 
Issuance of Preferred D shares upon exercise of warrants
   
1,000,616
       
6,009
                                             
             
 
Issuance of ordinary shares upon exercise of share options
                     
3,517,011
                 
171
                 
171
             
171
 
Share-based compensation
                                         
62,974
                 
62,974
             
62,974
 
Deemed contribution
                                         
23,612
                 
23,612
             
23,612
 
Deemed dividend distribution
                                                   
(23,612
)
     
(23,612
)
           
(23,612
)
Issuance of ordinary share warrants
                                         
20,807
                 
20,807
             
20,807
 
Contributions of interests in consolidated VIEs
                                                             
     
129,970
     
129,970
 
Return of capital to interests in consolidated VIEs
                                                             
     
(54,457
)
   
(54,457
)
Net income (loss)
                                                   
(80,695
)
     
(80,695
)
   
14,116
     
(66,579
)
Balance – September 30, 2021
   
403,666,628
     
$
284,635
     
193,914,153
     
$
     
$
107,879
     
$
(101,422
)
   
$
6,457
   
$
174,574
   
$
181,031
 


   
Redeemable Convertible Preferred Shares
   
Ordinary Shares
 
                                 
 
Shares
 
 
Amount
   
Shares(1)
 
 
Amount
 
 
Additional Paid-In Capital
 
 
Retained Earnings (Accumulated Deficit)(2)
 
 
Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit)
   
Non-Controlling Interests
   
Total Shareholders’ Equity
 
Balance – June 30, 2022
   
     
$
     
653,914,376
     
$
     
$
878,255
     
$
(305,412
)
   
$
572,843
   
$
172,193
   
$
745,036
 
Issuance of ordinary shares upon exercise of warrants
                     
21,170,017
                                     
             
 
Issuance of ordinary shares upon exercise of share options
                     
5,573,732
                 
1,034
                 
1,034
             
1,034
 
Issuance of ordinary shares upon vesting of RSUs
                     
91,655
                                     
             
 
Issuance of ordinary shares related to commitment shares
                     
46,536
                 
1,000
                 
1,000
             
1,000
 
Share-based compensation
                                         
67,092
                 
67,092
             
67,092
 
Contributions of interests in consolidated VIEs
                                                             
     
63,466
     
63,466
 
Return of capital to interests in consolidated VIEs
                                                             
     
(16,894
)
   
(16,894
)
Net income (loss)
                                                   
(74,789
)
     
(74,789
)
   
7,785
     
(67,004
)
Balance – September 30, 2022
   
     
$
     
680,796,316
     
$
     
$
947,381
     
$
(380,201
)
   
$
567,180
   
$
226,550
   
$
793,730
 


   
Redeemable Convertible Preferred Shares
   
Ordinary Shares

                             
 
 
Shares(1)
 
 
Amount
   
Shares(1)
 
Amount
 
Additional Paid-In Capital
 
 
Retained Earnings (Accumulated Deficit)
 
 
Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit)
   
Non-Controlling Interests
   
Total Shareholders’ Equity
 
Balance – December 31, 2021
   
406,399,029
     
$
307,047
     
194,345,792
           
$
113,170
     
$
(111,878
)
   
$
1,292
   
$
176,060
   
$
177,352
 
Issuance of ordinary shares upon exercise of warrants
                     
21,170,017
                               
             
 
Issuance of ordinary shares upon exercise of share options
                     
15,606,239
           
1,480
                 
1,480
             
1,480
 
Issuance of ordinary shares upon vesting of RSUs
                     
96,326
                               
             
 
Issuance of ordinary shares related to commitment shares
                     
46,536
           
1,000
                 
1,000
             
1,000
 
Issuance of ordinary shares in connection with the Business Combination and PIPE Investment, net of issuance costs of $57,400
   
(406,399,029
)
     
(307,047
)
   
449,531,406
           
581,359
                 
581,359
             
581,359
 
Share-based compensation
                                   
229,797
                 
229,797
             
229,797
 
Reclassification of warrants
                                   
20,575
                 
20,575
             
20,575
 
Contributions of interests in consolidated VIEs
                                                       
     
92,988
     
92,988
 
Return of capital to interests in consolidated VIEs
                                                       
     
(70,255
)
   
(70,255
)
Net income (loss)
                                             
(268,323
)
     
(268,323
)
   
27,757
     
(240,566
)
Balance – September 30, 2022
   
     
$
     
680,796,316
   
$          
   
$
947,381
     
$
(380,201
)
   
$
567,180
   
$
226,550
   
$
793,730
 
(1) Prior period amounts have been retroactively adjusted to reflect the 1:186.9 stock split effected on June 22, 2022.
(2) Amount as of June 30, 2022 includes certain adjustments for the second quarter of 2022 relating to deferred tax assets and warrant liability, which were not originally recorded as of and for the three and six months ended June 30, 2022.


PAGAYA TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands)

   
Nine Months Ended
September 30,
 
 
2022
   
2021
 
Cash flows from operating activities
 
       
Net loss
 
$
(240,566
)
 
$
(66,579
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
Equity method income (loss)
   
(5,670
)
   
2
 
Depreciation and amortization
   
4,077
     
489
 
Share-based compensation
   
223,007
     
62,974
 
Fair value adjustment to warrant liability
   
(9,408
)
   
51,477
 
Issuance of ordinary shares related to commitment shares
   
1,000
     
 
Loss from investment in loans and securities
   
10,706
     
 
Change in operating assets and liabilities:
               
Fees and other receivables
   
(31,832
)
   
(16,929
)
Deferred tax assets, net
   
(2,820
)
   
(2,979
)
Prepaid expenses and other assets
   
(18,530
)
   
(17,221
)
Right-of-use asset
   
2,322
     
 
Accounts payable
   
(9,097
)
   
4,242
 
Accrued expenses and other liabilities
   
23,250
     
8,265
 
Operating lease liability
   
(6,204
)
   
 
Income tax payable
   
21,885
     
14,059
 
Net cash (used in) provided by operating activities
   
(37,880
)
   
37,800
 
Cash flows from investing activities
               
Proceeds from the sale/maturity/prepayment of:
               
Investments in loans and securities
   
88,538
     
27,935
 
Short-term deposits
   
5,020
     
 
Equity method and other investments
   
453
     
925
 
Payments for the purchase of:
               
Investments in loans and securities
   
(261,806
)
   
(142,146
)
Property and equipment
   
(18,266
)
   
(1,517
)
Equity method and other investments
   
(5,749
)
   
(22,991
)
Short-term deposits
   
     
(51,446
)
Net cash used in investing activities
   
(191,810
)
   
(189,240
)
Cash flows from financing activities
               
Proceeds from sale of ordinary shares in connection with the Business Combination and PIPE Investment, net of issuance costs
   
291,872
     
 
Proceeds from issuance of redeemable convertible preferred shares, net
   
     
172,645
 
Proceeds from issuance of ordinary share warrants, net
   
     
20,807
 
Proceeds from secured borrowing
   
94,094
     
 
Proceeds received from noncontrolling interests
   
92,988
     
129,970
 
Proceeds from revolving credit facility
   
26,000
     
 
Proceeds from exercise of stock options
   
1,480
     
171
 
Distribution made to noncontrolling interests
   
(70,255
)
   
(54,457
)
Distribution made to revolving credit facility
   
(26,000
)
   
 
Distribution made to secured borrowing
   
(18,245
)
   
 
Payment for deferred offering costs
   
     
(4,278
)
Net cash provided by financing activities
   
391,934
     
264,858
 
Net increase in cash, cash equivalents and restricted cash
   
162,244
     
113,418
 
Cash, cash equivalents and restricted cash, beginning of period
   
204,575
     
5,880
 
Cash, cash equivalents and restricted cash, end of period
 
$
366,819
   
$
119,298
 
Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated statements of financial position to the amounts shown in the statements of cash flow above:
               
Cash and cash equivalents
 
$
327,896
   
$
101,236
 
Restricted cash - current
   
34,161
     
12,000
 
Restricted cash - non-current
   
4,762
     
6,062
 
Total cash, cash equivalents, and restricted cash
 
$
366,819
   
$
119,298
 



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 historical audited annual consolidated financial statements as of and for the years ended December 31, 2021 and 2020, and the related notes included in our Registration Statement on Form F-1, initially filed with the Securities and Exchange Commission (the “SEC”) on July 20, 2022 (as amended, 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 and other service providers, their customers, and investors. Services 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 residential real estate 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 Vehicles.1

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 benefit through gaining exposure to the returns of these assets originated by Partners with the assistance of our AI technology and acquired by the Financing Vehicles through our network.


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.

Recent Developments

The Committed Equity Financing

On August 17, 2022, we entered into a common share purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley Principal Capital II”). Pursuant to the Purchase Agreement, we have the right to sell to B. Riley Principal Capital II up to $300,000,000 of our Class A Ordinary Shares, subject to certain limitations and conditions set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement. Sales of our Class A Ordinary Shares pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley Principal Capital II under the Purchase Agreement. In accordance with our obligations under the Registration Rights Agreement, we have filed a registration statement (the “ELOC Registration Statement") with the SEC to register under the Securities Act of 1933, as amended (the “Securities Act”) the resale by B. Riley Principal Capital II of up to 40,139,607 Class A Ordinary Shares, including (i) up to 40,000,000 Class A Ordinary Shares that we may elect, in our sole discretion, to issue and sell to B. Riley Principal Capital II, from time to time from and after the Commencement Date (defined below) under the Purchase Agreement, and (ii) 139,607 Class A Ordinary Shares that we issued and may issue to B. Riley Principal Capital II if certain conditions are met pursuant to the Purchase Agreement (the “Commitment Shares”) in consideration for its commitment to purchase our Class A Ordinary Shares that we may, in our sole discretion, direct it to make from time to time after the date of the ELOC Registration Statement pursuant to the Purchase Agreement, of which 46,536 Commitment Shares were issued to B. Riley Principal Capital II on August 17, 2022 (the “Initial Commitment Shares”) and 93,071 Commitment Shares may be issued to the B. Riley Principal Capital II if certain conditions are met pursuant to the Purchase Agreement (the “Additional Commitment Shares”). See also the section titled “Liquidity and Capital Resources—The Committed Equity Financing.”

Credit Facility

On September 2, 2022, we entered into that certain Senior Secured Revolving Credit Agreement (the “Credit Agreement”) by and among Pagaya, as the borrower, the lenders from time to time party thereto and Silicon Valley Bank, as administrative agent and collateral agent, which provides for a 3-year senior secured revolving credit facility (the “Revolving Credit Facility”) in an initial principal amount of $167.5 million, which includes a sub-limit for letters of credit in an initial aggregate principal amount of $50.0 million, of which up to the U.S. dollar equivalent of $20.0 million may be issued in the new Israeli shekel (“NIS”). See also the section titled “Indebtedness—Credit Facility.”

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 June 22, 2022, (b) in which we have an annual total gross revenue of at least $1.235 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 the Financing Vehicles through our network. We source capital from investors who invest in Financing Vehicles. We earn revenue, primarily in the form of fees, 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 that has enabled us to assist our Partners as they make decisions to extend credit to consumers or the identify and purchase single-family residential properties. 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

Our AI technology enables certain 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 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, the last four quarters have generated an average Network Volume growth of 76% year-over-year.

Adoption of Our Network by Partners

We devote significant time to, 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 network 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.

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 experts’ success in making these improvements to our models over time.

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. Since the beginning of 2020, we have raised more than $13 billion from investors, but the availability of funding is not guaranteed and subject to market conditions.

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 residential 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. The recent rise in inflation may adversely impact the ability of borrowers to service their debt, which could lead to deterioration of the credit performance of loans and impact investor returns, and therefore may result in lower demand from investors for assets generated on our platform and lead to constraints on our ability to fund new Network Volume. In addition, rising inflation may create an escalation in our operating costs, including employee compensation and general corporate expenses, which could reduce our cash flow and operating income. As of the date of this report, we have not experienced material impacts to our business performance from inflationary pressure. Higher interest rates often lead to higher payment obligations, which may reduce the ability of borrowers to remain current on their obligations and therefore, lead to increased delinquencies, defaults, customer bankruptcies, charge-offs, and decreasing recoveries. Any impact to investor returns may lead to an adverse impact on our earnings. The increased risk-free rate of return may impact investor demand for risk assets such as consumer credit, which may constrain our ability to raise new funding for Network Volume. While our ability to raise new funding has not been impacted, the cost of capital has increased due to the higher interest rate environment. 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 measures under the U.S. generally accepted accounting principles (“GAAP”), and certain non-GAAP financial measures (see discussion and reconciliation herein titled “Reconciliation of Non-GAAP Financial Measures.” The following table sets forth a key operating metric we use to evaluate our business.

   
Three Months Ended
September 30,
         
Nine Months Ended
September 30,
       
 
2022
   
2021
   
% Change
   
2022
   
2021
   
% Change
 
   
(in millions, except percentages)
 
Network Volume(1)
 
$
1,924
   
$
1,522
     
26
%
 
$
5,521
   
$
3,283
     
68
%

(1) Prior period amounts have been updated to conform to current period.

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 assets for acquisition by the Financing Vehicles, thereby providing additional investment opportunities to investors. Network Volume is comprised of assets across several asset classes, including personal loans, auto loans, residential real estate, 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 with the assistance of our AI technology and data network, as well as fees certain Financing Vehicles pay us upon their establishment.

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 interests in certain Financing Vehicles and other proprietary investments.

Costs and Operating Expenses

Cost and operating expenses consist of Production Costs, research and development expenses, 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 new Israeli 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 incurred to renovate single family residential real estate.


Research and Development

Research and development expenses primarily comprise costs associated with the maintenance and ongoing development of our network and AI technology including personnel, allocated costs, and other development-related expenses. Research and development costs are expensed as incurred, net of capitalization. We have invested and believe continued investments in research and development are important to attain our strategic objectives.

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. Sales and marketing expenses in absolute dollars may fluctuate from period to period based on 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 pipeline of new Partners and strategic investors.

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.

Other Income (loss), net

Other Income (loss), net primarily consists of changes in the fair value of warrant liabilities.

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 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 their 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 us.


Results of Operations

The following table sets forth operating results for the periods indicated:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2022
   
2021
   
2022
   
2021
 
Revenue
 
   
             
Revenue from fees
 
$
185,614
   
$
128,149
   
$
507,241
   
$
301,604
 
Other Income
                               
Interest income
   
13,666
     
8,455
     
43,127