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As filed with the Securities and Exchange Commission on November 17, 2022
Registration No. 333-266228
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5
to
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pagaya Technologies Ltd.
(Exact Name of Registrant as Specified in Its Charter)
State of Israel
7389
Not applicable
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer
Identification  Number)
Azrieli Sarona Bldg, 54th Floor
121 Derech Menachem Begin
Tel-Aviv 6701203, Israel
+972 (3) 715 0920
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Pagaya US Holding Company LLC
90 Park Ave
New York, NY 10016
646-710-7714
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jeffrey A. Brill
Maxim O. Mayer-Cesiano
Andrea L. Nicolás
Skadden, Arps, Slate,
Meagher & Flom LLP
One Manhattan West
New York, NY 10001
Tel: 212-735-3000
Aaron M. Lampert
Sharon Gazit
Goldfarb Seligman & Co.
98 Yigal Alon Street
Tel-Aviv 6789141
Israel
Tel: 972-3-608-9999
Richmond Glasgow
Pagaya Technologies Ltd.
Azrieli Sarona Bldg, 54th Floor
121 Derech Menachem Begin
Tel-Aviv 6701203, Israel
Tel: 972 (3) 715 0920
Approximate date of commencement of proposed sale to the public: From time to time on or after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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STATEMENT PURSUANT TO RULE 429
The registrant is filing a single prospectus in this registration statement pursuant to Rule 429 under the Securities Act of 1933, as amended (the “Securities Act”). The prospectus is a combined prospectus relating to (i) (a) the issuance by us of up to 36,516,687 Class A Ordinary Shares, no par value (“Class A Ordinary Shares”), of Pagaya Technologies Ltd.; and (b) the resale by certain of the selling securityholders of up to 676,627,977 Class A Ordinary Shares and (ii) the issuance of 9,583,333 Class A Ordinary Shares, including Class A Ordinary Shares underlying the public warrants, registered under Form F–4 (File No. 333-264168), originally filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2022 and subsequently declared effective (the registration statement referenced in the preceding clause (ii), as amended and/or supplemented, the “Prior Registration Statement”). Pursuant to Rule 429 under the Securities Act, this registration statement on Form F-1 upon effectiveness will serve as a post-effective amendment to the Prior Registration Statement. Such post-effective amendment shall hereafter become effective concurrently with the effectiveness of this registration statement and in accordance with Section 8(c) of, and Rule 429 under, the Securities Act.

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The information in this prospectus is not complete and may be changed. Neither we nor the selling securityholders may sell or distribute the securities described herein until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell and is not soliciting an offer to buy the securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 2022
PRELIMINARY PROSPECTUS
Pagaya Technologies Ltd.
Up to 46,100,020 Class A Ordinary Shares
Up to 676,627,977 Class A Ordinary Shares Offered by the Selling Securityholders
This prospectus relates to: (1) the issuance by us of up to 46,100,020 Class A Ordinary Shares, no par value (the “Class A Ordinary Shares”), including the Class A Ordinary Shares that may be issued upon exercise of the public warrants and the private placement warrants (each as defined below) to purchase Class A Ordinary Shares at an exercise price of $11.50 per Class A Ordinary Share for the public warrants, $11.50 per Class A Ordinary Share for 5,166,667 private placement warrants, $0.000054 per Class A Ordinary Share for 4,316,570 private placement warrants, $0.000005 per Class A Ordinary Share for 26,941,517 private placement warrants and $1.60551 per Class A Ordinary Share for 91,933 private placement warrants and (2) the offer and sale, from time to time, by the selling securityholders identified in this prospectus (each a “Selling Securityholder” and, collectively, the “Selling Securityholders”), or their permitted transferees, of up to 676,627,977 Class A Ordinary Shares (including Class A Ordinary Shares underlying the Warrants and Class B Ordinary Shares (each as defined below)).
This prospectus provides you with a general description of such securities and the general manner in which we and the Selling Securityholders may offer or sell the securities. More specific terms of any securities that we and the Selling Securityholders may offer or sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement may also add, update or change information contained in this prospectus.
We will not receive any proceeds from the sale of the Class A Ordinary Shares by the Selling Securityholders pursuant to this prospectus. We also will not receive any proceeds from the sale of the Class A Ordinary Shares by us pursuant to this prospectus, except with respect to amounts received by us upon exercise of the Warrants to the extent such Warrants are exercised for cash. However, we will pay the expenses, other than underwriting discounts and commissions, associated with the sale of securities pursuant to this prospectus. We believe the likelihood that warrant holders will exercise their warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Class A Ordinary Shares. If the trading price for our Class A Ordinary Shares is less than $11.50 per share, we believe holders of our public warrants and private placement warrants will be unlikely to exercise their warrants on a cash basis.
Our registration of the securities covered by this prospectus does not mean that either we or the Selling Securityholders will issue, offer or sell, as applicable, any of the securities. The Selling Securityholders may offer and sell the securities covered by this prospectus in a number of different ways and at varying prices. We provide more information in the section entitled “Plan of Distribution.”
You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.
Our Class A Ordinary Shares and public warrants are traded on The Nasdaq Capital Market (“Nasdaq”) under the symbols “PGY” and “PGYWW,” respectively. On November 16, 2022, the closing price of our Class A Ordinary Shares was $1.19 per share, and the closing price of our public warrants was $0.15 per warrant. The Class A Ordinary Shares have recently experienced extreme volatility in price and trading volume. From June 23, 2022 to November 16, 2022, the closing price of Class A Ordinary Shares on Nasdaq ranged from as low as $1.19 to as high as $29.95 and daily trading volume ranged from approximately 51,333 to 66,396,597 shares. During this time, we have not experienced any material changes in our financial condition or results of operations that would explain such price volatility or trading volume. Please see “Risk Factors—Risks Related to Ownership of our Class A Ordinary Shares and Warrants—The price of the Class A Ordinary Shares and the price of the public warrants have been and may continue to be volatile.” and the other risk factors in the section titled “Risk Factors.”
In connection with the extraordinary general meeting of shareholders (“Extraordinary General Meeting”) held by EJFA (as defined below) on June 17, 2022 to approve the Transactions (as defined below), holders of 27,805,123 of EJFA’s Class A Ordinary Shares, or approximately 96.7% of the shares with redemption rights, exercised their right to redeem their shares for cash at a redemption price of approximately $10.00 per share, for an aggregate redemption amount of $278.1 million. As of October 18, 2022, there were 681,071,135 Pagaya Ordinary Shares (as defined below) outstanding, including 506,136,743 Class A Ordinary Shares outstanding, of which 245,822,773 Class A Ordinary Shares were held by non-affiliates of the Company (our “public float”). The number of Class A Ordinary Shares being offered for resale in this prospectus (the “Resale Securities”) exceeds the number of Class A Ordinary Shares constituting our public float. The Resale Securities represent approximately 275% of our public float and approximately 75% of outstanding Class A Ordinary Shares as of October 18, 2022 (after giving effect to the issuance of Class A Ordinary Shares upon exercise of the public warrants and private placement warrants and the conversion of Class B ordinary shares into Class A Ordinary Shares) and, subject to the contractual lock-ups described in the Pagaya Articles (as defined below), may be sold in the public market at any time, so long as the registration statement of which this prospectus forms a part remains effective and this prospectus remains usable. The sale of the Resale Securities, or the perception that these sales could occur, could depress the market price of our securities. As illustrated in the table below, despite such a decline in price, our Sponsor and the Pagaya securityholders may still experience a positive rate of return on the shares purchased by them due to the lower price per share at which its shares were purchased. While these selling securityholders may, on average, experience a positive rate of return based on the current market price, public securityholders may not experience a similar rate of return on the securities they purchased if there is such a decline in price and due to differences in the purchase prices and the current market price.
Selling Securityholder
Number of
Offered Shares
Effective Purchase
Price per Offered
Share ($)
Net Proceeds
per Offered
Share ($)(1)
Sponsor and its Affiliates
 
 
 
Sponsor shares
7,187,500
0.004
1.19
Shares underlying EJFA Private Placement Warrants
5,166,667
11.50
 
 
 
 
PIPE Investors
 
 
 
PIPE shares
35,000,000
10.00
 
 
 
 
Other Company Shareholders
 
 
 
Pre-Business Combination securityholders of Pagaya
402,989,394
0.75
0.44
Class B Ordinary Shares
194,934,396
0.00002
1.19
Shares underlying other Private Placement Warrants
31,350,020
0.0047
1.19
(1)
Based on the closing price of our shares on November 16, 2022 of $1.19 per share.
Investing in our securities involves risks. See “Risk Factors beginning on page 23 and in any applicable prospectus supplement.
None of the U.S. Securities and Exchange Commission, the Israel Securities Authority or any state securities commission has approved or disapproved of the securities or determined if this prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.
The date of this prospectus is      , 2022.


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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form F-1 that we filed with the SEC using a “shelf” registration process. Under this shelf registration process, we and the Selling Securityholders may, from time to time, issue, offer and sell, as applicable, any combination of the securities described in this prospectus in one or more offerings. We may use the shelf registration statement to issue up to an aggregate of 46,100,020 Class A Ordinary Shares. The Selling Securityholders may use the shelf registration statement to sell up to an aggregate of 676,627,977 Class A Ordinary Shares (including Class A Ordinary Shares underlying the Warrants and Class B Ordinary Shares) from time to time through any means described in the section entitled “Plan of Distribution.” More specific terms of any securities that the Selling Securityholders offer and sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the Class A Ordinary Shares being offered and the terms of the offering.
A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”
Neither we nor the Selling Securityholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared. We and the Selling Securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.
This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”
We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered (or pending registration) under applicable intellectual property laws. This prospectus contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks, trade names and service marks. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
On June 22, 2022, (the “Closing Date”), Pagaya consummated its previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of September 15, 2021 (the “Merger Agreement”), by and among EJF Acquisition Corp., a Cayman Islands exempted company (“EJFA”), Pagaya and Rigel Merger Sub (“Merger Sub”), a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya. As contemplated by the Merger Agreement, Merger Sub merged with and into EJFA (the “Merger”), with EJFA surviving the Merger as a wholly-owned subsidiary of Pagaya (the “Surviving Company”). As a result of the Merger, and upon consummation of the Merger and the other transactions contemplated by the Merger Agreement (the “Transactions”), the shareholders of EJFA became shareholders of Pagaya. On the
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Closing Date, immediately following the Merger, the Surviving Company merged (the “Second Merger”) with and into Rigel Merger Sub II, Ltd., a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya (“Merger Sub II”), with Merger Sub II continuing as the surviving company after the Second Merger.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Pagaya,” “the Company,” “we,” “us” and “our” refer to Pagaya Technologies Ltd., a company organized under the laws of the State of Israel, together with its subsidiaries following the Merger.
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MARKET PRICE INFORMATION
Our Class A Ordinary Shares and public warrants are currently listed on Nasdaq under the symbols “PGY” and “PGYWW,” respectively.
On June 21, 2022, the trading date before the Closing Date, EJFA’s Class A Ordinary Shares and public warrants closed at $5.57 and $0.2915, respectively. As of November 16, 2022, the most recent practicable date prior to the date of this prospectus, the closing price for each Class A Ordinary Share and public warrant was $1.19 and $0.15, respectively.
Holders of our securities should obtain current market quotations for their securities. The market price of our securities could vary at any time.
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SELECTED DEFINITIONS
2021 Credit Agreement” refers to that certain Credit Agreement, dated as of December 23, 2021 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of March 15, 2022), by and among Pagaya, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement and Amendment No. 1 to Credit Agreement 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.
2021 Plan” refers to the 2021 Share Incentive Plan of Pagaya and the Stock Option Sub-Plan For United States Persons thereunder.
2022 Plan” refers to the 2022 Share Incentive Plan of Pagaya and the Sub-Plan for Israeli Participants.
Adjusted EBITDA” means net income (loss) attributable to Pagaya Shareholders, excluding share-based compensation expense, interest expense, depreciation expense, change in fair value of warrant liability, warrant expense, non-recurring expenses associated with these Transactions and provision for income taxes.
Capital Restructuring” refers to, collectively, the Reclassification, the Preferred Share Conversion and the Stock Split.
Class A Ordinary Shares” refers to the Class A ordinary shares, no par value, of Pagaya, following the Capital Restructuring, which carry voting rights of one vote per share of Pagaya.
Class B Ordinary Shares” refers to the Class B ordinary Shares, no par value, of Pagaya, following the Capital Restructuring, which carry voting rights in the form of 10 votes per share of Pagaya.
Closing” refers to the consummation of the Merger.
Closing Date” refers to June 22, 2022.
Code” refers to the U.S. Internal Revenue Code of 1986, as amended.
Companies Law” refers to the Israeli Companies Law, 5759-1999, as amended, and the regulations promulgated thereunder.
Continental” refers to Continental Stock Transfer & Trust Company, the transfer agent, warrant agent and trustee of Pagaya.
Credit Agreement” refers to that certain Senior Secured Revolving Credit Agreement, dated as of September 2, 2022, 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. The Credit Agreement is incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 of which this prospectus forms a part.
Effective Time” refers to the effective time of the Merger.
EJF Investor” refers to EJF Debt Opportunities Master Fund, LP, a Delaware limited liability company, an affiliate of EJFA.
EJF Subscription Agreement” refers to that certain Subscription Agreement, dated as of September 15, 2021, by and between Pagaya and the EJF Investor, providing for the purchase by the EJF Investor at the Closing of up to 20 million Class A Ordinary Shares at a price per share of $10.00, for an aggregate purchase price of up to $200 million.
EJFA” refers to EJF Acquisition Corp., a Cayman Islands exempted company.
EJFA Board” refers to the board of directors of EJFA.
EJFA Class A Ordinary Shares” refers to the class A ordinary shares, par value $0.0001 per share, of EJFA.
EJFA Class B Ordinary Shares” refers to the class B ordinary shares, par value $0.0001 per share, of EJFA.
EJFA IPO” refers to the initial public offering of EJFA, which closed on March 1, 2021.
EJFA Ordinary Shares” refers to the EJFA Class A Ordinary Shares and EJFA Class B Ordinary Shares.
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EJFA Private Placement Warrants” refers to the 5,166,667 private placement warrants of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant.
EJFA Public Warrants” refers to the 9,583,333 public warrants of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant.
EJFA Transaction Costs” refers to (a) all fees, costs and expenses incurred by EJFA prior to the Closing and payable after June 30, 2021 in connection with the negotiation, preparation and execution of the Merger Agreement, the other transaction agreements and the consummation of the transactions contemplated thereby, (b) all fees, costs and expenses incurred by EJFA prior to the Closing and payable after June 30, 2021, in connection with the EJFA IPO, including any such amounts which are triggered by or become payable as a result of the Closing and (c) all costs, fees and expenses related to the EJFA director and officer tail policy, except the following fees, costs or expenses do not constitute “EJFA Transaction Costs”: (i) any amounts incurred at the request or direction of another party to the Merger Agreement; and (ii) any amounts incurred in connection with any actual or threatened legal proceeding.
EJFA Units” refers to the units issued in the EJFA IPO, each consisting of one EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant.
EJFA Voting Agreement” refers to that certain EJFA Voting Agreement, dated as of September 15, 2021, by and between Pagaya and the Sponsor.
EJFA Warrants” refers to the EJFA Private Placement Warrants and the EJFA Public Warrants.
Exchange Act” refers to the Securities Exchange Act of 1934, as amended.
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.
Founders” refers to 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).
FRB” refers to the U.S. Federal Reserve Board.
Investment Advisers Act” refers to the U.S. Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder.
Investment Company Act” refers to the U.S. Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.
Israeli Securities Law” refers to the Israeli Securities Law, 5728-1968, as amended, and the regulations promulgated thereunder.
ITA” refers to the Israel Tax Authority.
ITO” refers to the Israeli Income Tax Ordinance [New Version], 5721-1961, and the regulations, rules and orders promulgated thereunder, as amended.
Lock-Up Shares” refers to (i) with respect to the Pagaya Equity Holders and their permitted transferees, the Pagaya Ordinary Shares held by such Pagaya Equity Holders as of immediately following the Stock Split and the Preferred Share Conversion, and (ii) with respect to the Sponsor and certain directors and advisors of EJFA and their permitted transferees, (A) the Pagaya Ordinary Shares issued to the Sponsor and certain directors and advisors of EJFA and their permitted transferees as Merger Consideration (as defined in the Merger Agreement) under the Merger Agreement in respect of the 7,187,500 EJFA Class B Ordinary Shares that they held, (B) the private placement warrants issued to the Sponsor as Merger Consideration in respect of the EJFA Private Placement Warrants, and (C) any Class A Ordinary Shares issued to the Sponsor upon exercise of such private placement warrants mentioned in the preceding clause (B). In furtherance of the foregoing, Class A Ordinary Shares issued to any affiliate of the Sponsor in accordance with any subscription agreement between such affiliate and Pagaya are not Lock-Up Shares.
Merger” refers to the merger of Merger Sub with and into EJFA, as contemplated by the Merger Agreement.
Merger Agreement” refers to that certain Agreement and Plan of Merger, dated as of September 15, 2021, by and among EJFA, Pagaya and Merger Sub.
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Merger Sub” refers to Rigel Merger Sub Inc., a Cayman Islands exempted company and a wholly-owned subsidiary of Pagaya.
Nasdaq” refers to The Nasdaq Capital Market.
Network Capital” refers to the total capital currently invested in assets originated by Partners with the assistance of our AI technology and network and acquired by a Financing Vehicle plus capital committed by asset investors that is available for a Financing Vehicle to acquire new assets.
Network Volume” refers to the gross dollar amount of assets that are originated by Partners with the assistance of Pagaya’s AI technology and are acquired by Financing Vehicles.
Pagaya” refers to Pagaya Technologies Ltd., a company organized under the laws of the State of Israel.
Pagaya Articles” refers to the Articles of Association of Pagaya, dated as of June 22, 2022.
Pagaya Board” refers to the board of directors of Pagaya.
Pagaya Class A-1 Preferred Shares” refers to the Class A-1 Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Class A Preferred Shares” refers to the Class A Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Class B Preferred Shares” refers to the Class B Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Class C Preferred Shares” refers to the Class C Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Class D Preferred Shares” refers to the Class D Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Class E Preferred Shares” refers to the Class E Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.
Pagaya Equity Holders” refers to the shareholders of Pagaya as of immediately prior to the Effective Time.
Pagaya Option” refers to each outstanding and unexercised option to purchase Pagaya Ordinary Shares issued pursuant to the Pagaya Share Plans, whether or not then vested or fully exercisable.
Pagaya Ordinary Shares” refers to the ordinary shares, NIS 0.01 each, of Pagaya, prior to the Capital Restructuring, provided, however, that after the Preferred Share Conversion and Reclassification, every reference to Pagaya Ordinary Shares shall be to the Class A Ordinary Shares and Class B Ordinary Shares, collectively.
Pagaya Preferred Shares” refers to the Pagaya Class A Preferred Shares, Pagaya Class A-1 Preferred Shares, Pagaya Class B Preferred Shares, Pagaya Class C Preferred Shares, Pagaya Class D Preferred Shares and Pagaya Class E Preferred Shares, prior to the Capital Restructuring.
Pagaya Share Plans” refers to Pagaya’s 2016 Equity Incentive Plan and the Stock Option Sub-Plan For United States Persons thereunder and the 2021 Plan, collectively.
Pagaya Shareholders” refers, prior to the Merger, to the shareholders of Pagaya and, now, to the current shareholders of Pagaya.
Pagaya Shares” means the Pagaya Ordinary Shares and the Pagaya Preferred Shares.
Pagaya Voting Agreement” refers to that certain Company Voting Agreement, dated as of September 15, 2021, by and among EJFA and certain of the Pagaya Shareholders.
Partners” refers to financial institutions including, among others, banks, peer-to-peer lending networks, online marketplaces, non-bank finance companies, fintechs, financing intermediaries, consumer product companies, brokers, agents and credit unions that have entered into arrangements to utilize Pagaya’s AI technology and network to assist them in originating credit and other assets that may be acquired by a Financing Vehicle.
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Permitted Class B Owner” refers to a Founder or any person or entity that, through contract, proxy or operation of law, has irrevocably delegated the sole and exclusive right to vote the Class B Ordinary Shares held by such person or entity to a Founder.
PIPE Investment” refers to the investment by the EJF Investor and by those certain other PIPE Investors pursuant to the Subscription Agreements.
PIPE Investors” refers to the EJF Investor and those certain other investors participating in the PIPE Investment pursuant to the Subscription Agreements.
Preferred Majority” refers to the holders of a majority of the Pagaya Preferred Shares outstanding at a given time prior to the Capital Restructuring, voting together as a single class on an as-converted basis.
Preferred Share Conversion” refers to the conversion of the outstanding Pagaya Preferred Shares into Pagaya Ordinary Shares in accordance with the Merger Agreement.
private placement warrants” refers to the outstanding and unexercised warrants to purchase Class A Ordinary Shares issued by private placement, including those issued and exchanged for the EJFA Private Placement Warrants in connection with the Merger.
public warrants” refers to the outstanding and unexercised warrants to purchase Class A Ordinary Shares issued to holders of EJFA Public Warrants in connection with the Merger.
Reclassification” refers to the reclassification of each Pagaya Ordinary Share that was outstanding immediately following the Preferred Share Conversion (and for the avoidance of doubt, any warrant, right or other security convertible into or exchangeable or exercisable therefor, including each Pagaya Ordinary Share underlying any Pagaya Option), into one Class A Ordinary Share or one Class B Ordinary Share, as applicable, as set forth in the Merger Agreement.
Registration Rights Agreement” refers to the Amended and Restated Registration Rights Agreement entered into at Closing, by and among Pagaya, EJFA, the Sponsor and certain equity holders of Pagaya named therein, replacing EJFA’s and Pagaya’s existing registration rights agreements.
Rule 10b5-1 Plan” refers to an individual share trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, in which the individual will contract with a broker to buy or sell shares on a periodic basis.
SEC” refers to the U.S. Securities and Exchange Commission.
Securities Act” refers to the U.S. Securities Act of 1933, as amended.
Side Letter Agreement” refers to that certain side letter agreement, dated September 15, 2021, by and among Pagaya, EJFA and the Sponsor.
Sponsor” refers to Wilson Boulevard LLC, a Delaware limited liability company.
Stock Split” refers to the stock split of the Pagaya Ordinary Shares into a number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share immediately following the Capital Restructuring on the basis of the Company Value (as defined in the Merger Agreement) set out in the Merger Agreement.
Subscription Agreements” refers to the EJF Subscription Agreement and the other subscription agreements entered into by the PIPE Investors, the form of which is incorporated herein by reference to Exhibit 10.8 of Pagaya’s Registration Statement on Form F-4 filed with the SEC on April 7, 2022.
Transactions” refers to the Merger and the other transactions contemplated by the Merger Agreement.
Treasury Regulations” refers to the regulations promulgated by the U.S. Department of the Treasury pursuant to and in respect of provisions of the Code.
Trust Account” refers to the trust account established pursuant to a trust agreement with Continental, as trustee, in connection with the EJFA IPO.
United States” or “U.S.” refers to the United States of America, including the states, the District of Columbia and its territories and possessions.
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U.S. Dollars” or “$” refers to U.S. dollars.
U.S. GAAP” refers to the U.S. generally accepted accounting principles.
U.S. Holder” refers to any beneficial owner of Pagaya securities, that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
a trust if (i) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions, or (ii) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
VWAP” refers to, on any trading day on or after the Closing Date, the volume weighted-average of the trading prices of the Class A Ordinary Shares trading during such day on the principal securities exchange or securities market on which Class A Ordinary Shares are then traded or quoted for purchase and sale (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source selected by Pagaya), except if there occurs any change in the outstanding Class A Ordinary Shares as a result of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend, the VWAP shall be equitably adjusted to reflect such change.
Warrants” refers to the public warrants and the private placement warrants, collectively.
Warrant Agreement” refers to the Amended and Restated Warrant Agreement, entered into immediately prior to the Effective Time, by and among EJFA, Pagaya and Continental, as transfer agent.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS;
MARKET, RANKING AND OTHER INDUSTRY DATA
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The Private Securities Litigation Reform Act of 1995, or the PSLRA, provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include, without limitation, our expectations concerning the outlook for our business, productivity, plans and goals for future operational improvements and capital investments, operational performance, future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance, as well as any information concerning possible or assumed future results of operations.
Pagaya desires to take advantage of the safe harbor provisions of the PSLRA and is including this cautionary statement in connection with this safe harbor legislation. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “strategy,” “future,” “opportunity,” “may,” “target,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters.
Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those implied in those statements. Important factors that could cause such differences include, but are not limited to:
the incurrence of significant costs following the Merger;
risks that the Merger disrupts our current plans and operations;
potential litigation or conflicts relating to the Merger;
the ability to implement business plans and other expectations;
market interest rates;
difficult market or political conditions in which we compete;
our uncertain future prospects and rate of growth due to our relatively limited operating history;
our ability to improve, operate and implement our AI technology, including as we expand into new businesses;
competition in retaining and attracting and onboarding new Partners and raising capital from asset investors through Financing Vehicles given the current limited number of Partners that account for a substantial portion of the total number of the financial products facilitated with the assistance of our AI technology;
potential difficulties in retaining our current management team and other key employees and independent contractors, including highly-skilled technical experts;
our estimates of our future financial performance;
changes in the political, legal and regulatory framework for AI technology and machine learning;
the impact of health epidemics, including the ongoing COVID-19 pandemic;
conditions related to our operations in Israel;
risks related to data security and privacy;
changes to accounting principles and guidelines;
potential litigation relating to the Merger;
the ability to maintain the listing of our securities on Nasdaq;
the price of our securities has been and may continue to be volatile;
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unexpected costs or expenses;
future issuances, sales or resales of our Class A Ordinary Shares;
the grant and future exercise of registration rights;
an active public trading market for our Class A Ordinary Shares may not develop or be sustained; and
the other matters described in the section titled “Risk Factors.
We caution you not to rely on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this prospectus. We undertake no obligation to revise forward-looking statements to reflect future events, changes in circumstances or changes in beliefs except to the extent required by law. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements except to the extent required by law. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear in our public filings with the SEC, which are or will be (as appropriate) accessible at www.sec.gov, and which you are advised to consult. For additional information, please see the section titled “Where You Can Find More Information.
Market, ranking and industry data used throughout this prospectus, including statements regarding market size and technology adoption rates, is based on the good faith estimates of our management, which in turn are based upon our management’s review of internal surveys, independent industry surveys and publications and other third-party research and publicly available information. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding the industry data presented herein, its estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this prospectus.
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SUMMARY OF THE PROSPECTUS
This summary highlights selected information from this prospectus and does not contain all of the information that is important to you. You should carefully read this entire prospectus and the other documents referred to in this prospectus, including the information presented under the sections titled “Risk Factors,” “Cautionary Statement Regarding Forward Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Information,” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision. The definition of some of the terms used in this prospectus are set forth under the section “Selected Definitions.” For additional information, see the section of this prospectus entitled “Where You Can Find More Information.” Each item in this summary refers to the page of this prospectus on which that subject is discussed in more detail.
Business Summary
Company Overview
Pagaya makes life-changing financial products and services available to more people.
We have built, and are continuing to scale, a leading artificial intelligence (“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 Vehicles1.
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.
Pagaya was founded in 2016 and is organized under the laws of the State of Israel. The mailing address of Pagaya’s principal executive office is Azrieli Sarona Bldg, 54th Floor, 121 Derech Menachem Begin, Tel-Aviv, 6701203, Israel and its phone number is +972 (3) 715 0920.
Business Combination
On June 22, 2022 (the “Closing Date”), we consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of September 15, 2021 (the “Merger Agreement”), by and among EJF Acquisition Corp., a Cayman Islands exempted company (“EJFA”), Pagaya and Rigel Merger Sub (“Merger Sub”), a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya.
On the Closing Date, the following transactions occurred pursuant to the terms of the Merger Agreement:
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.
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(i) immediately prior to the effective time of the Merger (the “Effective Time”), each Pagaya Preferred Share was converted into Pagaya Ordinary Shares in accordance with Pagaya’s organizational documents, (ii) immediately following the conversion of the outstanding Pagaya Preferred Shares into Pagaya Ordinary Shares in accordance with the Merger Agreement (the “Preferred Share Conversion”) but prior to the Effective Time, Pagaya adopted Articles of Association (the “Pagaya Articles”), (iii) immediately following such adoption but prior to the Effective Time, Pagaya effected a share 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 “Founders”) 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 (the “Share Split”);
at the Effective Time, Merger Sub merged with and into EJFA, with EJFA continuing as the surviving company after the Merger (the “Surviving Company”), 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 reclassification of each Pagaya Ordinary Share as set forth in the Merger Agreement (the “Reclassification”), the Preferred Share Conversion and the Stock Split (together, 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, and (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 Rigel Merger Sub II, Ltd., a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya (“Merger Sub II”) (the “Second Merger”), with Merger Sub II continuing as the surviving company after the Second Merger.
On September 15, 2021, concurrently with the execution of the Merger Agreement, Pagaya and the EJF Investor entered into the EJF Subscription Agreement, and Pagaya subsequently entered into the 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.
The number of Resale Securities being offered pursuant to this prospectus exceeds the number of Class A Ordinary Shares constituting our public float, and represent approximately 275% of our public float and approximately 75% of outstanding Class A Ordinary Shares (after giving effect to the issuance of Class A Ordinary Shares upon exercise of the public warrants and private placement warrants and the conversion of Class B ordinary shares into Class A Ordinary Shares) as of October 18, 2022, and, subject to the contractual lock-ups described in the Pagaya Articles, may be sold in the public market at any time, so long as the registration statement of which this prospectus forms a part remains effective and this prospectus remains usable. The sale of the Resale Securities, or the perception that these sales could occur, could depress the market price of our securities.
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
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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 new Israeli shekels.
In connection with entering into the Credit Agreement, the Company repaid and replaced all outstanding obligations with respect to, and terminated the commitments under, that certain Credit Agreement, dated as of December 23, 2021 (as amended by that certain Amendment No. 1 to Credit Agreement, dated as of March 15, 2022, the “2021 Credit Agreement”), among the Company, as the borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
Proceeds of borrowings under the Revolving Credit Facility may be used to finance the Company’s ongoing working capital needs, permitted acquisitions or for general corporate purposes of the Company and its subsidiaries. As of the date of this filing, no borrowings have been made under the Revolving Credit Facility.
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 and subject to a 1.00% floor) plus a margin of 1.75% and (ii) an adjusted term Secured Overnight Financing Rate (subject to a 0.00% floor) plus a margin of 2.75%. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility at a rate per annum of 0.25% and is payable quarterly in arrears. 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.
The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s material, wholly-owned subsidiaries (collectively, the “Guarantors”) and are secured by a first priority lien on substantially all assets of the Company and the Guarantors, subject to certain customary exceptions.
The Credit Agreement contains customary negative covenants, which include, among other things, limitations on the ability of the Company and its consolidated subsidiaries to incur indebtedness, grant liens, engage in certain fundamental changes, make certain dispositions and investments, enter into sale and leaseback transactions and make restricted payments and other distributions. The Credit Agreement contains the following financial maintenance covenants, which will be tested on the last day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2022: (i) a minimum Consolidated Adjusted Quick Ratio (as defined in the Credit Agreement) of 1.25:1.00 and (ii) Consolidated Total Revenue (as defined in the Credit Agreement) not less than the amounts set forth in the Credit Agreement. The Credit Agreement also includes affirmative covenants customary for a credit facility of its type, including customary reporting covenants.
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 other material indebtedness, certain events of bankruptcy or insolvency, material judgment defaults and change of control, in each case, subject to customary cure periods where appropriate.
The foregoing descriptions of the 2021 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. The foregoing descriptions of the Credit Agreement are qualified in their entirety by reference to the full and complete terms thereof, which are incorporated herein by reference to Exhibit 10.5 of the registration statement on Form F-1 of which this prospectus forms a part.
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.
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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.
Recent Developments — Results of Operations and Financial Condition — Third Quarter of 2022
On November 10, 2022, we released our results of operations and financial condition for the three and nine months ended September 30, 2022.
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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.
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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
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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
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Nine Months Ended September 30,
 
2022
2021
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
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.
Results of Operations
Comparison of Three Months Ended September 30, 2022 and 2021
Total Revenue and Other Income
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Revenue from fees
$185,614
$128,149
$57,465
45%
Interest income
13,666
8,455
5,211
62%
Investment income (loss)
4,675
(14)
4,689
NM
Total Revenue and Other Income
$203,955
$136,590
$67,365
49%
NM - Not meaningful for comparison.
Total revenue and other income, increased by $67.4 million, or 49%, to $204.0 million for the three months ended September 30, 2022 from $136.6 million for the three months ended September 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.
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Revenue from fees increased by $57.5 million, or 45%, to $185.6 million for the three months ended September 30, 2022 from $128.1 million for the three months ended September 30, 2021. The increase is directly correlated with the growth in Network Volume, which increased by 26% from $1.5 billion for the three months ended September 30, 2021 to $1.9 billion for the three months ended September 30, 2022. Network Volume is a function of supply from existing and new Partners, as well as market demand for the originated assets. Market demand for the originated assets, as represented by assets held by Financing Vehicles, grew 28% to $5.0 billion as of September 30, 2022, from $3.9 billion as of September 30, 2021.
Interest income increased by $5.2 million, or 62%, to $13.7 million for the three months ended September 30, 2022 from $8.5 million for the three months ended September 30, 2021. The increase in interest income is directly related to our risk retention holdings held in the Company’s consolidated variable interest entities (“VIEs”) as well as certain risk retention holdings held directly by the Company’s consolidated subsidiaries.
Investment income increased by $4.7 million to $4.7 million for the three months ended September 30, 2022 from a loss of $0.0 million for the three months ended September 30, 2021. Investment income during the three months ended September 30, 2022 primarily relates to the returns from certain proprietary investments which did not exist during the three months ended September 30, 2021.
Costs and Operating Expenses
 
Three Months Ended
September 30,
 
2022
2021
 
(in thousands)
Production costs
$129,115
$81,731
Research and development
38,643
11,932
Sales and marketing
26,579
9,161
General and administrative
73,790
18,961
Total Costs and Operating Expenses
$268,127
$121,785
Production Costs
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Production costs
$129,115
$81,731
$47,384
58%
Production costs increased by $47.4 million, or 58%, to $129.1 million for the three months ended September 30, 2022 from $81.7 million for the three months ended September 30, 2021. This increase was primarily due to increases in Network Volume and the composition of the asset classes that make up our Network Volume.
Research and Development
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Research and development
$38,643
$11,932
$26,711
224%
Research and development costs increased by $26.7 million, or 224%, to $38.6 million for the three months ended September 30, 2022 from $11.9 million for the three months ended September 30, 2021. This increase was primarily due to a $21.7 million increase in personnel-related expenses, including a $15.0 million increase in share-based compensation expenses net of amounts capitalized, due to the growth in employees, and a $4.5 million increase in overhead allocation and other miscellaneous costs. Headcount in research and development increased by 58% between September 30, 2021 and September 30, 2022.
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Sales and Marketing
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Sales and marketing
$26,579
$9,161
$17,418
190%
Sales and marketing costs increased by $17.4 million, or 190%, to $26.6 million for the three months ended September 30, 2022 from $9.2 million for the three months ended September 30, 2021. This increase was primarily due to a $16.2 million increase in personnel-related expenses, including a $15.0 million increase in share-based compensation expenses, due to the growth in employees, and a $1.2 million increase in overhead allocation and other miscellaneous costs. Headcount in sales and marketing increased by 26% between September 30, 2021 and September 30, 2022.
General and Administrative
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
General and administrative
$73,790
$18,961
$54,829
289%
General and administrative costs increased by $54.8 million, or 289%, to $73.8 million for the three months ended September 30, 2022 from $19.0 million for the three months ended September 30, 2021. This increase was primarily due to a $33.7 million increase in personnel-related expenses, including a $26.4 million increase in share-based compensation expenses, due to the growth in employees, a $9.8 million increase in expenses related to the public company readiness, legal and other business-related professional services, and a $9.8 million increase in miscellaneous costs, including a $4.6 million increase in overhead allocations. Headcount in general and administrative increased by 113% between September 30, 2021 and September 30, 2022.
Other Income (Loss), net
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Other income (loss), net
$3,233$
(32,768)
$36,001
110%
Other income (loss) swung from a loss of $32.8 million for the three months ended September 30, 2021 to income of $3.2 million for the three months ended September 30, 2022. The change of $36.0 million was primarily due to a $35.5 million favorable impact from the changes in fair value remeasurement of warrants.
Income Tax Expense
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Income tax expense
$6,065
$3,624
$2,441
NM
Income tax expense increased by $2.4 million to $6.1 million for the three months ended September 30, 2022 from $3.6 million for the three months ended September 30, 2021. The increase was primarily driven by the establishment of a valuation allowance to offset certain deferred tax assets at September 30, 2022, partially offset by higher pre-tax loss.
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Net Income Attributable to Noncontrolling Interests
 
Three Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Net income attributable to noncontrolling interests
$7,785
$6,570
$1,215
18%
Net Income attributable to noncontrolling interests increased by $1.2 million, or 18%, to $7.8 million for the three months ended September 30, 2022 from $6.6 million for the three months ended September 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 Nine Months Ended September 30, 2022 and 2021
Total Revenue and Other Income
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Revenue from fees
$507,241
$301,604
$205,637
68%
Interest income
43,127
18,256
24,871
136%
Investment income (loss)
5,670
(2)
5,672
NM
Total Revenue and Other Income
$556,038
$319,858
$236,180
74%
Total revenue and other income, increased by $236.2 million, or 74%, to $556.0 million for the nine months ended September 30, 2022 from $319.9 million for the nine months ended September 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 $205.6 million, or 68%, to $507.2 million for the nine months ended September 30, 2022 from $301.6 million for the nine months ended September 30, 2021. The increase is directly correlated with the growth in Network Volume, which increased by 68% from $3.3 billion for the nine months ended September 30, 2021 to $5.5 billion for the nine months ended September 30, 2022. Network Volume is a function of supply from existing and new Partners, as well as market demand for the originated assets. Market demand for the originated assets, as represented by assets held by Financing Vehicles, grew 28% to $5.0 billion as of September 30, 2022, from $3.9 billion as of September 30, 2021.
Interest income increased by $24.9 million, or 136%, to $43.1 million for the nine months ended September 30, 2022 from $18.3 million for the nine months ended September 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 $5.7 million to $5.7 million for the nine months ended September 30, 2022 from $0.0 million for nine months ended September 30, 2021. Investment income during the nine months ended September 30, 2022 primarily relates to the returns from certain proprietary investments which did not exist during the nine months ended September 30, 2021.
Costs and Operating Expenses
 
Nine Months Ended
September 30,
 
2022
2021
 
(in thousands)
Production costs
$326,375
$181,505
Research and development
127,379
51,344
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Nine Months Ended
September 30,
 
2022
2021
 
(in thousands)
Sales and marketing
90,229
37,564
General and administrative
236,863
53,068
Total Costs and Operating Expenses
$780,846
$323,481
Production Costs
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Production costs
$326,375
$181,505
$144,870
80%
Production costs increased by $144.9 million, or 80%, to $326.4 million for the nine months ended September 30, 2022 from $181.5 million for the nine months ended September 30, 2021. This increase was primarily due to increases in Network Volume and the composition of the asset classes that make up our Network Volume.
Research and Development
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Research and development
$127,379
$51,344
$76,035
148%
Research and development costs increased by $76.0 million, or 148%, to $127.4 million for the nine months ended September 30, 2022 from $51.3 million for the nine months ended September 30, 2021. This increase was primarily due to a $63.1 million increase in personnel-related expenses, including a $50.2 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the nine months ended September 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the business combination with EJF Acquisition Corp. (the “Business Combination”), a $6.1 million increase in professional services, a $4.0 million increase in overhead allocation and other miscellaneous costs, and a $2.9 million increase in server costs. Headcount in research and development increased by 58% between September 30, 2021 and September 30, 2022.
Sales and Marketing
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Sales and marketing
$90,229
$37,564
$52,665
140%
Sales and marketing costs increased by $52.7 million, or 140%, to $90.2 million for the nine months ended September 30, 2022 from $37.6 million for the nine months ended September 30, 2021. This increase was primarily due to a $48.1 million increase in personnel-related expenses, including a $37.1 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the nine months ended September 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the Business Combination, and a $3.4 million increase in overhead allocation and other miscellaneous costs. Headcount in sales and marketing increased by 26% between September 30, 2021 and September 30, 2022.
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General and Administrative
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
General and administrative
$236,863
$53,068
$183,795
346%
General and administrative costs increased by $183.8 million, or 346%, to $236.9 million for the nine months ended September 30, 2022 from $53.1 million for the nine months ended September 30, 2021. This increase was primarily due to a $101.9 million increase in personnel-related expenses, including a $72.7 million increase in share-based compensation expenses, due to the growth in employees and the share-based compensation expense incurred during the nine months ended September 30, 2022 related to the acceleration of vesting of certain performance awards upon the completion of the Business Combination, a $49.4 million increase in expenses related to the public company readiness, legal and other business-related professional services, a $28.5 million increase in miscellaneous costs, including overhead allocations, and a $3.9 million increase in computer maintenance and communications expenses. Headcount in general and administrative increased by 113% between September 30, 2021 and September 30, 2022.
Other Income (Loss), net
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Other income (loss), net
$9,846
$(51,539)
$61,385
119%
Other income (loss), net increased by $61.4 million to an income of $9.8 million for the nine months ended September 30, 2022 from a loss of $51.5 million for the nine months ended September 30, 2021. The increase was primarily due to a $60.9 million favorable impact from the changes in fair value remeasurement of warrants.
Income Tax Expense (Benefit)
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Income tax expense (benefit)
$25,604
$11,417
$14,187
124%
Income tax expense increased by $14.2 million, or 124%, to $25.6 million for the nine months ended September 30, 2022 from $11.4 million for the nine months ended September 30, 2021. The increase was primarily driven by the establishment of a valuation allowance to offset certain deferred tax assets at September 30, 2022, partially offset by higher pre-tax loss.
Net Income Attributable to Noncontrolling Interests
 
Nine Months Ended
September 30,
 
 
 
2022
2021
Change
% Change
 
(in thousands, except percentages)
Net income attributable to noncontrolling interests
$27,757
$14,116
$13,641
97%
Net Income attributable to noncontrolling interests increased by $13.6 million, or 97%, to $27.8 million for the nine months ended September 30, 2022 from $14.1 million for the nine months ended September 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.
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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 (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. We are presenting these non-GAAP financial measures because we believe they provide 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, we provide a reconciliation of Adjusted Net Income (Loss) 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 (Loss) and Adjusted EBITDA in conjunction with their respective related GAAP financial measures.
Adjusted Net Income (Loss) and Adjusted EBITDA
Adjusted Net Income (Loss) and Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 are summarized below (in thousands):
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 
2022
2021
2022
2021
Adjusted Net Income (Loss)
$(14,440)
$11,283
$(28,981)
$36,879
Adjusted EBITDA
$(5,203)
$15,114
$4,120
$48,785
Adjusted Net Income (Loss) 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 Business Combination. 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 Business Combination, 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.
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The following table presents a reconciliation of net income (loss) attributable to Pagaya shareholders, the most directly comparable GAAP measure, to Adjusted Net Income (Loss) and Adjusted EBITDA (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
Liquidity and Capital Resources
During the nine months ended September 30, 2022 and the year ended December 31, 2021, we incurred net losses attributable to shareholders of $268.3 million and $91.2 million, respectively. We had $380.2 million of accumulated deficit as of September 30, 2022 and $111.9 million of accumulated deficit as of December 31, 2021. Prior to the Business Combination and PIPE investment, we financed our operating and capital needs substantially through the private sales of equity securities.
As of September 30, 2022, the principal sources of liquidity were cash, cash equivalents and restricted cash of $366.8 million, including net proceeds from the PIPE investment. As of December 31, 2021, the principal sources of liquidity were cash and cash equivalents of $190.8 million and cash flow provided by financing activities. As of September 30, 2022, shareholders’ equity related to Pagaya was approximately $567.2 million. During the nine months ended September 30, 2022, we generated negative cash flows from operations. The primary use of operating cash flows during this period related to an increase in headcount and personnel-related costs across the business to support our growth expansion strategy.
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. We intend to continue to make strategic investments to support our business plans.
For more information regarding our Liquidity and Capital Resources, see “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”
Foreign Private Issuer Exemptions
We report as a “foreign private issuer” under SEC rules. Consequently, we are subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. As a result, we are not 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.
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Risk Factors
Our business and an investment in the Class A Ordinary Shares are subject to numerous risks and uncertainties, including those highlighted in the section of this prospectus entitled “Risk Factors.” Some of those risks include:
We are a rapidly growing company with a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and it may be difficult to evaluate our future prospects.
Our revenue growth rate and financial performance in recent periods may not be indicative of future performance and such growth may slow over time. In addition, the historical returns attributable to the Financing Vehicles should not be indicative of the future results of the Financing Vehicles and poor performance of the Financing Vehicles would cause a decline in our revenue, income and cash flow.
If we fail to effectively manage our growth, our business, financial condition, and results of operations could be adversely affected.
Our business and the performance of Financing Vehicles may be adversely affected by economic conditions and other factors that we cannot control. These factors include interest rates, rising inflation, supply chain disruptions, labor shortages, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war (including the ongoing Russia-Ukraine conflict), terrorism, catastrophes, and pandemics, including the COVID-19 pandemic.
We are heavily dependent on our AI technology. If we are unable to continue to improve our AI technology or if our AI technology does not operate as we expect, contains errors or is otherwise ineffective, we could improperly evaluate products, not be able to process the volume we have historically, and our growth prospects, business, financial condition and results of operations could be adversely affected.
We rely on our Partners to originate assets facilitated with the assistance of our AI technology. Currently, a limited number of Partners account for a substantial portion of the total number of financial products facilitated with the assistance of our AI technology and, ultimately, our revenue.
If we are unable to both retain existing Partners and attract and onboard new Partners, our business, financial condition and results of operations could be adversely affected.
Our ability to raise capital from asset investors is a vital component of the products we offer to Partners. If we are unable to raise capital from asset investors at competitive rates, it would materially reduce our revenue and cash flow and adversely affect our financial condition.
The fees paid to us by Financing Vehicles comprise a key portion of our revenues, and a reduction in these revenues could have an adverse effect on our results of operations.
If we are unable to develop and maintain a diverse and robust funding component of our network, our growth prospects, business, financial condition and results of operations could be adversely affected. In addition, certain Financing Vehicles have redemption features and a substantial withdrawal of capital by one or more asset investors may have an adverse effect on the Financing Vehicles’ performance.
Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we expand into new markets, such as real estate and insurance, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.
The industry in which we operate is highly competitive, and if we fail to compete effectively, we could experience price reductions, reduced margins or loss of revenues.
A significant portion of our current revenues are derived from Financing Vehicles that acquire consumer credit assets and related products, and as a result, we are particularly susceptible to fluctuations in consumer credit activity and the capital markets.
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If we are unable to manage the risks associated with fraudulent activity, our brand and reputation, business, financial condition, and results of operations could be adversely affected and we could face material legal, regulatory and financial exposure (including fines and other penalties).
We are subject to risks related to our dependency on our Founders, key personnel, employees and independent contractors, including highly-skilled technical experts, as well as attracting, retaining and developing human capital in a highly competitive market.
We may need to raise additional funds in the future that may be unavailable on acceptable terms, or at all. As a result, we may be unable to meet our future capital requirements, which could limit our ability to grow and jeopardize our ability to continue our business.
Our risk management policies and procedures, and those of our third-party vendors upon which we rely, may not be fully effective in identifying or mitigating risk exposure.
We may be unable to sufficiently, and it may be difficult and costly to, obtain, maintain, protect, or enforce our intellectual property and other proprietary rights.
Our proprietary AI technology relies in part on the use of our Partners’ borrower data and third-party data, and if we lose the ability to use such data, or if such data contains gaps or inaccuracies, our business could be adversely affected.
Cyberattacks and security breaches of our technology, or those impacting our users or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition.
The dual class structure of Pagaya Ordinary Shares has the effect of concentrating voting power with certain shareholders—in particular, our Founders—which will effectively eliminate your ability to influence the outcome of many important determinations and transactions, including a change in control.
Litigation, regulatory actions, consumer complaints and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses. If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, and our ability to conduct business could be materially adversely affected.
As the political and regulatory framework for AI technology and machine learning evolves, our business, financial condition and results of operations may be adversely affected.
If obligations by one or more Partners that utilize our network were subject to successful challenge that the Partner was not the “true lender,” such obligations may be unenforceable, subject to rescission or otherwise impaired, we or other program participants may be subject to penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business, financial condition and results of operations.
If loans originated by our Partners were found to violate the laws of one or more states, whether at origination or after sale by our Partners, assets acquired, directly or indirectly, by Financing Vehicles may be unenforceable or otherwise impaired, we (or Financing Vehicles) may be subject to, among other things, fines and penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business and results of operations.
Uncertainty and instability resulting from the conflict between Russia and Ukraine could adversely affect our business, financial condition and operations.
Conditions in Israel and relations between Israel and other countries could adversely affect our business.
Our management team has limited experience managing a public company.
The unaudited pro forma financial information included in the section of this prospectus entitled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of our results.
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The price of the Class A Ordinary Shares and the price of the public warrants have been and may continue to be volatile.
It is reasonable to conclude that a “short squeeze” due to a sudden increase in demand for our Class A Ordinary Shares that largely exceeds supply has led to, and may continue to lead to, extreme price volatility in our Class A Ordinary Shares.
The securities being offered in this prospectus represent a substantial percentage of our outstanding Class A Ordinary Shares, and the sales of such securities, or the perception that these sales could occur, could cause the market price of our Class A Ordinary Shares to decline significantly.
Future resales of our securities, including the Resale Securities being offered pursuant to this prospectus, may cause the market price of our Class A Ordinary Shares to drop significantly, even if our business is doing well.
We may issue additional Class A Ordinary Shares from time to time, including under our equity incentive plans. Any such issuances would dilute the interest of our shareholders and likely present other risks.
An active public trading market for our Class A Ordinary Shares may not develop or be sustained to provide adequate liquidity.
We have incurred and will continue to incur significant, non-recurring transition costs in connection with and following the Merger.
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THE OFFERING
We are registering the issuance by us of up to 46,100,020 of our Class A Ordinary Shares (including Class A Ordinary Shares that may be issued upon exercise of the Warrants to purchase Class A Ordinary Shares). We are also registering the resale by the Selling Securityholders or their permitted transferees of up to 676,627,977 Class A Ordinary Shares. Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” on page 23 of this prospectus.
Issuance of Class A Ordinary Shares
The following information is as of July 6, 2022 and does not give effect to issuance of our Class A Ordinary Shares or Warrants after such date, or the exercise of Warrants after such date.
Class A Ordinary Shares issuable upon exercise of all Warrants
46,100,020 shares

9,583,333 public warrants

36,516,687 private placement warrants
Exercise Price of the public warrants
$11.50 per share, subject to adjustment as described herein
Exercise Price of the private placement warrants

$11.50 per share (5,166,667 shares)

$0.000054 per share (4,316,570 shares)

$0.000005 per share (26,941,517 shares)

$1.60551 per share (91,933 shares)
Class A Ordinary Shares outstanding as of October 18, 2022
506,136,743 Class A Ordinary Shares
Use of proceeds
We will receive up to an aggregate of approximately $169,772,975 from the exercise of all Warrants assuming the exercise in full of all such warrants for cash. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, we intend to use the net proceeds from the exercise of such warrants for general corporate purposes which may include acquisitions or other strategic investments or repayment of outstanding indebtedness.
Resale of Class A Ordinary Shares
Our Class A Ordinary Shares offered by the Selling Securityholders
Up to 676,627,977 shares (including Class A Ordinary Shares underlying the Warrants and Class B Ordinary Shares)
Use of proceeds
We will not receive any proceeds from the sale of the Class A Ordinary Shares to be offered by the Selling Securityholders. With respect to the Class A Ordinary Shares underlying the warrants, we will not receive any proceeds from such shares except with respect to amounts received by us upon exercise of such warrants to the extent such warrants are exercised for cash. We believe the likelihood that warrant holders will exercise their warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Class A Ordinary Shares. If the trading price for our Class A Ordinary Shares is
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less than $11.50 per share, we believe holders of our public warrants and private placement warrants will be unlikely to exercise their warrants on a cash basis.
Risk Factors
See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Class A Ordinary Shares.
Lock-up Agreements
Certain securities that are owned by the Selling Securityholders are subject to the lock-up provisions in Pagaya Articles (the “Lock-Up Agreements”), which provide for certain restrictions on transfer until the termination of applicable lock-up periods. These Lock-Up Agreements entered into in connection with the Merger set forth that certain lock-up restrictions will expire in the six to twelve months following closing of the Merger, or earlier if certain trading price thresholds are achieved. As a result of our share price satisfying certain of these price thresholds, the lock-up restrictions (i) expired on September 20, 2022, with respect to 50% of the Lock-Up Shares owned by Pagaya Equity Holders and their permitted transferees and (ii) will expire on December 19, 2022, with respect to the remaining 50% of the Lock-Up Shares owned by Pagaya Equity Holders and their permitted transferees and all of the shares owned by the Sponsor and certain directors and advisors of EJFA and their permitted transferees. See the Pagaya Articles, which are incorporated herein by reference to Exhibit 1.1 of Pagaya’s Current Report on Form 6-K filed with the SEC on June 28, 2022.
Nasdaq Ticker-Symbol
Class A Ordinary Shares: “PGY”
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SELECTED HISTORICAL FINANCIAL DATA OF PAGAYA
The following summary balance sheet data as of December 31, 2021 have been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The following summary consolidated statement of operations data for the six months ended June 30, 2022 and 2021, and consolidated balance sheet data as of June 30, 2022, have been derived from our unaudited consolidated financial statements prepared in a manner consistent with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The selected unaudited financial results set forth below have been prepared by, and are the responsibility of, management and are based on a number of assumptions. Neither Pagaya's independent auditors, nor any other independent accountants, have audited, reviewed, compiled, examined, or performed any procedures with respect to the selected unaudited financial results, nor have they expressed any opinion or any other form of assurance on such information, and assume no responsibility for, and disclaim any association with, the selected unaudited financial results.
You should read the consolidated financial data below in conjunction with the selected title “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period in the future.
Consolidated Statements of Operations Data
 
(Unaudited)
 
Six Months Ended
June 30,
 
2022
2021
Revenue
 
 
Revenue from fees
$321,627
$173,455
Other Income
 
 
Interest income
29,461
9,801
Investment income (loss)
995
12
Total Revenue and Other Income
$352,083
$183,268
Costs and Operating Expenses
 
 
Production costs
197,260
99,774
Research and development(1)
88,736
39,412
Sales and marketing(1)
63,650
28,403
General and administrative(1)
163,073
34,107
Total Costs and Operating Expenses
512,719
201,696
Operating Income (Loss)
(160,636)
(18,428)
Other income (loss), net
6,613
(18,771)
Income (Loss) Before Income Taxes
(154,023)
(37,199)
Income tax expense (benefit)
19,539
7,793
Net Loss
(173,562)
(44,992)
Less: Net income attributable to noncontrolling interests
19,972
7,546
Net Loss Attributable to Pagaya Technologies Ltd.
$(193,534)
$(52,538)
Per share data:
 
 
Net loss attributable to Pagaya Technologies Ltd.
$(193,534)
$(52,538)
Less: Undistributed earnings allocated to participated securities
(12,205)
(8,559)
Less: Deemed dividend distribution
(23,612)
Net loss attributed to Pagaya Technologies Ltd.
$(193,534)
$(84,709)
Net loss per share attributable to Pagaya Technologies Ltd.:
 
 
Basic and Diluted(2)
$(0.89)
$(0.44)
Weighted average shares outstanding:
 
 
Basic and Diluted(2)
230,180,474
193,711,788
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(1)
The following table sets forth share-based compensation for the periods indicated below:
 
Six Months Ended
June 30,
 
2022
2021
Research and development
$60,243
$25,074
Sales and marketing
38,889
16,779
General and administrative
63,572
17,264
Total share-based compensation in operating expenses
$162,704
$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.
Consolidated Balance Sheet Data
 
(Unaudited)
(Audited)
(in thousands)
As of June 30,
2022
As of December 31,
2021
Total assets
$981,742
$590,258
Total liabilities
236,706
105,859
Redeemable convertible preferred shares
307,047
Total Pagaya Shareholders’ equity (deficit)
572,843
308,339
Non-Controlling interests
172,193
176,060
Total shareholders’ equity
745,036
484,399
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RISK FACTORS
In addition to the other information contained in this prospectus, including the matters addressed under the heading “Cautionary Statement Regarding Forward-Looking Statements; Market, Ranking and Other Industry Data,” you should carefully consider the following risk factors in this prospectus before investing in our securities. Certain factors may have a material adverse effect on our business, financial conditions and results of operations. The risks and uncertainties described below disclose both material and other risks and uncertainties, and are not intended to be exhaustive and are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe to be immaterial also may materially adversely affect our business, financial condition, results of operations and cash flows in future periods or are not identified because they are generally common to businesses. If any of these risks occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the trading price of Pagaya Ordinary Shares could decline, and you could lose part or all of your investment.
Unless otherwise noted or the context otherwise requires, all references in this section to the “Company,” “we,” “us” or “our” refer to the business of Pagaya following the consummation of the Merger.
Risks Related to the Operations of Our Business
We are a rapidly growing company with a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and it may be difficult to evaluate our future prospects.
We were founded in 2016 and have experienced rapid growth in recent years in the markets we serve and we plan to continue to expand into new markets. Our limited operating history may make it difficult to make accurate predictions about our future performance. Assessing our business and future prospects may also be difficult because of the risks and difficulties we face. These risks and difficulties include our ability to:
maintain and increase the volume of financial products facilitated with the assistance of our AI technology;
enter into new and maintain existing relationships with Partners;
maintain cost-effective access to capital and a diversified asset funding strategy;
expand the use and applicability of our AI technology;
improve the effectiveness and predictiveness of our AI technology;
successfully build our brand and protect our reputation from negative publicity;
successfully adjust our proprietary AI technology, products and services in a timely manner in response to changing macroeconomic conditions, including consumer credit performance, fluctuations in the credit markets, the recent increase in interest rates and the wind-down of stimulus programs;
successfully compete with companies that are currently in, or may in the future enter, the business of providing technological services to enhance the access to credit for customers and funding services;
enter into new markets and introduce new products and services;
comply with and successfully adapt to complex and evolving legal and regulatory environments in our existing markets and ones we may enter in the future;
effectively secure and maintain the confidentiality of the information received, accessed, stored, provided and used across our systems;
successfully obtain and maintain funding and liquidity to support continued growth and general corporate purposes;
attract, integrate and retain qualified employees and independent contractors; and
effectively manage, scale and expand the capabilities of our teams, outsourcing relationships, third-party service providers, operating infrastructure and other business operations.
If we are not able to timely and effectively address these risks and difficulties as well as those described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations may be harmed.
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Our revenue growth rate and financial performance in recent periods may not be indicative of future performance and such growth may slow over time. In addition, the historical returns attributable to the Financing Vehicles should not be indicative of the future results of the Financing Vehicles and poor performance of the Financing Vehicles would likely cause a decline in our revenue, net income and cash flow.
We have grown rapidly over the last several years, and our recent revenue growth rate and financial performance may not be indicative of our future performance. Our revenue and other income was $99.0 million and $474.6 million for the years ended December 31, 2020 and December 31, 2021, respectively, representing a 379% growth rate. For the six month periods ending June 30, 2021 and June 30, 2022, our revenue and other income was $183.3 million and $352.1 million, respectively, representing a 92% growth rate. For the years ended December 31, 2020 and December 31, 2021, we generated net income attributable to shareholders of $14.5 million and a net loss attributable to shareholders of $91.2 million, respectively, and Adjusted EBITDA of $16.2 million and $46.0 million, respectively. For the six months ended June 30, 2021 and June 30, 2022, we generated a net loss attributable to shareholders of $52.5 million and $164.5 million, respectively, and Adjusted EBITDA of $33.7 million and $9.3 million, respectively. The Adjusted EBITDA decrease for the six months ended June 30, 2022 as compared to the prior year period reflects the impact of (i) costs related to hiring to support our future growth initiatives, including expanding our research and development team and significantly expanding our senior team to take advantage of incremental Partner opportunities, and (ii) recent changes in macroeconomic conditions, including rising interest rates and the increased cost of capital. We intend to continue to make investments to support our business growth and those investments along with the potential for higher interest rates and cost of capital could negatively impact our net income (loss) attributable to shareholders and Adjusted EBITDA.
Our revenue for any previous quarterly or annual period may not be a reliable indicator of our revenue or revenue growth in future periods. As our business grows, our revenue growth rates may slow, or our revenue may decline, in future periods for a number of reasons, which may include slowing demand for our AI technology offerings, products and services, increasing competition, a decrease in our ability to access capital or the growth of our network, increasing regulatory costs and challenges, adverse changes in the macroeconomic environment and consumers’ ability to service their debt and our failure to capitalize on growth opportunities. Further, we believe our growth over the last several years has been driven in large part by the expansion across similar consumer credit assets, which will slow as we enter all consumer credit markets. The recent increase in interest rates may impact investor demand for risk assets such as consumer credit which could constrain our ability to raise new funding for loan originations and have a negative impact on our results of operations. In addition, we believe this growth has been driven in part by the transformative shift by consumers to e-commerce and the acceptance of online networks and digital solutions for the use of and access to financial products that we expect may slow down over time, and as a result, our financial performance may be adversely affected.
We have established Financing Vehicles, certain of which have a limited track record, which may make our business difficult to evaluate. The historical and potential future returns of the Financing Vehicles are not directly linked to returns on Pagaya Ordinary Shares. Therefore, any positive performance of the Financing Vehicles will not necessarily result in positive returns on an investment in Pagaya Ordinary Shares. However, poor performance of the Financing Vehicles would likely cause a decline in our revenue, net income/loss and cash flow from such Financing Vehicles, and would likely negatively affect our ability to raise additional capital for the same or future Financing Vehicles, and would therefore have a negative effect on our performance and, in all likelihood, the returns on an investment in Pagaya Ordinary Shares. Moreover, we could experience losses related to our risk retention holdings as a result of poor investment performance by the Financing Vehicles. The future rate of return for any current or future Financing Vehicles may vary considerably from the historical rate of return generated by any particular Financing Vehicle, or for the Financing Vehicles as a whole. Poor performance of the Financing Vehicles could make it more difficult for us to raise new capital. Asset investors might decline to invest in future Financing Vehicles we raise, and asset investors in existing Financing Vehicles might withdraw their investments, as a result of poor performance of the Financing Vehicles in which they are invested. Accordingly, poor performance may deter future investment in Financing Vehicles and thereby decrease the capital invested in the Financing Vehicles and, ultimately, our fee revenue, net income/loss and cash flow.
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If we fail to effectively manage our growth, our business, financial condition, and results of operations could be adversely affected.
Over the last several years, we have experienced rapid growth in our business and the number of employees and independent contractors, and we expect to continue to experience growth in the future. For example, we have recently expanded our research and development team as well as our team focused on recruiting new Partners. This rapid growth has placed, and may continue to place, significant demands on our management, processes, systems and operational, technological and financial resources. Our ability to manage our growth effectively, integrate new employees, independent contractors and technologies into our existing business and attract new Partners and maintain relationships with existing Partners will require us to continue to retain, attract, train, motivate and manage employees and independent contractors and expand our operational, technological and financial infrastructure. From time to time, we rely on temporary independent contractor programs for various aspects of our business. Failure to effectively implement and manage such programs could result in misclassification or other employment-related claims or inquiries by governmental agencies. Continued growth could strain our ability to develop and improve our operational, technological, financial and management controls, reporting systems and procedures, recruit, train and retain highly skilled personnel and maintain Partners’ and their customers’ satisfaction. Any of the foregoing factors could negatively affect our business, financial condition and results of operations.
Our business and the performance of Financing Vehicles may be adversely affected by economic conditions and other factors that we cannot control. These factors include interest rates, rising inflation, supply chain disruptions, labor shortages, the wind-down of stimulus programs, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war (including the ongoing Russia-Ukraine conflict), terrorism, catastrophes, and pandemics, including the COVID-19 pandemic.
Uncertainty and negative trends in general economic conditions, including significant tightening of credit markets, historically have created a difficult operating environment for our industry. Many factors, including factors that are beyond our control, may impact our results of operations or financial condition and our overall success by affecting our access to capital. Challenges our Partners may face with low demand for their financial products or willingness or capacity of their customers to make payment on obligations, or the returns on other assets, may affect the success of the Financing Vehicles. For example, the personal loans acquired from our Partners are, for the most part, unsecured, and our Partners’ customers may not prioritize repayment of those loans in an economic downcycle. These factors include interest rates, rising inflation, supply chain disruptions, labor shortages, weakening exchange rates, the winddown of stimulus programs, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war (including the recent Russia-Ukraine conflict), terrorism, catastrophes and pandemics. We face a heightened level of interest rate risk as the U.S. Federal Reserve Board has tapered its quantitative easing program and continues to increase interest rates.
In response to the economic impacts and disruptions associated with COVID-19, governments around the world, including in the United States, provided significant fiscal and monetary stimuli, which have had the effect, among other things, of supporting overall levels of employment, consumer spending and savings levels, and the ability of consumers to service their debt. The wind-down of these stimulus programs may adversely affect economic conditions and consumer credit performance, which may reduce the demand for and pricing of consumer credit assets and negatively impact our growth, revenues and profitability. In addition, the United States has recently experienced historically high levels of inflation. According to the U.S. Department of Labor, the annual inflation rate for the United States was approximately 9.1% for June 2022. Rising 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 volume origination. In addition, rising inflation may create an escalation in our operating costs, including employee compensation and general corporate expenses, which could reduce cash flow and operating income. As of the date of this prospectus, we have not experienced material impacts to our business performance from inflationary pressure.
Furthermore, beginning in March 2022, the U.S. Federal Reserve Board has announced several increases in the federal funds rate primarily due to inflation and a strong labor market. This recent increase in interest rates has led to a tighter market for credit and we may experience reduced access to capital and our revenue could be negatively impacted. Increased interest rates could unfavorably impact demand for all refinancing loan activities and reduce demand across
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personal loans and home loans, including, but not limited to, any variable-rate loan products, as well as adversely impact the spending levels of borrowers and their ability and willingness to borrow money. The growth of the personal lending market has benefited from historically low interest rates and as interest rates increase the growth of this market and our growth could be negatively impacted. 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, all of which could have a material adverse effect on our business. Any impact to investor returns may lead to an adverse impact on our earnings. As the risk-free rate of return increases, investor demand for risk assets such as consumer credit may be impacted, which may constrain our ability to raise new funding for loan originations and have a negative impact on our results of operations. While our ability to raise new funding has not been impacted to date, the cost of capital has increased due to the higher interest rate environment. In addition, major medical expenses, divorce, death or other issues that affect borrowers could affect a borrower’s willingness or ability to make payments on their loans. If borrowers default on loans, the cost to service these loans may also increase without a corresponding increase in fees and the value of the loans held by our funds and financing vehicles could decline. Higher default rates by these borrowers may lead to lower demand by Partners, which would adversely affect our business, financial condition and results of operations. Any sustained decline in demand for investment in loans (including through our funds or financing vehicles) or any increase in delinquencies, defaults or foreclosures that result from economic downturns, may adversely affect our business, financial condition and results of operations.
If there is an economic downturn that affects our current and prospective Partners and their customers, asset investors or the performance of the Financing Vehicles, or if we are unable to address and mitigate the risks associated with any of the foregoing, our business, financial condition and results of operations could be adversely affected. Additionally, our AI technology has not been extensively tested during economic downturns. For more information, see “Risk Factors—Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we expand into new markets, such as real estate and credit cards, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.
We are heavily dependent on our AI technology. If we are unable to continue to improve our AI technology or if our AI technology does not operate as we expect, contains errors or is otherwise ineffective, our network may improperly evaluate products, not be able to process the volume we have historically, and our growth prospects, business, financial condition and results of operations could be adversely affected.
Our ability to enable our Partners to increase the number of loans or other assets that they originate with the assistance of our AI technology will depend in large part on our ability to effectively evaluate the creditworthiness and likelihood of default of our Partners’ customers and, based on that evaluation, help our Partners offer competitively-priced loans or other assets as well as obtain higher approval rates. Further, our overall operating efficiency and margins will depend in large part on our AI technology’s ability to effectively evaluate the creditworthiness, likelihood of default and credit asset pricing for our Partners’ customers, which will affect our Partners’ business volume. In the ordinary course, we enter into contractual arrangements with our Partners with customary indemnification provisions (including for violation of law). Such indemnification provisions potentially assume regulatory liability and liability for claims by Partners or third parties if the AI technology contains errors or incorrectly evaluates Partners’ customers. We further assume liability as the investment manager, sponsor and/or administrator for the Financing Vehicles, including if the AI technology contains errors or incorrectly evaluates the Partners’ customers underlying the assets purchased by the Financing Vehicles. Such liability may result in claims by asset investors or regulatory action. For more information, see “Risk Factors—If we fail to comply with or facilitate compliance with, or our Partners fail to comply with the variety of federal, state and local laws to which we or they are subject, including those related to consumer protection, consumer finance, lending, fair lending, data protection, and investment advisory services, or if we or our Partners are found to be operating without having obtained necessary state or local licenses, it may result in regulatory action, litigation, monetary payments or may otherwise negatively impact our reputation, business, and results of operations, and may prevent us from serving users in jurisdictions where those regulations apply., Risk Factors—Risks Related to Our Legal and Regulatory Environment” and “Risk Factors—Any legal proceedings, investigations or claims
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against us could be costly and time-consuming to defend and could harm our reputation regardless of the outcome. In addition, our business and operations could be negatively affected if they become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact our share price.
In addition, we utilize the data gathered from various sources in our automated credit analysis process. The data that we gather is evaluated and curated by our AI technology. The ongoing development, maintenance and operation of our AI technology is expensive and complex, and may involve unforeseen difficulties including material performance problems, and undetected defects or errors, for example, with new capabilities incorporating AI. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our AI technology from operating properly. If our AI technology fails to adequately predict the creditworthiness of Partners’ applicants or customers, or to properly place loans or other assets for acquisition by Financing Vehicles due to the design of our models or programming or other errors or failures, other characteristics of our AI or for any other reasons, or any of the other components of the automated credit analysis process fails, our Partners may experience higher than forecasted loan and other losses that will in turn negatively impact the performance of the Financing Vehicles that acquire our Partners’ assets. Additionally, errors or inaccuracies in our AI technology could result in exposure to the credit risk of loans or other assets originated by Partners, whether it be exposure for us, Partners or asset investors, which may result in higher than expected losses or lower than desired returns of such loans or other assets.
Any of the foregoing could result in our Partners experiencing sub-optimally priced assets, incorrect approvals or denials of transactions, or higher than expected losses, or could require remediation and/or result in our Partners’ dissatisfaction with us, which in turn could adversely affect our ability to attract new Partners or cause our Partners to terminate their agreements with us and decrease our Partners’ financial product volume, and could also negatively impact the performance of Financing Vehicles, certain asset investors’ willingness to invest in future Financing Vehicles, and our ability to continue to create new Financing Vehicles, and our business, financial condition and results of operations may be adversely affected.
We rely on our Partners to originate assets facilitated with the assistance of our AI technology. Currently, a limited number of Partners account for a substantial portion of the total number of financial products facilitated with the assistance of our AI technology and, ultimately, our revenue. If these Partners were to cease or limit operations with us, our business, financial condition and results of operations could be adversely affected.
Currently, a majority of the loans or other assets that are facilitated with the assistance of our AI technology result from transactions with a small number of Partners who operate in the financial technology space. These Partners, taken together, originate a majority of the loans or other assets facilitated with the assistance of our AI technology. The fees we receive when these loans or other assets are acquired from these Partners by Financing Vehicles account for a majority of our revenue.
We have entered into several types of agreements with each of our Partners. Our commercial arrangements with these Partners are generally nonexclusive and are based on the type of asset class. For example, we enter into purchase agreements with our Partners, which provide the Financing Vehicles with the opportunity to acquire assets by the Partner assisted by our AI technology, that have a typical duration of one to three years with the option to extend for additional periods. The Financing Vehicles are not required to acquire specific types or amounts of assets from our Partners under such agreements. In addition, there are servicing agreements with our Partners covering the assets originated by such Partners that typically last for the life of the asset. As it relates to any specific asset, these servicing agreements require us to continue to use the Partner that originated the asset for the life of such asset. In addition, even during the term of our arrangement, our Partner could choose to reduce the volume of loans or other assets facilitated with the assistance of our AI technology or increase the volume that it chooses to fund and retain on its own balance sheet. We or any of our Partners may terminate our arrangement for various reasons, which may include material breaches and change in control, subject to payment of a termination fee in some cases, and Partners could decide to stop working with us, have disputes with us, ask to modify their commercial or legal terms in a manner disadvantageous to us or enter into exclusive or more favorable relationships with our competitors. In addition, capital and leverage requirements applicable to our Partners that are banks or other financial institutions subject to such requirements could result in decreased demand for our products. Further, our Partners’ respective regulators may require that they terminate or otherwise limit their business with us, or impose regulatory pressure limiting their ability to do business with us. We are a service provider to Partners, some of which are considered banks under the Federal Deposit Insurance Corporation (“FDIC”), and as such, we are subject to audit by such Partners in accordance with
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FDIC guidance related to management of vendors. We are also subject to the examination and enforcement authority of the FDIC under the Bank Service Company Act. If any of our Partners were to stop working with us, suspend, limit or cease their operations or otherwise terminate or modify adversely to us their relationship with us, the number of financial products originated by our Partners with the assistance of our AI technology could decrease, and our revenue and revenue growth rates and our business, financial condition and results of operations could be adversely affected.
If we are unable to both retain existing Partners and attract and onboard new Partners, our business, financial condition and results of operations could be adversely affected.
A majority of our revenue is generated through fees we receive when the loans and other financial products originated by our Partners with the assistance of our AI technology are acquired by Financing Vehicles. Currently, we have a small number of Partners that operate in the financial technology space who originate a majority of these loans and other assets. To continue to expand our market share in existing markets and grow into new markets we will need to attract and onboard new Partners on attractive commercial terms and also maintain and grow those relationships. We have both lead generation programs and referral programs to identify and develop new Partners but these programs may not succeed in the near term or may cease to be effective over time. If we are not successful in attracting and onboarding new Partners, our business, financial condition and results of operations could be adversely affected.
Our ability to raise capital from asset investors is a vital component of the products we offer to Partners. If we are unable to raise capital from asset investors at competitive rates, it would materially reduce our revenue and cash flow and adversely affect our financial condition.
We have relied upon the securitization market and committed asset-backed facilities to provide a significant portion of the funding component of our product. The ability of the Financing Vehicles to provide funding at competitive rates is essential to our business.
Our ability to raise capital from asset investors for Financing Vehicles depends on a number of factors, including certain factors that are outside our control. Certain factors, such as the performance of the equity and bond markets and the asset allocation rules or investment policies to which such asset investors are then subject, could inhibit or restrict the ability of asset investors to make investments in Financing Vehicles or the asset classes in which Financing Vehicles invest.
An inability to access the securitization market or a significant reduction in liquidity in the secondary market for securitization transactions could have an adverse impact on the funding component of our product, financial position and results of operations.
Our ability to launch new Financing Vehicles could similarly be hampered if the appeal of those investments in the market were to decline. For example, there is a risk that the properties that we have invested in have some undiscovered flaw, or would otherwise require additional expenditures to make them rentable in excess of the expected amount, which could result in greater total renovation costs and a loss of revenue. Further, an investment in a share, unit, membership interest or limited partner interest in a Financing Vehicle is more illiquid, and the returns on such investment may be more volatile than an investment in securities for which there is a more active and transparent market. In periods of positive markets and low volatility, for example, investors may favor passive investment strategies such as index funds over our actively managed investment vehicles. Alternative investments could also fall into disfavor as a result of concerns about liquidity and short-term performance.
In connection with launching new Financing Vehicles or making further investments in existing Financing Vehicles, we may negotiate terms for such Financing Vehicles with existing and potential asset investors. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than for prior Financing Vehicles or as compared to Financing Vehicles of our competitors, including with respect to fees and/or incentive fees, which could have an adverse impact on our revenues. Such terms could also restrict our ability to raise Financing Vehicles with investment objectives or strategies that compete with existing Financing Vehicles, add additional expenses and obligations for us or increase our potential liabilities, all of which could ultimately reduce our revenues. In addition, certain investors, including sovereign wealth funds and public pension funds, have demonstrated an increased preference for alternatives to the traditional financing vehicle structure. Such alternatives may not be as profitable for us as the traditional fund structure, and such a trend could have a material impact on the cost of our operations or profitability if we were to implement these alternative investment structures. In addition, certain investors, including public pension funds, have publicly criticized certain fee and expense structures, including
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transaction and advisory fees. Although we have no obligation to modify any of our fees with respect to our existing, we may experience pressure to do so in Financing Vehicles.
The fees paid to us by Financing Vehicles comprise a key portion of our revenues, and a reduction in these revenues could have an adverse effect on our results of operations. If we are unable to raise new and successor Financing Vehicles, the growth of the assets of such Financing Vehicles and related fees generated, our ability to deploy capital into investments and the potential for increasing our performance income would slow or decrease, all of which would materially reduce our revenues and cash flows and adversely affect our financial condition.
A key portion of our revenue from Financing Vehicles in any given period is dependent on the size of the assets of such Financing Vehicles in such period and fee rates charged. We may not be successful in producing investment returns and prioritizing services that will allow us to maintain our current fee structure, to maintain or grow the assets of such Financing Vehicles, or to generate performance income. A decline in the size or pace of growth of assets of Financing Vehicles or applicable fee rates will reduce our revenues. A decline in the size or pace of growth of the assets of Financing Vehicles or applicable fee rates may result from a range of factors, including:
Volatile economic and market conditions, which could cause asset investors to delay making new commitments to alternative Financing Vehicles or limit the ability of our existing Financing Vehicles to deploy capital;
Competition may make fundraising and the deployment of capital more difficult, thereby limiting our ability to grow or maintain the assets of such Financing Vehicles;
Changes in our strategy or the terms of our network AI fees; and
Poor performance of one or more of the Financing Vehicles, either relative to market benchmarks or in absolute terms, or compared to our competitors, may cause asset investors to regard the Financing Vehicles less favorably than those of our competitors, thereby adversely affecting our ability to raise more capital for existing Financing Vehicles or new or successor Financing Vehicles.
If we are unable to develop and maintain a diverse and robust funding component for our network, our growth prospects, business, financial condition and results of operations could be adversely affected. In addition, certain Financing Vehicles have redemption features and a substantial withdrawal of capital by one or more asset investors may have an adverse effect on the Financing Vehicles’ performance.
Our business depends on sourcing and maintaining diverse and robust funding to enable loans or other assets from our Partners to be acquired by a Financing Vehicle. The number of asset investors in new markets where a long-term track record of performance has not been developed is often very concentrated. Even for more mature markets, although the participating asset investors are often more diverse, only a limited number have committed or guaranteed their participation in existing Financing Vehicles. Were the availability of this funding to decrease, our ability to generate Network Volume and revenue will be adversely affected. Further, we have significant concentration in asset investors. Four of the largest asset investors together contributed approximately 66% of Network Capital during the 12 months ended December 31, 2021, compared to approximately 81% during the 12 months ended December 31, 2020. New capital from asset investors may be unavailable on reasonable terms or at all beyond the current maturity dates of Financing Vehicles.
Further, events of default or breaches of financial, performance or other covenants, or worse than expected performance of certain pools of obligations underpinning Financing Vehicles, could reduce the likelihood of affiliates sponsoring, managing or administering Financing Vehicles that acquire assets from our Partners. The performance of such assets is dependent on a number of factors, including the predictiveness of our AI technology and social and economic conditions. The availability and capacity of certain asset investors to participate in Financing Vehicles that acquire assets from our Partners also depend on many factors that are outside of our control, such as credit market volatility, politics and regulatory reforms. In the event of a sudden or unexpected disruption of asset investors’ participation in Financing Vehicles that acquire assets from our Partners, our network may not be able to maintain the necessary levels of funding to retain current volume of acquisition by Financing Vehicles of loans or other assets originated by our Partners without incurring substantially higher funding costs, which could adversely affect our business, financial condition and results of operations.
A substantial withdrawal of capital by one or more asset investors in any Financing Vehicle with redemption features may have an adverse effect on such Financing Vehicle’s performance. The adviser to such Financing
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Vehicle may find it difficult under such circumstances to adjust its asset allocation to the reduced amount of assets of such Financing Vehicle. Moreover, in order to provide sufficient funds to pay withdrawal amounts, the Financing Vehicles might be required to liquidate positions at an inopportune time or at prices that the adviser believes do not reflect the true value of such investments and that would adversely affect the applicable asset investors, or the adviser may not be able to liquidate such positions at all or it may determine it would be inappropriate to do so. If such withdrawals of capital were to continue over a protracted period of time, these issues may be magnified such that similar assets sold at subsequent withdrawal dates might receive even less favorable liquidation values. Withdrawals of capital through redemption may also make it more difficult for such Financing Vehicles to generate the same level of profits operating on a smaller capital base and may trigger defaults or termination events under one or more loans, credit facilities or other financing arrangements.
Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we expand into new markets, such as real estate and credit cards, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.
We continue to build and refine our AI technology to offer new products and services in new markets. We have added one new market per year since 2018 and recently entered the real estate market. We expect to continue to expand our offering to other markets. There are substantial risks and uncertainties associated with these efforts. We may invest significant time and resources to develop and market new lines of business and/or products and services and we may not achieve the return on our investment that we expect. Initial timetables for the introduction and development of new lines of business or new products or services may not be achieved and price and profitability targets may not prove feasible. Further, we may not be able to develop, commercially market and achieve market acceptance of any new products and services. In addition, our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of the revenue actually derived from these new products and services. If the profile of consumers using any new products and services is different from that of those currently served by our Partners’ existing financial products, our AI technology may not be able to accurately evaluate the credit risk of such customers, and the affiliates sponsoring, managing or administering Financing Vehicles that are acquiring our Partners’ financial products may in turn experience higher levels of delinquencies or defaults. Failure to accurately predict demand or growth with respect to our new products and services could have an adverse impact on our reputation and business, and there is always a risk that new products and services will be unprofitable, increase our costs, decrease operating margins or take longer than anticipated to achieve target margins. In addition, any new products or services may raise new and potentially complex regulatory compliance obligations, which would increase our costs and may cause us to change our business in unexpected ways. Further, our development efforts with respect to these initiatives could distract management from current operations and divert capital and other resources from our existing business.
Furthermore, our AI technology may not perform as well in the real estate asset market and non-consumer credit asset markets as it has in the consumer markets. For example, the use of our AI technology to evaluate and facilitate the acquisition, renovation, lease and eventual realization of real estate assets is significantly different than its application toward the evaluation and origination of loans and financial products, due to the special characteristics of the real estate market and the inherent uniqueness of these assets. The purchase price, renovation time and costs, attainable rent and appreciation potential of real estate assets are affected by numerous parameters that are often specific to each asset, and attempting to predict them through AI-based, big-data analytics is prone to error. While we have adapted and calibrated our AI technology to account for such parameters and their irregularity among individual assets, it may not be able to accurately predict the creditworthiness of each such asset and the outcome of its purchase, renovation, lease or future realization. In addition, while we believe our AI technology will accurately evaluate risk in the non-consumer credit asset markets, our AI technology has not been extensively tested in these markets. If our AI technology is unable to accurately evaluate risk in these markets, our Partners and Financing Vehicles through which asset investors invest may experience greater than expected losses on such loans or other assets, which would harm our reputation and erode the trust we have built with our Partners and asset investors. Any of these factors could adversely affect our business, financial condition and results of operations.
We may also have difficulty with securing the adequate participation of asset investors for Financing Vehicles investing in any such new financial products and services by our Partners, and if we are unable to do so, our
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ability to develop and grow these new offerings and services will be impaired. If we are unable to effectively manage the foregoing risks, our growth prospects, business, financial condition and results of operations could be adversely affected. For example, in real estate investments, the yields available from properties depend on the amount of revenue generated and expenses incurred. If certain properties do not generate sufficient revenues to meet their acquisition and operating expenses, a Financing Vehicle’s cash flow and ability to pay distributions to its asset investors will be adversely affected.
Further, if we do not successfully manage the regulatory, business and market risks associated with our expansion into new markets and new products and effectively execute our growth strategy in these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected. For example, the credit card market is highly complex, competitive and regulated. We continue to build and refine our AI technology to appropriately manage our credit card business, and if our AI technology does not perform as well in the credit card market as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy, our growth prospects, business, financial condition and results of operations could be adversely affected.
In addition, Partners in our network recently began analyzing auto loans with the assistance of our AI technology to assist with their origination process for auto loans and acquisition of such loans by Financing Vehicles. We are continuing to invest in developing AI technology to support the origination of new financial products by our Partners and service offerings, such as credit cards, student loans, point-of-sale loans and the acquisition of such financial products by Financing Vehicles. New initiatives are inherently risky, as each involves unproven business strategies, addressing and complying with new regulatory requirements, industry expertise and new financial products and services with which we, and in some cases our Partners, have limited or no prior development or operating experience.
The industry in which we operate is highly competitive, and if we fail to compete effectively, we could experience price reductions, reduced margins or loss of revenues.
We operate in a highly competitive and dynamic industry. Our AI technology faces competition from a variety of players, including those that enable transactions and commerce via digital payments. Our primary competition consists of: other sources of consumer credit, including banks, non-bank lenders and other fintech networks, private equity firms, publicly traded financial technology companies, as well as a variety of technology companies that seek to help financial services providers with the digital transformation of their businesses and various “second-look” financing providers that offer lenders revenue when they approve applications that had otherwise been turned down. We expect competition to intensify in the future, both as emerging technologies continue to enter the marketplace and as large financial incumbents increasingly seek to innovate the services that they offer to compete with our network. Technological advances and the continued growth of e-commerce activities have increased consumers’ accessibility to more credit products and services and led to the expansion of competition in digital payment options that diminished the need for regular consumer credit such as pay-over-time solutions.