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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
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| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number: 001-41430
Pagaya Technologies Ltd.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Israel | | 87-3083236 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
90 Park Ave, 20th Floor | | | |
New York, New York | | | 10016 |
(Address of principal executive offices) | | (Zip Code) |
(646) 710-7714
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A Ordinary Shares, no par value | | PGY | | The NASDAQ Stock Market LLC |
Warrants to purchase Class A Ordinary Shares | | PGYWW | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2024, the registrant had 59,162,971 Class A Ordinary Shares, no par value, outstanding and 12,652,310 Class B Ordinary Shares, no par value, outstanding, and 5,000,000 Series A Preferred Shares, no par value, outstanding.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report 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 Annual Report, 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 ability to implement business plans and other expectations;
•the impact of the continuation of or changes in the short-term and long-term interest rate environment;
•uncertain market or political conditions;
•the availability and cost of capital, including the financing of risk retention investments;
•our ability to service our debt financing and meet associated covenants;
•our ability to develop and maintain a diverse and robust funding network;
•the impact of fair value changes in our risk retention investments in our Financing Vehicles;
•our uncertain future prospects and rate of growth due to our relatively limited operating history;
•the performance of our technology to consistently meet return expectations of asset investors in Financing Vehicles;
•our ability to improve, operate and implement our AI technology, including as we expand into new asset classes;
•competition in 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 related to AI technology, machine learning; financial institutions and consumer protection;
•the impact of health epidemics, including the ongoing COVID-19 pandemic;
•our ability to realize the potential benefits of past or future acquisitions;
•conditions related to our operations in Israel;
•risks related to data, security and privacy;
•changes to accounting principles and guidelines;
•our ability to develop and maintain effective internal controls;
•the ability to maintain the listing of our securities on Nasdaq;
•the price of our securities has been and may continue to be volatile;
•unexpected costs or expenses;
•future issuances, sales or resales of our Class A Ordinary Shares;
•an active public trading market for our Class A Ordinary Shares may not be sustained; and
•the other matters described in “Risk Factors” in our Annual Report on Form 10-K
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 Annual Report. 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.
Market, ranking and industry data used throughout this Annual Report, 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 “Risk Factors” in our Annual Report on Form 10-K, which was filed with the SEC on April 25, 2024, and “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report.
PART I - Financial Information
Item 1. Financial Statements
PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2024 | | 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 233,593 | | | $ | 186,478 | |
Restricted cash | 17,469 | | | 16,874 | |
| | | |
Fees and other receivables (including related party receivables of $55,549 and $51,036 as of June 30, 2024 and December 31, 2023, respectively) | 93,460 | | | 79,526 | |
Investments in loans and securities | 1,663 | | | 2,490 | |
Prepaid expenses and other current assets (including related party assets of $6,406 and $7,896 as of June 30, 2024 and December 31, 2023, respectively) | 15,012 | | | 18,034 | |
| | | |
Total current assets | 361,197 | | | 303,402 | |
Restricted cash | 16,864 | | | 19,189 | |
| | | |
Fees and other receivables (including related party receivables of $32,987 and $33,739 as of June 30, 2024 and December 31, 2023, respectively) | 32,987 | | | 34,181 | |
Investments in loans and securities | 909,762 | | | 714,303 | |
Equity method and other investments | 26,593 | | | 26,383 | |
Right-of-use assets | 51,631 | | | 55,729 | |
Property and equipment, net | 40,628 | | | 41,557 | |
Goodwill | 10,945 | | | 10,945 | |
| | | |
Intangible assets | 1,275 | | | 2,550 | |
Prepaid expenses and other assets | 1,095 | | | 137 | |
Total non-current assets | 1,091,780 | | | 904,974 | |
Total Assets | $ | 1,452,977 | | | $ | 1,208,376 | |
Liabilities and Shareholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 7,303 | | | $ | 1,286 | |
Accrued expenses and other liabilities | 36,090 | | | 28,562 | |
Current maturities of operating lease liabilities | 6,427 | | | 6,931 | |
Current portion of long-term debt | 12,750 | | | — | |
Secured borrowing | 176,223 | | | 37,685 | |
Income taxes payable | 2,461 | | | 461 | |
Total current liabilities | 241,254 | | | 74,925 | |
Non-current liabilities: | | | |
Warrant liability | 1,671 | | | 3,242 | |
Revolving credit facility | — | | | 90,000 | |
Long-term debt | 219,842 | | | — | |
Secured borrowing | 223,998 | | | 234,028 | |
Operating lease liabilities | 39,529 | | | 43,940 | |
Long-term tax liabilities | 36,752 | | | 22,135 | |
Deferred tax liabilities, net | 107 | | | 107 | |
Total non-current liabilities | 521,899 | | | 393,452 | |
Total Liabilities | 763,153 | | | 468,377 | |
Redeemable convertible preferred shares, no par value, 6,666,666 shares authorized, 5,000,000 shares issued and outstanding as of June 30, 2024; aggregate liquidation preference of $150,000 as of June 30, 2024. (1) | 74,250 | | | 74,250 | |
Shareholders’ equity: | | | |
Class A ordinary shares, no par value, 666,666,666 shares authorized, 58,943,381 and 49,390,936 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. (1) | — | | | — | |
Class B ordinary shares, no par value, 166,666,666 shares authorized, 12,652,310 and 12,652,310 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. (1) | — | | | — | |
Additional paid-in capital | 1,235,677 | | | 1,101,914 | |
Accumulated other comprehensive income (loss) | (71,050) | | | 444 | |
Accumulated deficit | (638,645) | | | (542,637) | |
Total Pagaya Technologies Ltd. shareholders’ equity | 525,982 | | | 559,721 | |
Noncontrolling interests | 89,592 | | | 106,028 | |
Total shareholders’ equity | 615,574 | | | 665,749 | |
Total Liabilities, Redeemable Convertible Preferred Shares, and Shareholders’ Equity | $ | 1,452,977 | | | $ | 1,208,376 | |
(1) Share amounts have been retroactively adjusted to reflect the 1-for-12 reverse share split effected on March 8, 2024.
The accompanying notes are an integral part of these condensed consolidated financial statements
PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenue | | | | | | | |
Revenue from fees (including related party revenues of $175,333 and $148,198 for the three months ended June 30, 2024 and 2023, respectively, and $353,844 and $301,991 for the six months ended June 30, 2024 and 2023, respectively) | $ | 242,594 | | | $ | 185,685 | | | $ | 479,598 | | | $ | 360,939 | |
Other Income | | | | | | | |
Interest income | 8,193 | | | 10,193 | | | 15,937 | | | 20,590 | |
Investment income (loss) (1) | (443) | | | (266) | | | 85 | | | 721 | |
Total Revenue and Other Income | 250,344 | | | 195,612 | | | 495,620 | | | 382,250 | |
Production costs | 145,602 | | | 120,613 | | | 290,483 | | | 245,670 | |
Technology, data and product development | 21,935 | | | 17,663 | | | 41,315 | | | 38,794 | |
Sales and marketing | 13,331 | | | 14,558 | | | 23,588 | | | 28,858 | |
General and administrative | 64,449 | | | 53,016 | | | 127,517 | | | 104,142 | |
Total Costs and Operating Expenses | 245,317 | | | 205,850 | | | 482,903 | | | 417,464 | |
Operating Income (Loss) | 5,027 | | | (10,238) | | | 12,717 | | | (35,214) | |
Other expenses, net | (73,194) | | | (16,895) | | | (107,543) | | | (83,875) | |
Loss Before Income Taxes | (68,167) | | | (27,133) | | | (94,826) | | | (119,089) | |
Income tax expense | 14,512 | | | 5,006 | | | 19,515 | | | 11,673 | |
Net Loss Including Noncontrolling Interests | (82,679) | | | (32,139) | | | (114,341) | | | (130,762) | |
Less: Net loss attributable to noncontrolling interests | (7,894) | | | (842) | | | (18,333) | | | (38,494) | |
Net Loss Attributable to Pagaya Technologies Ltd. | $ | (74,785) | | | $ | (31,297) | | | $ | (96,008) | | | $ | (92,268) | |
Per share data: | | | | | | | |
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Net loss per share attributable to Pagaya Technologies Ltd.: | | | | | | | |
Basic and Diluted (2) | $ | (1.04) | | | $ | (0.53) | | | $ | (1.41) | | | $ | (1.55) | |
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| | | | | | | |
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic and Diluted (2) | 71,765,884 | | | 59,609,788 | | | 68,113,860 | | | 59,386,974 | |
| | | | | | | |
(1) Includes income from proprietary investments.
(2) Share amounts have been retroactively adjusted to reflect the 1-for-12 reverse share split effected on March 8, 2024.
The accompanying notes are an integral part of these condensed consolidated financial statements
PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Net Loss Including Noncontrolling Interests | $ | (82,679) | | | $ | (32,139) | | | $ | (114,341) | | | $ | (130,762) | | | |
Other Comprehensive Income: | | | | | | | | | |
Unrealized gain (loss) on securities available for sale, net | (45,563) | | | 7,035 | | | (67,094) | | | 22,827 | | | |
Comprehensive Loss Including Noncontrolling Interests | $ | (128,242) | | | $ | (25,104) | | | $ | (181,435) | | | $ | (107,935) | | | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | (6,686) | | | 2,971 | | | (13,933) | | | (18,343) | | | |
Comprehensive Loss Attributable to Pagaya Technologies Ltd. | $ | (121,556) | | | $ | (28,075) | | | $ | (167,502) | | | $ | (89,592) | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Shares | | Ordinary Shares (Class A and Class B) | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit) | | Non-Controlling Interests | | Total Shareholders’ Equity |
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| | |
| Shares (1) | | Amount | | Shares (1) | | Amount | |
Balance – March 31, 2024 | 5,000,000 | | | $ | 74,250 | | | 70,602,363 | | | $ | — | | | $ | 1,214,969 | | | $ | (24,279) | | | $ | (563,860) | | | $ | 626,830 | | | $ | 99,081 | | | $ | 725,911 | |
| | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares upon exercise of share options | | | | | 172,305 | | | | | 598 | | | | | | | 598 | | | | | 598 | |
Issuance of ordinary shares upon vesting of RSUs | | | | | 821,023 | | | | | | | | | | | — | | | | | — | |
Share-based compensation | | | | | | | | | 20,093 | | | | | | | 20,093 | | | | | 20,093 | |
Issuance of ordinary shares | | | | | | | | | 17 | | | | | | | 17 | | | | | 17 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Return of capital to interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | (2,803) | | | (2,803) | |
Other comprehensive income (loss) | | | | | | | | | | | (46,771) | | | | | (46,771) | | | 1,208 | | | (45,563) | |
Net income (loss) | | | | | | | | | | | | | (74,785) | | | (74,785) | | | (7,894) | | | (82,679) | |
Balance – June 30, 2024 | 5,000,000 | | | $ | 74,250 | | | 71,595,691 | | | $ | — | | | $ | 1,235,677 | | | $ | (71,050) | | | $ | (638,645) | | | $ | 525,982 | | | $ | 89,592 | | | $ | 615,574 | |
| | | | | | | | | | | | | | | | | | | |
Balance – December 31, 2023 | 5,000,000 | | | $ | 74,250 | | | 62,043,246 | | | $ | — | | | $ | 1,101,914 | | | $ | 444 | | | $ | (542,637) | | | $ | 559,721 | | | $ | 106,028 | | | $ | 665,749 | |
| | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares upon exercise of share options | | | | | 272,918 | | | | | 759 | | | | | | | 759 | | | | | 759 | |
Issuance of ordinary shares upon vesting of RSUs | | | | | 1,481,470 | | | | | | | | | | | — | | | | | — | |
Share-based compensation | | | | | | | | | 37,710 | | | | | | | 37,710 | | | | | 37,710 | |
Issuance of ordinary shares, net of issuance cost of $5,312 | | | | | 7,500,000 | | | | | 89,956 | | | | | | | 89,956 | | | | | 89,956 | |
Issuance of ordinary shares from the Equity Financing Purchase Agreement | | | | | 298,057 | | | | | 5,338 | | | | | | | 5,338 | | | | | 5,338 | |
Contributions of interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | 2,815 | | | 2,815 | |
Return of capital to interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | (5,318) | | | (5,318) | |
Other comprehensive income (loss) | | | | | | | | | | | (71,494) | | | | | (71,494) | | | 4,400 | | | (67,094) | |
Net income (loss) | | | | | | | | | | | | | $ | (96,008) | | | (96,008) | | | $ | (18,333) | | | (114,341) | |
Balance – June 30, 2024 | 5,000,000 | | | $ | 74,250 | | | 71,595,691 | | | $ | — | | | $ | 1,235,677 | | | $ | (71,050) | | | $ | (638,645) | | | $ | 525,982 | | | $ | 89,592 | | | $ | 615,574 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Shares | | Ordinary Shares (Class A and Class B) | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Pagaya Technologies Ltd. Shareholders’ Equity (Deficit) | | Non-Controlling Interests | | Total Shareholders’ Equity |
| | |
| | |
| Shares (1) | | Amount | | Shares (1) | | Amount | |
Balance – March 31, 2023 | — | | | $ | — | | | 58,672,769 | | | $ | — | | | $ | 1,004,346 | | | $ | (1,259) | | | $ | (475,170) | | | $ | 527,917 | | | $ | 188,523 | | | $ | 716,440 | |
Issuance of preferred shares, net of issuance costs of $$750 | 5,000,000 | | | 74,250 | | | — | | | | | | | | | | | — | | | | | — | |
Issuance of ordinary shares upon exercise of share options | | | | | 194,154 | | | | | 946 | | | | | | | 946 | | | | | 946 | |
Issuance of ordinary shares upon vesting of RSUs | | | | | 208,829 | | | | | | | | | | | — | | | | | — | |
Share-based compensation | | | | | | | | | 22,395 | | | | | | | 22,395 | | | | | 22,395 | |
Contributions of interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | 5,165 | | | 5,165 | |
Return of capital to interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | (16,719) | | | (16,719) | |
Other comprehensive income (loss) | | | | | | | | | | | $ | 3,222 | | | | | 3,222 | | | 3,813 | | | 7,035 | |
Net income (loss) | | | | | | | | | | | | | $ | (31,297) | | | (31,297) | | | (842) | | | (32,139) | |
Balance – June 30, 2023 | 5,000,000 | | | $ | 74,250 | | | 59,075,752 | | | $ | — | | | $ | 1,027,687 | | | $ | 1,963 | | | $ | (506,467) | | | $ | 523,183 | | | $ | 179,940 | | | $ | 703,123 | |
| | | | | | | | | | | | | | | | | | | |
Balance – December 31, 2022 | — | | | $ | — | | | 56,942,632 | | | $ | — | | | $ | 968,432 | | | $ | (713) | | | $ | (414,199) | | | $ | 553,520 | | | $ | 211,903 | | | $ | 765,423 | |
Issuance of ordinary shares upon exercise of warrants | | | | | 16,304 | | | | | — | | | | | | | — | | | | | — | |
Issuance of ordinary shares upon exercise of share options | | | | | 365,763 | | | | | 1,430 | | | | | | | 1,430 | | | | | 1,430 | |
Issuance of ordinary shares upon vesting of RSUs | | | | | 235,908 | | | | | — | | | | | | | — | | | | | — | |
Issuance of preferred shares, net of issuance costs of $750 | 5,000,000 | | | 74,250 | | | | | | | — | | | | | | | — | | | | | — | |
Share-based compensation | | | | | | | | | 39,691 | | | | | | | 39,691 | | | | | 39,691 | |
Issuance of ordinary shares in connection with the acquisition of Darwin Homes, Inc. | | | | | 1,515,145 | | | | | 18,134 | | | | | | | 18,134 | | | | | 18,134 | |
Reclassification of investments | | | | | | | | | | | (1,881) | | | | | (1,881) | | | 18,341 | | | 16,460 | |
Contributions of interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | 15,293 | | | 15,293 | |
Return of capital to interests in consolidated VIEs | | | | | | | | | | | | | | | — | | | (28,913) | | | (28,913) | |
Other comprehensive income (loss) | | | | | | | | | | | 4,557 | | | | | 4,557 | | | 1,810 | | | 6,367 | |
Net income (loss) | | | | | | | | | | | | | (92,268) | | | (92,268) | | | (38,494) | | | (130,762) | |
Balance – June 30, 2023 | 5,000,000 | | | $ | 74,250 | | | 59,075,752 | | | $ | — | | | $ | 1,027,687 | | | $ | 1,963 | | | $ | (506,467) | | | $ | 523,183 | | | $ | 179,940 | | | $ | 703,123 | |
(1) Share amounts have been retroactively adjusted to reflect the 1-for-12 reverse share split effected on March 8, 2024.
The accompanying notes are an integral part of these condensed consolidated financial statements
PAGAYA TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2024 | | 2023 | | |
Cash flows from operating activities | | | | | |
Net loss including noncontrolling interests | $ | (114,341) | | | $ | (130,762) | | | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | |
Equity method income (loss) | (86) | | | (721) | | | |
| | | | | |
Depreciation and amortization | 13,359 | | | 7,984 | | | |
Share-based compensation | 33,519 | | | 36,575 | | | |
Fair value adjustment to warrant liability | (1,571) | | | 2,435 | | | |
| | | | | |
Impairment loss on investments in loans and securities | 79,911 | | | 78,327 | | | |
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Write-off of capitalized software | 2,561 | | | 1,630 | | | |
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Other non-cash items | 1,435 | | | (94) | | | |
Change in operating assets and liabilities: | | | | | |
Fees and other receivables | (12,725) | | | (7,602) | | | |
| | | | | |
Deferred tax liabilities, net | — | | | 2 | | | |
Prepaid expenses and other assets | 998 | | | 4,587 | | | |
Right-of-use assets | 3,879 | | | 4,619 | | | |
Accounts payable | 6,071 | | | 2,083 | | | |
Accrued expenses and other liabilities | 7,793 | | | (21,395) | | | |
Operating lease liability | (3,205) | | | (4,455) | | | |
Income tax receivable / payable | 18,363 | | | 1,274 | | | |
Net cash provided by (used in) operating activities | 35,961 | | | (25,513) | | | |
Cash flows from investing activities | | | | | |
Proceeds from the sale/maturity/prepayment of: | | | | | |
Investments in loans and securities | 66,822 | | | 91,360 | | | |
| | | | | |
| | | | | |
Cash and restricted cash acquired from Darwin Homes, Inc. | — | | | 1,608 | | | |
Payments for the purchase of: | | | | | |
Investments in loans and securities | (408,459) | | | (273,339) | | | |
Property and equipment | (9,525) | | | (10,496) | | | |
Equity method and other investments | (125) | | | — | | | |
| | | | | |
Net cash used in investing activities | (351,287) | | | (190,867) | | | |
Cash flows from financing activities | | | | | |
Proceeds from sale of ordinary shares, net of issuance costs | 89,956 | | | — | | | |
Proceeds from long-term debt | 244,725 | | | — | | | |
Proceeds from issuance of redeemable convertible preferred shares, net | — | | | 74,250 | | | |
| | | | | |
Proceeds from secured borrowing | 207,317 | | | 192,420 | | | |
Proceeds received from noncontrolling interests | 2,815 | | | 15,293 | | | |
Proceeds from revolving credit facility | 44,000 | | | 100,000 | | | |
Proceeds from exercise of stock options | 759 | | | 1,430 | | | |
Proceeds from issuance of ordinary shares from the Equity Financing Purchase Agreement | 5,338 | | | — | | | |
| | | | | |
Distributions made to noncontrolling interests | (5,318) | | | (28,913) | | | |
Payments made to revolving credit facility | (134,000) | | | (25,000) | | | |
Payments made to secured borrowing | (78,809) | | | (115,471) | | | |
Payments made to long-term debt | (6,375) | | | — | | | |
Long-term debt issuance costs | (7,974) | | | — | | | |
Settlement of share-based compensation in satisfaction of tax withholding requirements | — | | | (650) | | | |
| | | | | |
Net cash provided by financing activities | 362,434 | | | 213,359 | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1,723) | | | (2,687) | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 45,385 | | | (5,708) | | | |
Cash, cash equivalents and restricted cash, beginning of period | 222,541 | | | 337,076 | | | |
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Cash, cash equivalents and restricted cash, end of period | $ | 267,926 | | | $ | 331,368 | | | |
Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheet to the amounts shown in the statements of cash flow above: | | | | | |
Cash and cash equivalents | $ | 233,593 | | | $ | 304,047 | | | |
Restricted cash - current | 17,469 | | | 22,540 | | | |
Restricted cash - non-current | 16,864 | | | 4,781 | | | |
Total cash, cash equivalents, and restricted cash | $ | 267,926 | | | $ | 331,368 | | | |
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The accompanying notes are an integral part of these condensed consolidated financial statements
NOTE 1 - BUSINESS DESCRIPTION
Pagaya Technologies Ltd. and its consolidated subsidiaries (together “we” “our” “Pagaya” or the “Company”) is a technology company that deploys sophisticated data science and proprietary AI technology to drive better results for financial services and other service providers, their customers, and asset investors. Services providers integrated with Pagaya’s network, which are referred to as “Partners,” range from high-growth financial technology companies to incumbent banks and financial institutions, auto finance providers and residential real estate service providers. Partners have access to Pagaya’s network in order to assist with extending 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 (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 (“Financing Vehicles”).
Pagaya Technologies Ltd. was founded in 2016 and is organized under the laws of the State of Israel. Pagaya has its primary offices in the United States and Israel.
Reverse Share Split
Share amounts have been retrospectively adjusted to reflect the 1-for-12 reverse share split effected on March 8, 2024.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company, its wholly-owned subsidiaries, and consolidated variable interest entities (“VIEs”) if any.
The accompanying unaudited condensed consolidated financial statements were derived from the audited consolidated financial statements, but does not include all of the disclosures, including certain notes required by GAAP on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K.
All intercompany accounts and transactions have been eliminated. The Company’s functional and reporting currency is the U.S. Dollar. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements, except as noted below, and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2024 and the Company’s consolidated results of operations and shareholders’ equity for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024 or any other future interim or annual period.
Significant Accounting Policies
There were no material changes to our significant accounting policies as disclosed in Note 2, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 25, 2024.
Recent Accounting Pronouncements Not Yet Adopted
As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses. Specifically, the new guidance requires disclosure, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker, and an amount for other segment items by reportable segment, with a description of its composition. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and provide new segment disclosure requirements for entities with a single reportable segment. This ASU is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company is currently evaluating the impact of the amendments to its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update require entities to disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling items where the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income/loss by the applicable statutory income tax rate. In addition, entities are required to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by jurisdictions. This ASU is effective for the Company for annual periods beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact of these amendments on its consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. The guidance became effective for the Company beginning January 1, 2024. The adoption of the guidance did not have a material impact on the Company’s financial statements.
NOTE 3 - REVENUE
Revenue From Fees
Revenue from fees is comprised of Network AI fees and Contract fees. Network AI fees can be further broken down into two fee streams: AI integration fees and capital markets execution fees. AI integration fees are earned for the creation and delivery of assets that comprise Network Volume. The Company utilizes multiple funding channels to enable the purchase of network assets from Partners, such as asset backed securitizations (“ABS”). Capital markets execution fees are earned from the market pricing of ABS transactions while contract fees are management, performance and similar fees. These fees are the result of agreements with customers and are recognized in accordance with FASB Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”).
Revenue is generally recognized on a gross basis in accordance with ASC 606 related to reporting revenue on a gross basis as a principal versus on a net basis as an agent. This is because the Company is primarily responsible for integrating the various services fulfilled by Partners and is ultimately responsible to the Financing Vehicles for the fulfillment of the related services. To the extent the Company does not meet the criteria for recognizing revenue on a gross basis, the Company records revenue on a net basis.
Network AI fees, comprised of AI integration fees and capital markets execution fees, totaled $221.8 million and $167.5 million for the three months ended June 30, 2024 and 2023, respectively, and $437.1 million and $321.5 million for the six months ended June 30, 2024 and 2023, respectively. The Company recognizes Network AI fees primarily at a point in time when the related performance obligation is satisfied. From time to time the Company may provide certain incentives to Financing Vehicles. When the Company determines that an incentive is consideration payable to a customer, the incentive is recorded as a reduction of revenue. Expenses to third parties for services that are integrated with the Company’s technology are recorded in the consolidated statements of operations as Production Costs.
Real estate fees, which are included in Network AI fees, are earned for the obligations to arrange for the purchase of real estate assets, provide administrative services, arrange for the eventual sale of the assets, and provide pre-and post-purchase services including the right to earn performance fees. All of these fees are recognized over time except for the purchase and sale obligations, which are satisfied at the point in time of the respective transactions. As the Company is a principal for these services, revenues are recorded on a gross basis.
Contract fees include administration and management fees, performances fees, and servicing fees. Contract fees totaled $20.8 million and $18.2 million for the three months ended June 30, 2024 and 2023, respectively, and $42.5 million and $39.4 million for the six months ended June 30, 2024 and 2023, respectively. The Company recognizes administration fees over the service period for the Financing Vehicles managed or administered by the Company.
Performance fees are earned when certain Financing Vehicles exceed contractual return thresholds. They are recognized only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. An estimate is made by the Company based on a variety of factors including market conditions and expected loan performance. In the following period, the true performance is measured and then adjusted to ensure that the fees accurately represent actual performance. As such, there are revenues that result from performance obligations satisfied in the previous year. During the three months ended June 30, 2024, $0.1 million worth of fees represent performance obligations satisfied in 2023 that were less than the original estimate. During the six months ended June 30, 2024, $3.2 million worth of fees represent performance obligations satisfied in 2023 that were greater than the original estimate. During the three and six months ended June 30, 2023, $0.0 million and $1.7 million, respectively, worth of fees represent performance obligations satisfied in 2022 that were lesser than the original estimate.
Servicing fees for the Financing Vehicles, which primarily involve collecting payments and providing reporting on the loans within the securitization vehicles, are recognized over the service period. These duties have been considered to be agent responsibilities and does not include acting as a loan servicer. Accordingly, servicing fees are recorded on a net basis.
The Company determines its contracts generally to not include a significant financing component since the Company's selling prices are not subjected to billing terms nor is its purpose to receive financing from its customers or to provide customers with financing. In addition, as a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between payment and the transfer of services is expected to be one year or less.
Once revenue is recognized, it is recorded on the balance sheet in fees and other receivables until the payment is received from the customer. The timing of the recognition depends on the type of service as described above.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
| (in thousands) |
Services transferred at a point in time | $ | 228,317 | | | $ | 178,070 | | | $ | 455,891 | | | $ | 344,305 | | | |
Services transferred over time | 14,277 | | | 7,615 | | | 23,707 | | | 16,634 | | | |
Total revenue from fees, net | $ | 242,594 | | | $ | 185,685 | | | $ | 479,598 | | | $ | 360,939 | | | |
The Company had no material contract assets, contract liabilities, or deferred contract costs recorded as of June 30, 2024 or December 31, 2023.
Concentrations of Credit Risk and Significant Customers
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, restricted cash and fees receivable. Cash and cash equivalents are principally maintained with major financial institutions, which management assesses to be of high credit quality. The Company has not experienced any losses on these deposits.
The Company’s fees receivable balances are predominantly with agreements with customers, and these are subject to normal credit risks which management believes to be not significant.
Significant customers are those which represent 10% or more of the Company’s total revenue for each respective period presented. Three customers, including two related parties, individually represented greater than 10% of total revenue and collectively totaled approximately 55% for three months ended June 30, 2024. Two customers, including one related party, individually represented greater than 10% of total revenue and collectively totaled approximately 31% for six months ended June 30, 2024. Four customers, including three related parties, individually represented greater than 10% of total revenue and collectively totaled approximately 65% for the three months ended June 30, 2023. Two related party customers individually represented greater than 10% of total revenue and collectively totaled approximately 33% for the six months ended June 30, 2023.
NOTE 4 - BORROWINGS
As of June 30, 2024 and December 31, 2023, the Company had secured borrowings, inclusive of current and non-current portions, with an outstanding balance of $400.2 million and $271.7 million, respectively, long-term debt, inclusive of current and non-current portions, with an outstanding balance of $232.6 million and $0.0 million, respectively, and a revolving credit facility with an outstanding balance of $0.0 million and $90.0 million, respectively. The Company was in compliance with all covenants as of June 30, 2024.
Risk Retention Master Repurchase
In normal course of business, the Company, through consolidated VIEs, enters into repurchase agreements to finance the Company’s risk retention balance in notes and certificates retained from securitization transactions. Under these agreements, the Company pledges financial instruments as collateral. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledge by the counterparty are included in Investments in loans and securities in our balance sheet. As of June 30, 2024 and December 31, 2023, the outstanding principal balance under the repurchase agreements was $367.7 million and $251.4 million, respectively, which is recorded within secured borrowing on the consolidated balance sheet, with a weighted average interest rate of approximately sixteen percent and thirteen percent, respectively. The average remaining contractual maturities of the repurchase agreements were greater than 90 days as of both June 30, 2024 and December 31, 2023.
Receivables Facility
In October 2022, Pagaya Receivables LLC, a wholly-owned subsidiary, entered into a Loan and Security Agreement (the “LSA Agreement”) with certain lenders, which provides for a 3-year loan facility (the “Receivables Facility”) in a maximum principal amount of $22 million to finance certain eligible receivables purchased from sponsored securitization transactions. In June 2023, the Company amended the agreement and increased the maximum principal amount by $10 million to $32 million. In June 2024, the Company amended the agreement pursuant to which the maximum principal amount was increased from $32 million to $45 million and the term was extended until June 2026. Borrowings under the Receivables Facility bear interest at a rate per annum equal to the adjusted term Secured Overnight Financing Rate (subject to a 0.00% floor) plus a margin of 3.50%, and the balance is repaid using cash proceeds received from the receivables. As of June 30, 2024 and December 31, 2023, the outstanding principal balance under the Receivables Facility was $32.5 million and $20.3 million, respectively, which is recorded within secured borrowing on the consolidated balance sheet.
Credit Agreement
On February 2, 2024, the Company entered into a certain Credit Agreement (the “Credit Agreement”) which provides for a 5-year senior secured revolving credit facility (the “Revolving Credit Facility”) in an initial principal amount of $25 million, which subsequently increased to $35 million, and a 5 year senior secured term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Facilities”) in an initial principal amount of $255 million.
The Facilities replace the SVB Revolving Credit Facility. In addition to replacing the SVB Revolving Credit Facility, proceeds of borrowings under the Facilities may be used 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.
No amortization payments are required to be made in respect of borrowings under the Revolving Credit Facility. Amortization payments are required to be made in respect of the term loans under the Term Loan Facility in amount of 1.25% per quarter of the original principal amount of the term loans under the Term Loan Facility.
Borrowings under the Facilities 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 2.00% floor) plus a margin of 6.50% or (ii) an adjusted term Secured Overnight Financing Rate (subject to a 1.00% floor) plus a margin of 7.50%. 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. Accrued interest of $7.6 million was recorded within accrued expenses and other liabilities on the unaudited condensed consolidated balance sheet as of June 30, 2024.
As of June 30, 2024, the Company had an outstanding balance of $232.6 million, which is recorded within long-term debt on the unaudited condensed consolidated balance sheet, and its aggregate future maturities consists of the following (in thousands):
| | | | | |
| June 30, 2024 |
2024 | $ | 6,375 | |
2025 | 12,750 | |
2026 | 12,750 | |
2027 | 12,750 | |
2028 | 12,750 | |
Thereafter | 191,250 | |
Total | 248,625 | |
Debt issuance costs | (16,033) | |
Total long-term debt, net of debt issuance costs | $ | 232,592 | |
As of June 30, 2024, the Company had letters of credit issued in the amount of $19.8 million, and $15.2 million of remaining capacity available under the Revolving Credit Facility.
As of December 31, 2023, the Company had an outstanding balance of $90.0 million under the SVB Revolving Credit Facility.
NOTE 5 - INVESTMENTS IN LOANS AND SECURITIES
The amortized cost, gross unrealized gains and losses, allowance for credit losses, and fair value of investments in loans and securities as of June 30, 2024 and December 31, 2023 were as follows (in thousands). As provided in Note 6, a portion of these investments in loans and securities are consolidated as a result of the Company’s determination that it is the primary beneficiary of certain VIEs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 |
Investments in loans and securities, available for sale(1): | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | | | | | | | | |
Securitization notes | $ | 249,373 | | | $ | 469 | | | $ | (1,156) | | | $ | — | | | $ | 248,686 | |
Securitization certificates | 893,351 | | | 13,314 | | | (73,839) | | | (174,077) | | | 658,749 | |
Other loans and receivables | 8,043 | | | — | | | — | | | (4,053) | | | 3,990 | |
Total | $ | 1,150,767 | | | $ | 13,783 | | | $ | (74,995) | | | $ | (178,130) | | | $ | 911,425 | |
(1) Excludes accrued interest receivable of $13.6 million included in Fees and other receivables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
Investments in loans and securities, available for sale(1): | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | | | | | | | | |
Securitization notes | $ | 91,654 | | | $ | 629 | | | $ | (1,858) | | | $ | — | | | $ | 90,425 | |
Securitization certificates | 715,646 | | | 18,684 | | | (11,578) | | | (98,679) | | | 624,073 | |
Other loans and receivables | 4,574 | | | — | | | — | | | (2,279) | | | 2,295 | |
Total | $ | 811,874 | | | $ | 19,313 | | | $ | (13,436) | | | $ | (100,958) | | | $ | 716,793 | |
(1) Excludes accrued interest receivable of $12.5 million included in Fees and other receivables.
The following tables set forth the fair value and gross unrealized losses on investments in loans and securities without an allowance for credit losses aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, as of the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 |
| Less than or equal to 1 year | | Greater than 1 year | | Total |
Investments in loans and securities, available for sale: | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | |
Securitization notes | $ | 68 | | | $ | — | | | $ | 41,272 | | | $ | (1,156) | | | $ | 41,340 | | | $ | (1,156) | |
Securitization certificates | 13,632 | | | (11,452) | | | — | | | — | | | 13,632 | | | (11,452) | |
Other loans and receivables | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 13,700 | | | $ | (11,452) | | | $ | 41,272 | | | $ | (1,156) | | | $ | 54,972 | | | $ | (12,608) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| Less than or equal to 1 year | | Greater than 1 year | | Total |
Investments in loans and securities, available for sale: | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | |
Securitization notes | $ | 59,925 | | | $ | (1,858) | | | $ | — | | | $ | — | | | $ | 59,925 | | | $ | (1,858) | |
Securitization certificates | 15,799 | | | (1,988) | | | — | | | — | | | 15,799 | | | (1,988) | |
Other loans and receivables | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 75,724 | | | $ | (3,846) | | | $ | — | | | $ | — | | | $ | 75,724 | | | $ | (3,846) | |
The following table sets forth the amortized cost and fair value of investments in loans and securities by contractual maturities, as of the date indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 |
| Within 1 year | | Greater than 1 year, less than or equal to 5 years | | Total |
Investments in loans and securities, available for sale: | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | | | | | |
Securitization notes | $ | 650 | | | $ | 1,009 | | | $ | 248,723 | | | $ | 247,677 | | | $ | 249,373 | | | $ | 248,686 | |
Securitization certificates | 733 | | | 654 | | | 892,618 | | | 658,095 | | | 893,351 | | | 658,749 | |
Other loans and receivables | — | | | — | | | 8,043 | | | 3,990 | | | 8,043 | | | 3,990 | |
Total (1) | $ | 1,383 | | | $ | 1,663 | | | $ | 1,149,384 | | | $ | 909,762 | | | $ | 1,150,767 | | | $ | 911,425 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| Within 1 year | | Greater than 1 year, less than or equal to 5 years | | Total |
Investments in loans and securities, available for sale: | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | | | | | |
Securitization notes | $ | 2,405 | | | $ | 2,387 | | | $ | 89,249 | | | $ | 88,038 | | | $ | 91,654 | | | $ | 90,425 | |
Securitization certificates | 103 | | | 103 | | | 715,543 | | 623,970 | | 715,646 | | 624,073 |
Other loans and receivables | — | | | — | | | 4,574 | | 2,295 | | 4,574 | | 2,295 |
Total (1) | $ | 2,508 | | | $ | 2,490 | | | $ | 809,366 | | | $ | 714,303 | | | $ | 811,874 | | | $ | 716,793 | |
(1) Based on weighted average life of expected cash flows.
The following table sets forth gross proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of securities, for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2024 | | 2023 | | | 2024 | | 2023 | | |
Investments in loans and securities, available for sale: | | | | | | | | | | |
Proceeds from sales/maturities/prepayments | $ | 30,925 | | | $ | 65,375 | | | | $ | 66,822 | | | $ | 91,360 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Write-offs charged against the allowance | $ | 850 | | | $ | 2,663 | | | | $ | 2,299 | | | $ | 7,286 | | | |
Additions to allowance for credit losses | $ | (53,062) | | | $ | (12,643) | | | | $ | (79,913) | | | $ | (85,613) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The following tables set forth the activity in the allowance for credit losses for investments in loans and securities, as of the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2024 |
| Securitization notes | | Securitization certificates | | Other Loans and Receivables | | Total |
Balance, beginning of period | $ | — | | | $ | (121,349) | | | $ | (5,011) | | | $ | (126,360) | |
Additions to allowance for credit losses not previously recorded | — | | | (23,628) | | | — | | | (23,628) | |
Additions to allowance for credit losses arising from purchases | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
Additions (reductions) on securities with previous allowance | — | | | (29,100) | | | (334) | | | (29,434) | |
Write-offs charged against the allowance | — | | | — | | | 850 | | | 850 | |
| | | | | | | |
Balance, end of period | $ | — | | | $ | (174,077) | | | $ | (4,053) | | | $ | (178,130) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2024 |
| Securitization notes | | Securitization certificates | | Other Loans and Receivables | | Total |
Balance, beginning of period | $ | — | | | $ | (98,679) | | | $ | (2,279) | | | $ | (100,958) | |
Additions to allowance for credit losses not previously recorded | — | | | (26,593) | | | — | | | (26,593) | |
Additions to allowance for credit losses arising from purchases | — | | | — | | | (3,246) | | | (3,246) | |
| | | | | | | |
| | | | | | | |
Additions (reductions) on securities with previous allowance | — | | | (48,805) | | | (1,269) | | | (50,074) | |
Write-offs charged against the allowance | — | | | — | | | 2,299 | | | 2,299 | |
Recoveries of amounts previously written off | — | | | — | | | 442 | | | 442 | |
Balance, end of period | $ | — | | | $ | (174,077) | | | $ | (4,053) | | | $ | (178,130) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
| Securitization notes | | Securitization certificates | | Other Loans and Receivables | | Total |
Balance, beginning of period | $ | — | | | $ | (65,572) | | | $ | (2,775) | | | $ | (68,347) | |
Additions to allowance for credit losses not previously recorded | — | | | (8,715) | | | (3,928) | | | (12,643) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Write-offs charged against the allowance | — | | | — | | | 2,663 | | | 2,663 | |
| | | | | | | |
Balance, end of period | $ | — | | | $ | (74,287) | | | $ | (4,040) | | | $ | (78,327) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
| Securitization notes | | Securitization certificates | | Other Loans and Receivables | | Total |
Balance, beginning of period | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Additions to allowance for credit losses not previously recorded | — | | | (74,287) | | | (11,326) | | | (85,613) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Write-offs charged against the allowance | — | | | — | | | 7,286 | | | 7,286 | |
| | | | | | | |
Balance, end of period | $ | — | | | $ | (74,287) | | | $ | (4,040) | | | $ | (78,327) | |
Equity Method and Other Investments
The following investments, including those accounted for under the equity method, are included within Equity method and other investments in the consolidated balance sheets as of June 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | |
| Carrying Value |
| June 30, 2024 | | December 31, 2023 |
Investments in Pagaya SmartResi F1 Fund, LP (1) | $ | 17,488 | | | $ | 17,357 | |
Other (2) | 9,105 | | | 9,026 | |
Total | $ | 26,593 | | | $ | 26,383 | |
(1) The Company owns approximately 5.4% and is the general partner of Pagaya Smartresi F1 Fund LP.
(2) Represents the Company’s proprietary investments. Income from these investments is included in Investment income in the consolidated statements of operations.
NOTE 6 - CONSOLIDATION AND VARIABLE INTEREST ENTITIES
The Company has variable interests in securitization vehicles that it sponsors. The Company consolidates VIEs when it is deemed to be the primary beneficiary. In order to be primary beneficiary, the Company must have a controlling financial interest in the VIE. This is determined by evaluating if the Company has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant.
Consolidated VIEs
As of June 30, 2024 and December 31, 2023, the Company has determined that it is the primary beneficiary of Pagaya Structured Holdings LLC, Pagaya Structured Holdings II LLC, and Pagaya Structured Holding III LLC (“Risk Retention Entities”). As sponsor of securitization transactions, the Company is subject to risk retention requirements and established the Risk Retention Entities to meet these requirements.
Below is a summary of assets and liabilities from the Company’s involvement with consolidated VIEs (i.e., Risk Retention Entities) (in thousands):
| | | | | | | | | | | | | | | | | |
| Assets | | Liabilities | | Net Assets |
As of June 30, 2024 | $ | 111,185 | | | $ | — | | | $ | 111,185 | |
As of December 31, 2023 | $ | 132,660 | | | $ | — | | | $ | 132,660 | |
Unconsolidated VIEs
The Company determined that it is not the primary beneficiary of the trusts which hold the loans and issue securities associated with the securitization transactions the Company sponsors. The Company does not have the power to direct or control the activities which most significantly affect the performance of the trusts, which was determined to be servicing loans.
The Company’s maximum exposure to loss from its involvement with unconsolidated VIEs represents the estimated loss that would be incurred under severe, hypothetical circumstances, for which the Company believes the possibility is remote, such as
where the value of securitization notes and senior and residual certificates the Company holds as part of the risk retention requirement declines to zero.
Below is a summary of the Company’s direct interest in (i.e., not held through Risk Retention Entities) variable interests in nonconsolidated VIEs (in thousands):
| | | | | | | | | | | | | | | | | |
| Carrying Amount | | Maximum Exposure to Loss | | VIE Assets |
As of June 30, 2024 | $ | 807,029 | | | $ | 807,029 | | | $ | 8,548,921 | |
As of December 31, 2023 | $ | 591,030 | | | $ | 591,030 | | | $ | 8,363,402 | |
From time to time, the Company may, but is not obligated to, purchase assets from the Financing Vehicles. Such repurchases occur at the Company’s discretion. During the three and six months ended June 30, 2024, the Company purchased approximately $14.5 million and $19.5 million, respectively, of loan principal from the Financing Vehicles and included a loss of approximately $13.4 million and $18.4 million, respectively, in general and administrative expenses with respect to these loans. During the three and six months ended June 30, 2023, the Company did not purchase any loans from the Financing Vehicles.
NOTE 7 - LEASES
The Company leases facilities under operating leases with various expiration dates through 2032. The Company leases office space in New York, Israel and several other locations.
The security deposits for the leases are $4.0 million and $4.8 million as of June 30, 2024 and December 31, 2023, respectively, which have been recognized as restricted cash, non-current in the unaudited condensed consolidated balance sheets.
The Company’s operating lease expense consists of rent and variable lease payments. Variable lease payments such as common area maintenance were included in operating expenses. Rent expense for the Company’s short-term leases was immaterial for the periods presented. Operating lease expense was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Rent expense | $ | 2,938 | | $ | 3,345 | | $ | 5,849 | | $ | 6,786 | | |
Variable lease payments | $ | 80 | | $ | (12) | | $ | 174 | | $ | 131 | | |
Sublease income | $ | 1,003 | | $ | 1,066 | | $ | 2,008 | | $ | 2,120 | | |
Maturities of the Company’s operating lease liabilities as of June 30, 2024 were as follows (in thousands):