Pagaya Technologies Ltd. — FY 2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing; the provided text does not give a clear Q4-only financial breakdown. Figures below are in U.S. dollars and share amounts reflect the 1-for-12 reverse split effective March 8, 2024.
Business context
Pagaya uses proprietary AI and data technology to help financial-institution partners originate consumer and other assets, which may be acquired by Pagaya-managed funds and securitization vehicles. Its principal markets include personal loans, auto loans, point-of-sale finance and single-family rentals. Revenue is heavily tied to fees from these activities and funding vehicles. Darwin Homes, acquired in January 2023, expanded the company’s SFR business.
Financial and operating metrics
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Total revenue and other income | $812.1 million | $748.9 million | Up 8% |
| Revenue from fees | $772.8 million | $685.4 million | Up 13% |
| Interest income | $38.7 million | $57.8 million | Down 33% |
| Investment income | $0.5 million | $5.8 million | Down 92% |
| Network Volume | $8.3 billion | $7.3 billion | Up 14% |
| Production costs | $508.9 million | $451.1 million | Up 13% |
| FRLPC (fee revenue less production costs) | $263.9 million | $234.3 million | Up 13%; approximately 34% of fee revenue in 2023 |
| Operating loss | $24.4 million | $251.5 million | Improved substantially |
| Net loss attributable to Pagaya shareholders | $128.4 million | $302.3 million | Improved; GAAP loss continued |
| Adjusted EBITDA (non-GAAP) | $82.0 million | $(4.8) million | Turned positive |
| Adjusted net income (loss) (non-GAAP) | $16.6 million | $(32.7) million | Turned positive |
| Cash provided by (used in) operations | $9.6 million | $(40.0) million | Improved by $49.6 million |
| Cash used in investing | $412.7 million | $265.4 million | Primarily risk-retention asset purchases |
| Cash provided by financing | $289.1 million | $437.9 million | Included borrowings and preferred-share proceeds |
| Cash, cash equivalents and restricted cash | $222.5 million | $337.1 million | Down $114.5 million |
Operating expenses fell to $836.5 million from $1.00 billion. Technology, data and product development expense declined 51%, sales and marketing 52%, and general and administrative expense 31%, reflecting lower share-based compensation and headcount, among other factors. Production costs rose with Network Volume. The filing reports no conventional gross-margin figure; FRLPC is a company-defined non-GAAP measure.
At December 31, 2023, total assets were $1.21 billion and total liabilities were $468.4 million. The balance sheet included $271.7 million of secured borrowings and a $90.0 million revolving-credit balance. The company said it was in compliance with debt covenants at year-end. Cash and cash equivalents alone were $186.5 million; restricted cash was $36.1 million.
Material changes, outlook and risks
- Drivers and earnings quality: Fee growth was led by Network AI fees, which increased to $696.0 million from $599.0 million, supported by higher Network Volume and new contractual AI integration fees. Lower capital-markets execution fees and a $9.7 million decline in contract fees partly offset the increase.
- Significant impairment: Other expense, net rose to $156.8 million from $24.9 million. The company recorded $134.5 million of impairment losses on investments in loans and securities in its cash-flow reconciliation, including credit-related losses; management said some fair-value changes were borne by noncontrolling interests in consolidated vehicles. The filing also cites higher interest expense and warrant remeasurement as contributors to other expense.
- Cost reduction: Workforce reductions affecting more than 20% of staff were substantially completed in 2023. Pagaya reported $3.8 million of severance-related charges and approximately $30 million in annualized cost savings. It cautioned that further restructuring may be needed and savings may not be fully realized.
- Funding and debt: Pagaya relies on securitizations and other investor funding to acquire partner-originated assets, and it retains at least 5% of securitization credit risk. Five largest ABS investors supplied approximately 50% of ABS funding in 2023, versus 70% in 2022. In February 2024, the company replaced its prior revolver with a five-year $255 million senior secured term loan and a revolving facility increased from $25 million to $35 million. The facilities carry margins of 6.50% over base rate or 7.50% over adjusted term SOFR, have financial covenants and are secured by substantially all assets of the company and guarantors. No borrowing under the new revolver had been made as of the filing.
- Management priorities: Pagaya described a focus on network monetization, disciplined costs, capital efficiency and profitable growth. It targeted 2–4 large partner additions in 2024 and cited approximately 15 later-stage pipeline opportunities with expected onboarding timelines of 12–24 months. About 40% of lending partnerships generated FRLPC from both lending and investor products; the remainder generated it only from investor products. These are strategic targets, not formal financial guidance. Capital expenditures in 2024 were expected to be consistent with 2023.
- Other developments: Darwin integration was incomplete; failure to realize expected benefits could affect SFR operations and goodwill or intangible assets. The company raised $75 million through Series A preferred shares issued to Oak HC/FT in May 2023. It also issued approximately 1.6 million shares through its B. Riley equity financing in 2023 for $27.2 million net proceeds.
- Key risks: Important exposures include credit deterioration and higher interest rates, fair-value and credit losses on risk-retention holdings, funding-market access and investor redemptions, concentration among partners and funding sources, AI model performance and potential bias, consumer-finance regulation and “true lender” challenges, cybersecurity and data privacy, and Israel-related conflict and employee reserve duty. Management reported no material business disruption from the Israel conflict as of the filing date, while noting uncertainty about future effects.
- Contingencies and controls: The company reported no pending litigation it believed likely to have a material adverse effect. Maximum potential undiscounted payments under certain guarantees were $26.0 million, with the amount segregated in restricted cash. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2023; the auditor did not provide an ICFR effectiveness opinion because Pagaya remained an emerging growth company.
Most important facts for investors to verify
- Review the audited financial statements and notes for the composition, valuation assumptions and economic exposure of the $134.5 million investment impairment and the $716.8 million fair value of loans and securities.
- Assess whether positive Adjusted EBITDA and operating cash flow can be sustained, given the continuing $128.4 million GAAP shareholder loss and substantial risk-retention investment outflows. Adjusted measures exclude significant items and are not substitutes for GAAP results.
- Track liquidity after the year-end cash decline, the terms and covenant headroom of the February 2024 secured facilities, and the cost and availability of future funding.
- Monitor partner and investor concentration, redemption activity, asset credit performance and the impact of elevated borrowing costs on securitization economics and Network Volume.
- Verify execution of the 2024 partner pipeline, improved monetization across existing partners, Darwin integration and the stated cost savings.
- Consider dilution and capital structure: outstanding Series A preferred shares have a liquidation preference, and registered resales, equity financing, warrants and equity awards could affect Class A shareholders. The founders’ Class B shares carry ten votes each, concentrating voting power.
- Review the company’s annual PFIC tax determination with a tax adviser: Pagaya said it believed it was not a PFIC for 2023 under an alternative valuation method, but acknowledged the IRS could disagree.