Pagaya Technologies Ltd. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter report; the supplied filing does not provide a clear standalone Q4 results summary. Amounts below are U.S. dollars unless stated otherwise. Share figures and per-share amounts reflect the 1-for-12 reverse split effective March 8, 2024.
Business context
Pagaya operates an AI-enabled lending network that connects financial institutions and other partners with investors and financing vehicles. Its principal revenue is fees tied to assets originated by partners with Pagaya’s technology; it also earns interest and investment income. The network spans consumer credit, including personal and auto loans, point-of-sale receivables, and an early-stage single-family rental business expanded through the January 2023 acquisition of Darwin Homes.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue from fees | $772.8 million | $685.4 million |
| Total revenue and other income | $812.1 million | $748.9 million |
| Production costs | $508.9 million | $451.1 million |
| FRLPC (fee revenue less production costs; non-GAAP) | $263.9 million | $234.3 million |
| Operating loss | $24.4 million | $251.5 million |
| Net loss attributable to Pagaya | $128.4 million | $302.3 million |
| Adjusted net income (loss; non-GAAP) | $16.6 million | $(32.7) million |
| Adjusted EBITDA (non-GAAP) | $82.0 million | $(4.8) million |
| Net cash from (used in) operating activities | $9.6 million | $(40.0) million |
| Net cash used in investing activities | $(412.7) million | $(265.4) million |
| Net cash from financing activities | $289.1 million | $437.9 million |
Revenue and other income increased 8%; fee revenue rose 13%, while Network Volume grew 14% to $8.3 billion. FRLPC was about 34.1% of fee revenue, versus about 34.2% in 2022. Interest income fell 33% to $38.7 million and investment income declined to $0.5 million. The net loss improved substantially, but the company remained GAAP-loss-making. Adjusted EBITDA and adjusted net income are non-GAAP measures and should be considered alongside GAAP results.
At year-end, cash and cash equivalents were $186.5 million and restricted cash was $36.1 million, for total cash, cash equivalents and restricted cash of $222.5 million, down from $337.1 million. Current assets were $303.4 million and current liabilities $74.9 million. The large investing outflow primarily reflected $566.2 million of purchases of risk-retention assets, partly offset by $172.1 million of proceeds from existing holdings.
Year-end debt included $271.7 million of secured borrowings and $90.0 million drawn on the revolving credit facility. The company reported covenant compliance. On February 2, 2024, it replaced the prior facility with a five-year $255 million term loan and a revolving facility initially sized at $25 million and subsequently increased to $35 million; the filing says no borrowings had been made under the new revolver as of the filing date. The new facilities are secured by substantially all assets of the company and guarantors, carry floating-rate pricing, amortization on the term loan, and financial and other covenants.
Material changes versus FY 2022
- Network Volume increased from $7.3 billion to $8.3 billion. Network AI fees rose by $97.1 million, partly offset by lower capital-markets execution fees; contract fees declined by $9.7 million, reflecting lower vehicle asset values and increased redemptions.
- Total costs and operating expenses declined to $836.5 million from $1.00 billion. Lower technology, sales and marketing, and general and administrative expenses largely reflected the absence of unusually high 2022 performance-award share-based compensation, reduced headcount, and lower professional-service costs. Production costs increased 13% with Network Volume.
- Other expense increased to $156.8 million from $24.9 million. The filing cites higher credit-related impairment, higher interest expense, and an unfavorable warrant-liability fair-value change. It reports a $134.5 million impairment loss on investments in loans and securities in the cash-flow reconciliation; $82.8 million of credit-related impairment on risk-retention holdings was attributed to consolidated VIEs’ noncontrolling interests.
- Operating cash flow improved to positive $9.6 million, but investing outflows rose substantially and total cash, cash equivalents and restricted cash declined by $114.5 million.
Outlook, commentary, risks and unusual items
- Management emphasizes network monetization, cost discipline, capital efficiency and diversification of funding. It targeted 2–4 large partner additions in 2024 and identified approximately 15 later-stage partner opportunities; these are objectives, not guaranteed outcomes. Capital expenditures in 2024 were expected to be consistent with 2023. The filing does not provide a clear formal FY 2024 revenue or earnings guidance range.
- In 2023, Pagaya reduced its workforce by more than 20% compared with year-end 2022 headcount and reported approximately $30 million of annualized cost savings, alongside $3.8 million of severance costs. The filing’s non-GAAP reconciliation reports $5.45 million of restructuring expenses.
- Financing and credit performance are central risks: five largest ABS investors supplied about 50% of ABS funding in 2023, down from 70% in 2022. Two fund vehicles saw a marked increase in redemption requests, satisfied with cash or in-kind distributions. Poor asset performance or tighter capital markets could impair funding, fees, and risk-retention values.
- Investments in loans and securities totaled $716.8 million at fair value, versus $480.4 million in 2022. Much of the portfolio is valued using Level 3 discounted-cash-flow models with significant unobservable assumptions, including loss, discount and prepayment rates. Pagaya disclosed a maximum $591.0 million exposure to loss on direct interests in unconsolidated VIEs, while stating severe-loss scenarios are remote.
- Revenue concentration and related-party exposure merit attention: related parties generated $622.3 million of 2023 revenue, including securitization and other financing vehicles. One related party exceeded 10% of total revenue in 2023; three did so in 2022. Related-party fee receivables were $84.8 million at year-end.
- Oak HC/FT invested $75 million in Series A preferred shares in May 2023. The shares are presented as temporary equity, have a stated aggregate liquidation preference of $150 million at year-end, and carry conversion and liquidation terms that may affect common shareholders.
- In March 2024, after year-end, Pagaya priced a 7.5 million-share offering expected to yield approximately $90 million net. It also reported $27.2 million net proceeds from issuing shares under its B. Riley equity purchase agreement during 2023. Further equity issuance may dilute shareholders.
- Management said the Israel conflict had not materially affected operations as of the report date, but approximately 15% of Israel-based employees were called to reserve duty after October 7, 2023. The company cites possible disruption, regional escalation, higher interest rates, inflation, consumer defaults, AI model performance, partner concentration, regulation of AI and lending partnerships, cybersecurity, and access to securitization funding as material risks.
- Darwin was acquired in January 2023 in an all-stock transaction valued at about $18 million; Pagaya recorded $10.9 million of goodwill and $5.1 million of intangible assets. Integration is incomplete and impairment risk remains if expected cash flows are not achieved.
- The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023; the auditor did not provide an internal-control attestation because Pagaya remained an emerging growth company.
Important facts for investors to verify
- Reconcile the $128.4 million attributable GAAP net loss with positive adjusted EBITDA and adjusted net income, including excluded impairments, share-based compensation and other adjustments.
- Review credit performance, the valuation assumptions and loss allowances for risk-retention assets, and the division of economic exposure between Pagaya and consolidated VIE investors.
- Assess funding concentration, redemption activity, ABS execution economics, and whether partner and investor diversification continues.
- Confirm the terms, outstanding balance, interest cost and covenant headroom under the February 2024 credit agreement, as well as the liquidity impact of its collateral package and amortization requirements.
- Evaluate the significance of related-party revenue and receivables, and the preferred shares’ liquidation preference, conversion provisions and potential dilution.
- Track share issuance under the equity purchase agreement, the March 2024 offering, outstanding equity awards and the potential resale supply; verify all share and per-share comparisons account for the reverse split.
- Monitor Darwin integration and performance, regulatory developments affecting AI and partner lending models, and operational exposure to the ongoing Israel conflict.