Pagaya Technologies Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited U.S. GAAP financial statements. Pagaya uses AI and data technology to connect financial-services partners with funding vehicles that acquire eligible originated assets.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue from fees | $237.0 million | $175.3 million; up 35% |
| Total revenue and other income | $245.3 million | $186.6 million; up 31% |
| Network Volume | $2.419 billion | $1.850 billion; up 31% |
| Operating income (loss) | $7.7 million | $(25.0) million |
| Net loss attributable to Pagaya | $(21.2) million; $(0.33) per share | $(61.0) million; $(1.03) per share |
| Net cash from (used in) operating activities | $20.5 million | $(23.7) million |
| Cash, cash equivalents and restricted cash | $310.0 million | $222.5 million at Dec. 31, 2023 |
| Total assets | $1.483 billion | $1.208 billion at Dec. 31, 2023 |
Production costs were $144.9 million, up 16%. Fee revenue less production costs (FRLPC), a company-defined non-GAAP measure, was $92.1 million versus $50.2 million. Adjusted EBITDA was $39.8 million versus $2.0 million, and adjusted net income was $13.3 million versus an adjusted net loss of $11.0 million. These non-GAAP measures supplement, and are not substitutes for, GAAP results.
Investing activities used $230.9 million, primarily for $261.6 million of investment purchases, partly offset by $35.9 million of proceeds. Financing activities provided $298.7 million, including proceeds from long-term debt and a $90.0 million net equity offering. Cash increased by $87.5 million during the quarter.
At March 31, borrowings included $331.2 million of secured borrowings and $235.0 million outstanding under the new term loan; the revolving facility had no borrowings. The balance sheet reports $12.8 million of current maturities of long-term debt, $222.3 million of non-current long-term debt, and $108.1 million of current secured borrowing. The company reported covenant compliance. Current assets were $399.1 million and current liabilities $169.4 million.
Changes and notable items
- Fee growth reflected a $65.1 million increase in Network AI fees, associated with improved AI integration economics, higher Network Volume and more ABS transactions. Contract fees fell $3.4 million to $21.7 million, primarily amid lower net asset values and increased redemptions in certain vehicles.
- Operating results improved substantially year over year. Other expense narrowed to $34.3 million from $67.0 million, mainly due to lower investment impairment and a favorable warrant remeasurement, partly offset by higher interest expense.
- The allowance for credit losses on loans and securities was $126.4 million at quarter-end, compared with $101.0 million at year-end. Q1 impairment losses were $26.9 million, versus $68.3 million a year earlier.
- In February, Pagaya entered a five-year credit agreement, including a $255 million term loan and a revolving facility subsequently increased to $35 million. Term-loan pricing is a floating benchmark plus a 7.50% margin, subject to a 1.00% floor, or base rate plus 6.50%. The company repaid its former $90 million SVB revolver.
- Pagaya issued 7.5 million Class A shares in March, generating approximately $90 million net proceeds, and also issued shares under its equity financing agreement. A 1-for-12 reverse share split took effect March 8, 2024.
Outlook, risks and contingencies
Management said available liquidity is expected to meet current needs for the next 12 months, while cautioning that future funding needs are not assured. No numerical earnings or revenue guidance is provided in the filing. Funding availability and cost, loan performance, investor returns, interest rates, and access to capital markets are central risks. Management noted that higher funding costs have reduced conversion ratios needed to meet investor return hurdles, although increased partner application volume more than offset this and Network Volume grew.
Other material risks include fair-value estimates for loan and securitization investments, concentration in partners and funding sources, and macroeconomic and geopolitical uncertainty, including the conflict in Israel. Four related parties each exceeded 10% of revenue and collectively represented approximately 57% of Q1 revenue. The company’s direct exposure to unconsolidated VIEs was reported as $777.5 million, with the same amount stated as maximum exposure to loss. It also reported $29.0 million of maximum potential guarantee payments in the notes, segregated in restricted cash; the MD&A separately states $26.0 million, an apparent disclosure inconsistency. Cloud-service commitments were approximately $7.3 million, including $4.9 million due within 12 months. Management reported no material litigation matters and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Key facts for investors to verify
- Whether improved fee economics, Network Volume growth and FRLPC can persist as funding costs and investor return requirements evolve.
- Credit performance, assumptions underlying fair values and impairment allowances, and the company’s exposure to risk-retention investments and unconsolidated vehicles.
- Debt service capacity and compliance with the new facility’s financial covenants, including the effects of floating interest rates and secured borrowing costs.
- The concentration of revenue among related parties and the liquidity and collectability of related-party receivables.
- The discrepancy between the $29.0 million guarantee exposure in the financial-statement note and $26.0 million in MD&A.