Overview of Financial Performance

Pagaya, a leading AI-powered technology company in the financial services industry, reported strong financial results for the year ended December 31, 2024. The company’s total revenue and other income increased by 27% to $1,032.2 million, driven by a 30% increase in revenue from fees to $1,004.6 million. This growth was primarily attributable to a 17% increase in Network Volume, which reached $9.7 billion for the year.

Pagaya’s core revenue streams include network AI fees, contract fees, interest income, and investment income. Network AI fees, which make up the majority of revenue from fees, grew by 31.6% to $916.1 million, reflecting improved economics from certain partners as well as the overall expansion of the company’s network. Contract fees, which include administration, management, and performance fees, also increased by 15.2% to $88.5 million.

While interest income declined by 16.6% to $32.3 million, this was offset by the strong growth in revenue from fees. Investment income, however, turned negative, decreasing by $5.1 million to a loss of $4.6 million, due to unfavorable impacts from the valuation of certain proprietary investments.

Profitability and Operational Efficiency

Pagaya’s total costs and operating expenses increased by 15.4% to $965.4 million, driven primarily by a 17.4% increase in Production Costs to $597.7 million, which are directly correlated to the growth in Network Volume. The company’s technology, data, and product development expenses increased by only 3.0% to $76.6 million, while sales and marketing expenses remained relatively flat, increasing by just 1.3% to $50.4 million.

General and administrative expenses, however, saw a more significant increase of 18.4% to $240.8 million, primarily due to a $38.7 million increase in loss from loan purchases and an $11.9 million increase in consulting expenses, partially offset by decreases in acquisition-related expenses, personnel-related costs, and insurance expenses.

Despite the increase in overall costs, Pagaya’s operating income improved significantly, reaching $66.8 million, compared to an operating loss of $24.4 million in the previous year. This improvement in profitability was driven by the strong growth in revenue from fees, which outpaced the increase in Production Costs and other operating expenses.

One of Pagaya’s key non-GAAP metrics, Fee Revenue Less Production Costs (FRLPC), also showed substantial improvement, increasing by 35.9% to $406.9 million. This metric provides insight into the company’s operational efficiency and the profitability of its core business model.

Outlook and Future Growth

Pagaya’s financial performance in 2024 demonstrates the continued success of its AI-powered technology platform and its ability to drive growth and profitability. The company’s focus on expanding its network of partners, improving its AI technology, and diversifying its funding sources has positioned it well for future growth.

Looking ahead, Pagaya’s management is optimistic about the company’s prospects, citing several key factors that are expected to drive continued success:

1. Expanded Usage of the Network by Existing Partners: Pagaya’s AI technology has enabled its partners to convert a larger proportion of their application volume into originated loans, leading to rapid scaling of origination volume on the company’s network. As partners continue to expand their usage of the platform, Pagaya expects to see further growth in Network Volume.

2. Adoption of the Network by New Partners: Pagaya has a dedicated team focused on onboarding and managing new partners, and the company’s distinctive value proposition of driving significant revenue uplift at limited incremental cost or credit risk has contributed to its success in adding new partners to the network. The expansion of the partner network has been a key driver of Pagaya’s overall growth.

3. Continued Improvements to AI Technology: Pagaya’s historical growth has been significantly influenced by improvements to its AI technology, which are driven by the deepening of its proprietary data network and the strengthening of its AI capabilities. As the company’s network expands and it gathers more data, it expects to continue enhancing the efficiency and effectiveness of its technology, further improving its ability to identify and acquire assets for the Financing Vehicles.

4. Availability and Pricing of Funding from Investors: The availability and pricing of funding from investors is critical to Pagaya’s growth. The company has diversified its investor network and will continue to seek further diversification, which it believes will help ensure the continued availability of funding at favorable terms.

However, Pagaya also acknowledges several risks and challenges that could impact its future performance, including:

• Macroeconomic Conditions: Economic cycles, such as periods of high inflation, elevated interest rates, supply chain disruptions, and geopolitical tensions, can affect consumer demand for financial products, the ability of partners to generate and convert customer application volume, and the availability and cost of funding from investors.

• Cybersecurity Threats: Cyberattacks, security breaches, or similar compromises of Pagaya’s information technology systems, or those of third parties upon which it relies, could adversely impact the company’s brand, reputation, and financial condition.

• Regulatory and Tax Risks: Changes in tax laws, statutes, rules, regulations, or ordinances could increase Pagaya’s tax burden and adversely affect its financial results. The company is also subject to the risk of being classified as a passive foreign investment company (PFIC) or a controlled foreign corporation (CFC) for U.S. federal income tax purposes, which could result in significant adverse tax consequences for U.S. investors.

Overall, Pagaya’s financial report for the year ended December 31, 2024 demonstrates the company’s ability to deliver strong growth and profitability through its innovative AI-powered technology platform. While the company faces various risks and challenges, its management remains optimistic about its future prospects, citing the continued expansion of its partner network, improvements to its AI technology, and the availability of funding from a diversified investor base as key drivers of its long-term success.

Key Financial Highlights

• Total Revenue and Other Income: $1,032.2 million (27% increase)
• Revenue from Fees: $1,004.6 million (30% increase)
  • Network AI Fees: $916.1 million (31.6% increase)
  • Contract Fees: $88.5 million (15.2% increase)
• Interest Income: $32.3 million (16.6% decrease)
• Investment (Loss) Income: $(4.6) million (compared to $0.5 million in 2023)
• Production Costs: $597.7 million (17.4% increase)
• Technology, Data and Product Development: $76.6 million (3.0% increase)
• Sales and Marketing: $50.4 million (1.3% increase)
• General and Administrative: $240.8 million (18.4% increase)
• Operating Income: $66.8 million (compared to operating loss of $24.4 million in 2023)
• Fee Revenue Less Production Costs (FRLPC): $406.9 million (35.9% increase)

Key Operating Metric

• Network Volume: $9.7 billion (17% increase)