Pagaya Technologies (PGY -5.21%), a leader in AI-driven financial solutions, released its third-quarter earnings on November 12, 2024. The company reported results that matched management's expectations, with notable growth in network volume and fee-based revenue, although it still reported a net loss. The network volume was $2.4 billion, revenue $257 million, and adjusted EBITDA $56 million, all falling within the guided ranges. Despite robust performance in key areas, ongoing net losses remain a concern due to non-cash expenses. Overall, the quarter reflects solid operational execution but also the need to address profitability issues.
| Metric | Q3 2024 Result | Management Expectation | Q3 2023 Result | % Change YoY |
|---|---|---|---|---|
| Network Volume | $2.4 billion | $2.3 billion to $2.5 billion | N/A | N/A |
| Total Revenue and Other Income | $257 million | $250 million to $260 million | $201.4 million | 27.6% |
| Adjusted EBITDA | $56 million | $50 million to $60 million | $28.3 million | 97.9% |
| Net Loss Attributable to Shareholders | $67.5 million | N/A | $21.8 million | N/A |
Source: Expectations based on management's guidance, as provided in 2024-08-09 earnings report.
Overview of Pagaya Technologies
Pagaya Technologies, leveraging its proprietary AI-powered technology, operates a platform designed to enhance financial accessibility for consumers by partnering with financial institutions for improved credit access. Its business model focuses on integrating advanced technology into legacy financial systems to improve outcomes in sectors such as personal loans and point-of-sale financing.
Recently, Pagaya's efforts have centered on expanding its network volume and partnerships, which are crucial success indicators. It has emphasized efficiency enhancements in its AI infrastructure, resulting in increased network volume. Moreover, partnerships with significant banking institutions highlight its expanding influence in the financial services sector.
Quarter Achievements and Developments
During the quarter, Pagaya saw revenues reach $257 million, marking a 21% year-over-year increase, largely fueled by a 24% boost in fee-based revenue. This aligns with the company's strategic focus on fee-driven growth. Additionally, Pagaya recorded $22 million in GAAP operating income, shifting from a loss in the same period the prior year. However, the net loss to shareholders stood at $67 million, attributed mainly to non-cash expenses like stock-based compensation.
The company's focus on enhancing operational efficiency is noticeable in the record fee revenue less production costs ratio of 4.3% of network volume, indicating better value delivery to its partners. Net income after adjustments was a positive $33 million, significantly up from last year's figures when excluding non-cash items. This profitability measure shows Pagaya's underlying strength despite reported losses.
Operational highlights of the quarter include growth in significant business areas like personal loans and point-of-sale financing, which increased by 15% and 67%, respectively. The onboard of new partnerships, such as a significant bank in the point-of-sale realm, demonstrates ongoing momentum in network and partner expansion. Such partnerships underscore Pagaya's de-risking strategy by refinancing high-cost debt, aiming to reduce interest expenses and improve liquidity.
No material events or product service shifts were reported that significantly altered the financial landscape, nor were there considerable dividend changes within this period. This consistency in financial metrics and business practice showcases a stable yet progressively growing operational status.
Outlook and Forward Guidance
Looking ahead, Pagaya remains steadfast in its full-year guidance with network volumes predicted between $9.5 billion and $9.7 billion. Expected total revenue is pegged at $1,010 million to $1,025 million, while the adjusted EBITDA is anticipated to be $195 million to $205 million. Such forecasts display management's confidence in its strategies and the robustness of its financial practices amidst broader economic concerns.
Investors should keep an eye on Pagaya's continuous efforts to improve profitability metrics by addressing persistent net losses driven by non-cash expenses. Furthermore, their ability to robustly navigate the regulatory landscape will be imperative to long-term growth and resilience in fluctuating economic settings.
