UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 28, 2024, there were
OFFERPAD SOLUTIONS INC.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2024
TABLE OF CONTENTS
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Condensed Consolidated Statements of Changes in Stockholders’ Equity |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that express Offerpad Solutions Inc.’s (“Offerpad,” the “Company,” “we,” “us,” and “our,” and similar references) opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They may appear in a number of places throughout this Quarterly Report on Form 10-Q, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our future results of operations, financial condition and liquidity, our prospects, potential growth or expansion evaluations, strategies, including product and service offerings, macroeconomic trends, geopolitical concerns, and the markets in which Offerpad operates.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to:
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Balance Sheets
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September 30, |
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December 31, |
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(in thousands, except par value per share) (Unaudited) |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Real estate inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other non-current assets |
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TOTAL ASSETS |
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(1) |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued and other current liabilities |
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Secured credit facilities and other debt, net |
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Secured credit facilities and other debt - related party |
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Total current liabilities |
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Warrant liabilities |
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Other long-term liabilities |
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Total liabilities |
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(2) |
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Stockholders’ equity: |
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Class A common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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( |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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________________
The accompanying notes are an integral part of these condensed consolidated financial statements.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 4
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Operations
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(in thousands, except per share data) (Unaudited) |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales, marketing and operating |
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General and administrative |
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Technology and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Change in fair value of warrant liabilities |
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Interest expense |
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( |
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( |
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Other income, net |
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Total other expense |
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( |
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Loss before income taxes |
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( |
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( |
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( |
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Income tax expense |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share, basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share, diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Weighted average common shares outstanding, basic |
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Weighted average common shares outstanding, diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 5
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
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Common Stock |
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Additional |
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Accumulated |
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Total |
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(in thousands) (Unaudited) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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( |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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(in thousands) (Unaudited) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 6
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
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Common Stock |
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Additional |
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Accumulated |
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Total |
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(in thousands) (Unaudited) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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(in thousands) (Unaudited) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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( |
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— |
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( |
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Issuance of pre-funded warrants, net |
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— |
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— |
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— |
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Exercise of pre-funded warrants |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 7
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Cash Flows
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Nine Months Ended |
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September 30, |
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($ in thousands) (Unaudited) |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation |
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Amortization of debt financing costs |
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Real estate inventory valuation adjustment |
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Stock-based compensation |
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Change in fair value of warrant liabilities |
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( |
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( |
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Change in fair value of derivative instruments |
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( |
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Loss on disposal of property and equipment |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Real estate inventory |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued and other liabilities |
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( |
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( |
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Net cash (used in) provided by operating activities |
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( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
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Proceeds from sale of property and equipment |
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Purchases of derivative instruments |
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( |
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Proceeds from sale of derivative instruments |
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Net cash (used in) provided by investing activities |
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( |
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Cash flows from financing activities: |
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Borrowings from credit facilities and other debt |
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Repayments of credit facilities and other debt |
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( |
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( |
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Payment of debt financing costs |
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( |
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( |
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Proceeds from exercise of stock options |
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Payments for taxes related to stock-based awards |
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( |
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( |
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Borrowings from warehouse lending facility |
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Repayments of warehouse lending facility |
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( |
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Proceeds from issuance of pre-funded warrants |
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Proceeds from exercise of pre-funded warrants |
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Issuance cost of pre-funded warrants |
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( |
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Net cash used in financing activities |
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( |
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( |
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Net change in cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash payments for interest |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 8
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Nature of Operations and Significant Accounting Policies
Description of Business
Offerpad, dedicated to simplifying the process of buying and selling homes, is committed to providing comprehensive solutions that remove the friction from real estate. Our advanced real estate platform offers a range of services, from consumer cash offers to B2B renovation solutions and industry partnership programs, all tailored to meet the unique needs of our clients. Since 2015, we’ve leveraged local expertise in residential real estate alongside proprietary technology to guide homeowners at every step.
The Company is currently headquartered in Chandler, Arizona and operates in over 1,800 cities and towns in 26 metropolitan markets across 17 states as of September 30, 2024.
Basis of Presentation and Interim Financial Information
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to GAAP and SEC rules and regulations. Accordingly, the unaudited interim condensed consolidated financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. Therefore, this information should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K as filed with the SEC on February 27, 2024.
The accompanying financial information reflects all adjustments which are, in the opinion of the Company’s management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Significant estimates include those related to the net realizable value of real estate inventory, among others. Actual results could differ from those estimates.
Principles of Consolidation
The Company’s condensed consolidated financial statements include the assets, liabilities, revenues and expenses of the Company, its wholly-owned operating subsidiaries and variable interest entities where the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Real Estate Inventory
Real estate inventory consists of acquired homes and is stated at the lower of cost or net realizable value, with cost and net realizable value determined by the specific identification of each home. Costs include initial purchase costs and renovation costs, as well as holding costs and interest incurred during the renovation period, prior to the listing date. Selling costs, including commissions and holding costs incurred after the listing date, are expensed as incurred and included in sales, marketing and operating expenses.
The Company reviews real estate inventory for valuation adjustments on a quarterly basis, or more frequently if events or changes in circumstances indicate that the carrying value of real estate inventory may not be recoverable. The Company evaluates real estate inventory for indicators that net realizable value is lower than cost at the individual home level. The Company generally considers multiple factors in determining net realizable value for each home, including recent comparable home sale transactions in the specific area where the home is located, the residential real estate market conditions in both the local market in which the home is located and in the U.S. in general, the impact of national, regional or local economic conditions and expected selling costs. When evidence exists that the net realizable value of real estate inventory is lower than its cost, the difference is recognized as a real estate inventory valuation adjustment in cost of revenue and the related real estate inventory is adjusted to its net realizable value.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 9
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For individual homes or portfolios of homes under contract to sell as of the real estate inventory valuation assessment date, if the carrying value exceeds the contract price less expected selling costs, the carrying value of these homes are adjusted to the contract price less expected selling costs. For all other homes, if the carrying value exceeds the expected sale price less expected selling costs, the carrying value of these homes are adjusted to the expected sale price less expected selling costs. Changes in the Company’s pricing assumptions may lead to a change in the outcome of the real estate inventory valuation analysis, and actual results may differ from the Company’s assumptions.
The Company recorded real estate inventory valuation adjustments of $
Recent Accounting Standards
Income Tax Disclosures
In December 2023, the FASB issued a new standard which is intended to improve an entity’s income tax disclosures, primarily through disaggregated information about an entity’s effective income tax rate reconciliation and additional disclosures about income taxes paid. The new standard is effective for annual periods beginning after December 15, 2024. Accordingly, the new standard is effective for the Company on January 1, 2025 on a prospective basis. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued a new standard which is intended to improve disclosures about an entity’s reportable segments, primarily through enhanced disclosures about significant segment expenses. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Accordingly, the new standard is effective for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent interim periods, using a retrospective approach. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.
Note 2. Real Estate Inventory
The components of real estate inventory, net of applicable lower of cost or net realizable value adjustments, consist of the following as of the respective period ends:
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|
September 30, |
|
|
December 31, |
|
||
($ in thousands) |
|
2024 |
|
|
2023 |
|
||
Homes preparing for and under renovation |
|
$ |
|
|
$ |
|
||
Homes listed for sale |
|
|
|
|
|
|
||
Homes under contract to sell |
|
|
|
|
|
|
||
Real estate inventory |
|
$ |
|
|
$ |
|
||
Note 3. Derivative Financial Instruments
During 2023, the Company entered into derivative arrangements pursuant to which the Company acquired options on U.S. Treasury futures. These options provided the Company with the right, but not the obligation, to purchase U.S. Treasury futures at a predetermined notional amount and stated term in the future.
During the nine months ended September 30, 2023, the Company purchased $
The Company sold all of its outstanding derivative arrangements during October 2023 and no derivative arrangements remain outstanding.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 10
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4. Property and Equipment
Property and equipment consist of the following as of the respective period ends:
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September 30, |
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|
December 31, |
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||
($ in thousands) |
|
2024 |
|
|
2023 |
|
||
Rooftop solar panel systems |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
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Office equipment and furniture |
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Software systems |
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Computers and equipment |
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Construction in progress |
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Property and equipment, gross |
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||
Less: accumulated depreciation |
|
|
( |
) |
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( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
Note 5. Leases
The Company’s operating lease arrangements consist of its existing corporate headquarters in Chandler, Arizona, its future corporate headquarters in Tempe, Arizona, and field office facilities in most of the metropolitan markets in which the Company operates in the United States. These leases typically have original lease terms of
The Company’s operating lease costs are included in operating expenses in the accompanying condensed consolidated statements of operations. During the three months ended September 30, 2024 and 2023, operating lease costs were $
Cash payments for amounts included in the measurement of operating lease liabilities were $
As of September 30, 2024 and December 31, 2023, the Company’s operating leases had a weighted-average remaining lease term of
The Company’s operating lease liability maturities as of September 30, 2024 are as follows:
($ in thousands) |
|
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|
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Remainder of 2024 |
|
$ |
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2025 |
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2026 |
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2027 |
|
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2028 |
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2029 |
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Thereafter |
|
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|
|
Total future lease payments |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Less: Tenant incentive receivable |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 11
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s operating lease right-of-use assets and operating lease liabilities, and the associated financial statement line items, are as follows as of the respective period ends:
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|
|
September 30, |
|
|
December 31, |
|
||
($ in thousands) |
|
Financial Statement Line Items |
|
2024 |
|
|
2023 |
|
||
Right-of-use assets |
|
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$ |
|
|
$ |
|
|||
Lease liabilities: |
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||
Current liabilities |
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Non-current liabilities |
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|||
Total lease liabilities |
|
|
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$ |
|
|
$ |
|
||
Note 6. Accrued and Other Liabilities
Accrued and other current liabilities consist of the following as of the respective period ends:
|
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September 30, |
|
|
December 31, |
|
||
($ in thousands) |
|
2024 |
|
|
2023 |
|
||
Home renovation |
|
$ |
|
|
$ |
|
||
Payroll and other employee related expenses |
|
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||
Interest |
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Operating lease liabilities |
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Marketing |
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Legal and professional obligations |
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Other |
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Accrued and other current liabilities |
|
$ |
|
|
$ |
|
||
The Company incurred advertising expenses of $
Other long-term liabilities consists of the non-current portion of our operating lease liabilities as of September 30, 2024 and December 31, 2023.
Note 7. Credit Facilities and Other Debt
The carrying value of the Company’s credit facilities and other debt consists of the following as of the respective period ends:
|
September 30, |
|
|
December 31, |
|
||
($ in thousands) |
2024 |
|
|
2023 |
|
||
Credit facilities and other debt, net |
|
|
|
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||
Senior secured credit facilities with financial institutions |
$ |
|
|
$ |
|
||
Senior secured credit facility with a related party |
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Mezzanine secured credit facilities with financial institutions |
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Mezzanine secured credit facilities with a related party |
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Debt issuance costs |
|
( |
) |
|
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( |
) |
Total credit facilities and other debt, net |
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||
Current portion - credit facilities and other debt, net |
|
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||
Total credit facilities and other debt, net |
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||
Total credit facilities and other debt - related party |
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|
||
Total credit facilities and other debt, net |
$ |
|
|
$ |
|
||
The Company utilizes inventory financing facilities consisting of senior secured credit facilities, mezzanine secured credit facilities and other senior secured borrowing arrangements to provide financing for the Company’s real estate inventory purchases and renovation. Borrowings under the Company’s credit facilities and other debt are classified as current liabilities
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 12
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
on the accompanying condensed consolidated balance sheets as amounts drawn to purchase and renovate homes are required to be repaid as the related real estate inventory is sold, which is expected to be within 12 months.
As of September 30, 2024, the Company had a total borrowing capacity of $
Under the Company’s senior secured credit facilities and mezzanine secured credit facilities, amounts can be borrowed, repaid and borrowed again during the revolving period. The borrowing capacity is generally available until the end of the applicable revolving period as reflected in the tables below. Outstanding amounts drawn under each senior secured credit facility and mezzanine secured credit facility are required to be repaid on the facility maturity date or earlier if accelerated due to an event of default or other mandatory repayment event.
The Company’s senior secured credit facilities and mezzanine secured credit facilities have aggregated borrowing bases, which increase or decrease based on the cost and value of the properties financed under a given facility and the time that those properties are in the Company’s possession. When the Company resells a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds or the performance of the properties financed under that facility declines, and any borrowing base deficiencies may be satisfied through contributions of additional properties or partial repayment of the facility.
Senior Secured Credit Facilities
The following summarizes certain details related to the Company’s senior secured credit facilities (in thousands, except interest rates):
|
Borrowing Capacity |
|
Outstanding |
|
Weighted- |
|
End of |
|
Final |
||||
As of September 30, 2024 |
Committed |
|
Uncommitted |
|
Total |
|
Amount |
|
Rate |
|
Period |
|
Date |
Senior financial institution 1 |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|||
Senior financial institution 2 |
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|||||||
Senior financial institution 3 |
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|||||||
Related party |
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|||||||
Senior financial institution 4 |
|
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|
|
|
|||||||
Senior secured credit facilities |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
|
Borrowing Capacity |
|
|
Outstanding |
|
|
Weighted- |
|
|
|
|
|
|||||||||||
As of December 31, 2023 |
Committed |
|
|
Uncommitted |
|
|
Total |
|
|
Amount |
|
|
Rate |
|
|
|
|
|
|||||
Senior financial institution 1 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|
|||||
Senior financial institution 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|||||
Senior financial institution 3 |
|
|
|
|
|
|
|
|
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% |
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|
|||||
Related party |
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|
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|
|
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% |
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|
|||||
Senior financial institution 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|||||
Senior secured credit facilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|||||
As of September 30, 2024, the Company had
Borrowings under the Company’s senior secured credit facilities are collateralized by the real estate inventory financed by the senior secured credit facility. The lenders have legal recourse only to the assets securing the debt and do not have general recourse against the Company with limited exceptions. The Company has, however, provided limited non-recourse carve-out guarantees under its senior and mezzanine secured credit facilities for certain of the SPEs’ obligations. Each senior secured credit facility contains eligibility requirements that govern whether a property can be financed.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 13
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Mezzanine Secured Credit Facilities
The following summarizes certain details related to the Company’s mezzanine secured credit facilities (in thousands, except interest rates):
|
Borrowing Capacity |
|
Outstanding |
|
Weighted- |
|
End of |
|
Final |
||||
As of September 30, 2024 |
Committed |
|
Uncommitted |
|
Total |
|
Amount |
|
Rate |
|
Period |
|
Date |
Related party facility 1 |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|||
Mezzanine financial institution 1 |
|
|
|
|
|
|
|||||||
Mezzanine financial institution 2 |
|
|
|
|
|
|
|||||||
Related party facility 2 |
|
|
|
|
|
|
|||||||
Mezzanine secured credit facilities |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
|
Borrowing Capacity |
|
Outstanding |
|
Weighted- |
|
|
|
|
||||
As of December 31, 2023 |
Committed |
|
Uncommitted |
|
Total |
|
Amount |
|
Rate |
|
|
|
|
Related party facility 1 |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
Mezzanine financial institution 1 |
|
|
|
|
|
|
|
|
|||||
Mezzanine financial institution 2 |
|
|
|
|
|
|
|
|
|||||
Related party facility 2 |
|
|
|
|
|
|
|
|
|||||
Mezzanine secured credit facilities |
$ |
|
$ |
|
$ |
|
$ |
|
|
|
|
|
|
As of September 30, 2024, the Company had four mezzanine secured credit facilities, two with separate financial institutions and two with a related party, which holds more than 5% of our Class A common stock. Borrowings under the Company’s mezzanine secured credit facilities accrue interest at a rate based on a SOFR reference rate, plus a margin which varies by facility. Each of the Company’s mezzanine secured credit facilities also have interest rate floors. The Company may also pay fees on its mezzanine secured credit facilities, including a commitment fee and fees on certain unused portions of the committed borrowing capacity under the respective credit agreements.
Borrowings under the Company’s mezzanine secured credit facilities are collateralized by a second lien on the real estate inventory financed by the relevant credit facility. The lenders have legal recourse only to the assets securing the debt, and do not have general recourse to Offerpad with limited exceptions.
The Company’s mezzanine secured credit facilities are structurally and contractually subordinated to the related senior secured credit facilities.
Maturities
Certain of the Company’s secured credit facilities mature within the next twelve months following the date these condensed consolidated financial statements are issued. The Company expects to enter into new financing arrangements or amend existing arrangements to meet its obligations as they come due, which the Company believes is probable based on its history of prior credit facility renewals. The Company believes cash on hand, together with proceeds from the resale of homes and cash from future borrowings available under each of the Company’s existing credit facilities or the entry into new financing arrangements, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these condensed consolidated financial statements are issued.
Covenants for Senior Secured Credit Facilities and Mezzanine Secured Credit Facilities
The Company’s secured credit facilities include customary representations and warranties, covenants and events of default. Financed properties are subject to customary eligibility criteria and concentration limits. The terms of these facilities and related financing documents require the Company to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to tangible net worth).
As of September 30, 2024, the Company was in compliance with all covenants and no event of default had occurred.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 14
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8. Warrant Liabilities
As of September 30, 2024, the Company had
Public Warrants
The public warrants became exercisable on October 23, 2021. A holder may exercise its warrants only for a whole number of shares of Class A common stock. The public warrants will expire on
Private Placement Warrants
The private placement warrants have terms and provisions that are substantially identical to those of the public warrants, with the exception of certain redemption rights, options to exercise and registration rights when the private placement warrants are owned by specified holders.
Note 9. Fair Value Measurements
The fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and certain prepaid and other current assets and accrued expenses approximate carrying values because of their short-term nature. The Company’s credit facilities are carried at amortized cost and the carrying value approximates fair value because of their short-term nature.
The Company’s liabilities that are measured at fair value on a recurring basis consist of the following (in thousands):
As of September 30, 2024 |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|||
Public warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
Private placement warrant liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
As of December 31, 2023 |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|||
Public warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
Private placement warrant liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Public Warrants
The public warrants are traded on an over-the-counter market. The fair value of the public warrants is estimated based on the quoted market price of such warrants on the valuation date. The Company recorded changes in the fair value of the public warrants of less than $(
Private Placement Warrants
The following summarizes the changes in the Company’s private placement warrant liabilities, which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the respective periods:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Change in fair value of private placement warrants included in net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 15
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company generally uses the Black-Scholes-Merton option-pricing model to determine the fair value of the private placement warrants, with assumptions including expected volatility, expected life of the warrants, associated risk-free interest rate, and expected dividend yield.
There were
Note 10. Stockholders’ Equity
Authorized Capital Stock
The Company is authorized to issue
Class A Common Stock
Our Class A common stock trades on the New York Stock Exchange under the symbol “OPAD” and our public warrants trade on the OTC Markets Group Pink Market under the symbol “OPADW.”
As of September 30, 2024, we had
We also have outstanding private placement warrants to purchase shares of our Class A common stock. Refer to Note 8. Warrant Liabilities.
During January 2023, we sold and issued pre-funded warrants to purchase shares of our Class A common stock, resulting in gross proceeds of approximately $
Preferred Stock
As of September 30, 2024, there were
Dividends
Our Class A common stock is entitled to dividends if and when any dividend is declared by our Board, subject to the rights of all classes of stock outstanding having priority rights to dividends. We have not paid any cash dividends on common stock to date. We may retain future earnings, if any, for the further development and expansion of our business and have no current plans to pay cash dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board and will depend on, among other things, our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our Board may deem relevant.
Note 11. Stock-Based Awards
2021 Equity Incentive Plans
Incentive Award Plan
As of December 31, 2023, there were
Pursuant to the terms of the 2021 Plan, the number of shares of the Company’s Class A common stock available for issuance under the 2021 Plan automatically increased by
As of September 30, 2024, the Company has granted stock options, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”) and other stock or cash-based awards under the 2021 Plan.
Employee Stock Purchase Plan
As of December 31, 2023, there were
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 16
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Pursuant to the terms of the ESPP, the number of shares of the Company’s Class A common stock available for issuance under the ESPP automatically increased by
As of September 30, 2024,
Restricted Stock Units
During the nine months ended September 30, 2024, the Company granted RSUs with service vesting conditions to employees and non-employee members of our Board. The vesting period for RSUs granted to employees is generally
The following summarizes RSU award activity during the nine months ended September 30, 2024:
|
Number of |
|
|
Weighted Average |
|
||
Outstanding as of December 31, 2023 |
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
||
Vested and settled |
|
( |
) |
|
|
|
|
Forfeited |
|
( |
) |
|
|
|
|
Outstanding as of September 30, 2024 |
|
|
|
|
|
||
As of September 30, 2024,
As of September 30, 2024, the Company had $
Performance-Based Restricted Stock Units
The following summarizes PSU award activity during the nine months ended September 30, 2024:
|
Number of |
|
|
Weighted Average |
|
||
Outstanding as of December 31, 2023 |
|
|
|
$ |
|
||
Granted |
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Vested |
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Forfeited |
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( |
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Outstanding as of September 30, 2024 |
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As of September 30, 2024, the Company had $
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 17
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Other Cash or Stock-Based Awards
During the nine months ended September 30, 2024, the Company granted long-term incentive awards, which include both a service vesting condition and a performance vesting condition that is associated with the share price of the Company’s Class A common stock (“LTI Award”). The Company also amended certain terms and conditions associated with the LTI Awards granted in 2023. Both the newly amended and granted LTI Awards will become earned during a three-year performance period based on the appreciation in the price of the Company’s Class A common stock over pre-determined price per share goals set forth in the LTI Award agreements. The portion of the LTI Award that will become earned will be determined based on the average share price over the 60 consecutive calendar-day period ending on (and including) the end of the performance period, the total number of shares of the Company’s Class A common stock outstanding as of the last day of the performance period and the participant sharing rates as set forth in the LTI Award agreements. To the extent that an LTI Award is earned during the performance period, half of the earned LTI Award will vest at the end of the three-year performance period, and the remaining half of the earned LTI Award will vest one year after the end of the performance period, in each case, subject to the employee’s continued service through the applicable vesting date. If the LTI Award does not become earned as of the last day of the performance period, each LTI Award automatically will be forfeited and terminated without consideration.
The Company determined the fair value of the LTI awards using a Monte Carlo simulation model that determines the probability of satisfying the market condition stipulated in the award.
Risk-free interest rate |
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Expected stock price volatility |
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Expected dividend yield |
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Fair value on grant date |
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$ |
The LTI Awards, to the extent vested, can be settled in cash or shares of Company Class A common stock (as determined by the Compensation Committee of the Board in its discretion). As of September 30, 2024, the Company has the intent and ability to settle the LTI Awards in shares of the Company’s Class A common stock.
As of September 30, 2024, the Company had $
Stock Options
The following summarizes stock option activity during the nine months ended September 30, 2024:
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Number of |
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Weighted- |
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Weighted Average |
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Aggregate |
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Outstanding as of December 31, 2023 |
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$ |
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$ |
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Granted |
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Exercised |
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Forfeited, canceled or expired |
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Outstanding as of September 30, 2024 |
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Exercisable as of September 30, 2024 |
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Vested and expected to vest as of September 30, 2024 |
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The total intrinsic value of stock options exercised during the nine months ended September 30, 2024 and 2023 was less than $
As of September 30, 2024, the Company had unrecognized stock-based compensation expense related to unvested stock options of $
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 18
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock-based Compensation Expense
The following details stock-based compensation expense for the respective periods:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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($ in thousands) |
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2024 |
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2023 |
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2024 |
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2023 |
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Sales, marketing and operating |
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$ |
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$ |
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$ |
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$ |
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||||
General and administrative |
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Technology and development |
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Stock-based compensation expense |
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$ |
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$ |
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$ |
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$ |
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||||
Note 12. Variable Interest Entities
The Company formed certain special purpose entities (each, an “SPE”) to purchase and sell residential properties. Each SPE is a wholly-owned subsidiary of the Company and a separate legal entity, and neither the assets nor credit of any such SPE are available to satisfy the debts and other obligations of any affiliate or other entity. The credit facilities are secured by the assets and equity of one or more SPEs. These SPEs are variable interest entities, and the Company is the primary beneficiary as it has the power to control the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses of the SPEs or the right to receive benefits from the SPEs that could potentially be significant to the SPEs. The SPEs are consolidated within the Company’s condensed consolidated financial statements.
The following summarizes the assets and liabilities related to the VIEs as of the respective period ends:
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September 30, |
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December 31, |
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2024 |
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2023 |
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$ |
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Liabilities |
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$ |
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Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 19
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13. Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares plus the incremental effect of dilutive potential common shares outstanding during the period. In periods when losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The components of basic and diluted earnings per share are as follows:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(In thousands, except per share data) |
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2023 |
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2024 |
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2023 |
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Numerator: |
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Net loss |
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Denominator: |
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Weighted average common shares outstanding, basic |
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Dilutive effect of stock options (1) |
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Dilutive effect of restricted stock units (1) |
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Weighted average common shares outstanding, diluted |
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Net loss per share, basic |
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Net loss per share, diluted |
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Anti-dilutive securities excluded from diluted loss per share: |
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Anti-dilutive stock options (1) |
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(1) Due to the net loss during each of the three and nine months ended September 30, 2024 and 2023,
Note 14. Income Taxes
The Company determines its interim tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to its income (loss) before income taxes for the period. The Company’s effective tax rate is dependent on several factors, such as tax rates in state jurisdictions and the relative amount of income the Company earns in the respective jurisdiction.
The Company recorded income tax expense of less than $
As of September 30, 2024, we continue to have a full valuation allowance recorded against all deferred tax assets and will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present, and if we employ tax planning strategies in the future.
The Internal Revenue Code contains provisions that limit the utilization of net operating loss carryforwards and tax credit carryforwards if there has been an ownership change. Such ownership change, as described in Section 382 of the Internal Revenue Code, may limit the Company’s ability to utilize its net operating loss carryforwards and tax credit carryforwards on a yearly basis. To the extent that any single-year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of utilization or the expiration of the relevant carryforward period. The Company determined that an ownership change occurred on February 10, 2017. An analysis was performed and while utilization of net operating losses would be limited in years prior to December 31, 2020, subsequent to that date, there is
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 20
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
no limitation on the Company’s ability to utilize its net operating losses. As such, the ownership change has no impact to the carrying value of the Company’s net operating loss carryforwards or ability to use them in future years.
Note 15. Related-Party Transactions
LL Credit Facilities
As of September 30, 2024, we have
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As of September 30, 2024 |
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As of December 31, 2023 |
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Borrowing |
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Outstanding |
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Borrowing |
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Outstanding |
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Senior secured credit facility with a related party |
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$ |
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$ |
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$ |
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Mezzanine secured credit facilities with a related party |
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$ |
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$ |
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$ |
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$ |
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Since October 2016, we have been party to a loan and security agreement (the “LL Funds Loan Agreement”), with LL Private Lending Fund, L.P. and LL Private Lending Fund II, L.P., both of which are affiliates of LL Capital Partners I, L.P., which holds more than
Since March 2020, we have also been party to a mezzanine loan and security agreement (the “LL Mezz Loan Agreement”), with LL Private Lending Fund II, L.P., which is an affiliate of LL Capital Partners I, L.P. Under the LL Mezz Loan Agreement, we may borrow funds up to a maximum principal amount of $
We paid interest for borrowings under the LL Credit Facilities of $
Use of First American Financial Corporation’s Services
First American Financial Corporation (“First American”), which holds more than
Compensation of Immediate Family Members of Brian Bair
During each of the three and nine months ended September 30, 2024 and 2023, Offerpad employed two of Brian Bair’s brothers, along with Mr. Bair’s sister-in-law.
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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($ in thousands) |
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2024 |
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2023 |
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2024 |
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2023 |
|
||||
Mr. Bair’s brother 1 |
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$ |
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$ |
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$ |
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$ |
|
||||
Mr. Bair’s brother 2 (1) |
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Mr. Bair’s sister-in-law |
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$ |
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$ |
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$ |
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$ |
|
||||
(1) Mr. Casey Bair separated from service with the Company in August 2024 and is receiving severance payments in connection with his separation.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 21
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the nine months ended September 30, 2024, Mr. Bair’s brothers and Mr. Bair’s sister-in-law received the following restricted stock unit awards:
Mr. Bair’s brother 1 |
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Mr. Bair’s brother 2 (1) |
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Mr. Bair’s sister-in-law |
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(1) This restricted stock unit award was forfeited by Mr. Casey Bair in connection with his separation from service in August 2024.
During the nine months ended September 30, 2024, the Company amended certain terms and conditions associated with the LTI Awards granted to Mr. Bair’s brothers and Mr. Bair’s sister-in-law in 2023, including the performance period, price per share goals and sharing rates. In connection with Mr. Casey Bair’s separation from service, all unvested equity awards, including this LTI Award, were forfeited.
Refer to Note 11. Stock-Based Awards, for further details.
Warehouse Lending Facility with FirstFunding, Inc.
During 2022, Offerpad Mortgage, LLC (“Offerpad Home Loans” or “OPHL”), a wholly-owned subsidiary of the Company, entered into a warehouse lending facility with FirstFunding, Inc., a wholly-owned subsidiary of First American, which holds more than
Pre-Funded Warrants
During January 2023, the Company sold and issued pre-funded warrants to purchase shares of the Company’s Class A common stock which were subsequently exercised in full during 2023. The investors included Brian Bair, Roberto Sella, First American, and Kenneth DeGiorgio. Refer to Note 10. Stockholders’ Equity, for further details.
Note 16. Commitments and Contingencies
Homes Purchase Commitments
As of September 30, 2024, the Company was under contract to purchase
Lease Commitments
The Company has entered into operating lease agreements for its existing corporate headquarters in Chandler, Arizona, its future corporate headquarters in Tempe, Arizona, and field office facilities in most of the metropolitan markets in which the Company operates in the United States. Refer to Note 5. Leases, for further details.
Legal and Other Matters
The Company is subject to various actions, claims, suits and other legal proceedings that arise in the ordinary course of business, including, without limitation, assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. The Company records accruals for loss contingencies when it is probable that a loss will occur, and the amount of such loss can be reasonably estimated. The Company is not currently a party to any actions, claims, suits or other legal proceedings arising in the ordinary course of business, the outcome of which, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company’s condensed consolidated financial statements.
The following is a description of pending litigation that falls outside the scope of ordinary and routine litigation incidental to the Company’s business.
Class Action Alleging Breach of Fiduciary Duties
On August 26, 2024, a purported stockholder of Offerpad filed a complaint against Alexander Klabin, Spencer Rascoff, Ken Fox, Jim Lanzone, Gregg Renfrew, Rajeev Singh, Robert Reid, Michael Clifton, Supernova Partners, LLC (the “Supernova Defendants”), Brian Bair, and Michael Burnett (the “Offerpad Defendants”). The complaint is captioned Jandreau v. Klabin,
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 22
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
C.A. No. 2024-0887 (Del. Ch.) (the “Complaint”). The Complaint generally alleges that the Supernova Defendants breached their fiduciary duties, with the Offerpad Defendants aiding and abetting these breaches, in connection with the merger between OfferPad, Inc. and Supernova Partners Acquisition Company, Inc. on September 1, 2021. The Complaint seeks, among other things, monetary damages, disgorgement of any unjust enrichment, rescissory damages, pre-judgment and post-judgment interest, and reasonable attorneys’ fees and costs. On September 19, 2024, proceedings related to the Complaint were temporarily stayed. Offerpad disputes the allegations in the Complaint and intends to vigorously defend against them. The Company is unable to reasonably estimate the potential loss or range of loss associated with this matter.
Note 17. Subsequent Events
The Company has determined that there have been no events that have occurred that would require recognition in the condensed consolidated financial statements or additional disclosure herein.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that Offerpad’s management believes is relevant to an assessment and understanding of Offerpad’s consolidated results of operations and financial condition. The discussion should be read together with the unaudited interim condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and accompanying notes included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024.
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q. Offerpad’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part I, Item 1A of Offerpad’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Overview
Our Business
Offerpad, dedicated to simplifying the process of buying and selling homes, is committed to providing comprehensive solutions that remove the friction from real estate. Our advanced real estate platform offers a range of services, from consumer cash offers to B2B renovation solutions and industry partnership programs, all tailored to meet the unique needs of our clients. Since 2015, we’ve leveraged local expertise in residential real estate alongside proprietary technology to guide homeowners at every step, and have transacted on homes representing approximately $11.5 billion of aggregate revenue through September 30, 2024.
We are currently headquartered in Chandler, Arizona and operate in over 1,800 cities and towns in 26 metropolitan markets across 17 states as of September 30, 2024.
Current Economic Conditions and Health of the U.S. Residential Real Estate Industry
Our business and operating results are impacted by the general economic conditions and the health of the U.S. residential real estate industry, particularly the single-family home resale market. Our business model primarily depends on a high volume of residential real estate transactions throughout the markets in which we operate. This transaction volume affects substantially all of the ways that we generate revenue, including our ability to acquire new homes and generate associated fees, and our ability to sell homes that we own.
The uncertain economic outlook and evolving residential real estate market conditions have continued to challenge our operating results through the first nine months of 2024. The elevated and volatile mortgage interest rate environment has persisted throughout the year, with the average thirty-year fixed mortgage rate generally increasing during the first half of the year, peaking in the mid-7% range in April 2024, before decreasing to close to 6% at the end of September 2024 following the Federal Reserve Board’s reduction to its benchmark interest rate. As the Federal Reserve Board lowers its benchmark interest rate, mortgage rates generally decrease, which reduces the cost of owning a home, and should, in turn, increase the number of potential home buyers who can obtain mortgage financing and affect the prices home buyers may be willing to pay for homes. However, it remains difficult to predict the near-term direction of consumer demand for residential real estate due to the many different factors that impact such demand.
The elevated and volatile mortgage interest rate environment has continued to negatively impact housing affordability and create uncertainty for home buyers, which has challenged consumer demand for residential real estate. Additionally, the sustained elevated levels of inflation in the broader economy, along with other macroeconomic and geopolitical concerns, have continued to challenge consumer confidence. Further, recent severe weather events have negatively impacted the economic conditions in certain of the geographic markets in which we operate, resulting in slowdowns in real estate transaction volumes in such markets. As a result of these conditions, we have remained focused on proactively optimizing our capital allocation across our highest performing and most efficient markets. Additionally, we recently reduced our home acquisition pace as we continue to balance our real estate inventory levels to optimize our return.
Against this backdrop, our gross profit margin has remained steady at around 8% throughout the year, reflecting our continued progress toward improving the stability of our gross profit margin. Further, our net loss improved on a quarter-over-quarter basis for the second consecutive quarter, as we have continued to focus on operating efficiencies throughout the business.
While we generated solid operating results during the first nine months of 2024, the ongoing challenging residential real estate market conditions continued to have an impact on our operating results. These conditions have required us to use pricing adjustments and other incentives in recent periods, which have had a negative impact on our operating results during the year. Further, there continues to be uncertainty regarding the near-term macroeconomic conditions, including the path of inflation in
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 24
the broader economy, the direction of mortgage interest rates, which have reversed course from a decrease in the third quarter of 2024 and increased in the early stages of the fourth quarter of 2024, and the impact of geopolitical conflicts. We anticipate that the sustained elevated and volatile mortgage interest rate environment, economic uncertainties and affordability pressures will continue to impact consumer demand for residential real estate during the fourth quarter of 2024. As a result of these market dynamics, we may be required to use similar pricing adjustments and incentives in the future.
Factors Affecting Our Performance
We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed below.
Market Penetration in Existing Markets
Residential real estate is one of the largest industries, with roughly $1.9 trillion in value of homes transacted in 2023 in the United States, and is highly fragmented with over 100,000 real estate brokerages, according to the National Association of Realtors (NAR). In 2023, we estimate that we captured roughly 0.5% market share of real estate transactions across our 25 active markets as of December 31, 2023. Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple services to meet the unique needs of customers could lead to continued market share growth and accelerated adoption of the digital model. We have demonstrated higher market share in certain markets, providing the backdrop to grow our overall market penetration as our offerings expand and evolve. By providing a consistent, transparent, and unique experience, we expect to continue to build upon our past success and further strengthen our brand and consumer adoption.
We are also increasing our focus on our partner network, which includes our homebuilder services, our agent partnership program and our agent referral network, to drive growth in our existing markets by expanding our reach and serving a greater number of customers. Our agent partnership program provides referral fees to agents who sell or select our cash offer. This program is designed to enable customers to utilize our services in a way that best suits their home-selling situation, while also serving as a valuable resource for real estate agents.
In order to drive additional value from our agent partnership program, we implemented various enhancements to the program during 2024. Under the enhanced program, our partner agents can continue to request a cash offer on behalf of their clients, and now also have the ability to list an acquired home prepared for resale. Additionally, partner agents in the top tier of the program have access to sellers in defined zones and have the potential to list other Offerpad-owned homes in their zone.
Further, during the second quarter of 2024, we launched a new integration with Realtor.com, allowing customers to request a cash offer from Offerpad directly through the Realtor.com website. We anticipate this integration will further expand our reach and diversify our lead sources.
Expansion into New Markets
Since our launch in 2015, we have expanded into 25 markets as of December 31, 2023, which covered roughly 22% of the 4.7 million homes sold in the United States in 2023. Given this current coverage, we believe there is significant opportunity to both increase market penetration in our existing markets and to grow our business through new market expansion over the long-term. Also, because of our strategic approach to our asset-light platform offerings, which include our listing and renovation services, and our agent partnership program, we believe a significant portion of the total addressable market is serviceable with our business model. As we expand our reach through these other service offerings, we expect to continue to serve customers in markets beyond our direct service area. Further, this strategic approach has enabled us to enter into new markets to offer certain of our service offerings, without offering all of our buying and selling services in such markets. In connection with this approach, we began offering renovation services in two additional markets during 2024. This, together with adjusting operations in existing markets has brought our total markets served to 26 as of September 30, 2024.
Although we recently expanded into two new markets, we have decelerated our market expansion plans in recent years given the challenging residential real estate market conditions and the uncertainty regarding the near-term macroeconomic conditions, including the path of inflation in the broader economy, the direction of mortgage interest rates and the impact of geopolitical conflicts. We intend to continue evaluating expansion plans on an ongoing basis in order to maintain our flexibility in assessing the overall timing of our expansion plan and appropriate market entry points in the future.
Renovation Services
Our renovation services represent an important component of our asset-light platform offerings. Through our renovation services offering, we are able to leverage our existing logistics, operations, technology and skill-sets to provide renovation services to other businesses, allowing other companies and homeowners to utilize our renovations team to update their portfolio of homes for rent or to sell. When providing renovation services, we receive a renovation project fee, and are also typically compensated with a service fee that is based on a percentage of the overall renovation project fee. Although our
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 25
renovation services offering is in the early stages, representing approximately 2% of our total consolidated revenue during each of the three and nine months ended September 30, 2024, we believe these services could be a more significant component of our business over time.
Expand Relationships with Home Buyers
Another component of our asset-light platform offerings includes our program that allows investors and single-family rental companies an opportunity to purchase homes from homeowners, matching investors with sellers. These transactions occur in several forms, including assigning the original purchase contract to the end buyer and collecting a fee at closing. We expect this program will allow us to help more homeowners sell their home and expand our ability to reach more customers, while also providing customers with the benefit of receiving an optimized offer for their home. This offering represented less than 1% of our total consolidated revenue during each of the three and nine months ended September 30, 2024.
Ancillary Products and Services
We aim to deliver other additional products and services tied to the core real estate transaction in a smooth, efficient, digital driven platform, focused on transparency and ease of use. Although further developing these products and services will require significant investment, growing our current offerings and offering additional ancillary products and services, potentially including energy efficiency solutions, smart home technology, insurance, and home warranty services, we believe will strengthen our unit economics and allow us to better optimize pricing. Generally, the revenue and margin profiles of our ancillary products and services are different from our cash offering service that accounts for the vast majority of our revenue, with most ancillary products and services having a smaller average revenue per transaction than our cash offering service, but a higher margin.
Below is a summary of our current ancillary products and services:
Our ancillary products and services represented less than 1% of our total consolidated revenue during each of the three and nine months ended September 30, 2024.
Unit Economics
We view Contribution Margin and Contribution Margin after Interest (see “—Non-GAAP Financial Measures”) as key performance indicators for unit economic performance, which are currently primarily driven by our cash offer transactions. Future financial performance improvements are expected to be driven by expanding unit level margins through initiatives such as:
Operating Leverage
We utilize our technology and product teams to design systems and workflows to make our operations teams more efficient and able to support and scale with the business. Many positions are considered volume based, and as our business grows, we focus on developing more automation tools to gain additional leverage. Additionally, in periods when our business is growing, we expect to be able to gain operating leverage on portions of our cost structure that are more fixed in nature as opposed to purely variable. These types of costs include general and administrative expenses and certain marketing and information technology expenses, which grow at a slower pace than proportional to revenue growth.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 26
Real Estate Inventory Financing
Our business model requires significant capital to purchase real estate inventory. Real estate inventory financing is a key enabler to our growth and we rely on our non-recourse asset-backed financing facilities, which primarily consist of senior and mezzanine secured credit facilities to finance our home purchases. The loss of adequate access to these types of facilities, or the inability to maintain these types of facilities on favorable terms, would impair our performance. See “—Liquidity and Capital Resources—Financing Activities.”
Seasonality
The residential real estate market is seasonal and varies from market to market. Typically, the greatest number of transactions occur in the spring and summer, with fewer transactions occurring in the fall and winter. Our financial results, including revenue, margins, real estate inventory, and financing costs, have historically had seasonal characteristics generally consistent with the residential real estate market, a trend we expect to continue in the future, subject to the market conditions discussed above.
Risk Management
Our business model is based upon acquiring homes at a price which will allow us to provide a competitive offer to the consumer, while being able to add value through the renovation process, and relist the home so that it sells at a profit and in a relatively short period of time. We have invested significant resources into our underwriting and asset management systems. Our real estate operations team, including our pricing team, together with our software engineering and data science teams are responsible for underwriting accuracy, portfolio health, and workflow optimization. Our underwriting tools are constantly updated to adjust to the latest market conditions, leveraging inputs from our internal data systems, as well as third-party and other proprietary data sources. This allows us to assess and adjust to changes in the local housing market conditions based on our technology, analysis and local real estate experience, in order to mitigate our risk exposure. Further, our listed homes are typically in market-ready and move-in ready condition following the repairs and renovations we conduct.
Historically, we have been able to manage our portfolio risk in part by our ability to manage holding periods for our real estate inventory. Traditionally, resale housing pricing moves gradually through cycles; therefore, shorter real estate inventory holding periods limit pricing exposure. As we increased our scale and improved our workflow optimization in prior years, our average real estate inventory holding period of homes sold improved from 138 days in 2016 to 97 days during the fourth quarter of 2023, which is consistent with our expected average real estate inventory holding period and our historical norm.
During 2024, the average holding period of homes sold has remained consistent at around 110 days. Based on the current residential real estate market conditions, we anticipate our average real estate inventory holding period in the fourth quarter of 2024 will increase to around 140 days. This anticipated increase reflects our reduction in home acquisition pace during the third quarter of 2024, causing our overall real estate inventory mix to shift and include a lower composition of newer acquired homes, combined with the longer average time of homes on the market and the normal seasonal increase that occurs in the fall and winter.
Non-GAAP Financial Measures
In addition to our results of operations below, we report certain financial measures that are not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). These measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income. We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries.
Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins)
To provide investors with additional information regarding our margins, we have included Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins), which are non-GAAP financial measures. We believe that Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest are useful financial measures for investors as they are used by management in evaluating unit level economics and operating performance across our markets. Each of these measures is intended to present the economics related to homes sold during a given period. We do so by including revenue generated from homes sold (and ancillary services) in the period and only the expenses that are directly attributable to such home sales, even if such expenses were recognized in prior periods, and excluding expenses related to homes that remain in real estate inventory as of the end of the period presented. Contribution Profit provides investors a measure to assess Offerpad’s ability to generate returns on homes sold during a reporting period after considering home acquisition costs, renovation and repair costs, and adjusting for holding costs and selling costs. Contribution Profit After Interest further impacts gross profit by including interest costs (including senior and mezzanine secured credit facilities) attributable to homes sold
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 27
during a reporting period. We believe these measures facilitate meaningful period over period comparisons and illustrate our ability to generate returns on assets sold after considering the costs directly related to the assets sold in a presented period.
Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest (and related margins) are supplemental measures of our operating performance and have limitations as analytical tools. For example, these measures include costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in real estate inventory at the end of the period, costs required to be recorded under GAAP in the same period.
Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We include a reconciliation of these measures to the most directly comparable GAAP financial measure, which is gross profit.
Adjusted Gross Profit / Margin
We calculate Adjusted Gross Profit as gross profit under GAAP adjusted for (1) net real estate inventory valuation adjustment plus (2) interest expense associated with homes sold in the presented period and recorded in cost of revenue. Net real estate inventory valuation adjustment is calculated by adding back the real estate inventory valuation adjustment charges recorded during the period on homes that remain in real estate inventory at period end and subtracting the real estate inventory valuation adjustment charges recorded in prior periods on homes sold in the current period. We define Adjusted Gross Margin as Adjusted Gross Profit as a percentage of revenue.
We view this metric as an important measure of business performance, as it captures gross margin performance isolated to homes sold in a given period and provides comparability across reporting periods. Adjusted Gross Profit helps management assess performance across the key phases of processing a home (acquisitions, renovations, and resale) for a specific resale cohort.
Contribution Profit / Margin
We calculate Contribution Profit as Adjusted Gross Profit, minus (1) direct selling costs incurred on homes sold during the presented period, minus (2) holding costs incurred in the current period on homes sold during the period recorded in sales, marketing, and operating, minus (3) holding costs incurred in prior periods on homes sold in the current period recorded in sales, marketing, and operating, plus (4) other income, net which is primarily composed of interest income earned on our cash and cash equivalents and fair value adjustments of derivative financial instruments. The composition of our holding costs is described in the footnotes to the reconciliation table below. We define Contribution Margin as Contribution Profit as a percentage of revenue.
We view this metric as an important measure of business performance as it captures the unit level performance isolated to homes sold in a given period and provides comparability across reporting periods. Contribution Profit helps management assess inflows and outflow directly associated with a specific resale cohort.
Contribution Profit / Margin After Interest
We define Contribution Profit After Interest as Contribution Profit, minus (1) interest expense associated with homes sold in the presented period and recorded in cost of revenue, minus (2) interest expense associated with homes sold in the presented period, recorded in costs of sales, and previously excluded from Adjusted Gross Profit, and minus (3) interest expense under our senior and mezzanine secured credit facilities incurred on homes sold during the period. This includes interest expense recorded in prior periods in which the sale occurred. Our senior and mezzanine secured credit facilities are secured by our homes in real estate inventory and drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See “—Liquidity and Capital Resources—Financing Activities.” We define Contribution Margin After Interest as Contribution Profit After Interest as a percentage of revenue.
We view this metric as an important measure of business performance. Contribution Profit After Interest helps management assess Contribution Margin performance, per above, when fully burdened with costs of financing.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 28
The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to our Gross Profit, which is the most directly comparable GAAP measure, for the periods indicated:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands, except percentages and homes sold, unaudited) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Gross profit (GAAP) |
|
$ |
17,140 |
|
|
$ |
23,973 |
|
|
$ |
61,606 |
|
|
$ |
53,489 |
|
Gross margin |
|
|
8.2 |
% |
|
|
10.2 |
% |
|
|
8.3 |
% |
|
|
5.0 |
% |
Homes sold |
|
|
615 |
|
|
|
703 |
|
|
|
2,204 |
|
|
|
2,962 |
|
Gross profit per home sold |
|
$ |
27.9 |
|
|
$ |
34.1 |
|
|
$ |
28.0 |
|
|
$ |
18.1 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate inventory valuation adjustment - current period (1) |
|
|
848 |
|
|
|
918 |
|
|
|
1,060 |
|
|
|
985 |
|
Real estate inventory valuation adjustment - prior period (2) |
|
|
(535 |
) |
|
|
(318 |
) |
|
|
(765 |
) |
|
|
(58,125 |
) |
Interest expense capitalized (3) |
|
|
1,367 |
|
|
|
235 |
|
|
|
4,456 |
|
|
|
6,270 |
|
Adjusted gross profit |
|
$ |
18,820 |
|
|
$ |
24,808 |
|
|
$ |
66,357 |
|
|
$ |
2,619 |
|
Adjusted gross margin |
|
|
9.0 |
% |
|
|
10.6 |
% |
|
|
8.9 |
% |
|
|
0.2 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct selling costs (4) |
|
|
(5,767 |
) |
|
|
(5,593 |
) |
|
|
(19,197 |
) |
|
|
(29,396 |
) |
Holding costs on sales - current period (5)(6) |
|
|
(693 |
) |
|
|
(453 |
) |
|
|
(2,892 |
) |
|
|
(2,328 |
) |
Holding costs on sales - prior period (5)(7) |
|
|
(341 |
) |
|
|
(72 |
) |
|
|
(577 |
) |
|
|
(2,166 |
) |
Other income, net (8) |
|
|
512 |
|
|
|
3,837 |
|
|
|
1,881 |
|
|
|
5,084 |
|
Contribution profit (loss) |
|
$ |
12,531 |
|
|
$ |
22,527 |
|
|
$ |
45,572 |
|
|
$ |
(26,187 |
) |
Contribution margin |
|
|
6.0 |
% |
|
|
9.6 |
% |
|
|
6.1 |
% |
|
|
(2.4 |
)% |
Homes sold |
|
|
615 |
|
|
|
703 |
|
|
|
2,204 |
|
|
|
2,962 |
|
Contribution profit (loss) per home sold |
|
$ |
20.4 |
|
|
$ |
32.0 |
|
|
$ |
20.7 |
|
|
$ |
(8.8 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense capitalized (3) |
|
|
(1,367 |
) |
|
|
(235 |
) |
|
|
(4,456 |
) |
|
|
(6,270 |
) |
Interest expense on homes sold - current period (9) |
|
|
(1,865 |
) |
|
|
(2,622 |
) |
|
|
(9,787 |
) |
|
|
(11,782 |
) |
Interest expense on homes sold - prior period (10) |
|
|
(1,687 |
) |
|
|
(554 |
) |
|
|
(2,948 |
) |
|
|
(13,924 |
) |
Contribution profit (loss) after interest |
|
$ |
7,612 |
|
|
$ |
19,116 |
|
|
$ |
28,381 |
|
|
$ |
(58,163 |
) |
Contribution margin after interest |
|
|
3.7 |
% |
|
|
8.2 |
% |
|
|
3.8 |
% |
|
|
(5.4 |
)% |
Homes sold |
|
|
615 |
|
|
|
703 |
|
|
|
2,204 |
|
|
|
2,962 |
|
Contribution profit (loss) after interest per home sold |
|
$ |
12.4 |
|
|
$ |
27.2 |
|
|
$ |
12.9 |
|
|
$ |
(19.6 |
) |
Adjusted Net Income (Loss) and Adjusted EBITDA
We also present Adjusted Net Income (Loss) and Adjusted EBITDA, which are non-GAAP financial measures, which our management team uses to assess our underlying financial performance. We believe these measures provide insight into period over period performance, adjusted for non-recurring or non-cash items.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 29
We calculate Adjusted Net Income (Loss) as GAAP Net Income (Loss) adjusted for the change in fair value of warrant liabilities. We define Adjusted Net Income (Loss) Margin as Adjusted Net Income (Loss) as a percentage of revenue.
We calculate Adjusted EBITDA as Adjusted Net Income (Loss) adjusted for interest expense, amortization of capitalized interest, taxes, depreciation and amortization and stock-based compensation expense. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue.
Adjusted Net Income (Loss) and Adjusted EBITDA are supplemental to our operating performance measures calculated in accordance with GAAP and have important limitations. For example, Adjusted Net Income (Loss) and Adjusted EBITDA exclude the impact of certain costs required to be recorded under GAAP and could differ substantially from similarly titled measures presented by other companies in our industry or companies in other industries. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
The following table presents a reconciliation of our Adjusted Net Income (Loss) and Adjusted EBITDA to our GAAP Net Income (Loss), which is the most directly comparable GAAP measure, for the periods indicated:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands, except percentages, unaudited) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net loss (GAAP) |
|
$ |
(13,537 |
) |
|
$ |
(19,986 |
) |
|
$ |
(44,834 |
) |
|
$ |
(101,777 |
) |
Change in fair value of warrant liabilities |
|
|
(14 |
) |
|
$ |
(131 |
) |
|
|
(349 |
) |
|
|
(177 |
) |
Adjusted net loss |
|
$ |
(13,551 |
) |
|
$ |
(20,117 |
) |
|
$ |
(45,183 |
) |
|
$ |
(101,954 |
) |
Adjusted net loss margin |
|
|
(6.5 |
)% |
|
|
(8.6 |
)% |
|
|
(6.1 |
)% |
|
|
(9.5 |
)% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
5,114 |
|
|
|
4,406 |
|
|
|
14,600 |
|
|
|
13,705 |
|
Amortization of capitalized interest (1) |
|
|
1,367 |
|
|
|
235 |
|
|
|
4,456 |
|
|
|
6,270 |
|
Income tax (benefit) expense |
|
|
24 |
|
|
|
6 |
|
|
|
93 |
|
|
|
171 |
|
Depreciation and amortization |
|
|
150 |
|
|
|
175 |
|
|
|
464 |
|
|
|
556 |
|
Amortization of stock-based compensation |
|
|
715 |
|
|
|
2,017 |
|
|
|
7,831 |
|
|
|
5,915 |
|
Adjusted EBITDA |
|
$ |
(6,181 |
) |
|
|
(13,278 |
) |
|
$ |
(17,739 |
) |
|
$ |
(75,337 |
) |
Adjusted EBITDA margin |
|
|
(3.0 |
)% |
|
|
(5.7 |
)% |
|
|
(2.4 |
)% |
|
|
(7.0 |
)% |
Results of Operations
The following details our consolidated results of operations and includes a discussion of our operating results and significant items explaining the material changes in our operating results during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(in thousands, except percentages) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue |
|
$ |
208,067 |
|
|
$ |
234,228 |
|
|
$ |
(26,161 |
) |
|
|
(11.2 |
)% |
Cost of revenue |
|
|
190,927 |
|
|
|
210,255 |
|
|
|
(19,328 |
) |
|
|
(9.2 |
)% |
Gross profit |
|
|
17,140 |
|
|
|
23,973 |
|
|
|
(6,833 |
) |
|
|
(28.5 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, marketing and operating |
|
|
16,864 |
|
|
|
27,235 |
|
|
|
(10,371 |
) |
|
|
(38.1 |
)% |
General and administrative |
|
|
8,254 |
|
|
|
14,124 |
|
|
|
(5,870 |
) |
|
|
(41.6 |
)% |
Technology and development |
|
|
947 |
|
|
|
2,156 |
|
|
|
(1,209 |
) |
|
|
(56.1 |
)% |
Total operating expenses |
|
|
26,065 |
|
|
|
43,515 |
|
|
|
(17,450 |
) |
|
|
(40.1 |
)% |
Loss from operations |
|
|
(8,925 |
) |
|
|
(19,542 |
) |
|
|
10,617 |
|
|
|
(54.3 |
)% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrant liabilities |
|
|
14 |
|
|
|
131 |
|
|
|
(117 |
) |
|
|
(89.3 |
)% |
Interest expense |
|
|
(5,114 |
) |
|
|
(4,406 |
) |
|
|
(708 |
) |
|
|
16.1 |
% |
Other income, net |
|
|
512 |
|
|
|
3,837 |
|
|
|
(3,325 |
) |
|
|
(86.7 |
)% |
Total other expense |
|
|
(4,588 |
) |
|
|
(438 |
) |
|
|
(4,150 |
) |
|
|
947.5 |
% |
Loss before income taxes |
|
|
(13,513 |
) |
|
|
(19,980 |
) |
|
|
6,467 |
|
|
|
(32.4 |
)% |
Income tax expense |
|
|
(24 |
) |
|
|
(6 |
) |
|
|
(18 |
) |
|
|
300.0 |
% |
Net loss |
|
$ |
(13,537 |
) |
|
$ |
(19,986 |
) |
|
$ |
6,449 |
|
|
|
(32.3 |
)% |
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 30
Revenue
Revenue decreased by $26.2 million, or 11.2%, to $208.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to lower sales volumes. We sold 615 homes during the three months ended September 30, 2024 compared to 703 homes during the three months ended September 30, 2023, representing a decrease of 12.5%. This decrease was primarily due to our intentional reduction in home acquisition pace as we adjusted our home purchase criteria through more conservative acquisition underwriting, resulting in higher expected internal rates of return based on current residential real estate market conditions. This reduction in home acquisition pace has allowed us to manage overall inventory growth in light of the ongoing elevated and volatile mortgage interest rate environment, which continues to negatively impact housing affordability and velocity, and create uncertainty for home buyers, challenging consumer demand for residential real estate. The decrease in homes sold was partially offset by a modest increase in the average resale home price from $327,000 in the three months ended September 30, 2023 to $335,000 in the three months ended September 30, 2024. This increase was primarily due to a shift in the mix of homes sold in the respective periods, with a greater percentage of homes sold in geographic markets that tend to share relatively higher median price points during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Cost of Revenue and Gross Profit
Cost of revenue decreased by $19.3 million, or 9.2%, to $190.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily attributable to lower sales volumes, which was partially offset by a higher average home acquisition price.
Gross profit margin was 8.2% for the three months ended September 30, 2024 compared to 10.2% for the three months ended September 30, 2023. The decrease in gross profit margin was primarily due to the wider than normal underwritten spreads associated with real estate inventory acquired towards the end of 2022 and in the early stages of 2023 in response to the considerable softening in consumer demand for residential real estate. This decrease in gross profit margin was also due to our increased use of pricing adjustments and other incentives in recent periods in response to the ongoing challenging residential real estate market conditions.
Sales, Marketing and Operating
Sales, marketing and operating expense decreased by $10.4 million, or 38.1%, to $16.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to a $6.4 million decrease in advertising expense as we repositioned and optimized our marketing efforts in response to the ongoing challenging residential real estate market conditions, and decreased average employee headcount.
General and Administrative
General and administrative expense decreased by $5.9 million, or 41.6%, to $8.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to decreased average employee headcount and a decrease in fees associated with our credit facilities.
Technology and Development
Technology and development expense decreased by $1.2 million, or 56.1%, to $0.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to decreased average employee headcount.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the three months ended September 30, 2024 and 2023 represents gains of less than $0.1 million, and $0.1 million, respectively, as a result of the fair value adjustment of our warrant liabilities.
Interest Expense
Interest expense increased by $0.7 million, or 16.1%, to $5.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in expense was primarily attributable to a $43.4 million increase in the average outstanding balance of our senior and mezzanine secured credit facilities, from $234.9 million during the three months ended September 30, 2023 to $278.3 million during the three months ended September 30, 2024. The increase was also due to a 0.5% increase in the weighted average variable interest rates associated with our senior and mezzanine secured credit facilities.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 31
Other Income, Net
Other income, net during the three months ended September 30, 2024 principally represents interest income earned on our cash and cash equivalents. Other income, net during the three months ended September 30, 2023 represents the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that were principally associated with interest rate fluctuations, and interest income earned on our cash and cash equivalents.
Income Tax Expense
We recorded income tax expense of less than $0.1 million during each of the three months ended September 30, 2024 and 2023, and our effective tax rate was an expense of 0.2% and less than 0.1% for the respective periods. Our effective tax rate during the three months ended September 30, 2024 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards and state taxes.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(in thousands, except percentages) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue |
|
$ |
744,547 |
|
|
$ |
1,073,954 |
|
|
$ |
(329,407 |
) |
|
|
(30.7 |
)% |
Cost of revenue |
|
|
682,941 |
|
|
|
1,020,465 |
|
|
|
(337,524 |
) |
|
|
(33.1 |
)% |
Gross profit |
|
|
61,606 |
|
|
|
53,489 |
|
|
|
8,117 |
|
|
|
15.2 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, marketing and operating |
|
|
59,546 |
|
|
|
98,626 |
|
|
|
(39,080 |
) |
|
|
(39.6 |
)% |
General and administrative |
|
|
30,747 |
|
|
|
41,316 |
|
|
|
(10,569 |
) |
|
|
(25.6 |
)% |
Technology and development |
|
|
3,684 |
|
|
|
6,709 |
|
|
|
(3,025 |
) |
|
|
(45.1 |
)% |
Total operating expenses |
|
|
93,977 |
|
|
|
146,651 |
|
|
|
(52,674 |
) |
|
|
(35.9 |
)% |
Loss from operations |
|
|
(32,371 |
) |
|
|
(93,162 |
) |
|
|
60,791 |
|
|
|
(65.3 |
)% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrant liabilities |
|
|
349 |
|
|
|
177 |
|
|
|
172 |
|
|
|
97.2 |
% |
Interest expense |
|
|
(14,600 |
) |
|
|
(13,705 |
) |
|
|
(895 |
) |
|
|
6.5 |
% |
Other income, net |
|
|
1,881 |
|
|
|
5,084 |
|
|
|
(3,203 |
) |
|
|
(63.0 |
)% |
Total other expense |
|
|
(12,370 |
) |
|
|
(8,444 |
) |
|
|
(3,926 |
) |
|
|
46.5 |
% |
Loss before income taxes |
|
|
(44,741 |
) |
|
|
(101,606 |
) |
|
|
56,865 |
|
|
|
(56.0 |
)% |
Income tax expense |
|
|
(93 |
) |
|
|
(171 |
) |
|
|
78 |
|
|
|
(45.6 |
)% |
Net loss |
|
$ |
(44,834 |
) |
|
$ |
(101,777 |
) |
|
$ |
56,943 |
|
|
|
(55.9 |
)% |
Revenue
Revenue decreased by $329.4 million, or 30.7%, to $744.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily attributable to lower sales volumes and a lower average sales price per home. We sold 2,204 homes during the nine months ended September 30, 2024 compared to 2,962 during the nine months ended September 30, 2023, representing a decrease of 25.6%. Additionally, the average resale home price decreased from $360,000 in the nine months ended September 30, 2023 to $334,000 in the nine months ended September 30, 2024. During the early stages of 2023, we focused on selling our existing inventory of homes acquired prior to the significant market transition that occurred in the middle of 2022, resulting in a higher number of homes sold during the first half of 2023 as compared to the first half of 2024. The decrease in average sales price per home during the nine months ended September 30, 2024 was primarily due to our increased focus on geographic markets that tend to share relatively lower median price points, as well as homes closer to or below the median price in a given market as higher mortgage interest rates and sustained elevated levels of inflation in the broader economy have continued to negatively impact the residential real estate market conditions. We have also continued to refine our target home purchase price range to focus on acquiring homes with the greatest price stability within each market.
Cost of Revenue and Gross Profit
Cost of revenue decreased by $337.5 million, or 33.1%, to $682.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This decrease was primarily attributable to lower sales volumes, a lower average home acquisition price, and a decrease in the real estate inventory valuation adjustment.
Gross profit margin was 8.3% for the nine months ended September 30, 2024 compared to 5.0% for the nine months ended September 30, 2023. The increase in gross profit margin was primarily due to an increase in the difference between the average home resale price and the average home acquisition price during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, and a $6.4 million decrease in the real estate inventory valuation adjustment during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. These changes were
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 32
primarily due to our focus on selling our existing inventory of homes acquired prior to the significant market transition that occurred in the middle of 2022 during the early stages of 2023, resulting in a lower gross profit margin during the first half of 2023 as compared to the first half of 2024.
Sales, Marketing and Operating
Sales, marketing and operating expense decreased by $39.1 million, or 39.6%, to $59.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to an $17.4 million decrease in advertising expense as we repositioned and optimized our marketing efforts in response to the ongoing challenging residential real estate market conditions, decreased average employee headcount and a decrease in variable costs associated with the decrease in homes sold.
General and Administrative
General and administrative expense decreased by $10.6 million, or 25.6%, to $30.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to a decrease in fees associated with our credit facilities, decreased average employee headcount, lower insurance costs, and decreased legal, accounting and professional fees.
Technology and Development
Technology and development expense decreased by $3.0 million, or 45.1%, to $3.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to decreased average employee headcount.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the nine months ended September 30, 2024 and 2023 represents gains of $0.3 million and $0.2 million, respectively, as a result of the fair value adjustment of our warrant liabilities.
Interest Expense
Interest expense increased by $0.9 million, or 6.5%, to $14.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in expense was primarily attributable to a 0.7% increase in the weighted average variable interest rates associated with our senior and mezzanine secured credit facilities. This increase was partially offset by a $174.1 million decrease in the average outstanding balance of our senior and mezzanine secured credit facilities, from $429.6 million during the nine months ended September 30, 2023 to $255.5 million during the nine months ended September 30, 2024.
Other Income, Net
Other income, net during the nine months ended September 30, 2024 principally represents interest income earned on our cash and cash equivalents. Other income, net during the nine months ended September 30, 2023 represents interest income earned on our cash and cash equivalents, and the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that were principally associated with interest rate fluctuations.
Income Tax Expense
We recorded income tax expense of $0.1 million and $0.2 million during the nine months ended September 30, 2024 and 2023, respectively, and our effective tax rate was an expense of 0.2% and less than 0.1% for the respective periods. Our effective tax rate during the nine months ended September 30, 2024 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards and state taxes.
Liquidity and Capital Resources
Overview
Cash and cash equivalents balances consist of operating cash on deposit with financial institutions. Our principal sources of liquidity have historically consisted of cash generated from our operations and financing activities. As of September 30, 2024, we had cash and cash equivalents of $48.5 million and had a total undrawn borrowing capacity under our senior and mezzanine secured credit facilities of $755.3 million, $239.2 million of which is committed and $516.1 million uncommitted.
With the exception of the year ended December 31, 2021, during which we generated net income, we have incurred losses each year from inception and during the three and nine months ended September 30, 2024, and may incur additional losses in the future. Since our launch in 2015, we have invested in the development and expansion of our operations. These investments include improvements in infrastructure and a continual improvement to our software and technology platform. We have also invested in sales and marketing as we have increased our market penetration in existing markets, and grown our business through new market expansion and the increased offering of asset-light platform services.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 33
We expect our working capital requirements to continue to increase over the long term, as we seek to increase our real estate inventory and expand our operations. We believe our cash on hand, together with proceeds from the resale of homes and cash from future borrowings available under each of our existing credit facilities, or the entry into new debt financing arrangements or the issuance of equity instruments, will be sufficient to meet our short-term working capital and capital expenditure requirements for at least the next twelve months. However, our ability to fund our working capital and capital expenditure requirements will depend in part on the residential real estate market conditions in the markets in which we operate and in the U.S. in general, and various other general economic, financial, competitive, legislative, regulatory, geopolitical and other conditions that may be beyond our control. Depending on these and other market conditions, we may seek additional financing. Volatility in the credit markets, rising interest rates and softened consumer demand for residential real estate may have an adverse effect on our ability to obtain debt financing on favorable terms or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.
Pre-Funded Warrants
During January 2023, we sold and issued pre-funded warrants to purchase shares of our Class A common stock, resulting in gross proceeds of approximately $90.0 million. The pre-funded warrants became exercisable during March 2023. All of the pre-funded warrants were subsequently exercised during 2023, upon which, 10.7 million shares of our Class A common stock were issued. Participating investors included Brian Bair, our founder, chief executive officer and chairman of our Board; Roberto Sella, a member of our Board; First American Financial Corporation (“First American”), a holder of more than 10% of our outstanding Class A common stock; and Kenneth DeGiorgio, a member of our Board and chief executive officer of First American.
Financing Activities
Our financing activities primarily include borrowing under our senior secured credit facilities, mezzanine secured credit facilities and new issuances of equity (including the issuance of the pre-funded warrants, as discussed above). Historically, we have required access to external financing resources in order to fund growth, increase penetration in existing markets, expansion into new markets and other strategic initiatives, and we expect this to continue in the future. Our access to capital markets can be impacted by factors outside our control, including economic conditions.
Buying and selling high-valued assets, such as single-family residential homes, is very cash intensive and has a significant impact on our liquidity and capital resources. We use non-recourse secured credit facilities, consisting of both senior secured credit facilities and mezzanine secured credit facilities, to finance a significant portion of our real estate inventory and related home renovations. Our senior and mezzanine secured credit facilities, however, are not fully committed, meaning the applicable lender may not be obligated to advance new loan funds if they choose not to do so. Our ability to obtain and maintain access to these or similar kinds of credit facilities is significant for us to operate the business.
Senior Secured Credit Facilities
The following summarizes certain details related to our senior secured credit facilities (in thousands, except interest rates):
|
Borrowing Capacity |
|
|
Outstanding |
|
|
Weighted- |
|
|
End of |
|
Final |
|||||||||||
As of September 30, 2024 |
Committed |
|
|
Uncommitted |
|
|
Total |
|
|
Amount |
|
|
Rate |
|
|
Period |
|
Date |
|||||
Senior financial institution 1 |
$ |
150,000 |
|
|
$ |
250,000 |
|
|
$ |
400,000 |
|
|
$ |
98,142 |
|
|
|
8.09 |
% |
|
December 2025 |
|
June 2026 |
Senior financial institution 2 |
|
100,000 |
|
|
|
100,000 |
|
|
|
200,000 |
|
|
|
37,190 |
|
|
|
8.07 |
% |
|
January 2025 |
|
July 2025 |
Senior financial institution 3 |
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
52,952 |
|
|
|
8.54 |
% |
|
January 2025 |
|
April 2025 |
Related party |
|
30,000 |
|
|
|
20,000 |
|
|
|
50,000 |
|
|
|
13,330 |
|
|
|
10.31 |
% |
|
March 2025 |
|
September 2025 |
Senior financial institution 4 |
|
— |
|
|
|
30,000 |
|
|
|
30,000 |
|
|
|
8,736 |
|
|
|
9.82 |
% |
|
August 2025 |
|
February 2026 |
Senior secured credit facilities |
$ |
380,000 |
|
|
$ |
450,000 |
|
|
$ |
830,000 |
|
|
$ |
210,350 |
|
|
|
|
|
|
|
|
|
As of September 30, 2024, we had five senior secured credit facilities that we use to fund the purchase of homes and build our real estate inventory, four with separate financial institutions and one with a related party, which holds more than 5% of our Class A common stock. Borrowings under the senior secured credit facilities accrue interest at a rate based on a SOFR reference rate, plus a margin which varies by facility. Each of our senior secured credit facilities also have interest rate floors. We may also pay fees on our senior secured credit facilities, including a commitment fee and fees on certain unused portions of the committed borrowing capacity under the respective credit agreements.
Borrowings under our senior secured credit facilities are collateralized by the real estate inventory financed by the senior secured credit facility. The lenders have legal recourse only to the assets securing the debt and do not have general recourse against us with limited exceptions. We have, however, provided limited non-recourse carve-out guarantees under our senior
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 34
and mezzanine secured credit facilities for certain of the SPEs’ obligations. Each senior secured credit facility contains eligibility requirements that govern whether a property can be financed. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.
Mezzanine Secured Credit Facilities
In addition to the senior secured credit facilities, we use mezzanine secured credit facilities which are structurally and contractually subordinated to the related senior secured credit facilities. The following summarizes certain details related to our mezzanine secured credit facilities (in thousands, except interest rates):
|
Borrowing Capacity |
|
|
Outstanding |
|
|
Weighted- |
|
|
End of |
|
Final |
|||||||||||
As of September 30, 2024 |
Committed |
|
|
Uncommitted |
|
|
Total |
|
|
Amount |
|
|
Rate |
|
|
Period |
|
Date |
|||||
Related party facility 1 |
$ |
45,000 |
|
|
$ |
25,000 |
|
|
$ |
70,000 |
|
|
$ |
16,752 |
|
|
|
13.82 |
% |
|
June 2025 |
|
December 2025 |
Mezzanine financial institution 1 |
|
22,500 |
|
|
|
22,500 |
|
|
|
45,000 |
|
|
|
7,702 |
|
|
|
13.92 |
% |
|
January 2025 |
|
July 2025 |
Mezzanine financial institution 2 |
|
26,667 |
|
|
|
13,333 |
|
|
|
40,000 |
|
|
|
12,550 |
|
|
|
12.54 |
% |
|
January 2025 |
|
April 2025 |
Related party facility 2 |
|
8,000 |
|
|
|
14,000 |
|
|
|
22,000 |
|
|
|
4,324 |
|
|
|
13.81 |
% |
|
March 2025 |
|
September 2025 |
Mezzanine secured credit facilities |
$ |
102,167 |
|
|
$ |
74,833 |
|
|
$ |
177,000 |
|
|
$ |
41,328 |
|
|
|
|
|
|
|
|
|
As of September 30, 2024, we had four mezzanine secured credit facilities, two with separate financial institutions and two with a related party, which holds more than 5% of our Class A common stock. Borrowings under the mezzanine secured credit facilities accrue interest at a rate based on a SOFR reference rate, plus a margin which varies by facility. Each of our mezzanine secured credit facilities also have interest rate floors. We may also pay fees on our mezzanine secured credit facilities, including a commitment fee and fees on certain unused portions of the committed borrowing capacity under the respective credit agreements.
Borrowings under our mezzanine secured credit facilities are collateralized by a second lien on the real estate inventory financed by the relevant credit facility. The lenders have legal recourse only to the assets securing the debt, and do not have general recourse against us with limited exceptions. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.
Covenants for Senior Secured Credit Facilities and Mezzanine Secured Credit Facilities
Our secured credit facilities include customary representations and warranties, covenants and events of default. Financed properties are subject to customary eligibility criteria and concentration limits. The terms of these facilities and related financing documents require the Company to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to tangible net worth).
As of September 30, 2024, we were in compliance with all covenants and no event of default had occurred.
Cash Flows
The following summarizes our cash flows for the nine months ended September 30, 2024 and 2023:
|
|
Nine Months Ended September 30, |
|
|||||
($ in thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(12,404 |
) |
|
$ |
276,955 |
|
Net cash (used in) provided by investing activities |
|
|
(1,199 |
) |
|
|
322 |
|
Net cash used in financing activities |
|
|
(7,905 |
) |
|
|
(304,168 |
) |
Net change in cash, cash equivalents and restricted cash |
|
$ |
(21,508 |
) |
|
$ |
(26,891 |
) |
Operating Activities
Net cash (used in) provided by operating activities was ($12.4) million and $277.0 million for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, net cash used in operating activities primarily resulted from a $44.8 million net loss during the period, which included $7.8 million of non-cash stock-based compensation expense and a $2.0 million non-cash real estate inventory valuation adjustment. This was partially offset by an $18.0 million decrease in real estate inventory as a result of sales volumes increasing at a higher rate compared to home acquisitions.
For the nine months ended September 30, 2023, net cash provided by operating activities primarily resulted from a $366.7 million decrease in real estate inventory due to an intentional reduction in real estate inventory levels given the impact of the softened consumer demand for residential real estate, which occurred during the second half of 2022 and continued through the first quarter of 2023. During this period of time, we focused on selling our existing real estate inventory of homes acquired in
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 35
the first half of 2022 and significantly reduced the number of new homes acquired in the second half of 2022 and throughout the first quarter of 2023. Net cash provided by operating activities during the nine months ended September 30, 2023 was also impacted by the $101.8 million net loss during the period, which included an $8.4 million non-cash real estate inventory valuation adjustment as a result of the softened consumer demand for residential real estate.
Investing Activities
Net cash (used in) provided by investing activities was ($1.2) million and $0.3 million during the nine months ended September 30, 2024 and 2023, respectively. Net cash used in investing activities during the nine months ended September 30, 2024 principally represents purchases of property and equipment.
Net cash provided by investing activities during the nine months ended September 30, 2023 represents proceeds from the sale of derivative instruments, which was partially offset by purchases of derivative instruments.
Financing Activities
Net cash used in financing activities was $7.9 million and $304.2 million during the nine months ended September 30, 2024 and 2023, respectively. Net cash used in financing activities during the nine months ended September 30, 2024 primarily consisted of $635.9 million of repayments of credit facilities and other debt, which was partially offset by $628.1 million of borrowings from credit facilities and other debt. This net decrease in credit facility funding of $7.8 million was directly related to the decrease in financed real estate inventory during the period.
Net cash used in financing activities during the nine months ended September 30, 2023 primarily consisted of $1,080.8 million of repayments of credit facilities and other debt, which was partially offset by $687.7 million of borrowings from credit facilities and other debt. This net decrease in credit facility funding of $393.1 million was directly related to the decrease in financed real estate inventory during the period. This was partially offset by $90.0 million of proceeds from the issuance of pre-funded warrants, net of issuance costs of $0.8 million.
Material Cash Requirements and Other Obligations
Information regarding our material cash requirements and other obligations is provided in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
There have been no material changes in our material cash requirements and other obligations since December 31, 2023 through September 30, 2024.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Although we believe our estimates, judgments and assumptions are reasonable, actual results may differ from our estimates under different assumptions, judgments or conditions given the inherent uncertainty involved with such matters, which would impact our financial statements. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
There have been no material changes to the critical accounting estimates included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Our significant accounting policies and methods used in the preparation of our condensed consolidated financial statements are described in Note 1. Nature of Operations and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Note 1. Nature of Operations and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our exposure to market risk since December 31, 2023. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 36
Item 4. Controls and Procedures.
Limitations on Effectiveness of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 37
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in actions, claims, suits and other legal proceedings arising in the ordinary course of our business, including, without limitation, assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. We are not currently a party to any actions, claims, suits or other legal proceedings arising in the ordinary course of our business, the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, results of operations and cash flows.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against us in a reporting period for amounts above management’s expectations, our financial condition, results of operations or cash flows for that reporting period could be adversely impacted, perhaps materially.
Refer to Note 16. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q for information regarding pending litigation that falls outside the scope of ordinary and routine litigation incidental to our business.
Item 1A. Risk Factors.
The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the Company’s risk factors since the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Equity Securities
None.
Purchase of Equity Securities
We did not repurchase shares of our Class A common stock during the three months ended September 30, 2024.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(a) None.
(b) None.
(c) During the three months ended September 30, 2024, no director or “officer” (as defined in Rule 16a-1(f) of the Exchange Act) of the Company
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 38
Item 6. Exhibits.
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
3.1 |
|
Fourth Restated Certificate of Incorporation, dated June 13, 2023 |
|
8-K |
|
001-39641 |
|
3.1 |
|
6/13/23 |
3.2 |
|
|
8-K |
|
001-39641 |
|
3.3 |
|
6/13/23 |
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31.1* |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
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31.2* |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
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32.1** |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
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32.2** |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
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101* |
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Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1. Financial Statements of this Quarterly Report on Form 10-Q |
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104* |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* Filed herewith.
** Furnished herewith.
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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OFFERPAD SOLUTIONS INC. |
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Date: November 4, 2024 |
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By: |
/s/ Brian Bair |
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Brian Bair |
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Chief Executive Officer and Chairman of the Board (Principal Executive Officer) |
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Date: November 4, 2024 |
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By: |
/s/ Peter Knag |
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Peter Knag |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Offerpad Solutions Inc. | Third Quarter 2024 Form 10-Q | 40