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) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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, 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 July 26, 2023, there were
OFFERPAD SOLUTIONS INC.
FORM 10-Q
FOR THE QUARTER ENDED June 30, 2023
TABLE OF CONTENTS
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Offerpad,” the “Company,” “we,” “us,” and “our,” and similar references refer to the business and operations of Offerpad Solutions Inc. and its consolidated subsidiaries following the consummation of the business combination (the “Business Combination”) with Supernova Partners Acquisition Company, Inc. (“Supernova”) and to OfferPad, Inc. (“Old Offerpad”) and its consolidated subsidiaries prior to the Business Combination.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that express Offerpad’s 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, growth, strategies, macroeconomic trends 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, 2022.
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. | Second Quarter 2023 Form 10-Q | 3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Balance Sheets
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June 30, |
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December 31, |
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(in thousands, except par value per share) (Unaudited) |
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2023 |
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2022 |
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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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Class B common stock, |
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Additional paid in capital |
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Accumulated deficit |
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( |
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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. | Second Quarter 2023 Form 10-Q | 4
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Operations
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(in thousands, except per share data) (Unaudited) |
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2023 |
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2022 |
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2023 |
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2022 |
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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) income 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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( |
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( |
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Other income, net |
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Total other (expense) income |
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( |
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( |
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(Loss) income before income taxes |
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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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( |
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( |
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Net (loss) income |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Net (loss) income 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) income 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. | Second Quarter 2023 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 March 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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Exercise of pre-funded warrants |
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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 June 30, 2023 |
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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 March 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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( |
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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 income |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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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. | Second Quarter 2023 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, 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 June 30, 2023 |
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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, 2021 |
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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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( |
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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 income |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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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. | Second Quarter 2023 Form 10-Q | 7
OFFERPAD SOLUTIONS INC.
Condensed Consolidated Statements of Cash Flows
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Six Months Ended |
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June 30, |
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($ in thousands) (Unaudited) |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net (loss) income to net cash provided by (used in) 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 instrument |
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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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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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Accrued and other liabilities |
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( |
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Net cash provided by (used in) 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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( |
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Purchases of derivative instruments |
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( |
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Net cash used in investing activities |
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( |
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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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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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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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Net cash (used in) provided by financing activities |
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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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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. | First Quarter 2022 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 was founded in 2015 and together with its subsidiaries, is a customer-centric, home buying and selling platform that provides customers with the ultimate home transaction experience, offering convenience, control, certainty, and value. The Company is headquartered in Chandler, Arizona and operates in over 1,700 cities and towns in 25 metropolitan markets across 15 states as of June 30, 2023.
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, 2022 included in the Company’s 2022 Annual Report on Form 10-K as filed with the SEC on February 28, 2023.
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”).
Reverse Stock Split
On June 8, 2023, the Company’s stockholders approved a reverse stock split of the Company’s Class A common stock, par value $
Further, proportionate adjustments were made to the number of shares of Common Stock underlying the Company’s outstanding equity awards and the number of shares issuable under the Company’s equity incentive plans and existing agreements, as well as the exercise price and/or any stock price goals, as applicable. The Reverse Stock Split did not affect the number of authorized shares of Common Stock or the par value of the Common Stock. The Company’s publicly traded warrants continue to be traded on the NYSE under the symbol “OPADWS”. However, pursuant to the terms of the applicable warrant agreement, the number of shares of Class A Common Stock issuable on exercise of each warrant was proportionately decreased. Specifically, following effectiveness of the Reverse Stock Split, every
All share and per share amounts in the accompanying condensed consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 9
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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 $
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 10
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Derivative Financial Instruments
From time to time, the Company uses derivative financial instruments to manage risks related to its ongoing business operations. The Company’s derivative financial instruments are not designated as hedging instruments, but rather, are used as economic hedges to manage risks that are principally associated with interest rate fluctuations. The Company records these derivatives that are not designated as accounting hedges at fair value in Prepaid expenses and other current assets in the condensed consolidated balance sheets, and changes in fair value are recognized in Other income, net in the condensed consolidated statements of operations.
Refer to Note 4. Derivative Financial Instruments, for further details.
Recent Accounting Standards
The Company has adopted all applicable accounting standards that are in effect as of June 30, 2023. The Company does not believe that there are any other new accounting standards that have been issued, but not yet adopted that might have a material impact on its condensed consolidated financial statements.
Note 2. Business Combination
On September 1, 2021, the Company was formed through a business combination (the “Business Combination”) with Supernova Partners Acquisition Company, Inc. (“Supernova”). In connection with the closing of the Business Combination, Supernova changed its name to Offerpad Solutions Inc.
At the closing of the Business Combination, each share of common stock and preferred stock of Old Offerpad that was issued and outstanding immediately prior to the effective time of the Business Combination (other than excluded shares as contemplated by the merger agreement) was cancelled and converted into the right to receive shares of Offerpad Solutions Inc. common stock.
We accounted for the Business Combination as a reverse recapitalization whereby Old Offerpad was determined as the accounting acquirer and Supernova as the accounting acquiree. Accordingly, the Business Combination was treated as the equivalent of Old Offerpad issuing stock for the net assets of Supernova, accompanied by a recapitalization. The net assets of Supernova are stated at historical cost, with no goodwill or other intangible assets recorded.
Upon the closing of the Business Combination, Offerpad Solutions received total gross proceeds of $
Note 3. 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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June 30, |
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December 31, |
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($ in thousands) |
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2023 |
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2022 |
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Homes preparing for and under renovation |
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$ |
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$ |
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Homes listed for sale |
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Homes under contract to sell |
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Real estate inventory |
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$ |
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$ |
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Note 4. Derivative Financial Instruments
During the six months ended June 30, 2023, the Company entered into derivative arrangements pursuant to which the Company paid a cumulative $
The Company recorded the $
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 11
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Property and Equipment
Property and equipment consist of the following as of the respective period ends:
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June 30, |
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December 31, |
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($ in thousands) |
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2023 |
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2022 |
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Rooftop solar panel systems |
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$ |
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$ |
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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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( |
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( |
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Property and equipment, net |
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$ |
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$ |
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||
Depreciation expense totaled $
Note 6. Leases
The Company’s operating lease arrangements consist of its corporate headquarters in Chandler, 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 June 30, 2023 and 2022, operating lease costs were $
Cash payments for amounts included in the measurement of operating lease liabilities were $
As of June 30, 2023 and December 31, 2022, the Company’s operating leases had a weighted-average remaining lease term of
The Company’s operating lease liability maturities as of June 30, 2023 are as follows:
($ in thousands) |
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Remainder of 2023 |
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$ |
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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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Thereafter |
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Total future lease payments |
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Less: Imputed interest |
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( |
) |
Total lease liabilities |
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$ |
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|
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 12
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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June 30, |
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December 31, |
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($ in thousands) |
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Financial Statement Line Items |
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2023 |
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2022 |
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Right-of-use assets |
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$ |
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$ |
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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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$ |
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$ |
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Note 7. Accrued and Other Liabilities
Accrued and other current liabilities consist of the following as of the respective period ends:
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June 30, |
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December 31, |
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($ in thousands) |
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2023 |
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2022 |
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Payroll and other employee related expenses |
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$ |
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$ |
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Marketing |
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Home renovation |
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Operating lease liabilities |
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Legal and professional obligations |
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Interest |
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Other |
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Accrued and other current liabilities |
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$ |
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$ |
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The Company incurred advertising expenses of $
Other long-term liabilities as of June 30, 2023 and December 31, 2022 consist of the non-current portion of our operating lease liabilities.
Note 8. 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:
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June 30, |
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December 31, |
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($ in thousands) |
2023 |
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2022 |
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Credit facilities and other debt, net |
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Senior secured credit facilities with financial institutions |
$ |
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$ |
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Senior secured credit facility with a related party |
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Senior secured debt - other |
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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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Warehouse lending facility with a related party |
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Debt issuance costs |
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( |
) |
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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 |
$ |
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$ |
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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. | Second Quarter 2023 Form 10-Q | 13
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 June 30, 2023, the Company had 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 |
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Outstanding |
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Weighted- |
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End of |
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Final |
|||||||||||
As of June 30, 2023 |
Committed |
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Uncommitted |
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Total |
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Amount |
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Rate |
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Period |
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Date |
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Senior financial institution 1 |
$ |
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$ |
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$ |
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$ |
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% |
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Senior financial institution 2 |
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% |
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Senior financial institution 3 |
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% |
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Related party |
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% |
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Senior financial institution 4 |
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% |
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Senior secured credit facilities |
$ |
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$ |
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$ |
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$ |
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|||||
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Borrowing Capacity |
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Outstanding |
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Weighted- |
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As of December 31, 2022 |
Committed |
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Uncommitted |
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Total |
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Amount |
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Rate |
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Senior financial institution 1 |
$ |
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$ |
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$ |
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$ |
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% |
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Senior financial institution 2 |
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% |
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Senior financial institution 3 |
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% |
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Related party |
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% |
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Senior secured credit facilities |
$ |
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$ |
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$ |
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$ |
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|||||
As of June 30, 2023, the Company had five senior secured credit facilities, four with separate financial institutions and one with a related party, which holds more than
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 in situations involving “bad acts” by an Offerpad entity and certain other limited circumstances that are generally under the Company’s control. Each senior secured facility contains eligibility requirements that govern whether a property can be financed.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 14
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 |
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Outstanding |
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Weighted- |
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End of |
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Final |
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As of June 30, 2023 |
Committed |
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Uncommitted |
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Total |
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Amount |
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Rate |
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Period |
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Date |
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Related party facility 1 |
$ |
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$ |
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$ |
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$ |
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% |
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Mezzanine financial institution 1 |
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% |
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Mezzanine financial institution 2 |
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% |
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Related party facility 2 |
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% |
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Mezzanine secured credit facilities |
$ |
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$ |
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$ |
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$ |
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|||||
|
Borrowing Capacity |
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Outstanding |
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Weighted- |
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As of December 31, 2022 |
Committed |
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Uncommitted |
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Total |
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Amount |
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Rate |
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Related party facility 1 |
$ |
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$ |
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$ |
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$ |
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% |
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Mezzanine financial institution 1 |
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% |
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Mezzanine financial institution 2 |
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% |
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Related party facility 2 |
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% |
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Mezzanine secured credit facilities |
$ |
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$ |
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$ |
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$ |
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|||||
As of June 30, 2023, 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 fixed rates, which vary by facility and range from
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
As of June 30, 2023, certain of the Company’s senior secured credit facilities and mezzanine 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 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 June 30, 2023, the Company was in compliance with all covenants and no event of default had occurred.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 15
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Senior Secured Debt - Other
As of June 30, 2023, the Company has a borrowing arrangement with a financial institution to support purchases of real estate inventory. Borrowings under this arrangement accrue interest at a rate based on a SOFR reference rate, plus a margin. As of June 30, 2023 and December 31, 2022, the weighted-average interest rates under the Company’s other senior secured debt were
Warehouse Lending Facility with a Related Party
The Company has a warehouse lending facility with a related party that is used to fund mortgage loans the Company originates and then sells to third-party mortgage servicers. As of June 30, 2023, the outstanding balance on the warehouse lending facility was $
Note 9. Warrant Liabilities
Prior to the Reverse Stock Split, the Company had public warrants outstanding to purchase a total of
As a result of the Reverse Stock Split, and pursuant to the terms of the applicable warrant agreement, the number of shares of Class A Common Stock issuable on exercise of each warrant was proportionately decreased. Specifically, following effectiveness of the Reverse Stock Split, every
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
Private Placement Warrants
The private placement warrants are not redeemable by the Company so long as they are held by the Supernova Sponsor or its permitted transferees, except in certain limited circumstances. The Supernova Sponsor, or its permitted transferees, has the option to exercise the private placement warrants on a cashless basis and the Supernova Sponsor and its permitted transferees has certain registration rights related to the private placement warrants (including the shares of Class A common stock issuable upon exercise of the private placement warrants). Except as described in this section, the private placement warrants have terms and provisions that are identical to those of the public warrants. If the private placement warrants are held by holders other than the Supernova Sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by the holders on the same basis as the public warrants.
Note 10. 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 assets and liabilities that are measured at fair value on a recurring basis consist of the following (in thousands):
As of June 30, 2023 |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|||
Assets |
|
|
|
|
|
|
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|
|||
Derivative financial instrument |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities |
|
|
|
|
|
|
|
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|
|||
Public warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
Private placement warrant liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 16
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of December 31, 2022 |
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|||
Public warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
Private placement warrant liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Derivative Financial Instrument
The fair value of the Company’s options on U.S. Treasury futures is determined based on the quoted market price of such options on the valuation date.
Public Warrants
The public warrants were initially recognized as a liability in connection with the Business Combination on September 1, 2021. 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 ($
Private Placement Warrants
The private placement warrants were initially recognized as a liability in connection with the Business Combination on September 1, 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Change in fair value of private placement warrants included in net (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 17
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11. Stockholders’ Equity
Authorized Capital Stock
Prior to the Annual Meeting on June 8, 2023, the Company’s Certificate of Incorporation authorized the issuance of
On January 31, 2023, Brian Bair, the Chief Executive Officer and Founder of the Company, notified the Board of his intention to convert all
In connection with the Voluntary Class B Conversion, the Board approved amendments to the Certificate of Incorporation to, among other things, eliminate the authorization of and references to Class B common stock and Class C common stock, and make related technical, non-substantive and conforming changes. Upon the recommendation of the Board, the Company’s stockholders approved the amendments at the Annual Meeting. As a result of the amendments, the Company is no longer authorized to issue any shares of Class B Common Stock or Class C Common Stock.
On June 13, 2023, the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware, at which point the amendments became effective. The Company subsequently filed a Fourth Restated Certificate of Incorporation with the Secretary of State of the State of Delaware incorporating the amendments.
Following these amendments, the Company is authorized to issue of
Class A Common Stock
Subsequent to the closing of the Business Combination, our Class A common stock and public warrants began trading on the NYSE under the symbols “OPAD” and “OPADWS,” respectively. Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue
During January 2023, we entered into a pre-funded warrants subscription agreement with the investors named therein (the “Investors”) pursuant to which we sold and issued to the Investors an aggregate of
The Pre-funded Warrants became exercisable during March 2023. During the six months ended June 30, 2023, all of the Pre-funded Warrants were exercised, upon which,
As of June 30, 2023, we had
We also have outstanding private and public warrants to purchase shares of our Class A common stock. Refer to Note 9. Warrant Liabilities.
Preferred Stock
Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 18
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 12. Stock-Based Awards
2016 Stock Plan
Prior to the closing of the Business Combination, the Company maintained the OfferPad 2016 Stock Option and Grant Plan (the “2016 Plan”) that allowed for granting of incentive and non-qualified stock options to employees, directors, and consultants.
In connection with the Business Combination, each option granted under the 2016 Plan that was outstanding immediately prior to the Business Combination, whether vested or unvested, was assumed and converted into an option to purchase a number of shares of Class A common stock. Stock option activity prior to the Business Combination was retroactively adjusted to reflect this conversion.
Awards outstanding under the 2016 Plan were assumed by Offerpad Solutions upon the closing of the Business Combination and continue to be governed by the terms and conditions of the 2016 Plan and applicable award agreement. Shares of our common stock subject to awards granted under the 2016 Plan that expire unexercised or are cancelled, terminated, or forfeited in any manner without issuance of shares thereunder following the effective date of the 2021 Plan (as defined below), will not again become available for issuance under the 2016 Plan or the 2021 Plan.
In connection with the completion of the Business Combination and the adoption of the 2021 Plan, no additional awards will be granted under the 2016 Plan.
As a result of the Reverse Stock Split, proportionate adjustments were made to the number of shares of common stock underlying the outstanding equity awards under the 2016 Plan, as well as the exercise price associated with the awards.
2021 Equity Incentive Plans
In connection with the Business Combination, our Board adopted, and our stockholders approved, the Offerpad Solutions Inc. 2021 Incentive Award Plan (the “2021 Plan”) under which
The 2021 Plan allows for the issuance of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock or cash based awards. The number of shares of the Company’s Class A common stock available for issuance under the 2021 Plan increases annually on the first day of each calendar year, beginning on and including January 1, 2022 and ending on and including January 1, 2031 equal to the lesser of (i) a number of shares such that the aggregate number of shares of Class A common stock available for grant under the 2021 Plan immediately following such increase shall be equal to
In connection with the close of the Business Combination, our Board adopted, and our stockholders approved, the Offerpad Solutions Inc. 2021 Employee Stock Purchase Plan (“ESPP”) under which
The number of shares of the Company’s Class A common stock available for issuance under the ESPP increases annually on the first day of each calendar year, beginning on and including January 1, 2022 and ending on and including January 1, 2031,
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 19
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
by the lesser of (a) a number of shares such that the aggregate number of shares of Class A common stock available for grant under the ESPP immediately following such increase shall be equal to
Stock Options
The Company did
During the six months ended June 30, 2022, the Company granted stock option awards with a service vesting condition that is generally four years.
Expected term (in years) |
|
|
Risk-free interest rate |
|
|
Expected volatility |
|
|
Dividend yield |
|
|
Fair value on grant date |
|
$ |
The following summarizes stock option activity during the six months ended June 30, 2023:
|
|
Number of |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
Aggregate |
|
||||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited, canceled or expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercisable as of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested and expected to vest as of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The total intrinsic value of stock options exercised during the six months ended June 30, 2023 and 2022 was $
The weighted-average grant date fair value per option granted during the six months ended June 30, 2022 was $
As of June 30, 2023, the Company had unrecognized stock-based compensation expense related to unvested stock options of $
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 20
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restricted Stock Units
During the six months ended June 30, 2023, the Company granted RSU awards with service vesting conditions to non-employee members of our Board.
During the six months ended June 30, 2022, 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 six months ended June 30, 2023:
|
Number of |
|
|
Weighted |
|
||
Outstanding as of December 31, 2022 |
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
||
Vested and settled |
|
( |
) |
|
|
|
|
Forfeited |
|
( |
) |
|
|
|
|
Outstanding as of June 30, 2023 |
|
|
|
|
|
||
As of June 30, 2023, less than
As of June 30, 2023, the Company had $
Performance-Based Restricted Stock Units
The Company did
During the six months ended June 30, 2022, the Company granted PSUs 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. Subject to the employee’s continued employment or service through the end of the performance period, the PSUs will vest based on the achievement of pre-determined price per share goals over the performance period calculated based on the average price per share over any 60 consecutive calendar-day period during the performance period. Shares earned under the PSU awards are transferred to the award holders upon the completion of the requisite service period of
The assumptions used in the Monte Carlo simulation model to determine the fair value of the PSU awards granted during the six months ended June 30, 2022 are as follows:
Risk-free interest rate |
|
|
Expected stock price volatility |
|
|
Expected dividend yield |
|
|
Fair value on grant date |
|
$ |
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 21
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following summarizes PSU award activity during the six months ended June 30, 2023:
|
Number of |
|
Weighted |
|
||
Outstanding as of December 31, 2022 |
|
|
$ |
|
||
Granted |
|
|
|
|
||
Vested |
|
|
|
|
||
Forfeited |
|
( |
) |
|
|
|
Outstanding as of June 30, 2023 |
|
|
|
|
||
As of June 30, 2023, the Company had $
Stock-based Compensation Expense
The following details stock-based compensation expense for the respective periods:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Sales, marketing and operating |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 13. 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:
|
|
June 30, |
|
|
December 31, |
|
||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Assets |
|
|
|
|
|
|
||
Restricted cash |
|
$ |
|
|
$ |
|
||
Accounts receivable |
|
|
|
|
|
|
||
Real estate inventory |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued and other current liabilities |
|
|
|
|
|
|
||
Secured credit facilities and other debt, net |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 22
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 14. 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:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(In thousands, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of restricted stock units (1) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Weighted average common shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share, basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net (loss) income per share, diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Anti-dilutive securities excluded from diluted (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive stock options (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive restricted stock units (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive performance-based restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive warrants issued in connection with Business Combination |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Due to the net loss during the three and six months ended June 30, 2023, no dilutive securities were included in the calculation of diluted loss per share because they would have been anti-dilutive.
Note 15. 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 $
As of June 30, 2023, 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. | Second Quarter 2023 Form 10-Q | 23
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 16. Related-Party Transactions
LL Credit Facilities
As of June 30, 2023, we have
|
|
As of June 30, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||
($ in thousands) |
|
Borrowing |
|
|
Outstanding |
|
|
Borrowing |
|
|
Outstanding |
|
||||
Senior secured credit facility with a related party |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Mezzanine secured credit facilities with a related party |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 facilities of $
Use of First American Financial Corporation’s Services
First American Financial Corporation (“First American”), which holds more than
Pre-Funded Warrants
During the six months ended June 30, 2023, the Company entered into a pre-funded warrants subscription agreement with the investors named therein (the “Investors”) pursuant to which the Company sold and issued to the Investors pre-funded warrants to purchase shares of the Company’s Class A common stock. The Investors included Brian Bair, Roberto Sella, First American, and Kenneth DeGiorgio. Refer to Note 11. Stockholders’ Equity, for further details.
Warehouse Lending Facility with FirstFunding, Inc.
During July 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. (“FirstFunding”), a wholly-owned subsidiary of First American, which holds more than
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 24
OFFERPAD SOLUTIONS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Compensation of Immediate Family Members of Brian Bair
Offerpad employs two of Brian Bair’s brothers, along with Mr. Bair’s sister-in-law.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Mr. Bair’s brother 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Mr. Bair’s brother 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mr. Bair’s sister-in-law |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the six months ended June 30, 2022, Mr. Bair’s brothers and Mr. Bair’s sister-in-law received grants of equity awards under the 2021 Plan, which included awards of restricted stock units (“RSUs”), performance-based RSUs (“PSUs”) and/or stock options, as follows:
|
|
Number of RSUs |
|
|
Number of Target PSUs |
|
|
Number of Stock Options |
|
|||
Mr. Bair’s brother 1 |
|
|
|
|
|
|
|
|
|
|||
Mr. Bair’s brother 2 |
|
|
|
|
|
|
|
|
|
|||
Mr. Bair’s sister-in-law |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Note 17. Commitments and Contingencies
Homes Purchase Commitments
As of June 30, 2023, the Company was under contract to purchase
Lease Commitments
The Company has entered into operating lease agreements for its corporate headquarters in Chandler, Arizona and field office facilities in most of the metropolitan markets in which the Company operates in the United States. Refer to Note 6. Leases, for further details.
Note 18. 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. | Second Quarter 2023 Form 10-Q | 25
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, 2022 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023.
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, 2022.
Overview
Our Business
Offerpad is a customer-centric, home buying and selling platform that provides customers with the ultimate home transaction experience, offering convenience, control, certainty, and value. Since our founding in 2015, we have created a pioneering iBuying company and leading on-demand real estate marketplace that has transacted on homes representing approximately $10.2 billion of aggregate revenue through June 30, 2023.
We are headquartered in Chandler, Arizona and operate in over 1,700 cities and towns in 25 metropolitan markets across 15 states as of June 30, 2023. As we expand further into our existing markets, launch new markets, and develop a wide range of new ancillary services, we look forward to bringing our mission of providing your best way to buy and sell a home to even more homeowners and prospective home purchasers across the country.
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.
During the second quarter of 2023, the residential real estate market conditions showed signs of stabilization and improvement compared to the first quarter of 2023 and the second half of 2022, during which the combination of the rapid rise to relatively high mortgage interest rates, increased inflation in the broader economy, volatility in the stock market, and various other macroeconomic and geopolitical concerns negatively impacted consumer demand for residential real estate.
Although the residential real estate market conditions continue to be less favorable compared to the conditions during the first half of 2022, which directly contributed to our quarter-over-quarter revenue declines during the past year, our gross profit margin improved to 9.7% during the second quarter of 2023, which is the second consecutive quarter-over-quarter improvement and a level not achieved since prior to the market shift that began at the end of the second quarter of 2022. Additionally, during the second quarter of 2023, our net loss improved for the second consecutive quarter and we achieved quarter-over-quarter increases in acquisitions and inventory. Further, the average holding period for our homes in real estate inventory improved compared to the first quarter of 2023.
While the residential real estate market conditions have recently shown signs of stabilization and improvement compared to the first quarter of 2023 and the second half of 2022, mortgage interest rates and inflation remain elevated and the supply of single-family resale homes continues to be low. We anticipate that the ongoing higher mortgage interest rate environment, combined with economic uncertainties as well as affordability pressures will continue to impact consumer demand for residential real estate during the third quarter of 2023.
New York Stock Exchange Delisting Notice and Reverse Stock Split
On November 15, 2022, we were notified by the New York Stock Exchange (“NYSE”) that we are not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Class A common stock was less than $1.00 over a consecutive 30 trading-day period. The notice did not result in the immediate delisting of our Class A common stock from the NYSE.
On November 16, 2022, we notified the NYSE that we intend to cure the price condition and to return to compliance with the NYSE continued listing standard. On June 8, 2023, at the 2023 Annual Meeting of Stockholders, the Company’s stockholders
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 26
approved a reverse stock split of the Company’s Class A common stock in order to regain compliance with the minimum closing price requirement. On June 12, 2023, the Company filed a certificate of amendment to its Third Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-15 reverse stock split, and the Company’s Class A common stock began trading on a split-adjusted basis at market open on June 13, 2023.
Under the NYSE’s rules, the price condition is deemed cured if the price promptly exceeds $1.00 per share, and the price remains above that level for at least the following 30 trading days. On July 27, 2023, we were notified by the NYSE that the average closing price of our Class A common stock exceeded $1.00 per share for at least 30 trading days. Accordingly, as of July 27, 2023, the minimum price condition was deemed cured and the Company is in compliance with Section 802.01C of the NYSE Listed Company Manual. However, there is also no assurance that the Company will maintain compliance with this or the other listing standards of the NYSE.
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 $2.3 trillion in value of homes transacted in 2022 in the United States, and is highly fragmented with over 100,000 real estate brokerages, according to the National Association of Realtors (NAR). In 2022, we estimate that we captured roughly 0.9% market share across our then active 28 markets. Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple buying and selling 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.
Expansion into New Markets
Since our launch in 2015 and through December 31, 2022, we expanded into 28 markets, which covered roughly 24% of the 5.6 million homes sold in the United States in 2022. Given this market 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, although new market expansion typically generates lower initial margins as we begin operations that increase as we scale volumes. Also, because of our strategic approach to renovations, as well as the listing and buyer representation of our listing service product, we believe a significant portion of the total addressable market is serviceable with our business model.
While we intend to be flexible in assessing market entry points, we will generally look to expand into new markets with qualities similar to our existing markets, including median price point, annual transaction count, as well as strong presence of new homebuilders. We believe the scale and versatility of our platform will allow us to continue to expand into new markets, with our primary barriers to entry consisting largely of capital needed to expand operations and the tendency of consumers to adopt our real estate offerings.
Given the recent volatility in the residential real estate market, we did not expand into any new markets during the first half of 2023 and we currently do not anticipate expanding into any new markets during the remainder of 2023.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 27
Ancillary Products and Services
Core to our long-term strategy is a suite of offerings to meet the unique needs of our customers. As such, we view adding both additional products and services as well as additional product specific features as critical to supporting this strategy. We aim to deliver our offerings to customers in a smooth, efficient, digital driven platform, focused on transparency and ease of use. The primary goal is to be able to offer multiple services tied to the core real estate transaction, allowing customers to bundle and save. 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, moving services, 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:
Expand Relationships with Home Buyers
We continue to pursue opportunities that enable us to grow our service offerings, and have recently begun offering a program that allows investors and single-family rental companies an opportunity to purchase homes from homeowners, matching investors with sellers. We expect this program will allow us to help more homeowners sell their home, while also expanding our ability to reach more customers.
Renovation Services
We recently expanded our renovation services to other businesses allowing more homeowners and other companies to utilize our renovations department to update their portfolio of homes for rent or to sell. Through this offering, we are able to leverage our existing logistics, operation and skill-sets to provide renovation services that we believe can be an important part of our business over time.
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. | Second Quarter 2023 Form 10-Q | 28
Real Estate Inventory Financing
Our business model requires significant capital to purchase real estate inventory. 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 with inputs from third-party data sources, proprietary data sources as well as internal data to adjust to the latest market conditions. 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 76 days during 2021, which was primarily due to the favorable housing market conditions across our markets in 2021.
During the second half of 2022 and continuing through the first quarter of 2023, consumer demand for residential real estate was negatively impacted by the combination of the rapid rise to relatively high mortgage interest rates, increased inflation in the broader economy, volatility in the stock market, and various other macroeconomic and geopolitical concerns. Given our focus on risk management, and in response to this softening consumer demand, we adjusted our home purchase criteria through more conservative acquisition underwriting, resulting in higher expected internal rates of return based on then current market conditions. These actions resulted in a significant reduction in our home acquisition pace to allow us to manage overall real estate inventory growth. This, in turn, led to the average holding period of homes sold increasing to 101 days during 2022, which is consistent with our expected average real estate inventory holding period and our historical norm, and further temporarily increased to 185 days during the first quarter of 2023 as we sold through our aged real estate inventory.
During the second quarter of 2023, the residential real estate market conditions showed signs of stabilization and improvement compared to the first quarter of 2023 and the second half of 2022. As a result, we increased our home acquisition pace during the second quarter of 2023 and our overall real estate inventory mix shifted to include a greater composition of newer acquired homes. This resulted in a decrease in the average real estate inventory holding period to 138 days during the second quarter of 2023. To the extent residential real estate market conditions continue to improve, we anticipate our average real estate inventory holding period will decline further in the third quarter of 2023.
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
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 29
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 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. | Second Quarter 2023 Form 10-Q | 30
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages and homes sold, unaudited) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Gross profit (GAAP) |
|
$ |
22,231 |
|
|
$ |
92,981 |
|
|
$ |
29,516 |
|
|
$ |
225,123 |
|
Gross margin |
|
|
9.7 |
% |
|
|
8.6 |
% |
|
|
3.5 |
% |
|
|
9.2 |
% |
Homes sold |
|
|
650 |
|
|
|
2,888 |
|
|
|
2,259 |
|
|
|
6,490 |
|
Gross profit per home sold |
|
$ |
34.2 |
|
|
$ |
32.2 |
|
|
$ |
13.1 |
|
|
$ |
34.7 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate inventory valuation adjustment - current period (1) |
|
|
169 |
|
|
|
20,995 |
|
|
|
290 |
|
|
|
21,233 |
|
Real estate inventory valuation adjustment - prior period (2) |
|
|
(13,679 |
) |
|
|
(287 |
) |
|
|
(58,030 |
) |
|
|
(1,205 |
) |
Interest expense capitalized (3) |
|
|
1,358 |
|
|
|
2,793 |
|
|
|
6,035 |
|
|
|
7,071 |
|
Adjusted gross profit (loss) |
|
$ |
10,079 |
|
|
$ |
116,482 |
|
|
$ |
(22,189 |
) |
|
$ |
252,222 |
|
Adjusted gross margin |
|
|
4.4 |
% |
|
|
10.8 |
% |
|
|
(2.6 |
)% |
|
|
10.3 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct selling costs (4) |
|
|
(5,743 |
) |
|
|
(23,524 |
) |
|
|
(23,804 |
) |
|
|
(55,378 |
) |
Holding costs on sales - current period (5)(6) |
|
|
(269 |
) |
|
|
(1,293 |
) |
|
|
(1,811 |
) |
|
|
(3,723 |
) |
Holding costs on sales - prior period (5)(7) |
|
|
(567 |
) |
|
|
(526 |
) |
|
|
(2,158 |
) |
|
|
(907 |
) |
Other income, net (8) |
|
|
965 |
|
|
|
24 |
|
|
|
1,247 |
|
|
|
28 |
|
Contribution profit (loss) |
|
$ |
4,465 |
|
|
$ |
91,163 |
|
|
$ |
(48,715 |
) |
|
$ |
192,242 |
|
Contribution margin |
|
|
1.9 |
% |
|
|
8.4 |
% |
|
|
(5.8 |
)% |
|
|
7.8 |
% |
Homes sold |
|
|
650 |
|
|
|
2,888 |
|
|
|
2,259 |
|
|
|
6,490 |
|
Contribution profit (loss) per home sold |
|
$ |
6.9 |
|
|
$ |
31.6 |
|
|
$ |
(21.6 |
) |
|
$ |
29.6 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense capitalized (3) |
|
|
(1,358 |
) |
|
|
(2,793 |
) |
|
|
(6,035 |
) |
|
|
(7,071 |
) |
Interest expense on homes sold - current period (9) |
|
|
(1,292 |
) |
|
|
(4,115 |
) |
|
|
(8,631 |
) |
|
|
(11,149 |
) |
Interest expense on homes sold - prior period (10) |
|
|
(3,709 |
) |
|
|
(1,999 |
) |
|
|
(13,899 |
) |
|
|
(3,721 |
) |
Contribution (loss) profit after interest |
|
$ |
(1,894 |
) |
|
$ |
82,256 |
|
|
$ |
(77,280 |
) |
|
$ |
170,301 |
|
Contribution margin after interest |
|
|
(0.8 |
)% |
|
|
7.6 |
% |
|
|
(9.2 |
)% |
|
|
6.9 |
% |
Homes sold |
|
|
650 |
|
|
|
2,888 |
|
|
|
2,259 |
|
|
|
6,490 |
|
Contribution (loss) profit after interest per home sold |
|
$ |
(2.9 |
) |
|
$ |
28.5 |
|
|
$ |
(34.2 |
) |
|
$ |
26.2 |
|
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. | Second Quarter 2023 Form 10-Q | 31
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except percentages, unaudited) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net (loss) income (GAAP) |
|
$ |
(22,344 |
) |
|
$ |
11,558 |
|
|
$ |
(81,791 |
) |
|
$ |
52,546 |
|
Change in fair value of warrant liabilities |
|
|
(435 |
) |
|
|
(12,537 |
) |
|
|
(46 |
) |
|
|
(18,201 |
) |
Adjusted net (loss) income |
|
$ |
(22,779 |
) |
|
$ |
(979 |
) |
|
$ |
(81,837 |
) |
|
$ |
34,345 |
|
Adjusted net (loss) income margin |
|
|
(9.9 |
)% |
|
|
(0.1 |
)% |
|
|
(9.7 |
)% |
|
|
1.4 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
1,867 |
|
|
|
7,771 |
|
|
|
9,299 |
|
|
|
14,967 |
|
Amortization of capitalized interest (1) |
|
|
1,358 |
|
|
|
2,793 |
|
|
|
6,035 |
|
|
|
7,071 |
|
Income tax expense |
|
|
43 |
|
|
|
1,610 |
|
|
|
165 |
|
|
|
3,509 |
|
Depreciation and amortization |
|
|
178 |
|
|
|
130 |
|
|
|
380 |
|
|
|
249 |
|
Amortization of stock-based compensation |
|
|
2,055 |
|
|
|
2,400 |
|
|
|
3,898 |
|
|
|
4,028 |
|
Adjusted EBITDA |
|
$ |
(17,278 |
) |
|
$ |
13,725 |
|
|
$ |
(62,060 |
) |
|
$ |
64,169 |
|
Adjusted EBITDA margin |
|
|
(7.5 |
)% |
|
|
1.3 |
% |
|
|
(7.4 |
)% |
|
|
2.6 |
% |
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 32
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 six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Revenue |
|
|||||||||
(in thousands, except percentages) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
||||||
Revenue |
|
$ |
230,147 |
|
|
$ |
1,079,531 |
|
|
$ |
(849,384 |
) |
|
|
(78.7 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
207,916 |
|
|
|
986,550 |
|
|
|
(778,634 |
) |
|
|
(78.9 |
)% |
|
|
90.3 |
% |
|
|
91.4 |
% |
Gross profit |
|
|
22,231 |
|
|
|
92,981 |
|
|
|
(70,750 |
) |
|
|
(76.1 |
)% |
|
|
9.7 |
% |
|
|
8.6 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales, marketing and operating |
|
|
29,040 |
|
|
|
65,239 |
|
|
|
(36,199 |
) |
|
|
(55.5 |
)% |
|
|
12.6 |
% |
|
|
6.0 |
% |
General and administrative |
|
|
12,713 |
|
|
|
16,121 |
|
|
|
(3,408 |
) |
|
|
(21.1 |
)% |
|
|
5.6 |
% |
|
|
1.5 |
% |
Technology and development |
|
|
2,312 |
|
|
|
3,243 |
|
|
|
(931 |
) |
|
|
(28.7 |
)% |
|
|
1.0 |
% |
|
|
0.3 |
% |
Total operating expenses |
|
|
44,065 |
|
|
|
84,603 |
|
|
|
(40,538 |
) |
|
|
(47.9 |
)% |
|
|
19.2 |
% |
|
|
7.8 |
% |
(Loss) income from operations |
|
|
(21,834 |
) |
|
|
8,378 |
|
|
|
(30,212 |
) |
|
|
(360.6 |
)% |
|
|
(9.5 |
)% |
|
|
0.8 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in fair value of warrant liabilities |
|
|
435 |
|
|
|
12,537 |
|
|
|
(12,102 |
) |
|
|
(96.5 |
)% |
|
|
0.2 |
% |
|
|
1.1 |
% |
Interest expense |
|
|
(1,867 |
) |
|
|
(7,771 |
) |
|
|
5,904 |
|
|
|
(76.0 |
)% |
|
|
(0.8 |
)% |
|
|
(0.7 |
)% |
Other income, net |
|
|
965 |
|
|
|
24 |
|
|
|
941 |
|
|
* |
|
|
|
0.4 |
% |
|
|
0.0 |
% |
|
Total other (expense) income |
|
|
(467 |
) |
|
|
4,790 |
|
|
|
(5,257 |
) |
|
|
(109.7 |
)% |
|
|
(0.2 |
)% |
|
|
0.4 |
% |
(Loss) income before income taxes |
|
|
(22,301 |
) |
|
|
13,168 |
|
|
|
(35,469 |
) |
|
|
(269.4 |
)% |
|
|
(9.7 |
)% |
|
|
1.2 |
% |
Income tax expense |
|
|
(43 |
) |
|
|
(1,610 |
) |
|
|
1,567 |
|
|
|
(97.3 |
)% |
|
|
0.0 |
% |
|
|
(0.1 |
)% |
Net (loss) income |
|
$ |
(22,344 |
) |
|
$ |
11,558 |
|
|
$ |
(33,902 |
) |
|
|
(293.3 |
)% |
|
|
(9.7 |
)% |
|
|
1.1 |
% |
* Not meaningful
Revenue
Revenue decreased by $849.4 million, or 78.7%, to $230.1 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was primarily attributable to lower sales volumes and a slightly lower average sales price. We sold 650 homes during the three months ended June 30, 2023 compared to 2,888 homes during the three months ended June 30, 2022, representing a decrease of 77%. Additionally, the average resale home price decreased slightly from $372,000 in the three months ended June 30, 2022 to $357,000 in the three months ended June 30, 2023. These decreases were the result of the considerable softening in consumer demand for residential real estate, which began toward the end of the second quarter of 2022 and continued through the first quarter of 2023, as compared to the generally strong residential real estate market conditions during the three months ended June 30, 2022. The decreases were also due to the impact of our significant reduction in home acquisition pace to allow us to manage overall real estate inventory growth during the second half of 2022 and throughout the first quarter of 2023.
Cost of Revenue and Gross Profit
Cost of revenue decreased by $778.6 million, or 78.9%, to $207.9 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. This decrease was primarily attributable to lower sales volumes and a decrease in the real estate inventory valuation adjustment.
Gross profit margin was 9.7% for the three months ended June 30, 2023 compared to 8.6% for the three months ended June 30, 2022. The increase in gross profit margin was primarily due to the decrease in the real estate inventory valuation adjustment during the respective periods. We recorded real estate inventory valuation adjustments of $0.2 million during the three months ended June 30, 2023 as compared to $21.2 million during the three months ended June 30, 2022. This decrease in real estate inventory valuation adjustments was primarily due to the residential real estate market conditions showing signs of stabilization and improvement during the three months ended June 30, 2023 as compared to the impact of the softening consumer demand for residential real estate that began toward the end of the second quarter of 2022 and continued through the first quarter of 2023, which caused the net realizable value for certain homes in real estate inventory to be lower than their respective cost. The increase in gross profit margin was partially offset by a decrease in the difference between the average home resale price and the average home acquisition price during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. This decrease was primarily due to the impact of the considerable softening in consumer demand for residential real estate that began toward the end of the second quarter of 2022.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 33
Sales, Marketing and Operating
Sales, marketing and operating expense decreased by $36.2 million, or 55.5%, to $29.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. This represented an increase as a percentage of revenue of 660 basis points to 12.6%. The decrease in expense was primarily attributable to the decrease in variable costs associated with the decrease in homes sold and lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate. Additionally, advertising expense decreased by $5.3 million as we continued to reduce marketing efforts in the second quarter of 2023 in response to the softening consumer demand for residential real estate.
General and Administrative
General and administrative expense decreased by $3.4 million, or 21.1%, to $12.7 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. This represented an increase as a percentage of revenue of 410 basis points to 5.6%. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate, and decreased insurance costs. This decrease in expense was partially offset by an increase in fees associated with our credit facilities and overall inflationary increases.
Technology and Development
Technology and development expense decreased by $0.9 million, or 28.7%, to $2.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. This represented an increase as a percentage of revenue of 70 basis points. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 34
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the three months ended June 30, 2023 and 2022 represents gains of $0.4 million and $12.5 million, respectively, as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination.
Interest Expense
Interest expense decreased by $5.9 million, or 76.0%, to $1.9 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease in expense was primarily attributable to a $813.7 million decrease in the average outstanding balance of our senior and mezzanine secured credit facilities, from $966.3 million during the three months ended June 30, 2022 to $152.6 million during the three months ended June 30, 2023. This decrease was partially offset by a 3.99% increase in the weighted average variable interest rates associated with these senior and mezzanine secured credit facilities.
Other Income, Net
Other income, net during the three months ended June 30, 2023 principally represents interest income earned on our cash and cash equivalents, which is partially offset by the loss that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that are principally associated with interest rate fluctuations.
Income Tax Expense
We recorded income tax expense of $0.04 million and $1.6 million during the three months ended June 30, 2023 and 2022, respectively, and our effective tax rate was an expense of 0.2% and 12.2% for the respective periods. Our effective tax rate during the three months ended June 30, 2023 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards, stock-based compensation, state taxes and changes in the fair value of warrant liabilities.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Revenue |
|
|||||||||
(in thousands, except percentages) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
||||||
Revenue |
|
$ |
839,726 |
|
|
$ |
2,453,368 |
|
|
$ |
(1,613,642 |
) |
|
|
(65.8 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
810,210 |
|
|
|
2,228,245 |
|
|
|
(1,418,035 |
) |
|
|
(63.6 |
)% |
|
|
96.5 |
% |
|
|
90.8 |
% |
Gross profit |
|
|
29,516 |
|
|
|
225,123 |
|
|
|
(195,607 |
) |
|
|
(86.9 |
)% |
|
|
3.5 |
% |
|
|
9.2 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales, marketing and operating |
|
|
71,391 |
|
|
|
135,127 |
|
|
|
(63,736 |
) |
|
|
(47.2 |
)% |
|
|
8.5 |
% |
|
|
5.5 |
% |
General and administrative |
|
|
27,192 |
|
|
|
30,778 |
|
|
|
(3,586 |
) |
|
|
(11.7 |
)% |
|
|
3.2 |
% |
|
|
1.2 |
% |
Technology and development |
|
|
4,553 |
|
|
|
6,425 |
|
|
|
(1,872 |
) |
|
|
(29.1 |
)% |
|
|
0.6 |
% |
|
|
0.3 |
% |
Total operating expenses |
|
|
103,136 |
|
|
|
172,330 |
|
|
|
(69,194 |
) |
|
|
(40.2 |
)% |
|
|
12.3 |
% |
|
|
7.0 |
% |
(Loss) income from operations |
|
|
(73,620 |
) |
|
|
52,793 |
|
|
|
(126,413 |
) |
|
|
(239.5 |
)% |
|
|
(8.8 |
)% |
|
|
2.2 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in fair value of warrant liabilities |
|
|
46 |
|
|
|
18,201 |
|
|
|
(18,155 |
) |
|
|
(99.7 |
)% |
|
|
0.0 |
% |
|
|
0.7 |
% |
Interest expense |
|
|
(9,299 |
) |
|
|
(14,967 |
) |
|
|
5,668 |
|
|
|
(37.9 |
)% |
|
|
(1.1 |
)% |
|
|
(0.6 |
)% |
Other income, net |
|
|
1,247 |
|
|
|
28 |
|
|
|
1,219 |
|
|
* |
|
|
|
0.2 |
% |
|
|
0.0 |
% |
|
Total other (expense) income |
|
|
(8,006 |
) |
|
|
3,262 |
|
|
|
(11,268 |
) |
|
|
(345.4 |
)% |
|
|
(0.9 |
)% |
|
|
0.1 |
% |
(Loss) income before income taxes |
|
|
(81,626 |
) |
|
|
56,055 |
|
|
|
(137,681 |
) |
|
|
(245.6 |
)% |
|
|
(9.7 |
)% |
|
|
2.3 |
% |
Income tax expense |
|
|
(165 |
) |
|
|
(3,509 |
) |
|
|
3,344 |
|
|
|
(95.3 |
)% |
|
|
(0.0 |
)% |
|
|
(0.2 |
)% |
Net (loss) income |
|
$ |
(81,791 |
) |
|
$ |
52,546 |
|
|
$ |
(134,337 |
) |
|
|
(255.7 |
)% |
|
|
(9.7 |
)% |
|
|
2.1 |
% |
* Not meaningful
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 35
Revenue
Revenue decreased by $1,613.6 million, or 65.8%, to $839.7 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily attributable to lower sales volumes and a slightly lower average sales price. We sold 2,259 homes during the six months ended June 30, 2023 compared to 6,490 homes during the six months ended June 30, 2022, representing a decrease of 65%. Additionally, the average resale home price decreased slightly from $377,000 in the six months ended June 30, 2022 to $374,000 in the six months ended June 30, 2023. These decreases were the result of the considerable softening in consumer demand for residential real estate, which began toward the end of the second quarter of 2022 and continued through the first quarter of 2023, as compared to the generally strong residential real estate market conditions during the six months ended June 30, 2022. The decreases were also due to the impact of our significant reduction in home acquisition pace to allow us to manage overall real estate inventory growth during the second half of 2022 and throughout the first quarter of 2023.
Cost of Revenue and Gross Profit
Cost of revenue decreased by $1,418.0 million, or 63.6%, to $810.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This decrease was primarily attributable to lower sales volumes and a decrease in the real estate inventory valuation adjustment.
Gross profit margin was 3.5% for the six months ended June 30, 2023 compared to 9.2% for the six months ended June 30, 2022. The decrease in gross profit margin was primarily due to a decrease in the difference between the average home resale price and the average home acquisition price during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This decrease was primarily due to the impact of the considerable softening in consumer demand for residential real estate that began toward the end of the second quarter of 2022. The decrease in gross profit margin was partially offset by a decrease in the real estate inventory valuation adjustment during the respective periods. We recorded real estate inventory valuation adjustments of $7.5 million during the six months ended June 30, 2023 as compared to $22.2 million during the six months ended June 30, 2022. This decrease in real estate inventory valuation adjustments was primarily due to the residential real estate market conditions showing signs of stabilization and improvement during the latter half of the six months ended June 30, 2023 as compared to the impact of the softening consumer demand for residential real estate that began toward the end of the second quarter of 2022 and continued through the first quarter of 2023, which caused the net realizable value for certain homes in real estate inventory to be lower than their respective cost.
Sales, Marketing and Operating
Sales, marketing and operating expense decreased by $63.7 million, or 47.2%, to $71.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This represented an increase as a percentage of revenue of 300 basis points to 8.5%. The decrease in expense was primarily attributable to the decrease in variable costs associated with the decrease in homes sold, and lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate. Additionally, advertising expense decreased by $12.0 million as we reduced marketing efforts in the first half of 2023 in response to the softening consumer demand for residential real estate.
General and Administrative
General and administrative expense decreased by $3.6 million, or 11.7%, to $27.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This represented an increase as a percentage of revenue of 200 basis points to 3.2%. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate, and decreased insurance costs. This decrease in expense was partially offset by an increase in fees associated with our credit facilities and overall inflationary increases.
Technology and Development
Technology and development expense decreased by $1.9 million, or 29.1%, to $4.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This represented an increase as a percentage of revenue of 30 basis points. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softening consumer demand for residential real estate.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 36
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the six months ended June 30, 2023 and 2022 represents gains of less than $0.1 million and $18.2 million, respectively, as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination.
Interest Expense
Interest expense decreased by $5.7 million, or 37.9%, to $9.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease in expense was primarily attributable to a $686.6 million decrease in the average outstanding balance of our senior and mezzanine secured credit facilities, from $1,073.5 million during the six months ended June 30, 2022 to $386.9 million during the six months ended June 30, 2023. This decrease was partially offset by a 3.97% increase in the weighted average variable interest rates associated with these senior and mezzanine secured credit facilities.
Other Income, Net
Other income during the six months ended June 30, 2023 principally represents interest income earned on our cash and cash equivalents, which is partially offset by the loss that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that are principally associated with interest rate fluctuations.
Income Tax Expense
We recorded income tax expense of $0.2 million and $3.5 million during the six months ended June 30, 2023 and 2022, respectively, and our effective tax rate was an expense of 0.2% and 6.3% for the respective periods. Our effective tax rate during the six months ended June 30, 2023 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards, stock-based compensation, state taxes and changes in the fair value of warrant liabilities.
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 June 30, 2023, we had cash and cash equivalents of $115.6 million and had a total undrawn borrowing capacity of $1,365.3 million, $435.3 million of which is committed and $930.0 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 six months ended June 30, 2023, and may incur additional losses in the future. We continued to invest in the development and expansion of our operations. These investments include improvements in infrastructure and a continual improvement to our software, as well as investments in sales and marketing as we increase penetration in our existing markets.
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 into more markets across the United States. 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 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 softening 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 entered into a pre-funded warrants subscription agreement with the investors named therein (the “Investors”) pursuant to which we sold and issued to the Investors an aggregate of 160.7 million pre-funded warrants (the “Pre-funded Warrants”) to purchase shares of our Class A Common Stock. Each Pre-funded Warrant was sold at a price of $0.5599 per Pre-funded Warrant and had an initial exercise price of $0.0001 per Pre-funded Warrant, subject to certain customary anti-dilution adjustment provisions. The exercise price for the Pre-funded Warrants could be paid in cash or on a cashless basis, and the Pre-funded Warrants had no expiration date. The aggregate gross proceeds to us was approximately $90.0 million, which is being used for general corporate purposes, including working capital. The 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
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 37
(“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.
The Pre-funded Warrants became exercisable during March 2023. During the six months ended June 30, 2023, all of the Pre-funded Warrants were exercised, upon which, 10.7 million shares of our Class A common stock were issued. As of June 30, 2023, there were no remaining Pre-funded Warrants outstanding.
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 Pre-funded Warrants, as discussed above). Historically, we have required access to external financing resources in order to fund growth, expansion into new markets and 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 June 30, 2023 |
Committed |
|
|
Uncommitted |
|
|
Total |
|
|
Amount |
|
|
Rate |
|
|
Period |
|
Date |
|||||
Senior financial institution 1 |
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
400,000 |
|
|
$ |
87,971 |
|
|
|
7.53 |
% |
|
June 2025 |
|
June 2025 |
Senior financial institution 2 |
|
100,000 |
|
|
|
100,000 |
|
|
|
200,000 |
|
|
|
61,527 |
|
|
|
7.22 |
% |
|
September 2023 |
|
March 2024 |
Senior financial institution 3 |
|
125,000 |
|
|
|
375,000 |
|
|
|
500,000 |
|
|
|
— |
|
|
|
7.09 |
% |
|
December 2023 |
|
December 2023 |
Related party |
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
11,761 |
|
|
|
9.76 |
% |
|
March 2024 |
|
September 2024 |
Senior financial institution 4 |
|
30,000 |
|
|
|
45,000 |
|
|
|
75,000 |
|
|
|
2,216 |
|
|
|
7.74 |
% |
|
August 2024 |
|
February 2025 |
Senior secured credit facilities |
$ |
505,000 |
|
|
$ |
745,000 |
|
|
$ |
1,250,000 |
|
|
$ |
163,475 |
|
|
|
|
|
|
|
|
|
As of June 30, 2023, 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 Secured Overnight Financing Rate (“SOFR”) reference rate, plus a margin which varies by facility.
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 and mezzanine secured credit facilities for certain of the SPEs’ obligations in situations involving “bad acts” by an Offerpad entity and certain other limited circumstances that are generally under our control. Each senior secured 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 June 30, 2023 |
Committed |
|
|
Uncommitted |
|
|
Total |
|
|
Amount |
|
|
Rate |
|
|
Period |
|
Date |
|||||
Related party facility 1 |
$ |
65,000 |
|
|
$ |
32,500 |
|
|
$ |
97,500 |
|
|
$ |
14,324 |
|
|
|
11.00 |
% |
|
June 2024 |
|
June 2024 |
Mezzanine financial institution 1 |
|
22,500 |
|
|
|
22,500 |
|
|
|
45,000 |
|
|
|
11,722 |
|
|
|
12.50 |
% |
|
September 2023 |
|
March 2024 |
Mezzanine financial institution 2 |
|
— |
|
|
|
112,500 |
|
|
|
112,500 |
|
|
|
— |
|
|
|
9.50 |
% |
|
December 2023 |
|
December 2023 |
Related party facility 2 |
|
35,000 |
|
|
|
17,500 |
|
|
|
52,500 |
|
|
|
2,689 |
|
|
|
13.00 |
% |
|
March 2024 |
|
September 2024 |
Mezzanine secured credit facilities |
$ |
122,500 |
|
|
$ |
185,000 |
|
|
$ |
307,500 |
|
|
$ |
28,735 |
|
|
|
|
|
|
|
|
|
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 38
As of June 30, 2023, 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 fixed rates, which vary by facility and range from 9.5% to 13.0%.
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
The 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 June 30, 2023, we were in compliance with all covenants and no event of default had occurred.
Senior Secured Debt - Other
As of June 30, 2023, we have a borrowing arrangement with a financial institution to support purchases of real estate inventory. Borrowings under this arrangement accrue interest at a rate based on a SOFR reference rate, plus a margin. As of June 30, 2023, the weighted-average interest rate under our other senior secured debt was 11.26%.
Warehouse Lending Facility
We have a warehouse lending facility with a related party that is used to fund mortgage loans that we originate and then sell to third-party mortgage servicers. As of June 30, 2023, the outstanding balance on the warehouse lending facility was $1.2 million.
Cash Flows
The following summarizes our cash flows for the six months ended June 30, 2023 and 2022:
|
|
Six Months Ended June 30, |
|
|||||
($ in thousands) |
|
2023 |
|
|
2022 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
371,495 |
|
|
$ |
(112,479 |
) |
Net cash used in investing activities |
|
|
(1,962 |
) |
|
|
(725 |
) |
Net cash (used in) provided by financing activities |
|
|
(387,575 |
) |
|
|
118,709 |
|
Net change in cash, cash equivalents and restricted cash |
|
$ |
(18,042 |
) |
|
$ |
5,505 |
|
Operating Activities
Net cash provided by operating activities was $371.5 million and net cash used in operating activities was ($112.5) million for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023, net cash provided by operating activities primarily resulted from a $446.1 million decrease in real estate inventory due to an intentional reduction in real estate inventory levels given the dramatic decline in consumer demand for residential real estate, which began toward the end of the second quarter 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 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 six months ended June 30, 2023 was also impacted by the $81.8 million net loss during the period, which included a $7.5 million non-cash real estate inventory valuation adjustment as a result of the softening consumer demand for residential real estate.
For the six months ended June 30, 2022, net cash used in operating activities primarily resulted from a $179.1 million increase in real estate inventory due to the execution of our growth plan and generally favorable housing market conditions across our markets. This use of cash was partially offset by cash inflows from net income of $52.5 million, which included a $22.2 million non-cash real estate inventory valuation adjustment as a result of the softening consumer demand for residential real estate toward the end of the second quarter of 2022 and an $18.2 million non-cash gain as a result of the fair value adjustment of the warrant liabilities, and a net increase in non-real estate inventory working capital balances.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 39
Investing Activities
Net cash used in investing activities was $2.0 million and $0.7 million during the six months ended June 30, 2023 and 2022, respectively. Net cash used in investing activities during the six months ended June 30, 2023 principally represents the purchases of derivative instruments.
Net cash used in investing activities during the six months ended June 30, 2022 represents purchases of property and equipment.
Financing Activities
Net cash used in financing activities was $387.6 million and net cash provided by financing activities was $118.7 million during the six months ended June 30, 2023 and 2022, respectively. Net cash used in financing activities during the six months ended June 30, 2023 primarily consisted of $889.8 million of repayments of credit facilities and other debt, which was partially offset by $412.0 million of borrowings from credit facilities and other debt. This net decrease in credit facility funding of $477.8 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.
Net cash provided by financing activities during the six months ended June 30, 2022 primarily consisted of $2,132.2 million of borrowings from credit facilities and other debt, which was partially offset by $2,018.0 million of repayments of credit facilities and other debt. This net increase in credit facility funding of $114.2 million was directly related to financing the increase in real estate inventory during the period.
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, 2022.
There have been no material changes in our material cash requirements and other obligations since December 31, 2022 through June 30, 2023.
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, 2022.
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, 2022.
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, 2022. 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, 2022.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 40
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 June 30, 2023, 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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 41
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 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 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.
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, 2022. 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, 2022.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
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 June 30, 2023.
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 June 30, 2023, no director or “officer” (as defined in Rule 16a-1(f) of the Exchange Act) of the Company
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 42
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 |
|
10.1 |
|
|
8-K |
|
001-39641 |
|
10.1 |
|
6/20/23 |
|
10.2 |
|
|
8-K |
|
001-39641 |
|
10.3 |
|
7/6/23 |
|
10.3 |
|
|
8-K |
|
001-39641 |
|
10.1 |
|
7/6/23 |
|
10.4 |
|
Form of 2023 Long Term Incentive Award Agreement (under the 2021 Incentive Award Plan) |
|
8-K |
|
001-39641 |
|
10.2 |
|
7/6/23 |
10.5* |
|
Offerpad Solutions Inc. Non-Employee Director Compensation Program |
|
|
|
|
|
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
|
|
31.2* |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
|
|
32.1** |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
|
|
|
|
|
|
|
|
32.2** |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
|
|
|
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
|
* Filed herewith.
** Furnished herewith.
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 43
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.
|
|
OFFERPAD SOLUTIONS INC. |
|
|
|
|
|
Date: August 2, 2023 |
|
By: |
/s/ Brian Bair |
|
|
|
Brian Bair |
|
|
|
Chief Executive Officer and Chairman of the Board (Principal Executive Officer) |
|
|
|
|
Date: August 2, 2023 |
|
By: |
/s/ Jawad Ahsan |
|
|
|
Jawad Ahsan |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Offerpad Solutions Inc. | Second Quarter 2023 Form 10-Q | 44