Opendoor Technologies Inc. 2022 Q1 10-Q Summary
Business context and reporting period
Opendoor operates a digital residential real estate platform, primarily acquiring, renovating and reselling homes, with adjacent title, escrow, mortgage and other services. This Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The company operated in 45 markets at quarter-end, including one market launched during the quarter.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $5.151 billion | $747 million | +590% |
| Homes sold | 12,669 | 2,462 | +415% |
| Gross profit | $535 million | $97 million | +452% |
| Gross margin | 10.4% | 13.0% | Down 260 basis points |
| Operating income (loss) | $118 million | $(245) million | Improved $363 million |
| Net income (loss) | $28 million | $(270) million | Improved $298 million |
| Diluted earnings (loss) per share | $0.04 | $(0.48) | Improved |
| Adjusted Net Income (non-GAAP) | $99 million | $(21) million | Improved $120 million |
| Adjusted EBITDA (non-GAAP) | $176 million | $(2) million | Improved $178 million |
| Adjusted EBITDA margin | 3.4% | (0.3)% | Improved |
| Contribution profit (non-GAAP) | $332 million | $76 million | +337% |
| Contribution margin | 6.4% | 10.2% | Down 380 basis points |
Cash and cash equivalents were $2.312 billion at March 31, 2022, compared with $1.731 billion at December 31, 2021. Restricted cash was $444 million and marketable securities were $464 million. Real estate inventory declined to $4.664 billion from $6.096 billion, while homes in inventory totaled 13,360.
Operating activities generated $1.550 billion of cash, primarily because real estate inventory decreased by $1.416 billion. Investing activities used $38 million, and financing activities used $1.334 billion, principally from $1.330 billion of net repayments of non-recourse asset-backed debt. Cash, cash equivalents and restricted cash increased by $178 million during the quarter to $2.756 billion.
Debt and liquidity
- Non-recourse asset-backed debt had a carrying value of $4.773 billion, consisting of $2.660 billion current and $2.113 billion non-current debt.
- Other secured borrowings were $10 million.
- The 0.25% convertible senior notes due 2026 had $978 million principal outstanding and a $955 million carrying value.
- Total non-recourse asset-backed borrowing capacity was $11.3 billion, including $8.4 billion of fully committed capacity. Undrawn capacity was approximately $6.5 billion, of which $3.9 billion was fully committed.
- Management stated that available cash, marketable securities, expected operating cash flow and borrowings should be sufficient for working capital and capital expenditures for at least twelve months from the filing date.
- The company was in compliance with applicable financial covenants, and no debt event of default had occurred as of March 31, 2022.
Material changes versus the prior comparable period
- Revenue and home sales expanded substantially as the company scaled its inventory and market footprint. Revenue per home increased 34%, while cost of revenue per home increased 38%.
- Margins contracted as inventory mix normalized and the unusually conservative underwriting and “fresh” inventory benefits present in Q1 2021 moderated. Adjusted gross margin fell to 9.9% from 13.0%, and contribution margin fell to 6.4% from 10.2%.
- Sales, marketing and operations expense increased 300% to $276 million, driven by higher transaction costs, holding costs, advertising and headcount.
- General and administrative expense declined 55% to $101 million, and technology and development expense declined 22% to $40 million, largely because Q1 2021 included significant stock-based compensation associated with the 2021 public offering.
- Interest expense increased to $68 million from $11 million as debt balances and inventory increased.
- Q1 2022 included a $22 million unrealized loss on equity securities and an $8 million inventory valuation adjustment. Q1 2021 included a $15 million warrant fair value expense and a $5 million gain from lease termination.
- Stock-based compensation declined to $67 million from $239 million, but unamortized stock-based compensation remained $632 million at quarter-end.
Guidance, outlook, commentary and risks
The filing does not provide a clear quantitative revenue, earnings or EBITDA guidance range. Management expects continued investment in market expansion, adjacent services, technology, automation and inventory growth. It expects working capital requirements to increase and anticipates that interest expense will rise with inventory. Management also expects to evaluate additional and potentially more cost-effective financing sources relative to mezzanine debt.
As of March 31, 2022, Opendoor was contractually committed to purchase 8,066 homes for an aggregate purchase price of $3.2 billion. Key risks include residential real estate prices and demand, inventory valuation and holding periods, interest-rate increases, access to asset-backed financing, competition, regulatory compliance, COVID-19-related disruptions, execution of market expansion and the ability to sustain profitability.
The company estimates that a one-percentage-point increase in benchmark interest rates would increase annual interest expense by approximately $27 million, assuming unchanged borrowings. The Federal Trade Commission investigation concerning advertising and representations about home offers, repair costs and seller proceeds remained unresolved. Settlement negotiations were ongoing, and the company stated that a settlement or enforcement action could result in material monetary remedies or compliance requirements; the possible incremental loss could not be estimated.
Important facts for investors to verify
- Whether gross, adjusted gross and contribution margins stabilize or continue to decline as inventory and market coverage expand.
- The profitability and cash conversion of homes acquired under the $3.2 billion purchase commitment.
- Availability, cost, renewal terms and lender discretion associated with the company’s non-recourse financing facilities.
- Exposure to higher benchmark rates, particularly given floating-rate debt and increased interest expense.
- Inventory aging, valuation adjustments, resale prices and holding periods in a potentially changing housing market.
- The ultimate resolution and financial or operational impact of the FTC matter.
- The effect of $632 million of unamortized stock-based compensation on future expenses and potential dilution.
- Whether non-GAAP Adjusted EBITDA and Adjusted Net Income remain positive after considering inventory valuation, financing and selling costs under GAAP.