Offerpad Solutions Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Offerpad operates a technology-enabled residential real estate business, including home purchases and resales, listing and renovation services, and ancillary offerings. At quarter-end, it served 27 metropolitan markets across 17 states.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $285.4 million | $609.6 million; down 53.2% |
| Homes sold / average resale price | 847 / $332,000 | 1,609 / $379,000 |
| Gross profit / gross margin | $22.6 million / 7.9% | $7.3 million / 1.2% |
| Operating expenses | $36.2 million | $59.1 million |
| Operating loss | $13.6 million | $51.8 million |
| Net loss / diluted loss per share | $17.5 million / $0.64 | $59.4 million / $2.51 |
| Adjusted EBITDA (non-GAAP) | Loss of $7.1 million; margin (2.5%) | Loss of $44.8 million; margin (7.3%) |
| Contribution profit after interest (non-GAAP) | $10.0 million; margin 3.5% | Loss of $75.4 million; margin (12.4%) |
Adjusted and contribution measures are non-GAAP and have limitations; the filing provides reconciliations to GAAP measures.
- Cash flow: Operating activities provided $2.4 million, versus $426.4 million in Q1 2023. The prior-year inflow largely reflected a $484.8 million reduction in real estate inventory. Investing activities used $0.3 million and financing activities used $3.5 million. Cash, cash equivalents and restricted cash declined $1.4 million to $78.5 million, including $68.6 million of unrestricted cash.
- Liquidity: Current assets were $353.3 million and current liabilities $272.1 million at March 31, 2024. Management said cash, home-sale proceeds and available or new financing should meet obligations for at least 12 months, but funding depends on market conditions and lender availability.
- Debt: Secured credit facilities and other debt, net, totaled $254.6 million, down from $257.2 million at year-end. Debt is classified as current because it is generally repaid as financed homes sell. Total undrawn senior and mezzanine capacity was $796.0 million, of which $306.2 million was committed and $489.8 million uncommitted. Several facility revolving periods or maturities fall in 2024–2025. The company reported compliance with covenants and no defaults at quarter-end.
- Inventory and equity: Real estate inventory was $266.1 million, down from $276.5 million at December 31, 2023. Stockholders’ equity was $88.1 million, versus $101.8 million at year-end.
Material changes and management commentary
- Revenue fell 53.2%, reflecting 47.4% fewer homes sold and a lower average resale price. Management attributed lower volume in part to Q1 2023 sales of homes acquired before the mid-2022 market shift; the lower average price also reflected greater focus on lower-priced markets and a refined target purchase range.
- Gross margin improved to 7.9% from 1.2%. The filing attributes the change mainly to a wider gap between average resale and acquisition prices and a $6.7 million reduction in inventory valuation adjustments. Inventory valuation adjustments were $0.6 million in Q1 2024 versus $7.3 million in Q1 2023.
- Operating expenses declined 38.8%, including lower variable costs, advertising, credit-facility fees and average headcount. Advertising expense was $4.4 million, down from $8.0 million.
- Interest expense decreased to $4.9 million from $7.4 million, primarily as average senior and mezzanine facility balances fell; higher average variable rates partly offset the reduction.
- Management reported a third consecutive quarter-over-quarter revenue improvement and said gross profit margin improved both sequentially and year over year. It anticipates further quarter-over-quarter gross-margin improvement in Q2 2024, but gave no specific numerical revenue, earnings or margin guidance.
- Management cited mortgage-rate volatility, inflation, affordability constraints, limited resale-home supply, geopolitical concerns and seasonality as pressures on demand and results. Mortgage rates continued to rise during Q2, according to the filing. The company is allocating capital toward its highest-performing and most efficient markets and may continue using pricing adjustments and incentives.
- Average holding period for homes sold rose to 113 days in Q1 2024 from 97 days in Q4 2023, which management described as a normal seasonal increase; it expects about 110 days in Q2.
- Offerpad expanded renovation services into two markets, bringing its footprint to 27 markets. Renovation services represented about 2% of Q1 revenue; investor-matching and other ancillary offerings each represented less than 1%.
Risks, contingencies and unusual items
- Home resale values, inventory carrying periods and transaction volumes are exposed to housing-market conditions; changes in pricing assumptions can require inventory write-downs.
- Access to financing is significant to the business. Much of the reported $796.0 million of undrawn capacity is uncommitted and subject to lender discretion. Management expects to renew or replace facilities as needed, including facilities with maturities within 12 months after issuance of the statements.
- At March 31, 2024, Offerpad was under contract to purchase 545 homes for an aggregate $156.4 million.
- Related-party credit facilities had $24.5 million outstanding at quarter-end. Certain related-party lenders and service providers have connections to significant shareholders or directors.
- The company recorded a full valuation allowance against deferred tax assets; the allowance was $111.0 million. No legal proceedings were identified as likely to have a material adverse effect, and the filing reported no material changes to risk factors or market-risk exposure.
- Q1 included $3.9 million of stock-based compensation. The company recognized $7.9 million of right-of-use assets for new or acquired operating lease liabilities, and total lease liabilities rose to $11.5 million from $3.7 million at year-end. The filing identifies a future Tempe headquarters lease.
- Management said disclosure controls were effective at the reasonable-assurance level and reported no material changes to internal control over financial reporting. A director notified the company in May of his planned resignation effective after the 2024 annual meeting; the filing said it was not due to a disagreement.
Important facts for investors to verify
- Whether the expected Q2 gross-margin improvement materializes, and how GAAP gross margin compares with the company’s non-GAAP cohort and contribution measures.
- Facility renewal and refinancing progress, particularly for near-term maturities, and the amount of borrowing capacity that is actually committed and available.
- Real estate inventory quality, valuation assumptions, resale prices and holding periods as housing affordability and mortgage rates affect demand.
- Cash needs to fund the 545 contracted home purchases and ongoing operations, and whether operating cash generation can persist without inventory liquidation.
- Progress in increasing the contribution of renovation, listing, agent-partner and ancillary services while managing financing costs and related-party arrangements.