Offerpad Solutions Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; dollar amounts below are in millions unless noted.
Business context
Offerpad operates a technology-enabled residential real estate platform, primarily buying, renovating and reselling homes through its Express offering, alongside Flex listing and ancillary services. At quarter-end it served 27 metropolitan markets across 16 states. The filing describes housing conditions as strong earlier in the first half, but says demand softened toward the end of Q2 amid rising mortgage rates, inflation and stock-market volatility.
Financial and operating highlights
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,079.5 | $378.6 | $2,453.4 | $662.6 |
| Gross profit / margin | $93.0 / 8.6% | $50.9 / 13.4% | $225.1 / 9.2% | $84.4 / 12.7% |
| Operating income | $8.4 | $11.5 | $52.8 | $13.0 |
| Net income | $11.6 | $9.2 | $52.5 | $9.0 |
| Operating cash flow | Not presented for the quarter | $(112.5) | $(297.5) |
- Q2 revenue rose 185% year over year, driven by 2,888 homes sold versus 1,259 and a 25% increase in average resale price to $372,000. For the first half, homes sold increased 185% to 6,490 and average resale price rose 30% to $377,000.
- Gross margin declined as acquisition-to-resale price spreads narrowed and the company recorded approximately $21.0 million of Q2 inventory impairment. First-half inventory impairment was $22.2 million.
- Q2 net income included a $12.5 million non-cash gain from revaluing warrant liabilities. Excluding that gain, the company reported adjusted net loss of $1.0 million for Q2; adjusted EBITDA was $13.7 million. These are non-GAAP measures and are not substitutes for GAAP results.
- Q2 contribution margin after interest, a non-GAAP unit-economics measure, was 7.6%, versus 10.5% a year earlier; contribution profit after interest per home sold was $28,500 versus $31,500.
- First-half operating cash outflow primarily reflected a $179.1 million increase in inventory. Financing activities provided $118.7 million net, including $2.132 billion of borrowings and $2.018 billion of repayments.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $155.5 million; restricted cash was $44.5 million. Inventory was $1.289 billion, up from $1.133 billion at December 31, 2021.
- Secured credit facilities and notes payable, net, totaled $1.142 billion, compared with $1.026 billion at year-end. The debt is primarily inventory-backed and classified as current because repayment is generally due as homes are sold.
- Management reported $719.2 million of undrawn borrowing capacity at quarter-end: $632.9 million senior and $86.3 million mezzanine. It said cash, home-sale proceeds and available or new financing should meet obligations for at least 12 months after issuance of the statements.
- Some borrowing capacity is uncommitted, and certain facilities had maturities within 12 months of the filing’s issuance. The company was in compliance with its debt covenants at June 30.
Outlook, risks and notable items
- The filing gives no specific numerical revenue, earnings or margin guidance. Management expects working-capital needs to increase over the long term as it grows inventory and expands markets.
- Management identified softer housing demand, higher mortgage rates, inflation and potential recession as risks to affordability, buyer sentiment, home demand and results. It also cited dependence on access to inventory financing and the risk that credit-market volatility or rising rates could make financing harder or more expensive.
- In July 2022, a related-party mezzanine facility was amended to increase capacity from $65.0 million to $97.5 million, with $32.5 million uncommitted, and extend maturity from August 2022 to June 2024. The filing also notes a $15.0 million warehouse facility entered into by its mortgage subsidiary in July.
- At June 30, the company was under contract to purchase 2,483 homes for an aggregate $869.6 million. It reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether home prices and sales velocity stabilize, and how further market softening affects inventory impairment and gross margins.
- Inventory exposure, including the $1.289 billion carrying value and $869.6 million of contracted home purchases.
- Availability and renewal terms of committed and uncommitted facilities, near-term maturities, borrowing costs and compliance with covenants.
- Cash conversion and the company’s ability to fund inventory growth without relying on additional borrowing or equity issuance.
- How GAAP profitability compares with non-GAAP unit economics, particularly given warrant remeasurement gains and higher interest expense.