Offerpad Solutions Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited; amounts below are U.S. dollars, rounded to millions unless noted.
Business context
Offerpad operates a home buying and selling platform, including cash offers, listing, renovation, title and escrow, and mortgage services. At quarter-end, it operated in 25 metropolitan markets across 15 states. Its results remain heavily dependent on home resale transaction volumes, real estate inventory values, and access to inventory financing.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $234.2m | $821.7m | $1,074.0m | $3,275.1m |
| Gross profit / margin | $24.0m / 10.2% | $2.2m / 0.3% | $53.5m / 5.0% | $227.3m / 6.9% |
| Operating loss | $(19.5)m | $(70.2)m | $(93.2)m | $(17.4)m |
| Net loss | $(20.0)m | $(80.0)m | $(101.8)m | $(27.5)m |
| Net loss per share | $(0.73) | $(4.86) | $(3.90) | $(1.69) |
Q3 homes sold fell 69% year over year to 703; average resale price declined to $327,000 from $360,000. Management attributed the revenue decline mainly to lower sales volume following reduced acquisitions and, to a lesser extent, lower average resale prices. The Q3 gross margin recovery reflected improved resale-versus-acquisition spreads and a substantially smaller inventory valuation adjustment. Nine-month results remained weaker year over year, with lower gross profit and a larger net loss.
Q3 non-GAAP contribution profit after interest was $19.1m, or 8.2% of revenue, versus a $10.3m loss, or negative 1.3%, in Q3 2022. For the first nine months, it was a loss of $58.2m, or negative 5.4%, versus profit of $160.0m, or 4.9%. These management-defined measures are not substitutes for GAAP results.
Cash flow, balance sheet and financing
- Cash and liquidity: September 30 cash and cash equivalents were $106.0m, plus $7.4m restricted cash. The company reported $1,279.9m of undrawn borrowing capacity, of which $349.9m was committed; uncommitted availability depends on lenders.
- Debt and inventory: Net secured credit facilities and other debt were $275.8m, down from $666.1m at December 31, 2022. Real estate inventory was $289.6m, down from $664.7m. Debt is principally inventory-backed and classified as current because it is generally repaid when homes are sold.
- Cash flows: For the nine months, operating activities provided $277.0m (versus $91.9m used in 2022), primarily as inventory declined. Financing activities used $304.2m, including net repayment of credit facilities; investing activities provided $0.3m. The filing does not provide a clear quarter-only cash flow value.
- Equity: In January 2023, Offerpad raised $90.0m gross from pre-funded warrants, which were all exercised during the nine months and resulted in 10.7m shares issued. The company’s June 2023 1-for-15 reverse stock split is reflected retrospectively in share and per-share data.
Outlook, commentary and risks
Management said housing conditions stabilized or improved in Q2 and Q3, with sequential improvement in gross margin and net loss, increased acquisitions and inventory, and a shorter average holding period. The holding period declined to 76 days in Q3; management expected it to approach about 100 days in Q4. It did not anticipate entering new markets during the remainder of 2023.
Management expects elevated mortgage rates, inflation, affordability pressures, low resale-home supply, economic uncertainty, and normal seasonal patterns to weigh on Q4 demand. It believes available cash, home-sale proceeds, and existing or new financing will meet obligations for at least 12 months, but that assessment depends on market conditions and continued financing access. Some facilities mature within 12 months; the company said it expected renewals or replacement financing. It was in covenant compliance at September 30, 2023, with no defaults reported. October amendments extended maturities on two facilities to July 2025; one mezzanine facility’s rate terms also changed.
Other notable items: Offerpad recorded $8.4m of inventory valuation adjustments for the first nine months, versus $49.7m in 2022. It held contracts to purchase 393 homes for $103.3m at quarter-end. The filing reported no litigation expected to have a material adverse effect and no material changes to the risk factors in its 2022 Form 10-K. Risks include inventory valuation and resale timing, housing-market weakness, interest rates, and lender availability; most facility capacity was uncommitted.
Important facts for investors to verify
- Whether Q4 acquisitions, inventory turnover, and holding periods support management’s expected return toward a roughly 100-day holding period.
- Actual availability and renewal terms for uncommitted facilities, upcoming maturities, borrowing-base requirements, and interest costs.
- Whether improved Q3 gross margin persists after considering inventory write-downs, holding costs, and financing costs.
- Cash use and liquidity as inventory rebuilds, given continued GAAP losses and reliance on asset-backed financing.
- Share dilution and related-party financing and transactions, including the completed pre-funded warrant issuance and exercise.