Offerpad Solutions Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results. Offerpad operates a technology-enabled home buying and selling platform, primarily purchasing, renovating and reselling homes through its Express cash offer service. It operated in 28 metropolitan markets across 16 states.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $3,952.3 million | $2,070.4 million |
| Gross profit / margin | $182.4 million / 4.6% | $207.8 million / 10.0% |
| Operating income (loss) | $(127.3) million | $19.8 million |
| Net income (loss) | $(148.6) million | $6.5 million |
| Adjusted EBITDA (non-GAAP) | $(103.8) million | $29.9 million |
| Contribution profit after interest (non-GAAP) | $98.8 million / 2.5% margin | $145.9 million / 7.0% margin |
| Operating cash flow | $305.4 million provided | $921.9 million used |
Revenue rose 90.9%, as homes sold increased 67% to 10,635 and average resale price rose 14% to $371,000. Gross profit nevertheless fell 12.2%, as cost of revenue grew faster than sales. The company recorded $93.8 million of inventory impairment losses, versus $2.8 million in 2021. Non-GAAP measures are management-defined supplements and are not substitutes for GAAP results.
At year-end, cash and cash equivalents were $97.2 million, restricted cash was $43.1 million, inventory was $664.7 million, total assets were $825.1 million and stockholders’ equity was $121.9 million. Debt principal outstanding was approximately $666.1 million, including $581.7 million under senior and mezzanine inventory facilities. The company reported $1,345.8 million of undrawn borrowing capacity, of which $256.7 million was committed and $1,089.1 million uncommitted. Most debt is secured by inventory, and facilities are generally repaid as homes sell.
Operating cash flow benefited principally from a $374.1 million reduction in inventory as Offerpad slowed acquisitions and sold existing homes. Financing cash flow was a $358.5 million use, reflecting net debt repayments. Thus, positive operating cash flow reflected inventory liquidation, not positive net earnings.
Material changes and management commentary
- Housing conditions shifted sharply: strong demand and price appreciation in the first half gave way to softer demand in the second half amid higher mortgage rates, inflation and reduced buyer confidence.
- Offerpad tightened acquisition underwriting, reduced home purchases and repriced inventory. Average holding period for homes sold increased to 101 days from 76 days in 2021; management expected it to rise further in early 2023, increasing holding costs and pressuring sale prices and margins.
- Top five markets generated 49% of 2022 revenue, down from 61% in 2021. The company estimated approximately 0.9% market share across its 28 active markets.
- Flex listings and ancillary products each contributed less than 1% of revenue in both 2022 and 2021, although management views them as potential higher-margin growth avenues.
- Management stated cash on hand, home-sale proceeds and available financing were expected to cover short-term working capital and capital expenditure needs for at least 12 months, while noting that access to financing depends on market conditions. The filing provides no specific financial earnings or revenue guidance.
Outlook, risks and unusual items
- Offerpad did not anticipate entering new markets in the first half of 2023 and planned to reassess expansion in the second half.
- On January 31, 2023, it issued 160.7 million pre-funded warrants for approximately $90 million gross proceeds, intended for general corporate purposes, including working capital. This creates substantial potential dilution. Investors included the CEO, directors and significant shareholders.
- In February 2023, amendments reduced borrowing capacity on a senior facility from $400 million to $200 million, with $100 million committed, and on a mezzanine facility from $90 million to $45 million, with $22.5 million committed. The company also said certain facilities mature within 12 months of the financial statement issuance and expected to renew or replace financing.
- The NYSE notified Offerpad in November 2022 that its share price did not meet the $1 minimum average closing price standard. The company intended to cure the deficiency and could consider a reverse stock split; delisting remained a risk.
- Other principal risks include home valuation and inventory losses, housing-market declines, interest-rate and financing exposure, reliance on uncommitted credit availability, regulatory and privacy obligations, cybersecurity, and geographic concentration. A 1 percentage-point increase in SOFR was estimated to add $4.9 million to annual interest expense at 2022 borrowing levels.
- The filing reported no legal proceedings expected to have a material adverse effect. The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded internal controls were effective at year-end.
Important facts for investors to verify
- Whether inventory impairment, resale prices and holding periods continue to worsen, and how those trends affect gross and contribution margins.
- Whether the $90 million warrant financing and remaining committed credit capacity are sufficient, given uncommitted facilities, upcoming maturities and the February 2023 capacity reductions.
- Current liquidity and inventory levels, including the extent to which reported operating cash generation depended on inventory reduction.
- The final dilution and control implications of the pre-funded warrants and the announced conversion of CEO Brian Bair’s Class B shares to Class A after the 2023 annual meeting.
- NYSE listing compliance status and any reverse stock split or other remedial action.
- Progress on Flex listings and ancillary services, which remained a very small share of revenue, and any subsequent financial outlook not stated in this filing.