Opendoor(OPEN) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Opendoor Technologies Inc.'s unaudited condensed consolidated financial statements as of June 30, 2023, and for the three and six-month periods then ended, including balance sheets, statements of operations, comprehensive income, changes in shareholders' equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $4.22 billion from $6.61 billion at year-end 2022, primarily due to reduced real estate inventory, while total liabilities also decreased to $3.14 billion from $5.52 billion, with shareholders' equity remaining stable at $1.086 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,120 | $1,137 | | Restricted cash | $1,684 | $654 | | Real estate inventory, net | $1,149 | $4,460 | | Total Assets | $4,223 | $6,608 | | Liabilities | | | | Non-recourse asset-backed debt (Current & Non-current) | $2,542 | $4,396 | | Convertible senior notes | $501 | $959 | | Total Liabilities | $3,137 | $5,522 | | Total Shareholders' Equity | $1,086 | $1,086 | Condensed Consolidated Statements of Operations For Q2 2023, the company reported $23 million net income, a turnaround from a $54 million net loss in Q2 2022, driven by a $104 million gain on debt extinguishment despite a 53% revenue decline to $1.98 billion Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,976 | $4,198 | $5,096 | $9,349 | | Gross Profit | $149 | $486 | $319 | $1,021 | | (Loss) Income from Operations | $(68) | $32 | $(192) | $150 | | Gain on Extinguishment of Debt | $104 | $— | $182 | $— | | Net Income (Loss) | $23 | $(54) | $(78) | $(26) | | Diluted EPS | $0.03 | $(0.09) | $(0.12) | $(0.04) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash provided by operating activities was $3.1 billion, primarily from a $3.26 billion decrease in real estate inventory, while net cash used in financing activities was $2.1 billion, resulting in a $1.01 billion net increase in cash and equivalents Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,102 | $(343) | | Net cash provided by investing activities | $45 | $183 | | Net cash (used in) provided by financing activities | $(2,134) | $436 | | Net increase in cash, cash equivalents, and restricted cash | $1,013 | $276 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and financial items, highlighting a reduction in real estate inventory to $1.15 billion, $10.1 billion in non-recourse debt capacity, $510 million in remaining convertible notes, a $10 million restructuring charge, and ongoing securities litigation - Real estate inventory decreased to $1.149 billion as of June 30, 2023, from $4.460 billion at the end of 2022. The company recorded inventory valuation adjustments of $14 million and $37 million for the three and six months ended June 30, 2023, respectively[48][49] - In March and May 2023, the company repurchased a total of $468 million in aggregate principal amount of its 2026 Convertible Senior Notes for $270 million in cash, resulting in a total gain on debt extinguishment of $188 million[83][84] - In April 2023, the company announced a workforce reduction of approximately 560 employees (22% of workforce), incurring a total expense of approximately $10 million for post-employment benefits[131] - The company is a defendant in a consolidated securities class action lawsuit alleging false or misleading statements related to its pricing algorithm. The company believes the allegations are without merit and intends to defend itself vigorously[128] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operating cautiously in a challenging housing market with low supply and price uncertainty, achieving $23 million net income in Q2 2023 despite a 53% revenue decline, driven by a $104 million debt extinguishment gain and significant 'old book' inventory reduction Overview and Financial Highlights The company navigates a housing market with low listing volumes and price uncertainty by operating with elevated spreads and right-sizing costs, including a 22% workforce reduction, resulting in $2.0 billion revenue and $23 million net income for Q2 2023 Q2 2023 Financial Highlights (vs. Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenue | $1,976M | $4,198M | | Homes Sold | 5,383 | 10,482 | | Gross Profit | $149M | $486M | | Net Income (Loss) | $23M | $(54)M | | Adjusted EBITDA | $(168)M | $218M | | Homes in Inventory | 3,558 | 17,013 | - The company is operating with elevated spreads to account for ongoing home price uncertainty and expects modest month-over-month home price depreciation in the second half of 2023[140] - A workforce reduction of approximately 22% (560 employees) was announced in April 2023, expected to deliver over $50 million in annualized savings[143] Factors Affecting our Business Performance Key business drivers include market penetration, partnerships with major online platforms like Zillow, Redfin, and Realtor.com, and a focus on inventory health, significantly reducing 'old book' inventory from $3.5 billion to $254 million by June 30, 2023 - The company has partnerships with the three largest online real estate platforms: Zillow, Redfin, and Realtor.com. The Zillow partnership, launched in early 2023, was live in 25 markets as of June 30, 2023[146] - The company has been focused on managing inventory risk, particularly on homes acquired before the market downturn ('old book'). This inventory was reduced by 93% from $3.5 billion at Dec 31, 2022 to $254 million at June 30, 2023[154] - Inventory valuation adjustments were significantly lower in 2023, at $14 million for Q2 and $37 million for H1, compared to 2022 levels[155] Results of Operations Q2 2023 revenue decreased 53% to $2.0 billion due to fewer homes sold and lower revenue per home, while gross profit fell 69% to $149 million, and operating expenses decreased 52% to $217 million, contributing to $23 million net income Results of Operations Comparison (in millions) | Line Item | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $1,976 | $4,198 | (53)% | | Gross Profit | $149 | $486 | (69)% | | Total Operating Expenses | $217 | $454 | (52)% | | (Loss) Income from Operations | $(68) | $32 | (313)% | | Gain on Extinguishment of Debt | $104 | $— | N/M | | Net Income (Loss) | $23 | $(54) | (143)% | - The decrease in revenue was primarily due to a 49% decrease in homes sold (5,383 in Q2 2023 vs. 10,482 in Q2 2022) and an 8% decrease in revenue per home sold[200] - Sales, marketing, and operations expenses decreased by 55%, primarily due to a $63 million reduction in advertising expense and lower resale transaction costs[207] - General and administrative expenses decreased by 68%, mainly due to a $38 million reduction in stock-based compensation and a $42 million legal contingency accrual in the prior-year period that did not recur[211] Liquidity and Capital Resources As of June 30, 2023, the company maintained strong liquidity with $1.1 billion in cash and equivalents, $1.7 billion in restricted cash, and $90 million in marketable securities, supported by $10.1 billion in non-recourse debt capacity and recent convertible note repurchases - As of June 30, 2023, principal sources of liquidity consisted of $1.1 billion in cash and cash equivalents, $1.7 billion in restricted cash, and $90 million in marketable securities[223] - In March and May 2023, the company repurchased a combined $468 million in aggregate principal of its 2026 Notes, which strengthened the balance sheet[225] Debt Summary as of June 30, 2023 (in billions) | Debt Type | Borrowing Capacity | Outstanding Balance | | :--- | :--- | :--- | | Non-Recourse Asset-backed Debt | $10.1 | $2.6 | | Convertible Senior Notes | N/A | $0.51 | - Cash from operations was a positive $3.1 billion for H1 2023, primarily driven by a $3.3 billion decrease in real estate inventory, while cash used in financing was $2.1 billion due to net debt repayments[251][252][254] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and inflation risks, with only 1% of its $2.6 billion asset-backed debt being floating-rate, limiting interest rate sensitivity, and mitigating inflation impacts through pricing and operational models - The company is exposed to interest rate risk, with $15 million in floating-rate debt outstanding as of June 30, 2023. A 1% increase in benchmark rates would increase annual interest expense by approximately $0.1 million[262] - Inflation impacts the cost of goods and services, such as labor and materials for home repairs. The company tries to offset these impacts through its pricing and operational models[263] Controls and Procedures Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Interim Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[265] - No changes occurred during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[266] PART II - OTHER INFORMATION Legal Proceedings The company is a defendant in a consolidated securities class action lawsuit and related shareholder derivative lawsuits, alleging false or misleading statements regarding its pricing algorithm, which the company intends to vigorously defend - The company is a defendant in a consolidated securities class action lawsuit, In re Opendoor Technologies Inc. Securities Litigation, alleging violations of the Exchange Act and Securities Act related to its pricing algorithm[268] - Related shareholder derivative lawsuits have also been filed, which are currently stayed pending the outcome of the main securities litigation[269] Risk Factors There have been no material changes to the company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the Company's risk factors since the Annual Report[272] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[273] Other Information This section discloses that two executive officers, Megan Meyer and Christina Schwartz, adopted Rule 10b5-1 trading plans, and three executives entered into 10b5-1 instruction letters for tax withholding obligations related to RSU vesting during the quarter Executive Rule 10b5-1 Trading Plan Adoptions | Executive | Title | Adoption Date | Max Shares to be Sold | | :--- | :--- | :--- | :--- | | Megan Meyer | President, Sell Direct & Services | 6/15/2023 | 400,009 | | Christina Schwartz | Interim CFO | 6/6/2023 | 591,595 | - On June 12, 2023, executives Megan Meyer, Christina Schwartz, and Sydney Schaub entered into 10b5-1 Instruction Letters to facilitate the sale of shares to satisfy tax withholding obligations related to RSU vesting[278] Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications by the CEO and Interim CFO, and XBRL data files