Opendoor(OPEN) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Opendoor's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents Opendoor's unaudited condensed consolidated financial statements, covering balance sheets, operations, comprehensive loss, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of Opendoor's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Balance Sheet Summary (millions) | Metric | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | Change (millions) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Assets | $3,947 | $6,608 | $(2,661) | | Real Estate Inventory, net | $1,311 | $4,460 | $(3,149) | | Total Liabilities | $2,927 | $5,522 | $(2,595) | | Non-recourse asset-backed debt (net of current) | $2,330 | $3,020 | $(690) | | Convertible Senior Notes | $502 | $959 | $(457) | | Total Shareholders' Equity | $1,020 | $1,086 | $(66) | Condensed Consolidated Statements of Operations This section details Opendoor's financial performance, including revenue, cost of revenue, gross profit, operating expenses, and net loss over specified periods Statements of Operations Summary (3 Months Ended Sep 30, millions) | Metric (3 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | Change (millions) | | :----------------------------- | :-------------- | :-------------- | :---------------- | | Revenue | $980 | $3,361 | $(2,381) | | Cost of Revenue | $884 | $3,786 | $(2,902) | | Gross Profit (Loss) | $96 | $(425) | $521 | | Total Operating Expenses | $175 | $385 | $(210) | | Loss from Operations | $(79) | $(810) | $731 | | Net Loss | $(106) | $(928) | $822 | | Basic EPS | $(0.16) | $(1.47) | $1.31 | | Diluted EPS | $(0.16) | $(1.47) | $1.31 | Statements of Operations Summary (9 Months Ended Sep 30, millions) | Metric (9 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | Change (millions) | | :----------------------------- | :-------------- | :-------------- | :---------------- | | Revenue | $6,076 | $12,710 | $(6,634) | | Cost of Revenue | $5,661 | $12,114 | $(6,453) | | Gross Profit (Loss) | $415 | $596 | $(181) | | Total Operating Expenses | $686 | $1,256 | $(570) | | Loss from Operations | $(271) | $(660) | $389 | | Gain on Extinguishment of Debt | $182 | $0 | $182 | | Net Loss | $(184) | $(954) | $770 | | Basic EPS | $(0.28) | $(1.53) | $1.25 | | Diluted EPS | $(0.28) | $(1.53) | $1.25 | Condensed Consolidated Statements of Comprehensive Loss This section presents Opendoor's comprehensive loss, including net loss and other comprehensive income or loss items, for specified periods Comprehensive Loss Summary (3 Months Ended Sep 30, millions) | Metric (3 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | | :----------------------------- | :-------------- | :-------------- | | Net Loss | $(106) | $(928) | | Unrealized gain (loss) on marketable securities | $1 | $0 | | Comprehensive Loss | $(105) | $(928) | Comprehensive Loss Summary (9 Months Ended Sep 30, millions) | Metric (9 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | | :----------------------------- | :-------------- | :-------------- | | Net Loss | $(184) | $(954) | | Unrealized gain (loss) on marketable securities | $3 | $(3) | | Comprehensive Loss | $(181) | $(957) | Condensed Consolidated Statements of Changes in Shareholders' Equity This section outlines the changes in Opendoor's shareholders' equity, including additional paid-in capital, accumulated deficit, and stock-based compensation Shareholders' Equity Changes (millions) | Metric | Dec 31, 2022 (millions) | Sep 30, 2023 (millions) | Change (millions) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Shareholders' Equity | $1,086 | $1,020 | $(66) | | Additional Paid-in Capital | $4,148 | $4,263 | $115 | | Accumulated Deficit | $(3,058) | $(3,242) | $(184) | | Stock-based compensation (9 months) | N/A | $111 | N/A | | Net loss (9 months) | N/A | $(184) | N/A | Condensed Consolidated Statements of Cash Flows This section summarizes Opendoor's cash inflows and outflows from operating, investing, and financing activities for specified periods Cash Flow Summary (9 Months Ended Sep 30, millions) | Metric (9 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | Change (millions) | | :----------------------------- | :-------------- | :-------------- | :---------------- | | Net cash provided by (used in) operating activities | $2,886 | $(665) | $3,551 | | Net cash provided by investing activities | $48 | $210 | $(162) | | Net cash (used in) provided by financing activities | $(2,347) | $956 | $(3,303) | | Net increase in cash, cash equivalents, and restricted cash | $587 | $501 | $86 | | Cash, cash equivalents, and restricted cash – End of period | $2,378 | $3,079 | $(701) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and specific financial items 1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES This section describes Opendoor's business model as a managed marketplace for real estate and outlines its significant accounting policies and estimates - Opendoor's business is a managed marketplace for residential real estate, aiming to simplify transactions for sellers and buyers[34] - The company's financial statements are prepared in accordance with GAAP and consolidate variable interest entities (VIEs) where Opendoor is the primary beneficiary[35] - Significant estimates, such as fair value of common stock, share-based awards, and inventory valuation, are sensitive to the health of the residential housing market and interest rate environment[38] Impairment Loss (millions) | Impairment Loss (millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | General and administrative | $1 | $0 | $1 | $0 | | Technology and development | $1 | $1 | $4 | $1 | | Total impairment loss | $2 | $1 | $5 | $1 | 2. REAL ESTATE INVENTORY This section details the composition and valuation adjustments of Opendoor's real estate inventory, categorized by its stage in the sales process Real Estate Inventory Components (millions) | Inventory Component (millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :----------------------------- | :----------- | :----------- | :----- | | Work in progress | $298 | $891 | $(593) | | Listed for sale | $705 | $2,788 | $(2,083) | | Under contract for sale | $308 | $781 | $(473) | | Total real estate inventory, net | $1,311 | $4,460 | $(3,149) | Inventory Valuation Adjustments (millions) | Inventory Valuation Adjustments (millions) | 3 Months Ended Sep 30 | 9 Months Ended Sep 30 | | :--------------------------------------- | :-------------------- | :-------------------- | | 2023 | $17 | $54 | | 2022 | $573 | $663 | 3. CASH, CASH EQUIVALENTS, AND INVESTMENTS This section provides a breakdown of Opendoor's cash, cash equivalents, marketable securities, and equity investments, along with their valuation changes Cash, Cash Equivalents, and Investments (millions) | Asset (millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :--------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $1,154 | $1,137 | $17 | | Marketable securities | $72 | $144 | $(72) | | Equity method investments | $20 | $20 | $0 | | Non-marketable equity securities | $0 | $5 | $(5) | - Net unrealized gains on marketable equity securities were $1 million for the nine months ended September 30, 2023, a positive shift from $36 million in net unrealized losses in the same period of 2022[50] 4. VARIABLE INTEREST ENTITIES This section explains Opendoor's use of variable interest entities (VIEs) for inventory financing and their consolidation into the financial statements - Opendoor utilizes VIEs, primarily Special Purpose Entities (SPEs), to finance real estate inventory purchases and renovations through asset-backed debt[56][57] - The company is the primary beneficiary of these VIEs, consolidating them due to its power to direct activities and significant variable interest[57] VIE Financials (millions) | VIE Financials (millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :------------------------ | :----------- | :----------- | :----- | | Total Assets | $2,499 | $5,082 | $(2,583) | | Total Liabilities | $2,356 | $4,468 | $(2,112) | 5. CREDIT FACILITIES AND LONG-TERM DEBT This section details Opendoor's debt structure, including non-recourse asset-backed debt and convertible senior notes, and related compliance Debt Outstanding (millions) | Debt Type (millions) | Sep 30, 2023 Outstanding | Dec 31, 2022 Outstanding | Change | | :------------------- | :----------------------- | :----------------------- | :----- | | Non-Recourse Asset-backed Debt | $2,330 | $4,396 | $(2,066) | | Convertible Senior Notes | $502 | $959 | $(457) | - Total borrowing capacity for non-recourse asset-backed debt was $8.4 billion as of September 30, 2023, with $3.0 billion committed[67] - The company repurchased $468 million (aggregate principal) of 2026 Convertible Senior Notes in March and May 2023 for $270 million cash, resulting in a $188 million gain on extinguishment of debt[85][86] - As of September 30, 2023, the company was in compliance with all financial covenants related to its inventory financing facilities[81] 6. FAIR VALUE DISCLOSURES This section outlines Opendoor's fair value measurements for financial assets and liabilities, categorized by input levels (Level 1, 2, 3) - Fair value measurements are categorized into a three-level hierarchy: Level 1 for active market quotes, Level 2 for significant observable inputs, and Level 3 for significant unobservable inputs[91][92][93] Fair Value Classification | Asset/Liability Class | Fair Value Classification | | :-------------------- | :------------------------ | | Cash and cash equivalents | Level 1 | | Restricted cash | Level 1 | | Debt securities | Level 2 | | Equity securities | Level 1 | | Mortgage loans held for sale | Level 2 | | Non-recourse asset-backed debt | Level 2 (estimated) | | Convertible senior notes | Level 2 (estimated) | 7. PROPERTY AND EQUIPMENT This section presents the net carrying amount of Opendoor's property and equipment, including internally developed software, and related depreciation and amortization Property and Equipment Net (millions) | Property and Equipment (millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Internally developed software | $117 | $105 | $12 | | Total (gross) | $159 | $148 | $11 | | Accumulated depreciation and amortization | $(91) | $(90) | $(1) | | Property and equipment – net | $68 | $58 | $10 | - Depreciation and amortization expense for property and equipment was $27 million for the nine months ended September 30, 2023, compared to $28 million for the same period in 2022[101] 8. GOODWILL AND INTANGIBLE ASSETS This section details Opendoor's goodwill and intangible assets, including developed technology, customer relationships, and trademarks, along with their amortization Intangible Assets Net Carrying Amount (millions) | Intangible Asset (millions) | Sep 30, 2023 Net Carrying Amount | Dec 31, 2022 Net Carrying Amount | Remaining Weighted Average Useful Life (Years) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------------------- | | Developed technology | $5 | $8 | 1.0 | | Customer relationships | $1 | $2 | 0.9 | | Trademarks | $1 | $2 | 0.9 | | Intangible assets – net | $7 | $12 | N/A | - Amortization expense for intangible assets was $5 million for the nine months ended September 30, 2023, compared to $7 million for the same period in 2022[104] 9. SHARE-BASED AWARDS This section provides information on Opendoor's stock options and unvested restricted stock units (RSUs) outstanding, and related compensation expense Share-Based Awards Outstanding (thousands) | Share-Based Awards (thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------- | :----------- | :----------- | | Stock Options Outstanding | 8,045 | 10,712 | | Unvested RSUs Outstanding | 60,317 | 54,547 | Stock-Based Compensation Expense (millions) | Stock-Based Compensation Expense (millions) | 3 Months Ended Sep 30 | 9 Months Ended Sep 30 | | :---------------------------------------- | :-------------------- | :-------------------- | | 2023 | $31 | $94 | | 2022 | $52 | $178 | 10. WARRANTS This section describes Opendoor's warrant agreement with Zillow, Inc., detailing the terms, vesting conditions, and exercise price for common stock purchases - Opendoor has a warrant agreement with Zillow, Inc (dated July 28, 2022) for Zillow to purchase up to 6 million shares of common stock[116] - Warrants vest in tranches based on Zillow providing resale marketing services, with an exercise price based on 30-day VWAP ($15 floor, $30 cap)[116] - As of September 30, 2023, no warrant shares had vested, though Zillow began providing marketing services in March 2023[117] 11. INCOME TAXES This section presents Opendoor's income tax expense and explains the effective tax rate, primarily influenced by valuation allowances against deferred tax assets Income Tax Expense (millions) | Income Tax Expense (millions) | 3 Months Ended Sep 30 | 9 Months Ended Sep 30 | | :---------------------------- | :-------------------- | :-------------------- | | 2023 | $0 | $1 | | 2022 | $1 | $2 | - The effective tax rate for the nine months ended September 30, 2023, was (0.38)%, differing from the U.S. statutory rate primarily due to a full valuation allowance against net deferred tax assets[119][120] 12. NET LOSS PER SHARE This section provides basic and diluted net loss per share figures and lists anti-dilutive securities for the reported periods Net Loss Per Share | Net Loss Per Share | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | $(0.16) | $(1.47) | $(0.28) | $(1.53) | | Diluted | $(0.16) | $(1.47) | $(0.28) | $(1.53) | Anti-Dilutive Securities (thousands) | Anti-Dilutive Securities (thousands) | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | RSUs | 60,317 | 62,329 | | Options | 8,045 | 11,083 | | Employee Stock Purchase Plan | 2,438 | 829 | | Total anti-dilutive securities | 70,800 | 74,726 | 13. BUSINESS ACQUISITION This section details Opendoor's acquisition of TaxProper Inc., including the purchase price and resulting intangible assets and goodwill - Opendoor acquired TaxProper Inc on November 4, 2022, for $10 million in cash[125] - The acquisition resulted in $7 million in developed technology intangible assets and $2 million in goodwill[125] 14. COMMITMENTS AND CONTINGENCIES This section outlines Opendoor's contractual commitments, including lease obligations, and discusses ongoing legal proceedings and their potential impact - A partial lease termination in May 2023 for the Tempe office reduced future lease payments by $19 million and resulted in a $1 million gain[126] - Opendoor is a defendant in consolidated securities class action lawsuits alleging materially false or misleading statements regarding its pricing algorithm[129] - Multiple shareholder derivative lawsuits have been filed, based on similar facts as the securities litigation, alleging breaches of fiduciary duty by officers and directors[131][132][133] - Management believes the allegations are without merit and intends to vigorously defend the company[130] 15. RESTRUCTURING This section details Opendoor's workforce reduction in April 2023, including the number of employees impacted and the associated restructuring expense - Opendoor conducted a workforce reduction in April 2023, impacting approximately 560 employees (22% of the workforce)[134] - The reduction resulted in a $10 million restructuring expense for post-employment benefits[134] Restructuring Liability Activity (millions) | Restructuring Liability Activity (millions) | Sep 30, 2023 | | :---------------------------------------- | :----------- | | Balance - December 31, 2022 | $4 | | Additions charged to expense | $10 | | Cash payments | $(14) | | Balance - September 30, 2023 | $0 | 16. SUBSEQUENT EVENTS This section confirms that no material subsequent events requiring recognition or disclosure occurred after September 30, 2023 - No material subsequent events requiring recognition or disclosure were identified after September 30, 2023, through the filing date[136] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Opendoor's financial performance and condition, highlighting a significant reduction in revenue and homes sold due to a cautious operating stance in a challenging housing market Despite revenue declines, net loss and gross profit improved due to lower inventory valuation adjustments and higher acquisition spreads The company is focused on operational efficiencies, inventory health, and managing capital resources Overview This section provides an overview of Opendoor's mission to simplify residential real estate transactions and its operational scale across multiple markets - Opendoor's mission is to simplify residential real estate transactions, acting as a managed marketplace[141] - The company has completed over 240,000 transactions and operates in 53 markets, utilizing unique pricing and operations capabilities[141] Financial Highlights This section summarizes Opendoor's key financial and operational metrics, including revenue, homes sold, gross profit, and net loss, for the reported periods Financial Highlights (3 Months Ended Sep 30, millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :----------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenue | $980 | $3,361 | $(2,381) | (71)% | | Homes sold | 2,687 | 8,520 | (5,833) | (68)% | | Gross profit (loss) | $96 | $(425) | $521 | N/M | | Gross Margin | 9.8% | (12.6)% | 22.4 pp | N/A | | Net loss | $(106) | $(928) | $822 | (89)% | | Homes in inventory (at period end) | 4,007 | 16,873 | (12,866) | (76)% | Financial Highlights (9 Months Ended Sep 30, millions) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :----------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenue | $6,076 | $12,710 | $(6,634) | (52)% | | Homes sold | 16,344 | 31,671 | (15,327) | (48)% | | Gross profit (loss) | $415 | $596 | $(181) | (30)% | | Gross Margin | 6.8% | 4.7% | 2.1 pp | N/A | | Net loss | $(184) | $(954) | $770 | (81)% | | Homes in inventory (at period end) | 4,007 | 16,873 | (12,866) | (76)% | Current Housing Environment This section discusses the impact of the current housing market, including home prices, mortgage rates, and Opendoor's cautious operating strategy - Home prices in H1 2023 performed better than expected due to historically low listing volumes[143] - A July 2023 Fed rate hike (25 bps) led to mortgage rates reaching 8% by October, depressing buyer demand and slowing market clearance rates[144] - Opendoor expects reduced resale pace and revenue, lower home-level list prices impacting margins, and a drag from negative-margin old inventory[147] - The company is operating with caution and discipline, focusing on operational efficiencies to improve cost structure and unit economics[148] Business Impact of COVID-19 This section addresses the ongoing sensitivity of Opendoor's business to potential future disruptions in the real estate market caused by COVID-19 - Opendoor's business remains sensitive to potential future disruptions in the real estate market caused by COVID-19 and its variants, despite adapting operations[149] Factors Affecting our Business Performance This section outlines key drivers of Opendoor's business performance, including market share expansion, customer re-engagement, and market growth strategies - Opendoor seeks to expand market share in existing cities by providing a differentiated customer experience and leveraging partnerships with major online real estate platforms (Zillow, Redfin, Realtor.com)[150][151] - Re-engagement with registered sellers (those who received an offer but haven't sold) is a continued source of home acquisition growth[152] Number of Markets | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Number of markets (at period end) | 53 | 53 | - New market expansion plans slowed in 2022 due to the deteriorating macro environment, and newer markets are expected to grow slower than prior cohorts[153][154] Adjacent Services This section describes Opendoor's strategy to build an integrated suite of home services to enhance customer experience and improve unit economics - Opendoor is building an online, integrated suite of home services (title insurance, escrow, brokerage) to provide simplicity and certainty to customers[156] - Success in these services validates customer preference for integrated experiences, and further investment is expected to improve unit economics and Contribution Margin, and reduce inventory exposure[157][161] Unit Economics This section focuses on Opendoor's Contribution Margin and efforts to optimize it through pricing, platform efficiency, and inventory health management - Contribution Margin is a key measure of unit economic performance, which Opendoor aims to expand through initiatives like pricing engine optimization, platform efficiency, and incremental service attach[158][161] - The company is focused on managing inventory health and risk, especially for "old book" homes (acquired before H2 2022), and has proactively reduced acquisition pace[159] Inventory Management This section highlights the critical role of effective inventory management, including the reduction of 'old book' inventory and current portfolio composition - Effective inventory management, balancing growth, margin, and risk, is critical, supported by investments in pricing and forecasting capabilities[158] - "Old book" inventory (acquired before H2 2022) decreased by 98% from $3.5 billion at December 31, 2022, to $82 million at September 30, 2023[159] Inventory Valuation Adjustments (millions) | Inventory Valuation Adjustments (millions) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Recorded in Cost of Revenue | $17 | $54 | $573 | $663 | - As of September 30, 2023, homes on the market for over 120 days represented 12% of Opendoor's portfolio, compared to 15% for the broader market[161] Inventory Financing This section explains Opendoor's reliance on non-recourse asset-backed debt for working capital and its importance for growth - Opendoor's business is working capital intensive and relies primarily on non-recourse asset-backed debt (senior and mezzanine facilities) for inventory financing[163] - Access to inventory financing is a key enabler of growth and is further detailed in the Liquidity and Capital Resources section[163] Seasonality This section discusses the seasonal nature of the residential real estate market and how macroeconomic factors can obscure its impact on Opendoor's results - The residential real estate market is seasonal, with stronger demand in spring/summer and weaker demand in late fall/winter[164] - Macroeconomic factors (growth, market expansion, inflation, interest rates) have historically obscured and are expected to continue obscuring the impact of seasonality on Opendoor's financial results[164] Non-GAAP Financial Measures This section explains Opendoor's use of non-GAAP financial measures to assess unit economics and underlying financial performance, with reconciliations - Opendoor uses non-GAAP measures (Adjusted Gross Profit/Loss, Contribution Profit/Loss, Adjusted Net Loss, Adjusted EBITDA) to assess unit economics and underlying financial performance[167][177] - These measures adjust GAAP figures for inventory valuation, holding costs, direct selling costs, stock-based compensation, and other non-recurring or non-cash items[169][172][179][180] Non-GAAP Financial Metrics (3 Months Ended Sep 30, millions) | Non-GAAP Metric (3 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | | :-------------------------------------- | :-------------- | :-------------- | | Adjusted Gross Profit (Loss) | $84 | $110 | | Adjusted Gross Margin | 8.6% | 3.3% | | Contribution Profit (Loss) | $43 | $(22) | | Contribution Margin | 4.4% | (0.7)% | | Adjusted Net Loss | $(75) | $(328) | | Adjusted EBITDA | $(49) | $(211) | | Adjusted EBITDA Margin | (5.0)% | (6.3)% | Non-GAAP Financial Metrics (9 Months Ended Sep 30, millions) | Non-GAAP Metric (9 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | | :-------------------------------------- | :-------------- | :-------------- | | Adjusted Gross Profit (Loss) | $(11) | $1,178 | | Adjusted Gross Margin | (0.2)% | 9.3% | | Contribution Profit (Loss) | $(288) | $732 | | Contribution Margin | (4.7)% | 5.8% | | Adjusted Net Loss | $(681) | $(107) | | Adjusted EBITDA | $(558) | $183 | | Adjusted EBITDA Margin | (9.2)% | 1.4% | Components of Our Results of Operations This section breaks down the key components of Opendoor's financial results, including revenue, cost of revenue, operating expenses, and other significant items - Revenue is primarily generated from home sales and additional services like title insurance, escrow, and brokerage[186] - Cost of revenue includes property purchase price, acquisition costs, direct renovation/repair costs, and inventory valuation adjustments[188] - Operating expenses are categorized into Sales, Marketing and Operations (broker commissions, holding costs, advertising), General and Administrative (headcount, professional services), and Technology and Development (headcount, software costs)[189][190][191] - Other significant items include restructuring expense (severance), gain on extinguishment of debt (from repurchasing notes at a discount), interest expense (fluctuating with inventory and rates), and other income/loss (interest income, fair value changes)[192][193][197][199] Results of Operations This section provides a detailed analysis of Opendoor's financial performance, comparing key metrics for the three and nine months ended September 30, 2023 and 2022 Results of Operations (3 Months Ended Sep 30, millions) | Metric (3 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | Change ($) | Change (%) | | :----------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Revenue | $980 | $3,361 | $(2,381) | (71)% | | Homes sold | 2,687 | 8,520 | (5,833) | (68)% | | Revenue per home sold | $364,793 | $394,483 | $(29,690) | (8)% | | Cost of revenue | $884 | $3,786 | $(2,902) | (77)% | | Gross profit (loss) | $96 | $(425) | $521 | N/M | | Gross Margin | 9.8% | (12.6)% | 22.4 pp | N/A | | Inventory valuation adjustments | $17 | $573 | $(556) | (97)% | | Sales, marketing and operations | $85 | $260 | $(175) | (67)% | | General and administrative | $48 | $85 | $(37) | (44)% | | Net loss | $(106) | $(928) | $822 | (89)% | Results of Operations (9 Months Ended Sep 30, millions) | Metric (9 Months Ended Sep 30) | 2023 (millions) | 2022 (millions) | Change ($) | Change (%) | | :----------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Revenue | $6,076 | $12,710 | $(6,634) | (52)% | | Homes sold | 16,344 | 31,671 | (15,327) | (48)% | | Revenue per home sold | $371,757 | $401,319 | $(29,562) | (7)% | | Cost of revenue | $5,661 | $12,114 | $(6,453) | (53)% | | Gross profit | $415 | $596 | $(181) | (30)% | | Gross Margin | 6.8% | 4.7% | 2.1 pp | N/A | | Inventory valuation adjustments | $24 | $620 | $(596) | (96)% | | Sales, marketing and operations | $397 | $812 | $(415) | (51)% | | General and administrative | $158 | $323 | $(165) | (51)% | | Gain on extinguishment of debt | $182 | $0 | $182 | N/M | | Net loss | $(184) | $(954) | $770 | (81)% | Liquidity and Capital Resources This section assesses Opendoor's ability to meet its financial obligations, detailing cash, debt, borrowing capacity, and cash flow from operations Liquidity and Capital Resources Summary (millions) | Metric (millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :---------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $1,154 | $1,137 | $17 | | Restricted cash | $1,224 | $654 | $570 | | Marketable securities | $72 | $144 | $(72) | | Total asset-backed debt outstanding | $2,330 | $4,396 | $(2,066) | | Convertible senior notes outstanding | $510 | $978 | $(468) | - Undrawn borrowing capacity under non-recourse asset-backed debt facilities was $6.1 billion, with $650 million committed, as of September 30, 2023[227] - Net cash provided by operating activities was $2.9 billion for the nine months ended September 30, 2023, a significant improvement from $(665) million used in the prior year, primarily due to a $3.1 billion decrease in real estate inventory[254] - Management believes current liquidity and expected cash generation will be sufficient to meet working capital and capital expenditure requirements for at least 12 months[231] Contractual Obligations and Commitments This section outlines Opendoor's future payment obligations under various contractual agreements, including debt facilities, leases, and purchase commitments Contractual Obligations and Commitments (thousands) | Contractual Obligation (thousands) | Total | Less than 1 year | 1 – 3 years | 4 – 5 years | More than 5 years | | :--------------------------------- | :--------- | :--------------- | :---------- | :---------- | :---------------- | | Senior and mezzanine term debt facilities | $2,751,000 | $146,000 | $1,831,000 | $774,000 | $0 | | Convertible senior notes | $514,000 | $1,000 | $513,000 | $0 | $0 | | Operating lease | $37,000 | $9,000 | $10,000 | $9,000 | $9,000 | | Purchase commitments | $578,000 | $578,000 | $0 | $0 | $0 | | Total | $3,880,000 | $734,000 | $2,354,000 | $783,000 | $9,000 | - As of September 30, 2023, Opendoor was under contract to purchase 1,661 homes for an aggregate price of $578 million[259] Critical Accounting Policies and Estimates This section identifies Opendoor's accounting policies and estimates that require significant judgment, such as fair value and inventory valuation - Critical accounting policies and estimates involve complex judgments, especially for fair value of common stock, share-based awards, and inventory valuation[261] - No significant changes to these critical accounting estimates occurred during the first nine months of 2023[261] Recent Accounting Pronouncements This section discusses recent accounting standard updates and their immaterial impact on Opendoor's condensed consolidated financial statements - FASB issued ASU 2023-03 in July 2023, amending Accounting Standards Codification paragraphs[45] - The updates were effective immediately but did not materially impact Opendoor's condensed consolidated financial statements[45] Item 3. Quantitative and Qualitative Disclosures About Market Risk Opendoor is exposed to market risks from interest rate fluctuations and inflationary pressures While 100% of its $2.4 billion asset-backed debt was fixed rate as of September 30, 2023, the company was exposed to floating rates previously Inflation impacts costs for home repairs, which Opendoor tries to offset through pricing and operational models Interest Rate Risk This section analyzes Opendoor's exposure to interest rate fluctuations, particularly concerning its asset-backed debt, and potential impacts on interest expense - As of September 30, 2023, 100% of Opendoor's $2.4 billion asset-backed debt was fixed rate, with an average duration of 2.8 years[264] - As of December 31, 2022, $1.4 billion of outstanding borrowings bore floating interest rates (SOFR-based)[264] - A one percentage point increase in benchmark rates would have increased annual interest expense by approximately $14 million as of December 31, 2022[264] Inflation Risk This section addresses the impact of inflation on Opendoor's costs for home repairs and the company's strategies to mitigate these effects through pricing - Inflation has impacted costs for home repairs (labor, materials), which Opendoor aims to offset through pricing and operational models[265] - Inability to fully offset higher costs due to inflation could harm business, results of operations, and financial condition[265] Item 4. Controls and Procedures Management acknowledges the inherent limitations of controls, providing only reasonable assurance As of September 30, 2023, the CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level There were no material changes in internal control over financial reporting during the quarter Inherent Limitations on Effectiveness of Controls This section acknowledges that internal controls provide only reasonable assurance due to inherent limitations and the need for management judgment - Controls and procedures can only provide reasonable assurance due to inherent limitations, resource constraints, and the need for management judgment[266] Evaluation of Disclosure Controls and Procedures This section confirms that Opendoor's disclosure controls and procedures were deemed effective at a reasonable assurance level as of September 30, 2023 - As of September 30, 2023, the CEO and Interim CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level[267] Changes in Internal Control over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023 - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[268] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings Opendoor is involved in several legal proceedings, including consolidated securities class action lawsuits and multiple shareholder derivative lawsuits These actions primarily allege materially false or misleading statements regarding the company's pricing algorithm and breaches of fiduciary duty by officers and directors Management believes the allegations are without merit and intends to vigorously defend the company - Opendoor is a defendant in consolidated securities class action lawsuits alleging materially false or misleading statements related to its pricing algorithm[270] - Multiple shareholder derivative lawsuits have been filed, based on similar facts, alleging breaches of fiduciary duty by officers and directors[271][272][273] - Management believes the allegations are without merit and intends to vigorously defend the company[270] Item 1A. Risk Factors This section advises readers to carefully consider the risks outlined in the Annual Report on Form 10-K and other parts of this 10-Q, as these could materially and adversely affect Opendoor's business There have been no material changes to the company's risk factors since the Annual Report - Readers should carefully consider risks described in the Annual Report on Form 10-K and this 10-Q, as they could materially affect Opendoor's business[276] - There have been no material changes to the company's risk factors since the Annual Report[276] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item states that there are no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[277] Item 3. Defaults Upon Senior Securities This item states that there are no defaults upon senior securities to report - No defaults upon senior securities to report[278] Item 4. Mine Safety Disclosures This item is not applicable to Opendoor - This item is not applicable[279] Item 5. Other Information This section discloses securities trading arrangements of directors and executive officers Specifically, Sydney Schaub (Chief Legal Officer) adopted a Rule 10b5-1 trading plan on August 11, 2023, for up to 1,041,363 shares of common stock subject to RSUs, expiring November 15, 2024 Securities Trading Arrangements of Directors and Executive Officers This section discloses Rule 10b5-1 trading plans adopted by Opendoor's directors and executive officers for equity securities - Sydney Schaub (Chief Legal Officer) adopted a Rule 10b5-1 trading plan on August 11, 2023[281] - The plan covers up to 1,041,363 shares of common stock subject to RSUs, vesting between September 15, 2023, and September 15, 2024[280] - The trading arrangement expires on November 15, 2024[281] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including the Agreement and Plan of Merger, Certificate of Incorporation, Bylaws, Specimen Common Stock Certificate, Warrant Agreement with Zillow, Non-Employee Director Compensation Policy, and various certifications (CEO, Interim CFO) required by the Sarbanes-Oxley Act - The exhibits include foundational corporate documents (Certificate of Incorporation, Bylaws), key agreements (Merger Plan, Zillow Warrant Agreement), and compliance certifications (Sarbanes-Oxley Act)[285] Signatures This section confirms the official signing and filing of the report by Opendoor's Chief Executive Officer and Interim Chief Financial Officer - The report was signed on November 02, 2023[289] - Signed by Carrie Wheeler, Chief Executive Officer, and Christina Schwartz, Interim Chief Financial Officer[289]