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Offerpad Solutions (OPAD) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various known and unknown risks and uncertainties - The report contains forward-looking statements regarding Offerpad's future results, financial condition, liquidity, prospects, growth, and strategies, which are subject to known and unknown risks and uncertainties1011 - Key factors that could cause actual results to differ materially include general economic conditions, the health of the U.S. residential real estate industry, ability to manage growth and inventory, launch new offerings, achieve profitability, and the success of strategic relationships1114 PART I. FINANCIAL INFORMATION This part presents Offerpad's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter and nine months ended September 30, 2023 Item 1. Financial Statements This section presents Offerpad Solutions Inc.'s unaudited condensed consolidated financial statements for the quarter and nine months ended September 30, 2023, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes on accounting policies, business operations, and financial instruments Condensed Consolidated Balance Sheets This section provides a snapshot of Offerpad's financial position, detailing assets, liabilities, and stockholders' equity as of September 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Assets | | | | Cash and cash equivalents | $105,999 | $97,241 | | Restricted cash | $7,409 | $43,058 | | Real estate inventory | $289,597 | $664,697 | | Total current assets | $413,343 | $814,179 | | Total assets | $422,147 | $825,069 | | Liabilities | | | | Secured credit facilities and other debt, net | $237,921 | $605,889 | | Total current liabilities | $304,599 | $698,964 | | Total liabilities | $306,930 | $703,192 | | Stockholders' Equity | | | | Total stockholders' equity | $115,217 | $121,877 | - Total assets decreased by approximately 48.8% from $825.1 million at December 31, 2022, to $422.1 million at September 30, 2023, primarily driven by a significant reduction in real estate inventory16 - Total liabilities decreased by approximately 56.3% from $703.2 million at December 31, 2022, to $306.9 million at September 30, 2023, mainly due to reduced secured credit facilities and other debt16 Condensed Consolidated Statements of Operations This section details Offerpad's financial performance, including revenue, cost of revenue, gross profit, and net loss for the three and nine months ended September 30, 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $234,228 | $821,732 | $1,073,954 | $3,275,100 | | Cost of revenue | $210,255 | $819,573 | $1,020,465 | $3,047,818 | | Gross profit | $23,973 | $2,159 | $53,489 | $227,282 | | Loss from operations | $(19,542) | $(70,211) | $(93,162) | $(17,418) | | Net loss | $(19,986) | $(80,022) | $(101,777) | $(27,476) | | Net loss per share, basic | $(0.73) | $(4.86) | $(3.90) | $(1.69) | - Revenue for the three months ended September 30, 2023, decreased by 71.5% YoY to $234.2 million, and for the nine months ended September 30, 2023, decreased by 67.2% YoY to $1,074.0 million, primarily due to lower sales volumes and average sales prices21219232 - Gross profit margin significantly improved to 10.2% for Q3 2023 from 0.3% in Q3 2022, driven by an increased difference between average home resale and acquisition prices and a decrease in real estate inventory valuation adjustments21222 - Net loss for Q3 2023 was $(19.9) million, a substantial improvement from $(80.0) million in Q3 2022. However, for the nine months ended September 30, 2023, net loss increased to $(101.8) million from $(27.5) million in the prior year period21 Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in Offerpad's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the period ended September 30, 2023 Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | Balance at June 30, 2023 | Issuance of common stock upon vesting of restricted stock units | Stock-based compensation expense | Net loss | Balance at September 30, 2023 | | :-------------------- | :----------------------- | :------------------------------------------------------------- | :------------------------------ | :------- | :---------------------------- | | Common Stock Shares | 27,225 | 8 | — | — | 27,233 | | Amount | $3 | — | — | — | $3 | | Additional Paid in Capital | $495,668 | $(25) | $2,017 | — | $497,660 | | Accumulated Deficit | $(362,460) | — | — | $(19,986) | $(382,446) | | Total Stockholders' Equity | $133,211 | $(25) | $2,017 | $(19,986) | $115,217 | - Total stockholders' equity decreased from $133.2 million at June 30, 2023, to $115.2 million at September 30, 2023, primarily due to a net loss of $(19.9) million, partially offset by stock-based compensation expense24 - For the nine months ended September 30, 2023, the company issued 10.7 million shares of Class A common stock from the exercise of pre-funded warrants, contributing $11 thousand to common stock and $89.2 million to additional paid-in capital27 Condensed Consolidated Statements of Cash Flows This section presents Offerpad's cash flow activities, including operating, investing, and financing, for the nine months ended September 30, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $276,955 | $(91,924) | | Net cash provided by (used in) investing activities | $322 | $(917) | | Net cash (used in) provided by financing activities | $(304,168) | $122,076 | | Net change in cash, cash equivalents and restricted cash | $(26,891) | $29,235 | | Cash, cash equivalents and restricted cash, end of period | $113,408 | $223,668 | - Net cash provided by operating activities significantly improved to $277.0 million for the nine months ended September 30, 2023, compared to net cash used of $(91.9) million in the prior year, primarily due to a $366.7 million decrease in real estate inventory30265 - Net cash used in financing activities was $(304.2) million for the nine months ended September 30, 2023, mainly due to $1,080.8 million in debt repayments, partially offset by $687.7 million in new borrowings and $90.0 million from pre-funded warrants30269 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, business operations, and financial instruments Note 1. Nature of Operations and Significant Accounting Policies This note describes Offerpad's business model, market presence, and key accounting policies, including the impact of a recent reverse stock split and real estate inventory valuation - Offerpad operates a customer-centric home buying and selling platform in over 1,700 cities and towns across 25 metropolitan markets in 15 states33 - The company completed a 1-for-15 reverse stock split on June 13, 2023, retroactively adjusting all share and per share amounts in the financial statements3639 - Real estate inventory is valued at the lower of cost or net realizable value, with valuation adjustments of $0.9 million for Q3 2023 and $8.4 million for the nine months ended September 30, 20234447 Note 2. Business Combination This note details the formation of Offerpad through a reverse recapitalization with Supernova Partners Acquisition Company, Inc. in September 2021 - Offerpad was formed on September 1, 2021, through a reverse recapitalization with Supernova Partners Acquisition Company, Inc., where Old Offerpad was the accounting acquirer5254 - The Business Combination resulted in gross proceeds of $284.0 million, with total transaction costs of $51.2 million55 Note 3. Real Estate Inventory This note provides a breakdown of Offerpad's real estate inventory, categorized by status, and highlights the significant reduction in inventory levels Real Estate Inventory (in thousands) | Real Estate Inventory (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Homes preparing for and under renovation | $86,129 | $54,499 | | Homes listed for sale | $124,227 | $440,862 | | Homes under contract to sell | $79,241 | $169,336 | | Total Real estate inventory | $289,597 | $664,697 | - Real estate inventory decreased by 56.4% from $664.7 million at December 31, 2022, to $289.6 million at September 30, 2023, primarily due to a significant reduction in homes listed for sale56 Note 4. Derivative Financial Instruments This note describes Offerpad's use of derivative financial instruments, specifically U.S. Treasury futures options, for interest rate risk management - During the nine months ended September 30, 2023, Offerpad acquired $2.6 million in U.S. Treasury futures options to manage interest rate risks, recording a $2.0 million change in fair value as other income5758 - As of September 30, 2023, the fair value of derivative instruments was $1.6 million with a gross notional amount of $95.0 million; all outstanding instruments were sold for $1.7 million in October 20235859 Note 5. Property and Equipment This note details Offerpad's property and equipment, including rooftop solar panel systems, leasehold improvements, and office equipment Property and Equipment (in thousands) | Property and Equipment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Rooftop solar panel systems | $5,075 | $5,075 | | Leasehold improvements | $1,130 | $1,087 | | Office equipment and furniture | $889 | $736 | | Property and equipment, net | $4,698 | $5,194 | - Net property and equipment decreased from $5.2 million at December 31, 2022, to $4.7 million at September 30, 2023, primarily due to accumulated depreciation62 Note 6. Leases This note outlines Offerpad's operating lease costs and future lease liabilities, including the weighted-average remaining lease term and discount rate - Operating lease costs for the nine months ended September 30, 2023, were $1.8 million, up from $1.5 million in the prior year64 Operating Lease Liabilities (in thousands) | Operating Lease Liabilities (in thousands) | Amount | | :--------------------------------------- | :----- | | Remainder of 2023 | $620 | | 2024 | $2,373 | | 2025 | $1,103 | | 2026 | $269 | | 2027 | $79 | | Total lease liabilities | $4,269 | - As of September 30, 2023, the weighted-average remaining lease term was 2.0 years, with a weighted-average discount rate of 4.3%66 Note 7. Accrued and Other Liabilities This note details Offerpad's accrued and other current liabilities, including payroll, home renovation, marketing, and interest expenses Accrued and Other Current Liabilities (in thousands) | Accrued and Other Current Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------------------- | :----------- | :----------- | | Payroll and other employee related expenses | $8,033 | $10,670 | | Home renovation | $4,118 | $3,168 | | Marketing | $3,285 | $4,161 | | Operating lease liabilities | $2,300 | $2,264 | | Interest | $1,974 | $4,360 | | Total Accrued and other current liabilities | $22,465 | $28,252 | - Accrued and other current liabilities decreased by 20.5% from $28.3 million at December 31, 2022, to $22.5 million at September 30, 2023, primarily due to lower payroll, marketing, and interest accruals70 - Advertising expenses for the nine months ended September 30, 2023, were $27.5 million, a decrease from $38.4 million in the prior year70 Note 8. Credit Facilities and Other Debt This note details Offerpad's secured credit facilities and other debt, including senior and mezzanine facilities with financial institutions and related parties Credit Facilities and Other Debt (in thousands) | Credit Facilities and Other Debt (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------------- | :----------- | :----------- | | Senior secured credit facilities with financial institutions | $228,852 | $471,860 | | Senior secured credit facility with a related party | $9,591 | $17,398 | | Mezzanine secured credit facilities with financial institutions | $10,874 | $49,626 | | Mezzanine secured credit facilities with a related party | $28,263 | $42,778 | | Total credit facilities and other debt, net | $275,775 | $666,065 | - Total credit facilities and other debt, net, decreased by 58.6% from $666.1 million at December 31, 2022, to $275.8 million at September 30, 2023, reflecting reduced inventory financing72 - As of September 30, 2023, the company had a total borrowing capacity of $1,557.5 million under its senior and mezzanine secured credit facilities, with $627.5 million committed75 - The company expects to renew or amend existing financing arrangements to meet obligations, believing cash on hand and future borrowings will be sufficient for at least 12 months88 Note 9. Warrant Liabilities This note describes the terms and exercise prices of Offerpad's public and private placement warrants, adjusted for the reverse stock split - Following a 1-for-15 reverse stock split, every 15 warrants are now exercisable for one share of Class A Common Stock at an exercise price of $172.50 per share94 - Public warrants expire on September 1, 2026, or earlier upon redemption or liquidation, while private placement warrants are not redeemable by the company if held by Supernova Sponsor or its permitted transferees9596 Note 10. Fair Value Measurements This note provides fair value measurements for Offerpad's derivative financial instruments and warrant liabilities, categorized by input levels Fair Value Measurements (in thousands) | Fair Value Measurements (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------- | :----------- | :----------- | | Derivative financial instrument | $1,575 | — | | Public warrant liabilities | $225 | $343 | | Private placement warrant liabilities | $137 | $196 | - The fair value of public warrant liabilities decreased from $343 thousand at December 31, 2022, to $225 thousand at September 30, 2023, with a gain of $(0.1) million recorded in Q3 2023100102 - Private placement warrant liabilities, measured using Level 3 inputs (Black-Scholes-Merton model), decreased from $196 thousand at December 31, 2022, to $137 thousand at September 30, 2023100103 Note 11. Stockholders' Equity This note details the authorized and outstanding shares of Offerpad's common and preferred stock, including the impact of warrant exercises and corporate charter amendments - Following the Voluntary Class B Conversion by the CEO and subsequent amendments, the company is now authorized to issue 2,000,000,000 shares of Class A common stock and 100,000,000 shares of preferred stock, with Class B and Class C common stock authorizations eliminated108109111 - During the nine months ended September 30, 2023, all 160.7 million pre-funded warrants were exercised, resulting in the issuance of 10.7 million shares of Class A common stock and generating approximately $90.0 million in gross proceeds113114 - As of September 30, 2023, there were 27,232,918 shares of Class A common stock issued and outstanding, and no shares of preferred stock issued114116 Note 12. Stock-Based Awards This note outlines Offerpad's equity incentive plan, including reserved shares, unrecognized stock-based compensation expense for options, RSUs, and PSUs, and the total stock-based compensation expense - The 2021 Equity Incentive Plan initially reserved 26,333,222 shares of Class A common stock, adjusted to 1,755,548 shares after the reverse stock split, with annual increases based on fully-diluted shares124125 - As of September 30, 2023, unrecognized stock-based compensation expense for unvested stock options was $1.7 million (expected over 1.43 years), for RSUs was $5.7 million (expected over 2.40 years), and for PSUs was $4.0 million (expected over 1.42 years)132137142 Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Sales, marketing and operating | $650 | $553 | $1,479 | $1,517 | | General and administrative | $1,242 | $1,603 | $4,155 | $4,334 | | Technology and development | $125 | $109 | $281 | $442 | | Total Stock-based compensation expense | $2,017 | $2,265 | $5,915 | $6,293 | Note 13. Variable Interest Entities This note explains Offerpad's consolidation of special purpose entities as variable interest entities, detailing their assets and liabilities - Offerpad consolidates special purpose entities (SPEs) as variable interest entities (VIEs) because it is the primary beneficiary, controlling activities and absorbing losses or receiving benefits148 VIE Assets and Liabilities (in thousands) | VIE Assets and Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------- | :----------- | :----------- | | Total assets | $299,101 | $709,708 | | Total liabilities | $279,968 | $672,449 | - The assets and liabilities of VIEs decreased significantly, mirroring the overall reduction in real estate inventory and secured debt149 Note 14. Earnings Per Share This note presents Offerpad's basic and diluted net loss per share, along with the weighted average common shares outstanding Earnings Per Share (in thousands, except per share data) | Earnings Per Share (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(19,986) | $(80,022) | $(101,777) | $(27,476) | | Weighted average common shares outstanding, basic | 27,276 | 16,477 | 26,079 | 16,293 | | Net loss per share, basic | $(0.73) | $(4.86) | $(3.90) | $(1.69) | - Basic and diluted net loss per share for Q3 2023 improved to $(0.73) from $(4.86) in Q3 2022, while for the nine months ended September 30, 2023, it worsened to $(3.90) from $(1.69) in the prior year151 - Due to net losses, no dilutive securities (stock options, RSUs, PSUs, warrants) were included in the diluted EPS calculation as their inclusion would be anti-dilutive151 Note 15. Income Taxes This note discusses Offerpad's income tax expense, effective tax rate, and the valuation allowance recorded against net deferred tax assets - Offerpad recorded minimal income tax expense for Q3 2023 and $0.2 million for the nine months ended September 30, 2023, compared to an income tax benefit of $3.5 million in Q3 2022154 - The effective tax rate for Q3 2023 was less than 0.1% expense, differing from the federal statutory rate of 21% primarily due to net operating loss carryforwards, stock-based compensation, and state taxes154 - A full valuation allowance of $82.0 million was recorded against net deferred tax assets as of September 30, 2023, with no limitation on net operating loss utilization after December 31, 2020155156 Note 16. Related-Party Transactions This note details Offerpad's transactions with related parties, including credit facilities, interest payments, services received, and pre-funded warrant investments Related-Party Credit Facilities (in thousands) | Related-Party Credit Facilities (in thousands) | Sep 30, 2023 Outstanding Amount | Dec 31, 2022 Outstanding Amount | | :--------------------------------------------- | :------------------------------ | :------------------------------ | | Senior secured credit facility with a related party | $9,591 | $17,398 | | Mezzanine secured credit facilities with a related party | $28,263 | $42,778 | - Interest paid for borrowings under LL facilities (related parties) decreased to $0.8 million in Q3 2023 from $2.4 million in Q3 2022, and to $3.0 million for the nine months ended September 30, 2023, from $6.8 million in the prior year161 - Offerpad paid First American Financial Corporation (a related party) $1.6 million for services in Q3 2023 and $5.9 million for the nine months ended September 30, 2023, a decrease from $3.8 million and $14.7 million respectively in the prior year162 - Pre-funded warrants issued in January 2023 included investments from related parties such as Brian Bair, Roberto Sella, First American, and Kenneth DeGiorgio163 Note 17. Commitments and Contingencies This note outlines Offerpad's contractual obligations, including commitments to purchase homes and operating lease commitments - As of September 30, 2023, Offerpad was under contract to purchase 393 homes for an aggregate price of $103.3 million169 - The company has operating lease commitments for its corporate headquarters and field offices, with details provided in Note 6170 Note 18. Subsequent Events This note confirms that no material events requiring recognition or additional disclosure have occurred since September 30, 2023 - No events requiring recognition or additional disclosure have occurred subsequent to September 30, 2023, except as already described in the notes171 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Offerpad's financial condition and operating results, highlighting the impact of economic conditions on the residential real estate market, key performance factors, and a detailed analysis of revenue, expenses, and non-GAAP financial measures for the three and nine months ended September 30, 2023, compared to the prior year Overview This section provides an overview of Offerpad's business model, market conditions, strategic goals, and risk management approach in the residential real estate sector - Offerpad, founded in 2015, is an iBuying company and on-demand real estate marketplace operating in 25 metropolitan markets across 15 states, having transacted approximately $10.5 billion in aggregate revenue through September 30, 2023175176 - Residential real estate market conditions showed signs of stabilization and improvement in Q2 and Q3 2023 compared to late 2022 and Q1 2023, leading to improved gross profit margin, reduced net loss, increased acquisitions, and a shorter average holding period for homes178179 - Despite improvements, elevated mortgage interest rates, inflation, and low single-family resale home supply, coupled with typical seasonality, are expected to continue impacting consumer demand in Q4 2023180 - The company aims to grow market share in existing markets, expand into new markets (though no new markets are anticipated in 2023 due to challenging conditions), and diversify revenue through renovation services and ancillary products like title/escrow and mortgage services183184186187189190 - Offerpad's risk management strategy involves conservative acquisition underwriting and managing holding periods; the average holding period for homes sold decreased to 76 days in Q3 2023 from 185 days in Q1 2023, approaching the historical norm of around 100 days194197198 Non-GAAP Financial Measures This section defines and presents Offerpad's non-GAAP financial measures, including Adjusted Gross Profit, Contribution Profit, and Adjusted EBITDA, used to assess operational performance - Offerpad uses non-GAAP measures like Adjusted Gross Profit, Contribution Profit, Contribution Profit After Interest, Adjusted Net Income (Loss), and Adjusted EBITDA to evaluate unit-level economics and underlying financial performance, excluding non-recurring or non-cash items200208211 Non-GAAP Financial Measures (in thousands, except percentages) | Non-GAAP Metric (in thousands, except percentages) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted gross profit | $24,808 | $23,241 | $2,619 | $275,463 | | Adjusted gross margin | 10.6% | 2.8% | 0.2% | 8.4% | | Contribution profit (loss) | $22,527 | $295 | $(26,187) | $192,537 | | Contribution margin | 9.6% | 0.0% | (2.4)% | 5.9% | | Contribution profit (loss) after interest | $19,116 | $(10,301) | $(58,163) | $160,000 | | Contribution margin after interest | 8.2% | (1.3)% | (5.4)% | 4.9% | Adjusted Net Loss and Adjusted EBITDA (in thousands, except percentages) | Non-GAAP Metric (in thousands, except percentages) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted net loss | $(20,117) | $(81,983) | $(101,954) | $(47,638) | | Adjusted net loss margin | (8.6)% | (10.0)% | (9.5)% | (1.5)% | | Adjusted EBITDA | $(13,278) | $(64,280) | $(75,337) | $(111) | | Adjusted EBITDA margin | (5.7)% | (7.8)% | (7.0)% | (0.0)% | Results of Operations This section analyzes Offerpad's financial performance, including revenue, gross profit, operating expenses, and interest expense, for the three and nine months ended September 30, 2023 Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 This section compares Offerpad's financial results for the third quarter of 2023 against the same period in 2022, focusing on key revenue and expense drivers - Revenue decreased by $587.5 million (71.5%) to $234.2 million, driven by a 69% decrease in homes sold (703 vs. 2,280) and a lower average resale price ($327,000 vs. $360,000)219 - Gross profit increased by $21.8 million to $24.0 million, with gross profit margin improving significantly to 10.2% from 0.3%, due to better home resale-to-acquisition price differences and reduced inventory valuation adjustments218222 - Operating expenses decreased by $28.9 million (39.9%) to $43.5 million, primarily due to lower sales, marketing, and operating costs, and reduced employee compensation across all operating expense categories218223224225 - Interest expense decreased by $11.5 million (72.3%) to $4.4 million, mainly due to a $914.3 million decrease in the average outstanding balance of secured credit facilities, partially offset by a 2.79% increase in weighted average variable interest rates227 Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 This section compares Offerpad's financial results for the first nine months of 2023 against the same period in 2022, analyzing revenue, gross profit, operating expenses, and interest expense - Revenue decreased by $2,201.1 million (67.2%) to $1,074.0 million, primarily due to a 66% decrease in homes sold (2,962 vs. 8,770) and a slight decrease in average resale price ($360,000 vs. $372,000)232 - Gross profit decreased by $173.8 million (76.5%) to $53.5 million, with gross profit margin declining to 5.0% from 6.9%, mainly due to a smaller difference between average home resale and acquisition prices, despite a decrease in inventory valuation adjustments231234 - Operating expenses decreased by $98.0 million (40.1%) to $146.7 million, driven by reduced variable costs from fewer homes sold, lower employee compensation, and a $10.9 million reduction in advertising expense231235237238 - Interest expense decreased by $17.2 million (55.6%) to $13.7 million, primarily due to a $645.8 million decrease in the average outstanding balance of secured credit facilities, partially offset by a 3.44% increase in weighted average variable interest rates240 Liquidity and Capital Resources This section discusses Offerpad's cash position, borrowing capacity, working capital needs, and financing strategies, including the impact of market volatility - As of September 30, 2023, Offerpad had $106.0 million in cash and cash equivalents and an undrawn borrowing capacity of $1,279.9 million ($349.9 million committed, $930.0 million uncommitted)243 - The company expects working capital requirements to increase long-term for inventory and market expansion, relying on cash from operations, home resales, and existing or new debt/equity financing245 - Volatility in credit markets, rising interest rates, and softening consumer demand could adversely affect debt financing terms or availability, potentially leading to equity dilution if additional funds are raised247 - All pre-funded warrants issued in January 2023 were exercised by September 30, 2023, generating $90.0 million in gross proceeds for general corporate purposes248249 - Net cash provided by operating activities was $277.0 million for the nine months ended September 30, 2023, a significant improvement from net cash used of $(91.9) million in the prior year, driven by a $366.7 million decrease in real estate inventory265 - Net cash used in financing activities was $(304.2) million for the nine months ended September 30, 2023, primarily due to $1,080.8 million in debt repayments, partially offset by $687.7 million in new borrowings and $90.0 million from pre-funded warrants269 Critical Accounting Estimates This section highlights the company's reliance on estimates and assumptions, particularly for real estate inventory valuation, and notes no material changes since the last annual report - The company's financial statements rely on estimates and assumptions, particularly regarding the net realizable value of real estate inventory, which could differ from actual results42273 - There have been no material changes to the critical accounting estimates since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022273 Recent Accounting Pronouncements This section confirms Offerpad's adoption of applicable accounting standards and anticipates no material impact from new, unadopted pronouncements - Offerpad has adopted all applicable accounting standards in effect as of September 30, 2023, and does not anticipate any material impact from new, unadopted standards on its condensed consolidated financial statements51275 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's exposure to market risk since December 31, 2022, referring to the Annual Report on Form 10-K for detailed disclosures - There have been no material changes to Offerpad's exposure to market risk since December 31, 2022276 Item 4. Controls and Procedures This section details the evaluation of Offerpad's disclosure controls and procedures, concluding their effectiveness as of September 30, 2023, and reporting no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that Offerpad's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023278 - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023279 PART II. OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings This section states that Offerpad is not currently a party to any legal proceedings that would individually or in aggregate have a material adverse effect on its business, financial condition, results of operations, and cash flows, while acknowledging the inherent uncertainty of litigation outcomes - Offerpad is not currently involved in any legal proceedings that would materially adversely affect its business, financial condition, results of operations, or cash flows281 - The outcome of litigation is inherently uncertain, and adverse resolutions could materially impact financial results282 Item 1A. Risk Factors This section refers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, noting that no material changes have occurred since that filing - There have been no material changes to Offerpad's risk factors since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022283 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports that there were no unregistered sales of equity securities and no repurchases of Class A common stock by the issuer during the three months ended September 30, 2023 - Offerpad did not engage in any unregistered sales of equity securities during the period284 - The company did not repurchase any shares of its Class A common stock during the three months ended September 30, 2023285 Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities - This item is not applicable, indicating no defaults upon senior securities286 Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures - This item is not applicable, indicating no mine safety disclosures287 Item 5. Other Information This section reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023288 Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, employment agreements, loan agreements, and certifications - Key exhibits include the Fourth Restated Certificate of Incorporation, Amended and Restated Bylaws, Bonus Letter Agreement, Employment Agreement, Form of 2023 Long Term Incentive Award Agreement, and various amendments to loan and security agreements290 - Certifications from the Chief Executive Officer and Chief Financial Officer are filed herewith, along with Inline XBRL documents290 SIGNATURES This section contains the official signatures of Offerpad's Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Brian Bair, Chief Executive Officer and Chairman of the Board, and Jawad Ahsan, Chief Financial Officer, on November 1, 2023295