Offerpad Solutions (OPAD) - 2021 Q4 - Annual Report

Preamble Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements involving risks and uncertainties that could cause actual results to differ - The report includes forward-looking statements concerning future results, identifiable by terms like "believes" or "expects"[13] - These statements are inherently uncertain, and investors are warned not to rely on them due to risks detailed in the "Risk Factors" section[14][15] Summary Risk Factors The company faces principal risks related to economic conditions, operations, finances, technology, and regulations - Key business risks include impacts from general economic conditions, the U.S. residential real estate industry, and the COVID-19 pandemic[18] - Operational risks stem from a limited operating history, intense competition, and managing real estate inventory[18] - Financial and strategic risks include a history of losses, reliance on significant indebtedness, and challenges in launching new products[18] - The company also faces technology-related risks such as IT system failures and extensive industry regulation[18] PART I Business Offerpad provides a tech-enabled real estate platform for buying and selling homes across 21 metropolitan markets - Offerpad's mission is to provide the best way to buy and sell a home, using a technology-enabled platform for convenience and certainty[19] - The company offers two main services: "Express" for a direct cash offer and "Flex" for listing with a backup cash offer[21][26] - Since its founding through December 31, 2021, Offerpad has transacted on homes representing approximately $5.4 billion in aggregate revenue[23] - For the year ended December 31, 2021, the company achieved a net promoter score of 74 and a 93% Customer Satisfaction Rating[23] - Growth strategies include expanding to 29 total markets by the end of 2022 and adding ancillary services[43][44][48] - The business is subject to seasonality, with transaction volumes typically highest in the spring and summer[69] Risk Factors The company faces significant risks from market conditions, competition, financial losses, and technology failures - Business & Industry Risks: The company's success is highly dependent on general economic conditions and the health of the U.S. residential real estate market[75][79] - Financial Risks: The company has a history of net losses and utilizes significant debt, making it vulnerable to interest rate changes[86][167] - Operational Risks: The business depends on accurately valuing homes and managing inventory, where inaccuracies can negatively impact margins[90][96][117] - Technology & IP Risks: IT systems are vulnerable to security breaches, and the company is subject to extensive privacy regulations like the CCPA[145][151][152] - Capital Structure Risks: The multi-class stock structure gives the founder and CEO significant voting control of approximately 40.2%[195] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[230] Properties The company leases its corporate headquarters in Arizona and field offices in its operational markets - Offerpad leases its corporate headquarters and various field offices; it does not own its primary operational facilities[231] Legal Proceedings Offerpad is not currently a party to any material legal proceedings that would adversely affect its business - The company is not currently party to any material litigation[232] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[234] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and it does not plan to pay dividends, retaining earnings for expansion - Offerpad's Class A common stock and warrants began trading on the NYSE on September 1, 2021, under the symbols "OPAD" and "OPAD WS"[236] - The company has never paid cash dividends and does not anticipate paying any in the foreseeable future[239] - No shares of the company's common stock were repurchased during the three months ended December 31, 2021[244] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 94.5% to $2.1 billion in 2021, achieving profitability driven by strong housing market conditions Key Financial Results (2021 vs. 2020) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $2,070.4M | $1,064.3M | 94.5% | | Gross Profit | $207.8M | $87.8M | 136.7% | | Gross Margin | 10.0% | 8.2% | +1.8 p.p. | | Net Income (Loss) | $6.5M | ($23.1M) | N.A. | | Homes Sold | 6,373 | 4,281 | 48.9% | - The significant increase in revenue was driven by a 49% increase in homes sold and a 31% increase in average resale price[313] - The company completed its Business Combination with Supernova, resulting in gross proceeds of $284.0 million[256] - As of December 31, 2021, the company had $1,026.2 million in total debt outstanding to finance its $1.13 billion home inventory[167][376] Non-GAAP Financial Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Contribution Profit | $162.9M | $54.2M | | Contribution Margin | 7.9% | 5.1% | | Contribution Profit After Interest | $145.9M | $38.6M | | Contribution Margin After Interest | 7.0% | 3.6% | | Adjusted EBITDA | $29.9M | ($8.2M) | Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk from its variable-rate credit facilities and inflation risk - The company's main market risk is interest rate fluctuations on its $862.8 million in variable-rate debt as of December 31, 2021[358][359] - A one percentage point increase in LIBOR is estimated to have increased annual interest expense by approximately $8.3 million for 2021[359] - The company states that inflation has not had a material effect on its business to date[360] Financial Statements and Supplementary Data This section presents audited consolidated financial statements with an unqualified opinion from Deloitte & Touche LLP - The Report of Independent Registered Public Accounting Firm provides an unqualified (clean) opinion on the consolidated financial statements[365] - The auditor identified the valuation of real estate inventory as a Critical Audit Matter due to management's estimation subjectivity[370][371] Consolidated Balance Sheet Highlights (As of Dec 31) | ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $169,817 | $43,938 | | Inventory | $1,132,571 | $171,359 | | Total Assets | $1,353,082 | $235,873 | | Liabilities & Equity | | | | Secured credit facilities and notes payable, net | $1,026,196 | $181,678 | | Total Liabilities | $1,095,513 | $195,008 | | Total stockholders' equity (deficit) | $257,569 | ($143,258) | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | ($ in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $2,070,446 | $1,064,257 | $1,075,882 | | Gross Profit | $207,815 | $87,779 | $74,387 | | Income (loss) from operations | $19,766 | ($13,758) | ($33,400) | | Net income (loss) | $6,460 | ($23,118) | ($51,952) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Required information was previously reported in a Current Report on Form 8-K/A filed on September 7, 2021 - There are no new disclosures under this item; required information was previously filed in a Form 8-K/A[568] Controls and Procedures Management concluded that disclosure controls were effective and a prior material weakness was remediated as of year-end - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of December 31, 2021[570] - A material weakness related to warrant accounting was remediated as of December 31, 2021[571][572] - A management report on internal control over financial reporting is not included due to reverse acquisition transition rules[573][574] Other Information This section discloses the date for the 2022 Annual Meeting of Stockholders - The 2022 Annual Meeting of Stockholders is scheduled to be held virtually on June 2, 2022[577] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[578] PART III Directors, Executive Officers and Corporate Governance The company details its board of directors and executive officers, noting its audit committee composition and ethics code Board of Directors | Name | Position | | :--- | :--- | | Brian Bair | Chief Executive Officer and Chairman | | Katie Curnutte | Director | | Kenneth DeGiorgio | Director | | Alexander Klabin | Director | | Ryan O'Hara | Director | | Sheryl Palmer | Director | | Roberto Sella | Director | - The Audit Committee consists of Katie Curnutte, Alexander Klabin, and Sheryl Palmer (Chair), all of whom are independent[598] - The Board has determined that Sheryl Palmer and Alexander Klabin qualify as "audit committee financial experts"[599] - The company has adopted a Code of Business Conduct and Ethics, which is available on its investor relations website[600] Executive Compensation This section details NEO compensation, which includes base salary, cash incentives, and long-term equity awards 2021 NEO Compensation Summary | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Brian Bair | CEO | 783,689 | | Michael Burnett | CFO | 723,371 | | Benjamin Aronovitch | CLO | 717,321 | | Stephen Johnson | COO | 515,491 | - The 2021 annual cash incentive was based on four performance metrics, with above-target performance achieved on three[617][619] - No equity or equity-based compensation was granted to the NEOs in 2021[623] - The non-employee director compensation program includes a $50,000 annual cash retainer and an initial RSU grant valued at $300,000[668][669][670] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters CEO Brian Bair holds 40.2% of total voting power through Class B stock, with all executives controlling 68.5% Security Ownership of Major Holders (as of Feb 1, 2022) | Holder | Class A Shares (%) | Class B Shares (%) | Total Voting Power (%) | | :--- | :--- | :--- | :--- | | Entities affiliated with LL Capital Partners I, L.P. | 44.7% | 0% | 26.9% | | First American Financial Corporation | 14.3% | 0% | 8.6% | | Jerry Coleman | 8.2% | 0% | 5.0% | | Supernova Partners LLC | 7.2% | 0% | 4.4% | | Brian Bair (CEO) | 7.3% | 100.0% | 40.2% | | All Directors & Executive Officers (as a group) | 51.4% | 100.0% | 68.5% | - CEO Brian Bair controls 100% of the Class B common stock, which carries 10 votes per share, granting him a total of 40.2% of the company's voting power[688][690][697] Certain Relationships and Related Transactions, and Director Independence The company discloses transactions with major shareholders and confirms that five of its seven directors are independent - The company has a written policy for the review and approval of related person transactions by its Audit Committee[701] - Offerpad utilizes credit facilities with affiliates of LL Capital Partners, a major shareholder, paying $11.7 million in interest in 2021[703][706] - The company has a commercial relationship with First American Financial Corporation, paying them $11.9 million in 2021 for services[707] - The board of directors has determined that five of its seven directors are independent under NYSE rules[717] Principal Accounting Fees and Services Information on accounting fees will be incorporated by reference from the 2022 Annual Meeting Proxy Statement - Details on accounting fees and services will be provided in the upcoming proxy statement for the 2022 Annual Meeting[718] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This item provides an index of all financial statements and exhibits included in or incorporated by reference into the Form 10-K filing[720][721] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[726]