Opendoor Technologies Inc 10-Q for FY2021 Q3
Opendoor Technologies Inc. (OPEN)
10-Q
2021-11-10
For: 2021-09-30
View Original
Added on
April 06, 2026
About this 10-Q
Opendoor Technologies Inc filed this 10-Q on November 10, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.27B
- up 569.3% from $338.61M a year earlier
- Net loss
- $56.82M
- compared with a net loss of $80.85M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.91 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ___________ to ____________.
Commission file number 001-39253
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||||||||
(415 ) 896-6737
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of registrant’s common stock outstanding as of November 3, 2021 was approximately 612,612,711 .
OPENDOOR TECHNOLOGIES INC.
TABLE OF CONTENTS
| Page | |||||||||||
1
OPENDOOR TECHNOLOGIES INC.
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Opendoor,” the “Company,” “we,” “us,” and “our,” and similar references refer to Opendoor Technologies Inc. and its wholly owned subsidiaries following the Business Combination (as defined herein) and to Opendoor Labs Inc. prior to the Business Combination.
As a result of the Business Combination completed on December 18, 2020, Opendoor Labs Inc. share and per share amounts presented in this Quarterly Report on Form 10-Q, for periods prior to the Business Combination, have been retroactively converted by application of the exchange ratio of 1.618. For more information regarding the business combination, please see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 2. Business Combination”.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition; business strategy and plans; expectations regarding the impact of COVID-19; market opportunity and expansion and objectives of management for future operations, including our statements regarding the benefits and timing of the roll out of new markets, products, or technology; expected diversification of funding sources; and efforts to remediate our material weaknesses in internal control over financial reporting, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast”, “future”, “intend,” “may,” “might”, “opportunity”, “plan,” “possible”, “potential,” “predict,” “project,” “should,” “strategy”, “strive”, “target,” “will,” or “would”, including their antonyms or other similar terms or expressions may identify forward-looking statements. The absence of these words does not mean that a statement is not forward-looking.
These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, risks related to:
•our public securities’ potential liquidity and trading;
•our ability to raise financing in the future;
•our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
•the impact of the regulatory environment and complexities with compliance related to such environment;
•our ability to remediate our material weaknesses;
•factors relating to our business, operations and financial performance, including:
▪the impact of the COVID-19 pandemic;
▪our ability to maintain an effective system of internal controls over financial reporting;
▪our ability to grow market share in our existing markets or any new markets we may enter;
▪our ability to respond to general economic conditions;
▪the health of the U.S. residential real estate industry;
▪risks associated with our real estate assets and increased competition in the U.S. residential real estate industry;
▪our ability to manage our growth effectively;
▪our ability to achieve and maintain profitability in the future;
▪our ability to access sources of capital, including debt financing and securitization funding to finance our real estate inventories and other sources of capital to finance operations and growth;
▪our ability to maintain and enhance our products and brand, and to attract customers;
▪our ability to manage, develop and refine our technology platform, including our automated pricing and valuation technology;
▪the success of our strategic relationships with third parties; and
▪other factors detailed under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.
Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
1
OPENDOOR TECHNOLOGIES INC.
As a result of a number of known and unknown risks and uncertainties, including without limitation the important factors described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and on Part I. Item 1A “ Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||||||||
| ASSETS | ||||||||||||||
| CURRENT ASSETS: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Marketable securities | ||||||||||||||
| Mortgage loans held for sale pledged under agreements to repurchase | ||||||||||||||
| Escrow receivable | ||||||||||||||
| Real estate inventory, net | ||||||||||||||
Other current assets ($ | ||||||||||||||
| Total current assets | ||||||||||||||
| PROPERTY AND EQUIPMENT – Net | ||||||||||||||
| RIGHT OF USE ASSETS | ||||||||||||||
| GOODWILL | ||||||||||||||
| INTANGIBLES – Net | ||||||||||||||
OTHER ASSETS ($ | ||||||||||||||
| TOTAL ASSETS | (1) | $ | $ | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||
| Accounts payable and other accrued liabilities | $ | $ | ||||||||||||
| Non-recourse asset-backed debt - current portion | ||||||||||||||
| Other secured borrowings | ||||||||||||||
| Interest payable | ||||||||||||||
| Lease liabilities - current portion | ||||||||||||||
| Total current liabilities | ||||||||||||||
| NON-RECOURSE ASSET-BACKED DEBT – Net of current portion | ||||||||||||||
| CONVERTIBLE SENIOR NOTES | ||||||||||||||
| WARRANT LIABILITIES | ||||||||||||||
| LEASE LIABILITIES – Net of current portion | ||||||||||||||
| OTHER LIABILITIES | ||||||||||||||
| Total liabilities | (2) | |||||||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 17) | ||||||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive (loss) income | ( | |||||||||||||
| Total shareholders’ equity | ||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||||||||
________________
(1)The Company’s consolidated assets at September 30, 2021 and December 31, 2020 include the following assets of certain variable interest entities (“VIEs”) that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $11,567 and $15,849 ; Restricted cash, $475,305 and $81,408 ; Real estate inventory, net, $6,131,362 and $460,680 ; Escrow receivable, $102,685 and $1,364 ; Other current assets, $39,253 and $5,365 ; and Total assets of $6,760,172 and $564,666 , respectively.
(2)The Company’s consolidated liabilities at September 30, 2021 and December 31, 2020 include the following liabilities for which the VIE creditors do not have recourse to Opendoor: Accounts payable and other accrued liabilities, $66,134 and $2,335 ; Interest payable, $9,413 and $1,059 ; Current portion of non-recourse asset-backed debt, $4,049,812 and $339,173 ; Non-recourse asset-backed debt, net of current portion, $1,367,989 and $135,467 ; and Total liabilities, $5,493,348 and $478,034 , respectively.
See accompanying notes to condensed consolidated financial statements.
3
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| REVENUE | $ | $ | $ | $ | |||||||||||||||||||
| COST OF REVENUE | |||||||||||||||||||||||
| GROSS PROFIT | |||||||||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||
| Sales, marketing and operations | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| LOSS FROM OPERATIONS | ( | ( | ( | ( | |||||||||||||||||||
| DERIVATIVE AND WARRANT FAIR VALUE ADJUSTMENT | ( | ( | |||||||||||||||||||||
| INTEREST EXPENSE | ( | ( | ( | ( | |||||||||||||||||||
| OTHER INCOME – Net | |||||||||||||||||||||||
| LOSS BEFORE INCOME TAXES | ( | ( | ( | ( | |||||||||||||||||||
| INCOME TAX EXPENSE | ( | ( | ( | ( | |||||||||||||||||||
| NET LOSS | $ | ( | $ | ( | ( | ( | |||||||||||||||||
| Net loss per share attributable to common shareholders: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| NET LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| OTHER COMPREHENSIVE INCOME: | |||||||||||||||||||||||
| Unrealized (loss) gain on marketable securities | ( | ( | ( | ||||||||||||||||||||
| Currency translation adjustment | ( | ( | |||||||||||||||||||||
| COMPREHENSIVE LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY
EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except number of shares)
(Unaudited)
| Temporary Equity | Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Series E Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE-June 30, 2021 | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the February 2021 Offering | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Capped Calls related to the 2026 Notes | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE–September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Temporary Equity | Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Series E Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE-December 31, 2020 | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the February 2021 Offering | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon exercise of warrants | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Capped Calls related to the 2026 Notes | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE–September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY
EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except number of shares)
(Unaudited)
| Temporary Equity | Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Series E Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE-June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of issuer stock rights in extinguishment of the 2019 Convertible Notes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive gain | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE–September 30, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Temporary Equity | Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Series D Convertible Preferred Stock | Series E Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE-December 31, 2019 | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of issuer stock rights in extinguishment of the 2019 Convertible Notes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive gain | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE–September 30, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
7
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to cash, cash equivalents, and restricted cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization – net of accretion | |||||||||||
| Amortization of right of use asset | |||||||||||
| Impairment of software development costs | |||||||||||
| Stock-based compensation | |||||||||||
| Derivative and warrant fair value adjustment | ( | ||||||||||
| Gain on settlement of lease liabilities | ( | ||||||||||
| Inventory valuation adjustment | |||||||||||
| Changes in fair value of derivative instruments | ( | ||||||||||
| Changes in fair value of marketable equity securities | ( | ||||||||||
| Payment-in-kind interest | |||||||||||
| Dividend-in-kind | |||||||||||
| Net fair value adjustments and gain (loss) on sale of mortgage loans held for sale | ( | ( | |||||||||
| Origination of mortgage loans held for sale | ( | ( | |||||||||
| Proceeds from sale and principal collections of mortgage loans held for sale | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Escrow receivable | ( | ||||||||||
| Real estate inventories | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable and other accrued liabilities | |||||||||||
| Interest payable | ( | ||||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Purchase of intangible assets | ( | ||||||||||
| Purchase of marketable securities | ( | ( | |||||||||
| Proceeds from sales, maturities, redemptions and paydowns of marketable securities | |||||||||||
| Purchase of non-marketable equity securities | ( | ||||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from issuance of convertible senior notes, net of issuance costs | |||||||||||
| Purchase of capped calls related to the convertible senior notes | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Proceeds from warrant exercise | |||||||||||
| Proceeds from the February 2021 Offering | |||||||||||
| Issuance cost of common stock | ( | ||||||||||
| Proceeds from non-recourse asset-backed debt | |||||||||||
| Principal payments on non-recourse asset-backed debt | ( | ( | |||||||||
| Proceeds from other secured borrowings | |||||||||||
| Principal payments on other secured borrowings | ( | ( | |||||||||
| Payment of loan origination fees and debt issuance costs | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | ||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – Beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION – Cash paid during the period for interest | $ | $ | |||||||||
8
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| DISCLOSURES OF NONCASH FINANCING ACTIVITIES: | |||||||||||
| Issuance of issuer stock rights in extinguishment of the 2019 Convertible Notes | $ | $ | |||||||||
| Issuance of common stock in extinguishment of warrant liabilities | $ | ( | $ | ||||||||
| RECONCILIATION TO CONDENSED CONSOLIDATED BALANCE SHEETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
9
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
1.DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Opendoor Technologies Inc. (the “Company” and “Opendoor”) including its consolidated subsidiaries and certain variable interest entities (“VIEs”), is a leading digital platform for buying and selling homes. Opendoor streamlines the home selling and buying transaction and creates an end-to-end experience online. The Company was incorporated in Delaware on December 30, 2013.
Correction of Prior Period Amounts
On April 12, 2021, subsequent to the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Acting Director of the Division of Corporation Finance and the Acting Chief Accountant of the SEC issued a Staff Statement (the “Staff Statement”) on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”).
The Company took into consideration the guidance in the Staff Statement and Accounting Standards Codification 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity ("ASC 815-40") and evaluated the Public and Sponsor Warrants (each as defined herein and collectively the "Warrants"). The Warrants were issued in a private placement simultaneously with the closing of the initial public offering of Social Capital Hedosophia Holdings Corp. II (“SCH”), assumed by the Company through the Business Combination (as defined herein) on December 18, 2020, and classified in shareholders' equity as of and for the year ended December 31, 2020. While the Company concluded the Public Warrants meet the criteria to continue to be classified in shareholders' equity, the Company concluded the Sponsor Warrants do not meet the scope exception from derivative accounting prescribed by ASC 815-40 and should therefore be recorded as a liability on the Company’s consolidated balance sheet at fair value as of the closing of the Business Combination, with subsequent changes in their fair value recognized in the Company’s condensed consolidated statement of operations at each reporting date. The accounting for the Sponsor Warrants does not impact the Company's financial statements in any reporting periods prior to the Business Combination, as the Company assumed the Warrants through the Business Combination which was accounted for as a reverse recapitalization.
The fair value of the Sponsor Warrants as of the Closing Date on December 18, 2020 and December 31, 2020 amounted to $81.1 million and $47.3 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $33.8 million. The impact of the misstatement as of December 31, 2020 resulted in an understatement of the warrant liability of $47.3 million, and an overstatement of accumulated deficit and additional paid-in capital of $33.8 million and $81.1 million respectively.
The Company evaluated the impact of error related to the accounting treatment of Sponsor Warrants with respect to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and determined, based on consideration of quantitative and qualitative factors, that the error had an immaterial impact, individually and in aggregate. As such, the Company corrected its accounting for Sponsor Warrants in its Quarterly Report on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021.
The following table provides the impact of the correction on the Company's consolidated balance sheet as of December 31, 2020, as presented herein (in thousands):
| Previously Stated | Adjustments | As Corrected | ||||||||||||||||||
| Warrant liabilities | $ | $ | ||||||||||||||||||
| Total liabilities | $ | $ | ||||||||||||||||||
| Additional paid-in capital | $ | ( | $ | |||||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||||||||
| Total shareholders' equity | $ | ( | $ | |||||||||||||||||
10
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements as of September 30, 2021 and December 31, 2020 and for the three and nine month periods ended September 30, 2021 and 2020 include the accounts of Opendoor, its wholly owned subsidiaries and VIEs where the Company is the primary beneficiary. The accompanying unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements herein. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period's presentation.
As a result of the Business Combination completed on December 18, 2020, prior period share and per share amounts presented in the accompanying condensed consolidated financial statements and these related notes have been retroactively converted. See “Note 2— Business Combination” for additional information.
The accompanying interim condensed consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”) filed on March 4, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ materially from such estimates. Significant estimates, assumptions and judgments made by management include, among others, the determination of the fair value of common stock, share-based awards, warrants, derivatives, convertible senior notes, and inventory impairment (“real estate inventory valuation adjustment”). Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s financial statements will be affected. The COVID-19 pandemic introduced significant additional uncertainties with respect to estimates, judgments and assumptions, which may materially impact these estimates.
Significant Risks and Uncertainties
The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic; its rates of revenue growth; its ability to manage inventory; engagement and usage of its products; the effectiveness of its investment of resources to pursue strategies; competition in its market; the stability of the residential real estate market; the impact of interest rate changes on demand and its costs; changes in technology, products, markets or services by the Company or its competitors; the addition or loss of significant customers; its ability to maintain or establish relationships with listings and data providers; its ability to obtain or maintain licenses and permits to support its current and future businesses; actual or anticipated changes to its products and services; changes in government regulation affecting its business; the outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; its management of its growth; its ability to attract and retain qualified employees and key personnel; its ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments; the protection of customers’ information and other privacy concerns; the protection of its brand and intellectual property; and intellectual property infringement and other claims, among other things.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments in marketable securities, and mortgage loans held for sale pledged under agreements to repurchase (“MLHFS”). The Company places cash and cash equivalents and investments with major financial institutions, which management assesses to be of high credit quality, in order to limit exposure of the Company’s investments.
11
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
The Company’s significant accounting policies are discussed in “Part II – Item 8 – Financial Statements and Supplementary Data – Note 1. Description of Business and Accounting Policies” in the Annual Report. There have been no changes to these significant accounting policies for the nine month period ended September 30, 2021, except as noted below.
Convertible Senior Notes
The 0.25 % convertible senior notes due in 2026 (the "2026 Notes") issued by the Company are accounted for wholly as debt in accordance with ASU 2020-06. The 2026 Notes have an initial carrying value equal to the net proceeds from issuance. Issuance costs associated with the 2026 Notes are amortized over the term using the effective interest method. Conversions are settled through payment of cash or a combination of cash and stock, at the Company's option. Upon conversion, the carrying amount of the 2026 Notes, including any unamortized debt issuance costs, is reduced by cash paid, with any difference being reflected as a change in equity. There will not be any gains or losses recognized upon a conversion.
Capped Calls
The Company purchased certain capped calls in connection with the issuance of the 2026 Notes in August 2021 which it expects to reduce potential dilution from conversions of the 2026 Notes. The capped calls were determined to be freestanding financial instruments that meet the criteria for classification in equity; as such, the capped calls were recorded as a reduction of Additional paid-in capital within shareholders' equity and will not be subsequently remeasured.
Non-marketable Equity Securities
The Company's non-marketable equity securities are strategic investments in a privately held company. Non-marketable equity securities are investments that do not have a readily determinable fair value, which are measured at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, are recorded in Other income-net on the Company's condensed consolidated statements of operations. The Company assesses whether an impairment loss on its non-marketable equity securities has occurred due to declines in fair value or other
12
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Public and Sponsor Warrants
On April 30, 2020, SCH consummated its initial public offering of 41,400,000 units, consisting of one share of Class A common stock and one third of one warrant exercisable for Class A common stock, at a price of $10.00 per unit. Each whole warrant entitled the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, SCH completed the private sale of 6,133,333 warrants to SCH’s sponsor at a price of $1.50 per warrant (the “Sponsor Warrants”). Each Sponsor Warrant allowed the sponsor to purchase one share of Class A common stock at $11.50 per share.
The Sponsor Warrants and shares of common stock issuable upon the exercise of Sponsor Warrants were not able to be transferred, assigned, or sold until 30 days after the completion of a Business Combination. Additionally, the Sponsor Warrants were eligible for cash and cashless exercises, at the holder’s option, and were redeemable only if the reference value, as defined in the Warrant Agreement, was less than $18.00 per share. If the Sponsor Warrants were held by someone other than the sponsors and certain permitted transferees, the Sponsor Warrants would have been redeemable and exercisable on the same basis as the Public Warrants.
The Company evaluated the Public and Sponsor Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity, and concluded that the Sponsor Warrants do not meet the criteria to be classified in shareholders’ equity. Specifically, the exercise and settlement features for the Sponsor Warrants precluded them from being considered indexed to the Company’s own stock, given that a change in the holder of the Sponsor Warrants may alter the settlement of the Sponsor Warrants. Since the holder of the instrument is not an input to a standard option pricing model (a consideration with respect to the indexation guidance), the fact that a change in the holder could impact the value of the Sponsor Warrants means the Sponsor Warrants were not indexed to the Company’s own stock. Since the Sponsor Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the balance sheet at fair value upon the consummation of the Business Combination, with subsequent changes in their respective fair values recognized in the condensed consolidated statement of operations at each reporting period. The Company concluded that the Public Warrants, which do not have the same exercise and settlement features as the Sponsor Warrants, meet the criteria to be classified in shareholders' equity.
On June 9, 2021, the Company filed a notice of redemption of all outstanding Public Warrants and Sponsor Warrants. The end of the redemption period was July 9, 2021, at which time the Company redeemed all unexercised warrants at a price of $0.10 per Warrant.
13
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Recently Issued Accounting Standards
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, to simplify accounting for certain financial instruments. This guidance eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. The standard also amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The Company adopted this ASU as of January 1, 2021 using the modified retrospective method. The adoption of this ASU did not have a material impact to the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04 which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter- Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company may elect to take advantage of this optional guidance in its transition away from LIBOR within certain debt contracts. The Company is currently evaluating the impact of adopting this guidance on the Company's financial position, results of operations or cash flows.
2.BUSINESS COMBINATION
Opendoor Labs Inc. entered into a merger agreement (the “Merger Agreement”) with Social Capital Hedosophia Holdings Corp. II, (“SCH”) on September 15, 2020. Pursuant to the Merger Agreement, Hestia Merger Sub Inc., a newly formed subsidiary of SCH (“Merger Sub”), merged with and into Opendoor Labs Inc. Upon the completion of the transactions contemplated by the terms of the Merger Agreement (the “Closing”) on December 18, 2020, the separate corporate existence of Merger Sub ceased and Opendoor Labs Inc. survived the merger and became a wholly owned subsidiary of SCH. On December 18, 2020, SCH also filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SCH was domesticated as a Delaware corporation, changing its name from “Social Capital Hedosophia Holdings Corp. II” to “Opendoor Technologies Inc.” These transactions are collectively referred to as the “Business Combination.”
The Business Combination was accounted for as a reverse recapitalization whereby SCH was determined as the accounting acquiree and Opendoor Labs Inc. as the accounting acquirer. This accounting treatment is equivalent to Opendoor Labs Inc. issuing stock for the net assets of SCH, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Business Combination are those of Opendoor Labs Inc. At the Closing, the Company received consideration of $376.6 million in cash as a result of the reverse recapitalization.
In connection with the Business Combination, SCH entered into subscription agreements with certain investors, whereby it issued 60,005,000 shares of common stock at $10.00 per share (“PIPE Shares”) for an aggregate purchase price of $600.1 million (“PIPE Investment”), which closed simultaneously with the consummation of the Business Combination. Upon the Closing, the PIPE Shares were automatically converted into shares of the Company's common stock on a one -for-one basis.
Upon the Closing, holders of Opendoor Labs Inc. common stock received shares of Opendoor Technologies common stock in an amount determined by application of the exchange ratio of 1.618 (“Exchange Ratio”), which was based on Opendoor Labs Inc.’s implied price per share prior to the Business Combination. For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio.
14
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
In connection with the Business Combination, the Company incurred approximately $43.6 million of equity issuance costs, consisting of underwriting, legal, and other professional fees, which are recorded to additional paid-in capital as a reduction of proceeds.
Other Acquisitions
On September 3, 2021, the Company acquired 100 % of the outstanding equity of Services Labs, Inc., including its consolidated subsidiaries (“Pro.com”), in exchange for $21.8 million in cash consideration. The Company acquired Pro.com, a construction project platform, for its technology and talent. Acquired intangible assets consist of developed technology valued at $4.2 million which will be amortized over one year .
3.REAL ESTATE INVENTORY
The following table presents the components of inventory, net of applicable real estate inventory valuation adjustments, as of the dates presented (in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Work-in-process | $ | $ | |||||||||
| Finished goods | |||||||||||
| Total real estate inventory | $ | $ | |||||||||
4.CASH, CASH EQUIVALENTS, AND INVESTMENTS
The amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents, and marketable securities as of September 30, 2021 and December 31, 2020, are as follows (in thousands):
| September 30, 2021 | |||||||||||||||||||||||||||||||||||
Cost Basis | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Marketable Securities | ||||||||||||||||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | $ | $ | — | ||||||||||||||||||||||||||
| Money market funds | — | — | — | ||||||||||||||||||||||||||||||||
| Time deposit | — | — | — | ||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||||||||||||||
| Mutual fund | — | — | |||||||||||||||||||||||||||||||||
| Equity securities | — | — | |||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ||||||||||||||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||||||||||||||
| Sovereign bonds | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||
15
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
| December 31, 2020 | |||||||||||||||||||||||||||||||||||
Cost Basis | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Marketable Securities | ||||||||||||||||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | $ | $ | — | ||||||||||||||||||||||||||
| Money market funds | — | — | — | ||||||||||||||||||||||||||||||||
| Commercial paper | — | ||||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ||||||||||||||||||||||||||||||||||
| U.S. agency securities | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||
A summary of debt securities with unrealized losses aggregated by period of continuous unrealized loss is as follows (in thousands):
| Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||||
| September 30, 2021 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Certificate of deposit | ||||||||||||||||||||||||||||||||||||||
| Sovereign bonds | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||||
| December 31, 2020 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||
| Commercial paper | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||||
The scheduled contractual maturities of marketable securities as of September 30, 2021 are as follows (in thousands):
| September 30, 2021 | Fair Value | Within 1 Year | After 1 Year through 5 Years | |||||||||||||||||
| Corporate debt securities | $ | $ | $ | |||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||
| Certificate of deposit | ||||||||||||||||||||
| Sovereign bonds | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
As of September 30, 2021, the Company had $5.1 million of non-marketable equity securities without a readily determinable fair value, measured using the Measurement Alternative. The Company did not record any adjustments to the carrying value of its non-marketable equity securities. As of December 31, 2020, the Company had no non-marketable equity securities without a readily determinable fair value.
16
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
5.DERIVATIVE INSTRUMENTS
The Company uses certain types of derivative instruments in the normal course of business and the Company’s use of derivatives includes interest rate caps to manage interest rate risk, IRLCs with respect to our MLHFS, and embedded conversion options with respect to the Company’s 2019 Convertible Notes. Derivative transactions can be measured in terms of notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which interest and other payments are determined.
Interest Rate Caps
The Company uses free-standing derivative instruments in the normal course of business as economic hedges to manage interest rate risks with respect to its variable senior credit facilities. The interest rate caps were carried at fair value in Other current assets with changes in fair value included in Other income. The Company’s interest rate cap position expired in November 2020.
Interest Rate Lock Commitments
In originating mortgage loans, the Company enters into IRLCs with prospective borrowers which are freestanding derivative instruments. IRLCs are a commitment that binds the Company, subject to loan underwriting and approval process, to fund the loan at a specified interest rate, regardless of fluctuations in the market interest rates between commitment date and funding date. The interest rate risk associated with the fluctuations in market interest rates between commitment date and funding date with respect to IRLCs is mitigated as the Company operates under the best effort basis whereby at the time of commitment, the Company enters into a sales commitment with a third-party for the same prospective loan. The fair value of interest rate lock commitments is presented in Other current assets. The change in fair value on IRLCs is a component of Other revenue.
Embedded Conversion Options
The Company bifurcated the embedded conversion features associated with the 2019 Convertible Notes. The 2019 Convertible Notes and the related bifurcated embedded conversion options were extinguished in September 2020. Prior to extinguishment, the embedded conversion options were measured at fair value and were presented in Derivative and warrant liabilities. The change in fair value of the embedded conversion options is a component of Derivative and warrant fair value adjustment.
The following table presents the total notional amounts and fair values for the Company’s derivatives (in thousands):
Notional Amount | Fair Value Derivatives | |||||||||||||||||||
| September 30, 2021 | Asset | Liability | ||||||||||||||||||
| Interest rate lock commitments | $ | $ | $ | |||||||||||||||||
Notional Amount | Fair Value Derivatives | |||||||||||||||||||
| December 31, 2020 | Asset | Liability | ||||||||||||||||||
| Interest rate lock commitments | $ | $ | $ | |||||||||||||||||
17
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
The following table presents the net gains and losses recognized on derivatives within the respective line items in the statement of operations for the periods indicated (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Revenue | $ | ( | $ | $ | $ | |||||||||||||||||||||
| Derivative and warrant fair value adjustment | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other income, net | $ | $ | $ | $ | ( | |||||||||||||||||||||
6.VARIABLE INTEREST ENTITIES
The Company utilizes VIEs in the normal course of business to support the Company’s financing needs. The Company determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with the VIE and reconsiders that conclusion on an on-going basis.
The Company established certain special purpose entities (“SPEs”) for the purpose of financing the Company’s purchase and renovation of real estate inventory through the issuance of asset-backed debt. The Company is the primary beneficiary of the various VIEs within these financing structures and consolidates these VIEs. The Company is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the SPEs through its role in designing the SPEs and managing the real estate inventory they purchase and sell. The Company has a potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.
The following table summarizes the assets and liabilities related to the VIEs consolidated by the Company as of September 30, 2021 and December 31, 2020 (in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Real estate inventory | |||||||||||
Other(1) | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Non-recourse asset-backed debt | $ | $ | |||||||||
Other(2) | |||||||||||
| Total liabilities | $ | $ | |||||||||
________________
(1)Includes escrow receivable and other current assets.
(2)Includes accounts payable and other accrued liabilities and interest payable.
The creditors of the VIEs generally do not have recourse to the Company’s general credit solely by virtue of being creditors of the VIEs, with the exception of limited guarantees provided by an Opendoor subsidiary for credit facilities. See “Note 7 — Credit Facilities and Long-Term Debt” for further discussion of the recourse obligations with respect to the VIEs.
18
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
7.CREDIT FACILITIES AND LONG-TERM DEBT
The following tables summarize certain details related to the Company's credit facilities and long-term debt as of September 30, 2021 and December 31, 2020 (in thousands, except interest rates):
| Outstanding Amount | ||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | Borrowing Capacity | Current | Non-Current | Weighted Average Interest Rate | End of Revolving / Withdrawal Period | Final Maturity Date | ||||||||||||||||||||||||||||||||
| Non-Recourse Asset-Backed Debt: | ||||||||||||||||||||||||||||||||||||||
| Asset-Backed Senior Credit Facilities | ||||||||||||||||||||||||||||||||||||||
| Revolving Facility 2018-2 | $ | $ | $ | % | September 23, 2022 | December 23, 2022 | ||||||||||||||||||||||||||||||||
| Revolving Facility 2018-3 | % | May 26, 2024 | May 26, 2024 | |||||||||||||||||||||||||||||||||||
| Revolving Facility 2019-1 | % | June 30, 2023 | June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Revolving Facility 2019-2 | % | July 8, 2023 | July 8, 2023 | |||||||||||||||||||||||||||||||||||
| Revolving Facility 2019-3 | % | August 22, 2022 | August 21, 2023 | |||||||||||||||||||||||||||||||||||
| Revolving Facility 2021-1 | % | October 31, 2022 | October 31, 2022 | |||||||||||||||||||||||||||||||||||
| Term Debt Facility 2021-S1 | % | April 1, 2024 | April 1, 2025 | |||||||||||||||||||||||||||||||||||
| Term Debt Facility 2021-S2 | % | September 10, 2024 | September 10, 2025 | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance Costs | ( | |||||||||||||||||||||||||||||||||||||
| Carrying Value | $ | |||||||||||||||||||||||||||||||||||||
| Asset-Backed Mezzanine Term Debt Facilities | ||||||||||||||||||||||||||||||||||||||
| Term Debt Facility 2016-M1 | $ | $ | $ | % | October 31, 2023 | March 31, 2025 | ||||||||||||||||||||||||||||||||
| Term Debt Facility 2020-M1 | % | January 23, 2023 | January 23, 2026 | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance Costs | ( | |||||||||||||||||||||||||||||||||||||
| Carrying Value | $ | |||||||||||||||||||||||||||||||||||||
| Total Non-Recourse Asset-Backed Debt | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Recourse Debt - Other Secured Borrowings: | ||||||||||||||||||||||||||||||||||||||
| Mortgage Financing | ||||||||||||||||||||||||||||||||||||||
| Repo Facility 2019-R1 | $ | $ | $ | % | May 26, 2022 | May 26, 2022 | ||||||||||||||||||||||||||||||||
| Total Recourse Debt | $ | $ | $ | |||||||||||||||||||||||||||||||||||
19
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
| Outstanding Amount | ||||||||||||||||||||
| December 31, 2020 | Current | Non-Current | Weighted Average Interest Rate | |||||||||||||||||
| Non-Recourse Asset-Backed Debt: | ||||||||||||||||||||
| Asset-Backed Senior Credit Facilities | ||||||||||||||||||||
| Revolving Facility 2018-1 | $ | $ | % | |||||||||||||||||
| Revolving Facility 2018-2 | % | |||||||||||||||||||
| Revolving Facility 2018-3 | % | |||||||||||||||||||
| Revolving Facility 2019-1 | % | |||||||||||||||||||
| Revolving Facility 2019-2 | % | |||||||||||||||||||
| Revolving Facility 2019-3 | % | |||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
| Asset-Backed Mezzanine Term Debt Facilities | ||||||||||||||||||||
| Term Debt Facility 2016-M1 | $ | $ | % | |||||||||||||||||
| Term Debt Facility 2020-M1 | % | |||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
| Issuance Costs | ( | |||||||||||||||||||
| Carrying Value | $ | |||||||||||||||||||
| Total Non-Recourse Asset-Backed Debt | $ | $ | ||||||||||||||||||
| Recourse Debt - Other Secured Borrowings: | ||||||||||||||||||||
| Mortgage Financing | ||||||||||||||||||||
| Repo Facility 2019-R1 | $ | $ | % | |||||||||||||||||
| Total Recourse Debt | $ | $ | ||||||||||||||||||
Non-Recourse Asset-backed Debt
The Company utilizes inventory financing facilities consisting of asset-backed senior credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. The credit facilities are secured by the assets and equity of one or more SPEs. Each SPE is a consolidated subsidiary of Opendoor and a separate legal entity. Neither the assets nor credit of any such SPE are generally available to satisfy the debts and other obligations of any other Opendoor entities, except to the extent other Opendoor entities are also a party to the financing arrangements. These facilities are non-recourse to Opendoor and, with limited exceptions, non-recourse to other Opendoor subsidiaries. These SPEs are variable interest entities and Opendoor is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the entities through its role in designing the entities and managing the real estate inventory purchased and sold by the entities. The Company has potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.
Asset-backed Senior Credit Facilities
The Company classifies the senior revolving credit facilities as current liabilities on the Company’s condensed consolidated balance sheets as amounts drawn to acquire and renovate homes are required to be repaid as the related real estate inventory is sold, which the Company expects to occur within 12 months. The Company classifies its senior term debt facilities as long-term liabilities on the Company's condensed consolidated balance sheets because its borrowings under these facilities are generally not required to be repaid until the final maturity date.
Undrawn borrowing capacity amounts under the senior credit facilities as reflected in the table above are in some cases not fully committed and any borrowings above the fully committed amounts are subject to the applicable lender’s discretion. As of September 30, 2021, the Company had fully committed borrowing capacity with respect to the Company’s senior credit facilities of $3,837.4 million. The total outstanding amount presented above includes $4,049.8 million of current liabilities and $750.0 million of non-current liabilities; the carrying value of the non-current liabilities is reduced by issuance costs of $3.2 million. Outstanding amounts drawn under each senior credit facility are required to be repaid on the facility maturity date
20
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
or earlier if accelerated due to an event of default or other mandatory repayment event. The final maturity dates and revolving/withdrawal period end dates reflected in the table above are inclusive of any extensions that are at the sole discretion of the Company. These facilities may also have extensions subject to lender discretion that are not reflected in the table above.
These borrowings are collateralized by cash, equity in the real estate owning SPEs, and the real estate inventory funded by the relevant facility. The lenders have legal recourse only to the real estate-owning SPE borrowers, certain SPE guarantors, and the assets securing the debt, and do not have general recourse to the Company.
The senior revolving credit facilities are typically structured with an initial 24 month revolving period during which time amounts can be borrowed, repaid and borrowed again. The borrowing capacity is generally available until the end of the applicable revolving period as reflected in the table above.
Borrowings under the senior revolving credit facilities accrue interest at a rate based on a LIBOR reference rate plus a margin that varies by facility. The Company may also pay fees on certain unused portions of the committed borrowing capacity, as defined in the respective credit agreements. The Company’s senior revolving credit facility arrangements typically include upfront fees that may be paid at execution of the applicable agreements or be earned at execution and payable over time. These facilities are generally fully prepayable at any time without penalty other than customary LIBOR breakage costs.
The senior revolving credit facilities have aggregated borrowing bases, which increase or decrease based on the cost and value of the properties financed under a given facility and the time that those properties are in the Company’s possession. When the Company resells a home, the proceeds are used to reduce the outstanding balance under the related senior revolving credit facility. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or partial repayment of the facility.
The senior term debt facilities are typically structured with an initial 36 month withdrawal period during which the outstanding principal amounts are generally not required to be repaid when homes financed through those facilities are sold and instead are intended to remain outstanding until final maturity for each facility. Borrowings under the senior term debt facility accrue interest at a fixed rate. The Company's senior term debt facilities may include upfront issuance costs that are capitalized as part of the facilities' respective carrying values. These facilities are fully prepayable at any time but may be subject to certain customary prepayment penalties.
The senior term debt facilities have aggregated property borrowing bases, which increase or decrease based on the cost and the value of the properties financed under the facilities, how long the Company has possessed such properties and the amount of cash collateral pledged by the SPE borrowers. The borrowing bases for the facilities may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties, cash or through partial repayment of the facilities.
Asset-backed Mezzanine Term Debt Facilities
The Company classifies its mezzanine term debt facilities as long-term liabilities on the Company’s condensed consolidated balance sheets because its borrowings under these facilities are generally not required to be repaid until the applicable final maturity date. These facilities are structurally and contractually subordinated to the related senior revolving credit facilities.
As of September 30, 2021, there were no undrawn amounts under the mezzanine term debt facilities. Any amounts repaid reduce total borrowing capacity as repaid amounts are not available to be reborrowed. The final maturity dates as reflected in the table above are inclusive of any extensions at the sole discretion of the Company. The Company’s mezzanine term debt facilities may also have extensions subject to lender discretion that are not reflected in the table above. See Note 18 — Subsequent Events” for further information regarding the amendment of the Company's asset-backed mezzanine term debt facilities.
Borrowings under a given term debt facility accrue interest at a fixed rate. The Company’s mezzanine term debt facility arrangements may include upfront issuance costs that are capitalized as part of the facilities’ respective carrying values. These facilities are fully prepayable at any time but may be subject to certain prepayment penalties.
21
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
These borrowings are collateralized by cash and equity in certain holding companies that own the Company’s real estate owning SPEs. The lenders generally have legal recourse only to the applicable borrowers of the debt and their assets securing the debt and do not have recourse to Opendoor and, with limited exceptions, do not have recourse to other Opendoor subsidiaries.
The mezzanine term debt facilities have aggregated property borrowing bases, which increase or decrease based on the cost and the value of the properties financed under a given facility and time in the Company’s possession of those properties and the amount of cash collateral pledged by the relevant SPE borrower. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or cash or through partial repayment of the facility.
Covenants
The Company’s inventory financing facilities include customary representations and warranties, covenants and events of default. Financed properties are subject to customary eligibility criteria and concentration limits.
The terms of these inventory financing facilities and related financing documents require Opendoor to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to equity). As of September 30, 2021, the Company was in compliance with all financial covenants and no event of default had occurred.
Mortgage Financing
To provide capital for Opendoor Home Loans, the Company utilizes a master repurchase agreement (the “Repurchase Agreement”) which is classified as a current liability on its condensed consolidated balance sheets. In March 2019, the Company entered into the Repurchase Agreement with a lender to provide short-term funding for mortgage loans originated by Opendoor Home Loans. The facility provides short-term financing between the issuance of a mortgage loan and when Opendoor Home Loans sells the loan to an investor. In accordance with the Repurchase Agreement, the lender agrees to pay Opendoor Home Loans a negotiated purchase price for eligible loans and Opendoor Home Loans simultaneously agrees to repurchase such loans from the lender within a specified timeframe and at an agreed upon price that includes interest. Opendoor Labs Inc. is the guarantor with respect to the Repurchase Agreement and the obligation to repurchase loans previously transferred under the arrangement for the benefit of the lender.
As of September 30, 2021, the Repurchase Agreement has a borrowing capacity of $100.0 million, of which $20.0 million is fully committed. The Repurchase Agreement includes customary representations and warranties, covenants and provisions regarding events of default. As of September 30, 2021, $20.6 million in mortgage loans were financed under the facility, and Opendoor was in compliance with all financial covenants and no event of default had occurred.
Transactions under the Repurchase Agreement bear interest at a rate based on one-month LIBOR plus an applicable margin, as defined in the Repurchase Agreement, and are secured by residential mortgage loans available for sale. The Repurchase Agreement contains margin call provisions that provide the lender with certain rights in the event of a decline in the market value of the assets purchased under the Repurchase Agreement. The Repurchase Agreement is recourse to Opendoor Labs Inc.
22
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Convertible Senior Notes
In August 2021, the Company issued the 2026 Notes in an aggregate principal amount of $977.5 million. The tables below summarizes certain details related to the 2026 Notes (in thousands, except interest rates):
| September 30, 2021 | Aggregate Principal Amount | Unamortized Debt Issuance Costs | Net Carrying Amount | |||||||||||||||||
| 2026 Notes | $ | $ | ( | $ | ||||||||||||||||
| September 30, 2021 | Maturity Date | Stated Cash Interest Rate | Effective Interest Rate | Semi-Annual Interest Payment Dates | Conversion Rate | Conversion Price | ||||||||||||||||||||||||||||||||
| 2026 Notes | August 15, 2026 | % | % | February 15; August 15 | 51.9926 | $ | ||||||||||||||||||||||||||||||||
The 2026 Notes will be convertible at the option of the holders before February 15, 2026 only upon the occurrence of certain events. Beginning on August 20, 2024, the Company has the option to redeem the 2026 Notes upon meeting certain conditions related to price of the Company's common stock. Beginning on February 15, 2026 and until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2026 Notes are convertible at any time at election of each holder. The conversion rate and conversion price are subject to customary adjustments under certain circumstances. In addition, if certain corporate events that constitute a make-whole fundamental change occur, then the conversion rate will be adjusted in accordance with the make-whole table within the Indenture. Upon conversion, the Company may satisfy its conversion obligation by paying cash or providing a combination of cash and the Company's common stock, at the Company's election, based on the applicable conversion rate.
For the three and nine months ended September 30, 2021, total interest expense on the Company's convertible senior notes were $694 278 416
Capped Calls
In August 2021, in connection with the issuance of the 2026 Notes, the Company purchased capped calls (the "Capped Calls") from certain financial institutions at a cost of $118.8 million. The Capped Calls cover, subject to customary adjustments, the number of shares of the Company's common stock underlying the 2026 Notes. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event of a conversion of the 2026 Notes settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the 2026 Notes its common stock price exceeds the conversion price. The Capped Calls have an initial strike price of $19.23 per share and an initial cap price of $29.59 per share or a cap price premium of 100 %.
8.FAIR VALUE DISCLOSURES
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at fair value on a recurring and nonrecurring basis and for estimating fair value for financial instruments not recorded at fair value.
Fair Value Hierarchy
Fair value measurements of assets and liabilities are categorized based on the following hierarchy:
Level 1 — Fair value determined based on quoted prices in active markets for identical assets or liabilities.
23
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Level 2 — Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.
Level 3 — Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.
Estimation of Fair Value
24
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
| Asset/Liability Class | Valuation Methodology, Inputs and Assumptions | Classification | ||||||||||||
| Cash and cash equivalents | Carrying value is a reasonable estimate of fair value based on short-term nature of the instruments. | Estimated fair value classified as Level 1. | ||||||||||||
| Restricted cash | Carrying value is a reasonable estimate of fair value based on short-term nature of the instruments. | Estimated fair value classified as Level 1. | ||||||||||||
| Marketable securities | ||||||||||||||
| Debt securities | Prices obtained from third-party vendors that compile prices from various sources and often apply matrix pricing for similar securities when no price is observable. | Level 2 recurring fair value measurement. | ||||||||||||
| Mutual fund | Price is quoted given the security is traded on an exchange. | Level 1 recurring fair value measurement. | ||||||||||||
| Equity securities | Price is quoted given the securities traded on an exchange | Level 1 recurring fair value measurement. | ||||||||||||
| Mortgage loans held for sale pledged under agreements to repurchase | Fair value is estimated based on observable market data including quoted market prices, deal price quotes, and sale commitments. | Level 2 recurring fair value measurement. | ||||||||||||
| Other current assets | ||||||||||||||
| Interest rate lock commitments | Fair value of the underlying loan based on observable quoted market prices in the secondary market and sale commitments, with adjustments for the estimated pull-through rate. | Level 2 recurring fair value measurement for fair value based on observable inputs. Level 3 recurring fair value measurement for fair value with unobservable inputs. | ||||||||||||
| Other assets | ||||||||||||||
| Non-marketable equity securities | Fair value is estimated using the observable transaction price. | Level 2 non-recurring fair value measurement for fair value based on transaction price. | ||||||||||||
| Non-recourse asset-backed debt | ||||||||||||||
| Credit facilities | Fair value is estimated using discounted cash flows based on current lending rates for similar credit facilities with similar terms and remaining time to maturity. | Carried at amortized cost. Estimated fair value classified as Level 2. | ||||||||||||
| Other secured borrowings | ||||||||||||||
| Loans sold under agreements to repurchase | Fair value is estimated using discounted cash flows based on current lending rates for similar asset-backed debt with similar terms and remaining time to maturity. | Carried at amortized cost. Estimated fair value classified as Level 2. | ||||||||||||
| Convertible senior notes | Fair value is estimated using broker quotes and other observable market inputs. | Carried at amortized cost. Estimated fair value classified as Level 2. | ||||||||||||
| Warrant liabilities | ||||||||||||||
| Sponsor Warrants | Fair value is estimated using the price of the Public Warrants or their settlement value. | Level 2 recurring fair value measurement. | ||||||||||||
25
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables present the levels of the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis (in thousands).
| September 30, 2021 | Balance at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Mutual fund | ||||||||||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||||
| Sovereign bonds | ||||||||||||||||||||||||||
| Mortgage loans held for sale pledged under agreements to repurchase | ||||||||||||||||||||||||||
| Other current assets: | ||||||||||||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2020 | Balance at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||||||||
| U.S. Treasury securities | ||||||||||||||||||||||||||
| Mortgage loans held for sale pledged under agreements to repurchase | ||||||||||||||||||||||||||
| Other current assets: | ||||||||||||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Warrant liabilities: | ||||||||||||||||||||||||||
| Sponsor Warrants | $ | |||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
26
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Fair Value of Financial Instruments
The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company’s financial instruments other than assets and liabilities measured at fair value on a recurring basis (in thousands).
| September 30, 2021 | ||||||||||||||||||||||||||
Carrying Value | Fair Value | Level 1 | Level 2 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||
| Non-marketable equity securities | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Non-recourse asset-backed debt | $ | $ | $ | $ | ||||||||||||||||||||||
| Other secured borrowings | ||||||||||||||||||||||||||
| Convertible senior notes | ||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||
Carrying Value | Fair Value | Level 1 | Level 2 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Credit facilities and other secured borrowings | $ | $ | $ | $ | ||||||||||||||||||||||
The following tables show a reconciliation from the opening balances to the closing balances for Level 3 Fair values for the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Warrants | Embedded Conversion Option | Interest rate lock commitments | ||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | |||||||||||||||||
| Additions | ||||||||||||||||||||
| Origination/Terminations | ( | |||||||||||||||||||
| Net change in fair value | ||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||||||||||
| Balance as of December 31, 2020 | $ | |||||||||||||||||||
| Additions | ||||||||||||||||||||
| Origination/Terminations | ( | |||||||||||||||||||
| Net change in fair value | ||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||||||||||
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
| Warrants | Embedded Conversion Option | Interest rate lock commitments | ||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | |||||||||||||||||
| Settlement of convertible senior notes | ( | |||||||||||||||||||
| Net change in fair value | ||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | |||||||||||||||||
| Balance as of December 31, 2019 | $ | |||||||||||||||||||
| Settlement of convertible senior notes | ( | |||||||||||||||||||
| Net change in fair value | ||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | |||||||||||||||||
9.PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2021 and December 31, 2020, consisted of the following (in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Internally developed software | $ | $ | |||||||||
| Computers | |||||||||||
| Security systems | |||||||||||
| Furniture and fixtures | |||||||||||
| Software implementation costs | |||||||||||
| Leasehold improvements | |||||||||||
| Office equipment | |||||||||||
| Total | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment – net | $ | $ | |||||||||
Depreciation and amortization expense of $7.2 million and $18.9 million was recorded for the three and nine months ended September 30, 2021, respectively. Depreciation and amortization expense of $6.1 million and $17.0 million was recorded for the three and nine months ended September 30, 2020, respectively.
10.GOODWILL AND INTANGIBLE ASSETS
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Intangible assets subject to amortization consisted of the following as of September 30, 2021 and December 31, 2020, respectively (in thousands, except years):
| September 30, 2021 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Remaining Weighted Average Useful Life (Years) | ||||||||||||||||||||||
| Developed technology | ( | |||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Trademarks | ( | |||||||||||||||||||||||||
| Non-competition agreements | ( | |||||||||||||||||||||||||
| Intangible assets – net | $ | $ | ( | $ | ||||||||||||||||||||||
| December 31, 2020 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Remaining Weighted Average Useful Life (Years) | ||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Trademarks | ( | |||||||||||||||||||||||||
| Developed technology | ( | |||||||||||||||||||||||||
| Non-competition agreements | ( | |||||||||||||||||||||||||
| Intangible assets – net | $ | $ | ( | $ | ||||||||||||||||||||||
The Company also has domain name intangible assets, which are not subject to amortization, with a carrying amount of $0.2
Amortization expense for intangible assets was $1.0 million and $2.2 million for the three and nine months ended September 30, 2021, respectively. Amortization expense for intangible assets was $0.9 million and $3.1 million for the three and nine months ended September 30, 2020, respectively.
As of September 30, 2021, expected amortization of intangible assets is as follows:
| Fiscal Years | (In thousands) | |||||||
| Remainder of 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Total | $ | |||||||
11.SHAREHOLDERS’ EQUITY
29
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
12.SHARE-BASED AWARDS
Stock options and RSUs
Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Options are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years . Incentive stock options granted to a 10% shareholder are exercisable over a maximum term of five years from the date of grant.
A summary of the stock option activity for the nine months ended September 30, 2021, is as follows:
Number of Options (in thousands) | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Balance-December 31, 2020 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Expired | ( | ||||||||||||||||||||||
| Balance-September 30, 2021 | $ | $ | |||||||||||||||||||||
| Exercisable-September 30, 2021 | $ | $ | |||||||||||||||||||||
RSUs typically vest upon a service-based requirement, generally over a four year period. Prior to 2021, certain awards also had a performance condition to vesting, which was satisfied upon completion of the February 2021 Offering and triggered the recognition of compensation expense for certain RSUs for which the time-based vesting condition had been satisfied or partially satisfied. Subsequent to the February 2021 Offering, these RSUs are only subject to time-based vesting conditions. .
A summary of the RSU activity for the nine months ended September 30, 2021, is as follows:
Number of RSUs (in thousands) | Weighted- Average Grant-Date Fair Value | ||||||||||
| Unvested and outstanding-December 31, 2020 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Unvested and outstanding-September 30, 2021 | $ | ||||||||||
Restricted Shares
The Company has granted Restricted Shares to certain continuing employees, primarily in connection with acquisitions. The Restricted Shares vest upon satisfaction of a service condition, which generally ranges from to four years .
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
A summary of the Restricted Shares activity for the nine months ended September 30, 2021 is as follows:
Number of Restricted Shares (in thousands) | Average Grant-Date Fair Value | ||||||||||
| Unvested-December 31, 2020 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Unvested-September 30, 2021 | $ | ||||||||||
Stock-based compensation expense
Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function as presented in the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| General and administrative | $ | $ | $ | $ | |||||||||||||||||||
| Sales, marketing and operations | |||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
During the nine months ended September 30, 2021, the Company issued market condition RSUs to certain executives with a grant-date fair value of $22.4 million, which will be recognized over a requisite service period ranging from six months to three years . There were no market condition RSUs granted in the three months ended September 30, 2021. The Company recognized $20.0 million and $270.9 million of compensation expense during the three and nine months ended September 30, 2021, respectively, related to all market condition awards outstanding. In June 2021, the market condition for two market condition awards was satisfied, which resulted in the accelerated recognition of $2.2 million of stock-based compensation expense in the nine months ended September 30, 2021. During the three months ended September 30, 2021, no market condition awards satisfied their market condition.
As of September 30, 2021, there was $632.4 million of unamortized stock-based compensation costs related to unvested RSUs, stock options, and Restricted Shares. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately three years .
Valuation of options
The Black-Scholes Model used to value stock options incorporates the following assumptions:
| 2021 | |||||
| Fair value | $ | ||||
| Volatility | % | ||||
| Risk-free rate | % | ||||
| Expected life (in years) | |||||
| Expected dividend | $ | ||||
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Fair Value of Common Stock
Prior to the Company's common stock becoming publicly traded, the fair value of the common stock underlying the stock option awards was determined by the board of directors. Given the absence of a public trading market, the board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting at which awards were approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights, preferences and privileges of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) stage and development of the Company’s business; (v) general economic conditions and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale, given prevailing market conditions.
Volatility
Prior to the Company's common stock becoming publicly traded, the expected stock price volatilities were estimated based on the historical and implied volatilities of comparable publicly traded companies as the Company did not have sufficient history of trading its common stock. Subsequent to the Company's stock becoming publicly traded, the expected stock price volatilities were determined based on the volatilities implied by the price of he Company's publicly traded call options in its common stock.
Risk-Free Interest Rate
The risk-free interest rates are based on U.S. Treasury yields in effect at the grant date for notes with comparable terms as the awards.
Expected Life
The expected term of options granted to employees is determined using the simplified method, which allows the Company to estimate the expected life as the midpoint between the vesting period and the contractual term, as the Company's historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term.
Dividend Yield
The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy.
Valuation of RSUs and Restricted Stock
Prior to the Business Combination, given the absence of a public trading market, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of common stock at each meeting at which awards were approved. These factors include, but were not limited to, (i) contemporaneous valuations of common stock performed by an independent valuation specialist; (ii) developments in the Company’s business and stage of development; the Company’s operational and financial performance and condition; (iii) issuances of preferred stock and the rights and preferences of preferred stock relative to common stock; (iv) current condition of capital markets and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company; and (v) and the lack of marketability of the Company’s common stock. For financial reporting purposes, the Company considers the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates. The determination includes an evaluation of whether the subsequent valuation indicates that any significant change in valuation had occurred between the previous valuation and the grant date.
13.WARRANTS
Public and Sponsor Warrants
Prior to the Business Combination, SCH issued 6,133,333 Sponsor Warrants and 13,800,000 Public Warrants (collectively “Warrants”). Upon Closing, the Company assumed the Warrants. Each whole warrant entitles the holder to purchase one share
32
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The Warrants are exercisable at any time commencing the later of a) 30 days after the completion of the Business Combination and b) 12 months from the date of the closing of the SCH’s initial public offering on April 30, 2020, and terminating five years after the Business Combination.
Once the Public Warrants become exercisable, the Company may redeem the outstanding warrants, in whole and not in part, upon a minimum of 30 days’ prior written notice of redemption (“Redemption Period”). There are two scenarios in which the Company may redeem the Warrants. For purposes of the redemption scenarios, “Reference Value” shall mean the last reported sales price of the Company’s common stock for any trading days within the trading-day period ending on the third trading day prior to the date on which notice of the redemption is given.
The Company may redeem the outstanding Warrants for cash at a price of $0.01 per warrant if the Reference Value equals or exceeds $18.00 per share. The warrant holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period at $11.50 per share. The Sponsor Warrants are exempt from redemption if the Reference Value is at or above $18.00 and the Sponsor Warrants continue to be held by the original warrant holder (“Sponsor") or a permitted transferee.
The Company may redeem the outstanding Warrants at a price of $0.10 per warrant if the Reference Value equals or exceeds $10.00 per share. If the Reference Value is less than $18.00 , the Sponsor Warrants must also be concurrently called for redemption with the Public Warrants. The warrant holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period on a cashless basis. The cashless exercise entitles the warrant holders to receive a set number of shares based on the redemption date and the redemption fair value as defined in the warrant agreement.
In connection with the Business Combination, on January 12, 2021, the Company filed a Registration Statement on Form S-1. This Registration Statement relates to the issuance of an aggregate of up to 19,933,333 shares of common stock issuable upon the exercise of its publicly-traded warrants. On July 9, 2021, the Company completed the redemption of all of its outstanding Public and Sponsor Warrants to purchase shares of the Company's common stock, par value $0.0001 per share, that were issued under the Warrant Agreement, dated April 27, 2020. Of the 13,799,947 Public Warrants that were outstanding as of the time of the Business Combination, 874,739 were exercised for cash at an exercise price of $11.50 per share of Common Stock and 12,521,776 were exercised on a cashless basis in exchange for an aggregate of 4,452,659 shares of Common Stock. In addition, of the 6,133,333 Sponsor Warrants that were outstanding as of the date of the Business Combination, 1,073,333 were exercised for cash at an exercise price of $11.50 per share of Common Stock and 5,060,000 were exercised on a cashless basis in exchange for an aggregate of 1,799,336 shares of Common Stock. Total cash proceeds to the Company generated from exercises of the Warrants were $22.4 million. In connection with the redemption, the Public Warrants stopped trading on the Nasdaq Global Select Market on July 9, 2021.
The Company recorded a decrease to the Derivative and warrant fair value adjustment of $(3.5 ) million and $(12.2 ) million for the change in fair value of the Sponsor Warrants for the three and nine months ended September 30, 2021, respectively.
Warrants to Purchase Series D Preferred Stock
On June 12, 2018, the Company issued warrants to purchase 485,262 shares of Series D Preferred Stock at a price of $0.006 (“Penny Warrants”). On November 12, 2020, the Penny Warrants were exercised and the Company issued 485,262 shares of Series D Preferred Stock in exchange for proceeds of $3.0 thousand. As of September 30, 2021, there were no Penny Warrants outstanding.
Commitment to Issue Warrants
In June 2018, the Company entered into a commitment to issue warrants (“Warrant Commitment”). The Warrant Commitment obligates the Company to issue warrants on an annual basis until 2025 (“Issuance Date”). The Warrant Commitment and the Company’s obligation to issue warrants was terminated upon the consummation of the Business Combination through notice provided by the Company and acknowledged by the counterparty.
33
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
On each Warrant Commitment Issuance date in June 2019 and June 2020, the Company issued warrants to purchase 121,356 shares and 242,713 shares of Series E Preferred Stock at a price of $5.92 per share (“Series E Warrants”). On November 7, 2020 the Series E Warrants were exercised and the Company issued 364,069 shares of Series E in exchange for proceeds of $2.2 million. As of September 30, 2021, there were no Series E Warrants or Warrant Commitments outstanding.
The Penny Warrants, the Warrant Commitment, and the Series E Warrants have been determined to be liabilities under ASC 480 as the underlying preferred shares have certain liquidation preferences in the event of a deemed liquidation. For the Penny Warrants, the Warrant Commitment, and the Series E Warrants, the Company recorded no 1.0 million and $1.9 million for the three and nine months ended September 30, 2020, respectively.
14.INCOME TAXES
The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred operating losses to date. Due to projected and actual losses in the current and prior years, the Company believes that based on the weight of available evidence, it is more likely than not that all of the deferred tax assets will not be realized and recorded a full valuation allowance on its net deferred tax assets as of September 30, 2021 and December 31, 2020.
The Company’s provision for income taxes, which was primarily composed of state tax expense, was $0.3 million and $0.6 million for the three and nine months ended September 30, 2021, respectively, with an effective tax rate of (0.58 )% and (0.17 )%, respectively. The Company's provision for income taxes was $0.03 million and $0.23 million for the three and nine months ended September 30, 2020, respectively, with an effective tax rate of (0.04 )% and (0.12 )%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the recording of a full valuation allowance against the net deferred tax assets.
15.RELATED PARTIES
In 2018, an executive early exercised their option to purchase 1,479,459 shares of unvested common stock at a price per share of $1.01 by issuing a promissory note to the Company for a total price of $1.5 million with an interest rate of 2.31 % per annum. On June 29, 2021, the outstanding balance under the promissory note of $1.6 million was repaid in full.
The Warrant Commitment and the subsequent Series E Warrants were issued to a counterparty that has an equity interest in the Company and a seat on the Company’s board of directors. The board member has significant influence with respect to the counterparty to the Warrant Commitment. The issuance of the Warrant Commitment and Series E Warrants was in exchange for on-going advisory services that the counterparty provided to the Company. See “Note 13 — Warrants” for further information.
16.NET LOSS PER SHARE
Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. During the periods when there is a net loss, potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive. No
For applicable periods, the Company uses the two-class method to calculate net loss per share and apply the more dilutive of the two-class method, treasury stock method or if-converted method to calculate diluted net loss per share. Undistributed earnings for each period are allocated to participating securities, including the Preferred Stock for applicable periods, based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. As there is no contractual obligation for the Preferred Stock to share in losses, the Company’s basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average shares of common stock outstanding during periods with undistributed losses.
34
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common shareholders for the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Basic and diluted net loss per share: | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss attributable to common shareholders – basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding – basic and diluted | |||||||||||||||||||||||
| Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
There were no
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive, or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Common Stock Warrants | |||||||||||||||||||||||
| Series D Preferred Stock Warrants | |||||||||||||||||||||||
| Series E Preferred Stock Warrants | |||||||||||||||||||||||
| RSUs | |||||||||||||||||||||||
| Options | |||||||||||||||||||||||
| Unvested Shares from Early Exercise | |||||||||||||||||||||||
| Restricted Shares | |||||||||||||||||||||||
| Redeemable convertible preferred stock | |||||||||||||||||||||||
| Total anti-dilutive securities | |||||||||||||||||||||||
17.COMMITMENTS AND CONTINGENCIES
Interest Rate Lock Commitments
The Company entered into interest rate lock commitments with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rate to the borrower. These commitments are treated as derivatives and are carried at fair value. See “Note 5 — Derivative Instruments” for more information.
Purchase Commitments
As of September 30, 2021, the Company was in contract to purchase 6,231 homes for an aggregate purchase price of $2,259.9 million.
Lease Commitments
During the nine months ended September 30, 2021, the Company did not enter into any material new leases, lease renewals, or lease modifications. On September 25, 2020, the Company exercised an option to early terminate the San Francisco headquarters lease, effective September 30, 2021. In September 2020, the Company did not anticipate returning to the San Francisco space, so the Company accelerated amortization of the right-of-use asset and incurred and paid early
35
OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
termination fees. In January 2021, the Company terminated the San Francisco lease prior to the anticipated termination date of September 30, 2021, which resulted in a $5.2 million gain recognized in the condensed consolidated statements of operations for the nine months ended September 30, 2021.
Legal Matters
From time to time, the Company may be subject to potential liability relating to the ownership and operations of the Company’s properties. Accruals are recorded when the outcome is probable and can be reasonably estimated.
There are various claims and lawsuits arising in the normal course of business pending against the Company, some of which seek damages and other relief which, if granted, may require future cash expenditures. In addition, from time to time the Company receives inquiries and audit requests from various government agencies and fully cooperates with these requests. The Company does not believe that it is reasonably possible that the resolution of these matters would result in any liability that would materially affect the Company’s condensed consolidated results of operations or financial condition except as noted below.
On December 23, 2020, the Federal Trade Commission (“FTC”) notified the Company that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers, if the Company is unable to reach a negotiated settlement acceptable to all parties. This notice is related to an initial FTC civil investigative demand sent to the Company in August 2019 seeking documents and information relating primarily to statements in Opendoor’s advertising and website comparing selling homes to Opendoor with selling homes in a traditional manner using an agent and relating to statements that Opendoor’s offers reflect or are based on market prices. The Company is engaged in settlement negotiations with the FTC and has accrued an immaterial amount for this matter. Any settlement could result in material monetary remedies and/or compliance requirements that could have a materially adverse impact on its financial results. The Company cannot make an estimate of the possible loss or range of loss incremental to the amount accrued, if any, resulting from negotiations with the FTC at this time.
18.SUBSEQUENT EVENTS
On October 1, 2021, a subsidiary of the Company entered into an amended and restated mezzanine term debt facility, with $3.0 billion in borrowing capacity, of which $2.3 billion is committed, and a final maturity date of April 1, 2026. This non-recourse facility refinances the previously outstanding mezzanine term debt facilities on substantially similar economic terms. As a result of this facility and an incremental $895.0 million in borrowing capacity from other recent amendments to existing senior credit facilities , the Company has an aggregate borrowing capacity of $9.6 billion and fully committed borrowing capacity of $6.7 billion for its non-recourse asset-backed debt facilities.
On November 3, 2021, the Company paid $12.5 million in cash to acquire RedDoor, a digital-first mortgage brokerage operating in California. The Company is in the process of finalizing the accounting for the acquisition.
*******
36
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read together with the historical condensed consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q.
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report on Form 10-Q, and in “Part I - Item 1A. Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”).
Overview
Opendoor’s mission is to empower everyone with the freedom to move and make it possible to buy, sell and move at the tap of a button. We are transforming what has historically been a complex, uncertain, time-consuming and mostly offline process into a simple, online experience. Since our inception in 2014, we have built scalable pricing capabilities, technology-enabled centralized operations, and a suite of digital-first consumer products. These investments have enabled us to help customers buy or sell homes in over 120,000 transactions and expand our footprint to 44 markets across the country. Most importantly, we have grown rapidly while delighting our customers with an experience that brings simplicity, certainty and speed to the home selling and buying process.
Financial Highlights
During the three months ended September 30, 2021, compared to the three months ended September 30, 2020:
•Revenue increased by $1.9 billion to $2.3 billion
•Homes sold increased by 4,756 to 5,988
•Gross profit increased by $166.7 million to $202.5 million; gross margin decreased from 10.6% to 8.9%
•Net loss decreased by $24.0 million to $(56.8) million
•Adjusted Net Loss decreased by $19.2 million to $(17.3) million
•Contribution Profit increased by $149.7 million to $169.7 million; Contribution Margin increased from 5.9% to 7.5%
•Adjusted EBITDA increased by $55.5 million to $34.5 million; Adjusted EBITDA Margin increased from (6.2)% to 1.5%
During the three months ended September 30, 2021:
•Expanded to 44 markets with 5 new market launches
•Grew inventory to $6.3 billion, representing 17,164 homes
•Issued $977.5 million aggregate principal amount of 0.25% convertible senior notes due in 2026
Business Impact of COVID-19
In response to the COVID-19 pandemic and the consequent health risks, we substantially ceased purchasing additional homes in March 2020 to safeguard the health and safety of our customers and employees. In addition to pausing new acquisitions, we sold down homes in inventory at a healthy pace, leading to a low point in inventory of $152 million as of September 30, 2020 compared to $1,312 million as of December 31, 2019. As our revenues are dependent on inventory levels available for sale, we experienced sequential, quarter-over-quarter declines in revenue in the second, third and fourth quarters of 2020. After retooling certain operational processes to enable “contactless” transactions, we resumed making offers to purchase homes in select markets in May 2020 and resumed operations across all of our markets by the end of August 2020. We have been actively rebuilding our inventory since August 2020, exceeded pre-COVID-19 inventory levels in Q2 2021, and ended the third quarter of 2021 with $6,268.1 million in inventory. Likewise, we returned to sequential revenue growth in the first three
37
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
quarters of 2021 and we expect this trend to continue in the fourth quarter of 2021. See “— Components of Our Results of Operations — Revenue.”
Our Business Model
Revenue and margin model
We acquire homes directly from individual sellers and resell those homes to buyers, including both individual consumers and institutional investors. Upon acquiring a home, we typically make necessary renovations and repairs before listing it for sale on our website, our mobile app, Multiple Listing Services (“MLS”) and other online real estate portals. Our average hold period for homes purchased since January 2020, from acquisition to resale, ranged from 70 to 100 days and varied by market. Home sales comprise the vast majority of our revenues today, but we expect increasing contribution from adjacent services as we grow our existing services and add new services over time.
To achieve our long-term margin objectives, we must both maintain pricing accuracy as the business expands and increase customer adoption of our newer services, such as Buy with Opendoor and Opendoor Home Loans. We also plan to achieve operating leverage by growing our revenue at a faster pace than our fixed cost base, which includes general and administrative as well as technology and development expenses. Given the size of the opportunity in front of us, we plan to invest aggressively in the near term and appropriately balance trade-offs between growth and margin as we scale.
Offers
We generate demand for our services through organic awareness and word-of-mouth, paid media spend, and partnership channels such as our relationships with homebuilders and online portals. Home sellers can visit our website or mobile app and answer a few questions about their home’s condition, features and upgrades. For eligible homes, customers receive a preliminary offer, which can be refreshed at any time through their personalized seller dashboard. The vast majority of our preliminary offers are algorithmically generated and require minimal human intervention.
In order to finalize our offer, we conduct a free assessment to confirm all of the home details and leverage human expertise to identify any repairs that may need to be performed. We have developed purpose-built software to guide home assessment workflows and collect over 100 unique data points regarding a home’s condition and quality, which we incorporate as structured data into our underlying pricing models. Once completed, we finalize our offer, taking into consideration any necessary repairs, and produce the purchase agreement for the seller. Our objective is to provide a transparent and competitive cash offer, which we believe instills trust in our potential customers. Our business model is designed to generate margins primarily from our service charge to sellers, as well as adjacent products and services associated with a transaction.
We closely track the number of potential sellers who accept the Opendoor offer versus listing their home on the MLS. This conversion rate is an important measure of the strength of our value proposition and driver of future growth.
Home acquisition and renovation
Once a seller has received and accepted our final purchase offer, we enable the seller to close the transaction on a flexible timeline. This is a particularly important feature to sellers, as their home sale can accommodate other life events (including the purchase of their next home) and further differentiates our service from a traditional sale. Depending on the condition of the home, we leverage our vetted contractor network within each market to complete required repairs and upgrades. Our repair scopes are focused on high-return investments and ensuring the home is in market-ready condition. We continuously refine and adjust our repair strategies based on our operating experience in markets and reviewing neighborhood-level resale outcomes.
Home resale
Post-renovation, we market our homes across a wide variety of channels to generate buyer awareness and demand. These include the Opendoor website and mobile app, local MLS and syndication across real estate portals. We also generate buyer awareness through Opendoor signage for listed properties. Efficiently turning our inventory, inclusive of repairing, listing, and
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
reselling the home, is important to our financial performance, as we bear holding costs (including utilities, property taxes and insurance) and financing costs during our ownership period.
As part of the listing and marketing process, we determine an appropriate pricing strategy for each home. Our proprietary pricing engine helps automate many of these steps, including relevant adjustments over time. We measure our inventory performance compared to local market trends, and our pricing models can incorporate granular, relative demand signals to optimize pricing and sell-through across the portfolio. Our resale models, in conjunction with our pricing team, aim to maximize resale margin while maintaining appropriate transaction velocity and overall inventory health.
When we receive an acceptable offer on a given home, we enter into a resale contract. Buyers will then typically conduct an inspection on the property, finalize their mortgage application process and ultimately take possession of the home upon closing of the transaction.
Factors Affecting our Business Performance
Market Penetration in Existing Markets
Residential real estate is one of the largest consumer markets, with approximately $1.9 trillion of home value transacted annually. Given we operate in a highly fragmented industry and offer a differentiated value proposition to the incumbent agent-led transaction, we believe there is significant opportunity to expand our share in our existing cities. By providing a consistent, high-quality and differentiated experience to our customers, we hope to continue to drive positive word-of-mouth, awareness and trust in our platform. We believe this creates a virtuous cycle, whereby more home sellers will request an offer from Opendoor, allowing us to deepen our market penetration.
Expansion into New Markets
Since our inception in 2014, we have expanded into 44 markets as of September 30, 2021. The following table represents the number of markets as of the periods presented:
| September 30, | June 30, | March 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| (in whole numbers) | 2021 | 2021 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
| Number of markets (at period end) | 44 | 39 | 27 | 21 | 21 | 18 | ||||||||||||||||||||||||||||||||
After launching 12 markets in 2018, we focused on centralizing our operations platform in 2019 for long-term scalability. We launched three additional markets in 2019 and did not launch any markets in 2020, primarily due to COVID-19. We planned to double the markets we serve by the end of 2021 and have achieved that goal, having launched 23 new markets in the first nine months of the year. We believe our centralized systems allow for a higher velocity and lower cost market launch process. For example, we are generally able to launch a market with only a small field team focused on home renovation oversight, with all other key functions managed centrally, including marketing, customer sales and support and pricing.
We view the first year of a market launch as an investment period during which we refine our pricing models, renovation strategies and cost structure. Historically, we have seen Contribution Margin for purchase cohorts in new markets reach positive, steady-state levels approximately one year after initial launch. The significant number of new market launches in 2018 contributed to our lower Contribution Margin in 2019; as those same markets matured, we were able to improve Contribution Margin performance in 2020.
We are making substantial investments to support our market launches in 2021, which will impact both Contribution Margin and Adjusted EBITDA as these new markets mature.
Adjacent Services
We believe home sellers and buyers value simplicity and convenience. To that end, we are building an online, integrated suite of home services, which currently include title insurance and escrow services, Buy with Opendoor, and Opendoor Home Loans. We believe that vertically integrating services that are adjacent to the core real estate transaction will allow us to deliver a superior, seamless experience to the consumer. Our success with title insurance services helps validate our view that
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
customers prefer an online, integrated experience. We expect that these adjacent services will also be accretive to our Contribution Margin.
We will continue to evaluate new ways to improve our end-to-end solution and expect to invest in additional adjacent products and services over time.
Unit economics
We view Contribution Margin and Contribution Margin after Interest as key measures of unit economic performance. Our long-term financial performance depends, in part, on continuing to expand unit margins through the following initiatives:
•Pricing engine optimization and enhancements, especially as we enter new markets and expand our reach in existing markets.
•Lowering platform costs through process refinement, greater automation and self-service, and more efficient forms of financing.
•Successful introduction of additional services that supplement the core transaction margin profile.
Seasonality
The residential real estate market is seasonal, with greater demand from home buyers in the spring and summer, and typically weaker demand in late fall and winter. We expect our financial results and working capital requirements to reflect seasonal variations over time, although our growth and market expansion have obscured the impact of seasonality in our historical financials and may continue to do so. That said, we generally expect stronger sequential revenue growth in the first quarter of the year versus the third and fourth quarters.
Risk management
We have invested significant time and resources into our pricing engine and inventory management systems. Our engineering, data science and pricing teams collectively focus on pricing accuracy for both home acquisition and disposition, as well as managing our inventory health across markets.
While residential real estate markets are subject to fluctuations, as with any market, we believe we are well-positioned to manage our inventory risk exposure due to the following:
•Our business model is based on transaction velocity and short-duration hold times, with our average days in possession typically ranging from 70 to 100 days for homes acquired since January 2020. We have historically concentrated our home purchases on the more liquid segments of the residential real estate market, thus limiting our duration risk. Moreover, residential real estate prices tend to move gradually relative to other asset classes, which meaningfully reduces our exposure to price fluctuations during our ownership period.
•Our pricing models and inventory management systems are designed to recalibrate to market signals on a daily basis. Accordingly, changing market conditions are reflected in our pricing for new acquisitions, leaving only previously-acquired inventory at risk to potential market volatility. In addition, we employ sophisticated resale pricing management systems that allow as to optimize sell-through and margin using real-time, local market demand information, including down to an individual home level. We believe that the quality and scale of information we utilize in our inventory management decisions, and our ability to manage these decisions across a scaled, diversified portfolio, provides us with a structural advantage over individual sellers or agents in the traditional home selling process.
•At any moment in time, a significant portion of our inventory is under resale contract; this means we have already found buyers for those homes and are in the process of closing the resale transactions. This further limits our exposure to the remaining homes in inventory.
•Our listed homes are not occupied and are in sale-ready condition given the repairs and renovations we perform. We believe that this increases the attractiveness and liquidity of our portfolio.
•Our operations across 44 markets and multiple price and home types allow us to benefit from significant diversification effects. Individual buyers and sellers or local operators are exposed to price and behavioral effects
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
that are associated with specific markets or home segments. Our scale and diverse coverage allow us to mitigate such exposures across a wider range of markets and home segments so that our overall risk per home decreases as we increase the breadth of markets, price points and home types across which we operate.
We will continue to make substantial investments in our pricing systems and risk management functions.
Inventory Financing
Our business model is working capital intensive and inventory financing is a key enabler of our growth. We rely on our access to non-recourse asset-backed debt, which consist of senior credit facilities and asset-backed mezzanine term debt facilities, to finance our home acquisitions. See “—Liquidity and Capital Resources — Debt and Financing Arrangements.”
Non-GAAP Financial Measures
In addition to our results of operations below, we report certain financial measures that are not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”).
These measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income. We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries.
Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest
To provide investors with additional information regarding our margins and return on inventory acquired, we have included Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest, which are non-GAAP financial measures. We believe that Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest are useful financial measures for investors as they are supplemental measures used by management in evaluating unit level economics and our operating performance in our key markets. Each of these measures is intended to present the economics related to homes sold during a given period. We do so by including revenue generated from homes sold (and adjacent services) in the period and only the expenses that are directly attributable to such home sales, even if such expenses were recognized in prior periods, and excluding expenses related to homes that remain in inventory as of the end of the period. Contribution Profit provides investors a measure to assess Opendoor’s ability to generate returns on homes sold during a reporting period after considering home purchase costs, renovation and repair costs, holding costs and selling costs. Contribution Profit After Interest further impacts gross profit by including senior interest costs attributable to homes sold during a reporting period. We believe these measures facilitate meaningful period over period comparisons and illustrate our ability to generate returns on assets sold after considering the costs directly related to the assets sold in a given period.
Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest are supplemental measures of our operating performance and have limitations as analytical tools. For example, these measures include costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, costs required to be recorded under GAAP in the same period. These measures also exclude the impact of certain restructuring costs that are required under GAAP. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We include a reconciliation of these measures to the most directly comparable GAAP financial measure, which is gross profit.
Adjusted Gross Profit / Margin
We calculate Adjusted Gross Profit as gross profit under GAAP adjusted for (1) inventory impairment in the current period, (2) inventory impairment in prior periods, and (3) restructuring in cost of revenue. Inventory impairment in the current period is calculated by adding back the inventory impairment charges recorded during the period on homes that remain in inventory at period end. Inventory impairment in prior periods is calculated by subtracting the inventory impairment charges recorded in prior periods on homes sold in the current period. We define Adjusted Gross Margin as Adjusted Gross Profit as a percentage of revenue.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
We view this metric as an important measure of business performance as it captures gross margin performance isolated to homes sold in a given period and provides comparability across reporting periods. Adjusted Gross Profit helps management assess home pricing, service fees and renovation performance for a specific resale cohort.
Contribution Profit / Margin
We calculate Contribution Profit as Adjusted Gross Profit, minus (1) holding costs incurred in the current period on homes sold during the period, (2) holding costs incurred in prior periods on homes sold in the current period, and (3) direct selling costs incurred on homes sold during the current period. The composition of our holding costs is described in the footnotes to the reconciliation table below. Contribution Margin is Contribution Profit as a percentage of revenue.
We view this metric as an important measure of business performance as it captures the unit level performance isolated to homes sold in a given period and provides comparability across reporting periods. Contribution Profit helps management assess inflows and outflows directly associated with a specific resale cohort.
Contribution Profit / Margin After Interest
We define Contribution Profit After Interest as Contribution Profit, minus interest expense under our senior credit facilities incurred on the homes sold during the period. This may include interest expense recorded in periods prior to the period in which the sale occurred. Our senior credit facilities are secured by our homes in inventory. For our senior revolving credit facilities, drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See “— Liquidity and Capital Resources — Debt and Financing Arrangements.” We do not include interest expense associated with our mezzanine debt facilities in this calculation. We use a mix of debt and equity capital to finance our inventory and that mix will vary over time. In addition, we expect to continue to evolve our cost of financing as we include other debt sources beyond mezzanine capital. As such, we do not view our current mezzanine interest expense to be reflective of our long-term cost of financing. Contribution Margin After Interest is Contribution Profit After Interest as a percentage of revenue.
We view this metric as an important measure of business performance. Contribution Profit After Interest helps management assess Contribution Margin performance, per above, when burdened with senior cost of financing.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to our gross profit, which is the most directly comparable GAAP measure, for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Gross profit (GAAP) | $ | 202,489 | $ | 35,811 | $ | 458,392 | $ | 181,432 | ||||||||||||||||||
| Gross Margin | 8.9 | % | 10.6 | % | 10.9 | % | 7.8 | % | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
Inventory impairment – Current Period(1) | 31,597 | 64 | 32,153 | 252 | ||||||||||||||||||||||
Inventory impairment – Prior Periods(2) | (307) | (2,803) | (54) | (10,540) | ||||||||||||||||||||||
Restructuring in cost of revenue(3) | — | 1 | — | 1,902 | ||||||||||||||||||||||
| Adjusted Gross Profit | $ | 233,779 | $ | 33,073 | $ | 490,491 | $ | 173,046 | ||||||||||||||||||
| Adjusted Gross Margin | 10.3 | % | 9.8 | % | 11.7 | % | 7.4 | % | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
Direct selling costs(4) | (51,902) | (8,909) | (96,055) | (67,685) | ||||||||||||||||||||||
Holding costs on sales – Current Period(5)(6) | (6,777) | (1,011) | (19,349) | (15,276) | ||||||||||||||||||||||
Holding costs on sales – Prior Periods(5)(7) | (5,371) | (3,140) | (1,650) | (11,419) | ||||||||||||||||||||||
| Contribution Profit | $ | 169,729 | $ | 20,013 | $ | 373,437 | $ | 78,666 | ||||||||||||||||||
| Contribution Margin | 7.5 | % | 5.9 | % | 8.9 | % | 3.4 | % | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
Interest on homes sold – Current Period(8)(9) | (6,731) | (1,060) | (17,268) | (16,779) | ||||||||||||||||||||||
Interest on homes sold – Prior Periods(8)(10) | (3,654) | (2,591) | (1,049) | (10,477) | ||||||||||||||||||||||
Contribution Profit After Interest | $ | 159,344 | $ | 16,362 | $ | 355,120 | $ | 51,410 | ||||||||||||||||||
| Contribution Margin After Interest | 7.0 | % | 4.8 | % | 8.5 | % | 2.2 | % | ||||||||||||||||||
________________
(1)Inventory impairment — Current Period is the inventory valuation adjustments recorded during the period presented associated with homes that remain in inventory at period end.
(2)Inventory impairment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented.
(3)Restructuring in cost of revenue consists mainly of severance and employee termination benefits that were recorded to cost of revenue due to a reduction in workforce in Q2 2020 following the outbreak of the COVID-19 pandemic.
(4)Represents selling costs incurred related to homes sold in the relevant period. This primarily includes broker commissions, external title and escrow-related fees and transfer taxes.
(5)Holding costs include mainly property taxes, insurance, utilities, association dues, cleaning and maintenance costs. Holding costs are included in Sales, marketing, and operations on the condensed consolidated statements of operations.
(6)Represents holding costs incurred in the period presented on homes sold in the period presented.
(7)Represents holding costs incurred in prior periods on homes sold in the period presented.
(8)This does not include interest on mezzanine term debt facilities or other indebtedness. See “— Liquidity and Capital Resources — Debt and Financing Arrangements.”
(9)Represents the interest expense under our senior credit facilities incurred on homes sold in the current period during the period.
(10)Represents the interest expense under our senior credit facilities incurred on homes sold in the current period during prior periods.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Adjusted Net Loss and Adjusted EBITDA
We also present Adjusted Net Loss and Adjusted EBITDA, which are non-GAAP financial measures that management uses to assess our underlying financial performance. These measures are also commonly used by investors and analysts to compare the underlying performance of companies in our industry. We believe these measures provide investors with meaningful period over period comparisons of our underlying performance, adjusted for certain charges that are non-recurring, non-cash, not directly related to our revenue-generating operations or not aligned to related revenue.
Adjusted Net Loss and Adjusted EBITDA are supplemental measures of our operating performance and have important limitations. For example, these measures exclude the impact of certain costs required to be recorded under GAAP. These measures also include impairment costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, impairment costs required to be recorded under GAAP in the same period. These measures could differ substantially from similarly titled measures presented by other companies in our industry or companies in other industries. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We include a reconciliation of these measures to the most directly comparable GAAP financial measure, which is net loss.
Adjusted Net Loss
We calculate Adjusted Net Loss as GAAP net loss adjusted to exclude non-cash expenses of stock-based compensation, marketable equity securities fair value adjustment, derivative and warrant fair value adjustment, intangible amortization, and payroll tax on initial RSU release. It also excludes non-recurring restructuring charges, gain on lease termination, and convertible note payment-in-kind (“PIK”) interest and issuance discount amortization. Adjusted Net Loss also aligns the timing of impairment charges recorded under GAAP to the period in which the related revenue is recorded in order to improve the comparability of this measure to our non-GAAP financial measures of unit economics, as described above. Our calculation of Adjusted Net Loss does not currently include the tax effects of the non-GAAP adjustments because our taxes and such tax effects have not been material to date.
Adjusted EBITDA
We calculated Adjusted EBITDA as Adjusted Net Loss adjusted for depreciation and amortization, property financing and other interest expense, interest income, and income tax expense. Adjusted EBITDA is a supplemental performance measure that our management uses to assess our operating performance and the operating leverage in our business.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
The following table presents a reconciliation of our Adjusted Net Loss and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure, for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net loss (GAAP) | $ | (56,819) | $ | (80,853) | $ | (471,060) | $ | (198,968) | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Stock-based compensation | 62,011 | 2,523 | 465,059 | 9,162 | ||||||||||||||||||||||
Marketable equity securities fair value adjustment(1) | (51,013) | — | (51,013) | — | ||||||||||||||||||||||
Derivative and warrant fair value adjustment(1) | (3,499) | 24,329 | (12,179) | 25,219 | ||||||||||||||||||||||
Intangibles amortization expense(2) | 1,005 | 986 | 2,176 | 3,134 | ||||||||||||||||||||||
Inventory impairment – Current Period(3) | 31,597 | 64 | 32,153 | 252 | ||||||||||||||||||||||
Inventory impairment — Prior Periods(4) | (307) | (2,803) | (54) | (10,540) | ||||||||||||||||||||||
Restructuring(5) | — | 17,217 | 79 | 30,541 | ||||||||||||||||||||||
Convertible note PIK interest and discount amortization(6) | — | 2,416 | — | 7,824 | ||||||||||||||||||||||
| Gain on lease termination | — | — | (5,237) | — | ||||||||||||||||||||||
| Payroll tax on initial RSU release | — | — | 5,124 | — | ||||||||||||||||||||||
Other(7) | (248) | (322) | (647) | (367) | ||||||||||||||||||||||
| Adjusted Net Loss | $ | (17,273) | $ | (36,443) | $ | (35,599) | $ | (133,743) | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
Depreciation and amortization, excluding amortization of intangibles and right of use assets | 8,417 | 6,115 | 24,745 | 17,011 | ||||||||||||||||||||||
Property financing(8) | 37,582 | 5,236 | 56,846 | 32,010 | ||||||||||||||||||||||
Other interest expense(9) | 5,968 | 4,724 | 13,529 | 17,559 | ||||||||||||||||||||||
Interest income(10) | (511) | (665) | (2,184) | (4,007) | ||||||||||||||||||||||
| Income tax expense | 326 | 35 | 610 | 234 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 34,509 | $ | (20,998) | $ | 57,947 | $ | (70,936) | ||||||||||||||||||
| Adjusted EBITDA Margin | 1.5 | % | (6.2) | % | 1.4 | % | (3.0) | % | ||||||||||||||||||
________________
(1)Represents the gains and losses on our financial instruments, which are marked to fair value at the end of each period.
(2)Represents amortization of intangibles acquired in the OSN and Open Listings acquisitions which contribute to revenue generation and are recorded as part of purchase accounting. The acquired intangible assets have useful lives ranging from 2 to 5 years and amortization is expected until the intangible assets are fully amortized.
(3)Inventory impairment — Current Period is the inventory impairment charge recorded during the period presented associated with homes that remain in inventory at period end.
(4)Inventory impairment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented.
(5)Restructuring costs consist mainly of employee termination benefits, relocation packages and retention bonuses as well as costs related to the exiting of certain non-cancelable leases. In 2020, these costs related mainly to a reduction in workforce implemented in April 2020 as well as our exercise of the early termination option related to our San Francisco headquarters.
(6)Includes non-cash payment-in-kind (“PIK”) interest and amortization of the discount on the convertible notes issued from July through November 2019 (the “2019 Convertible Notes”). We exclude convertible note PIK interest and amortization from Adjusted Net Loss since these are non-cash in nature and were converted into equity in September 2020 when the Company entered into the Convertible Notes Exchange Agreement with the convertible note holders.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
(7)Includes primarily gain or loss on disposal of fixed assets, gain or loss on interest rate lock commitments, gain or loss on the sale of available for sale securities, and sublease income.
(8)Includes interest expense on our asset-backed debt facilities.
(9)Includes amortization of debt issuance costs and loan origination fees, commitment fees, unused fees, other interest related costs on our asset-backed debt facilities, and interest expense incurred on the 2026 convertible senior notes outstanding.
(10)Consists mainly of interest earned on cash, cash equivalents and marketable securities.
Components of Our Results of Operations
Revenue
We generate revenue primarily from the sale of homes that we previously acquired from homeowners. In addition, we generate revenue from additional services we provide to both home sellers and buyers, which consists primarily of title insurance and escrow services, Buy with Opendoor and Opendoor Home Loans.
Home sales revenue from selling residential real estate is recognized when title to and possession of the property has transferred to the buyer and we have no continuing involvement with the property, which is generally the close of escrow. The amount of revenue recognized for each home sale is equal to the sale price of the home net of any concessions.
Cost of Revenue
Cost of revenue includes the property purchase price, acquisition costs, direct costs to renovate or repair the home and real estate inventory valuation adjustments, if any. These costs are accumulated in real estate inventory during the property holding period and charged to cost of revenue under the specific identification method when the property is sold. Additionally, for our revenue other than home sales revenue, cost of revenue consists of any costs incurred in delivering the service, including associated headcount expenses such as salaries, benefits and stock-based compensation.
Operating Expenses
Sales, Marketing and Operations Expense
Sales, marketing and operations expense consists primarily of resale broker commissions (paid to the home buyers’ real estate agents, if applicable), resale closing costs, holding costs related to real estate inventory including utilities, property taxes and maintenance, and expenses associated with product marketing, promotions and brand-building. Sales, marketing and operations expense also includes any headcount expenses in support of sales, marketing, and real estate operations such as salaries, benefits and stock-based compensation.
General and Administrative Expense
General and administrative expense consists primarily of headcount expenses, including salaries, benefits and stock-based compensation for our executive, finance, human resources, legal and administrative personnel, third-party professional services fees and rent expense.
We incurred a significant increase in stock-based compensation in the first half of 2021 as a result of certain performance-based awards and historical RSUs satisfying their liquidity event vesting conditions. The increase in stock-based compensation impacts each line item within Operating expenses. Stock-based compensation declined in the third quarter of 2021 given that a majority of the expense related to certain performance-based awards was recognized as of June 30, 2021. See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 12. Share-based awards."
Technology and Development Expense
Technology and development expense consists primarily of headcount expenses, including salaries, benefits and stock-based compensation for employees in the design, development, testing, maintenance and operation of our mobile applications,
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
websites, tools and applications that support our products. Technology and development expense also includes amortization of capitalized software development costs.
Derivative and Warrant Fair Value Adjustment
Derivative and warrant fair value adjustment consists of unrealized and realized gains and losses as a result of marking our warrants and embedded derivatives related to the 2019 Convertible Notes to fair value at the end of each reporting period and subsequent settlement through exercise of warrants and conversion of the 2019 Convertible Notes to equity.
Interest Expense
Interest expense consists primarily of interest paid or payable and the amortization of debt discounts and debt issuance costs. Interest expense varies period over period, primarily due to fluctuations in our inventory volumes and changes in LIBOR, which impact the interest incurred on our senior revolving credit facilities (see “— Liquidity and Capital Resources — Debt and Financing Arrangements”).
We expect our overall interest expense to increase as inventory increases. Subject to market conditions and cost of capital trade-offs, we will evaluate opportunities to expand our sources of financing over time, which may allow us to diversify our mix of financing sources to include more cost effective financing relative to our higher cost mezzanine term debt facilities.
Other Income — Net
Other income-net consists primarily of change in fair value of and dividend income from our investment in equity securities as well as interest income from our investment in debt securities.
Income Tax Expense
We record income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.
We record a valuation allowance to reduce our deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.
47
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Results of Operations
The following tables set forth our results of operations for each of the periods presented:
| Three Months Ended September 30, | Change in | ||||||||||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | $ | % | |||||||||||||||||||
| Revenue | $ | 2,266,354 | $ | 338,613 | $ | 1,927,741 | 569 | % | |||||||||||||||
| Cost of revenue | 2,063,865 | 302,802 | 1,761,063 | 582 | % | ||||||||||||||||||
| Gross profit | 202,489 | 35,811 | 166,678 | 465 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales, marketing and operations | 153,496 | 27,336 | 126,160 | 462 | % | ||||||||||||||||||
| General and administrative | 90,105 | 40,168 | 49,937 | 124 | % | ||||||||||||||||||
| Technology and development | 27,295 | 13,184 | 14,111 | 107 | % | ||||||||||||||||||
| Total operating expenses | 270,896 | 80,688 | 190,208 | 236 | % | ||||||||||||||||||
| Loss from operations | (68,407) | (44,877) | (23,530) | 52 | % | ||||||||||||||||||
| Derivative and warrant fair value adjustment | 3,499 | (24,329) | 27,828 | N/M | |||||||||||||||||||
| Interest expense | (43,550) | (12,376) | (31,174) | 252 | % | ||||||||||||||||||
| Other income-net | 51,965 | 764 | 51,201 | 6702 | % | ||||||||||||||||||
| Loss before income taxes | (56,493) | (80,818) | 24,325 | (30) | % | ||||||||||||||||||
| Income tax expense | (326) | (35) | (291) | 831 | % | ||||||||||||||||||
| Net loss | $ | (56,819) | $ | (80,853) | $ | 24,034 | (30) | % | |||||||||||||||
N/M - Not meaningful.
| Nine Months Ended September 30, | Change in | ||||||||||||||||||||||
| (in thousands, except percentages) | 2021 | 2020 | $ | % | |||||||||||||||||||
| Revenue | $ | 4,199,014 | $ | 2,334,235 | $ | 1,864,779 | 80 | % | |||||||||||||||
| Cost of revenue | 3,740,622 | 2,152,803 | 1,587,819 | 74 | % | ||||||||||||||||||
| Gross profit | 458,392 | 181,432 | 276,960 | 153 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales, marketing and operations | 319,087 | 156,290 | 162,797 | 104 | % | ||||||||||||||||||
| General and administrative | 502,800 | 99,074 | 403,726 | 407 | % | ||||||||||||||||||
| Technology and development | 102,360 | 45,809 | 56,551 | 123 | % | ||||||||||||||||||
| Total operating expenses | 924,247 | 301,173 | 623,074 | 207 | % | ||||||||||||||||||
| Loss from operations | (465,855) | (119,741) | (346,114) | 289 | % | ||||||||||||||||||
| Derivative and warrant fair value adjustment | 12,179 | (25,219) | 37,398 | N/M | |||||||||||||||||||
| Interest expense | (70,375) | (57,393) | (12,982) | 23 | % | ||||||||||||||||||
| Other income-net | 53,601 | 3,619 | 49,982 | 1381 | % | ||||||||||||||||||
| Loss before income taxes | (470,450) | (198,734) | (271,716) | 137 | % | ||||||||||||||||||
| Income tax expense | (610) | (234) | (376) | 161 | % | ||||||||||||||||||
| Net loss | $ | (471,060) | $ | (198,968) | $ | (272,092) | 137 | % | |||||||||||||||
N/M - Not meaningful.
Revenue
Revenue increased by $1,927.7 million, or 569%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in revenue was primarily attributable to higher sales volumes, driven by our efforts to rebuild inventory, as well as higher average revenue per home. We sold 5,988 homes during the three months ended September 30, 2021, compared to 1,232 homes during the three months ended September 30, 2020, representing an increase of 386% and a revenue per home sold increase of 38% between periods. Average resale prices were positively impacted by home price appreciation, buybox expansion, and intracity mix.
48
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Revenue increased by $1,864.8 million, or 80%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in revenue was primarily attributable to higher sales volumes in the second and third quarters of 2021 compared to the corresponding quarters of 2020, as well as higher revenue per home. The higher sales volumes are a reflection of our efforts to rebuild inventory beginning in August 2020, following our temporary pause in home purchases at the start of the COVID-19 pandemic. See “— Business Impact of COVID-19”. We surpassed pre-COVID-19 inventory levels in the second quarter of 2021. We sold 11,931 homes during the nine months ended September 30, 2021, compared to 9,064 homes during the nine months ended September 30, 2020, representing an increase of 32%, while revenue per home sold increased 37% between periods. Average resale prices were positively impacted by home price appreciation and buybox expansion.
Cost of Revenue and Gross Profit
Cost of revenue increased by $1,761.1 million, or 582%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily attributable to higher sales volumes and a 40% increase in cost of revenue per home as a result of inventory mix, home price appreciation and buybox expansion. The increase in cost of revenue per home is consistent with the 38% increase in revenue per home.
Cost of revenue increased by $1,587.8 million, or 74%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase in cost of revenue was primarily attributable to higher sales volumes and a 32%increase in cost of revenue per home as a result of inventory mix, home price appreciation and buybox expansion.
Gross margin decreased from 10.6% to 8.9% for the three months ended September 30, 2020 and September 30, 2021, respectively. The gross margin decrease was primarily due to the impact of $31.6 million of impairment recorded during the three months ended September 30, 2021 on homes that are in inventory as of September 30, 2021. The gross margin decrease was partially offset by improvements in repair and renovation efficiency. For the same periods, Adjusted Gross Margin improved from 9.8% to 10.3% and Contribution Margin increased from 5.9% to 7.5%, due to improvements in repair and renovation efficiency, as well as lower holding and selling costs. See “— Non-GAAP Financial Measures.”
Gross margin improved from 7.8% to 10.9% for the nine months ended September 30, 2020 and September 30, 2021, respectively. For the same periods, Adjusted Gross Margin improved from 7.4% to 11.7%. Gross margin improvement was primarily due to a combination of healthy inventory mix, home price appreciation and the effectiveness of our inventory resale systems. In addition, we saw improvements in repair and renovation efficiency. Contribution Margin increased from 3.4% to 8.9% for the same periods, due largely to a higher Adjusted Gross Margin as well as improvements in direct selling and holding costs. See “— Non-GAAP Financial Measures.
Operating Expenses
Sales, Marketing and Operations. Sales, marketing and operations increased by $126.2 million, or 462%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to a $29.4 million increase in advertising expense as we increased marketing to drive acquisition volumes in both existing and new markets. Resale transaction costs and broker commissions increased $43.0 million, consistent with the 386%% increase in the number of homes sold. Property holding costs increased by $30.4 million, consistent with increased inventory levels. Headcount expenses, including salaries, benefits and stock-based compensation, increased $13.1 million consistent with the increase in headcount.
Sales, marketing and operations increased by $162.8 million, or 104%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to a $75.3 million increase in advertising expense as we increased marketing to drive acquisition volumes in both existing and new markets launched in 2021, relative to the limited marketing spend in 2020 due to the onset of COVID-19. In addition, stock-based compensation increased $9.1 million reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering (as defined herein) satisfied the liquidity event vesting condition of certain RSUs. Resale transaction costs and broker commissions increased $28.7 million, consistent with the 32% increase in the number of homes sold. Property holding costs increased by $32.1 million consistent with increased inventory levels. Headcount expenses, including salaries and benefits increased $10.3 million consistent with the increase in headcount.
49
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
General and Administrative. General and administrative increased by $49.9 million, or 124%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to $50.8 million of additional stock-based compensation from the commencement of expense recognition of certain performance awards following the consummation of the Business Combination (as defined herein) in December 2020 as well as the expense recognition of certain restricted stock units ("RSUs") upon the fulfillment of the liquidity event vesting condition satisfied by the February 2021 Offering.
General and administrative increased by $403.7 million, or 407%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to $399.9 million of additional stock-based compensation from the commencement of expense recognition of certain performance awards following the consummation of the Business Combination in December 2020 as well as the expense recognition of certain RSUs upon the fulfillment of the liquidity event vesting condition satisfied by the February 2021 Offering.
Technology and Development. Technology and development increased by $14.1 million, or 107%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to a $7.2 million increase in stock-based compensation reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs.
Technology and development increased by $56.6 million, or 123%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to a $46.9 million increase in stock-based compensation reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs.
Derivative and Warrant Fair Value Adjustment
Derivative and warrant fair value adjustment increased by $27.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The expense recorded for the three months ended September 30, 2020 was primarily attributable to a $23.3 million increase in the fair value of the derivative liability in extinguishment of the Company's 2019 Convertible Notes. The gain recorded for the three months ended September 30, 2021 is attributable to a decrease in the fair value of the Sponsor Warrants of $3.5 million, which is primarily attributable to the decline in the Company's stock price over this period.
Derivative and warrant fair value adjustment increased by $37.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The expense recorded for the nine months ended September 30, 2020 was primarily attributable to a $23.3 million increase in the fair value of the derivative liability in extinguishment of the Company's 2019 Convertible Notes. The gain for the nine months ended September 30, 2021 was primarily attributable to a decrease in the fair value of the Sponsor Warrants of $12.2 million which is primarily attributable to the decline in the Company's stock price over this period.
Interest Expense
Interest expense increased by $31.2 million, or 252%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to increases in the average outstanding balance of our asset-backed senior credit facilities and mezzanine term debt facilities, which is consistent with our increase in inventory over the same periods.
Interest expense increased by $13.0 million, or 23%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to increases in the average outstanding balances of our asset-backed senior credit facilities and mezzanine term debt facilities, which is consistent with our increase in inventory over the same periods. The increase in interest expense from our asset backed credit facilities is partially offset by a $7.8
50
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
million decrease in interest expense and amortization of debt issuance costs related to the 2019 Convertible Notes, which were converted into equity in September 2020.
Other Income — Net
Other income – net increased by $51.2 million and $50.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, respectively. The increase is primarily related to the $51.0 million fair value adjustment on marketable equity securities recorded in the third quarter of 2021 when a company in which we invested went public.
Income Tax Expense
Income tax expense increased by a nominal amount for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity have historically consisted of cash generated from our operations and from financing activities. As of September 30, 2021, we had cash and cash equivalents of $1,358.8 million, restricted cash of $484.5 million, marketable securities of $481.1 million, and total outstanding balances on our asset-backed debt and other secured borrowings of $5,443.5 million. In addition, we had undrawn borrowing capacity of $930.2 million under our asset-backed senior credit facilities (as described further below), of which $101.8 million is fully committed. In August 2021, we issued convertible senior notes with an aggregate principal amount of $977.5 million.
On December 18, 2020, we consummated a merger with Social Capital Hedosophia Holdings Corp. II, (“SCH”), a special purpose acquisition company, which resulted in Opendoor Labs Inc. becoming a wholly owned subsidiary of SCH and the subsequent renaming of SCH to Opendoor Technologies Inc. (the "Business Combination"). The Business Combination had a significant impact on our reported financial position and in particular a net increase in cash of $970 million. The increases in cash includes approximately $600 million in proceeds from the private placement ("PIPE Investment") consummated simultaneously with the Business Combination. See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 2. Business Combination” for more information.
On February 9, 2021, we completed an underwritten public offering (the “February 2021 Offering”) in which we sold 32,817,421 shares of our common stock at a public offering price of $27.00 per share, including the exercise in full by the underwriters of their option to purchase up to 4,280,533 additional shares of common stock, which was completed on February 11, 2021. We received aggregate net proceeds from the February 2021 Offering of approximately $859.5 million after deducting underwriting discounts and commissions and offering expenses payable by us.
We have incurred losses from inception through September 30, 2021 and expect to incur additional losses for the foreseeable future. Our ability to service our debt, fund working capital, business operations and capital expenditures will depend on our ability to generate cash from operating activities, which is subject to our future operating success, and obtain inventory acquisition financing on reasonable terms, which is subject to factors beyond our control, including general economic, political and financial market conditions.
We expect our working capital requirements to continue to increase in the immediate future, as we seek to increase our inventory and expand into more markets across the United States. We believe our cash, cash equivalents, and marketable securities together with cash we expect to generate from future operations and borrowings, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. The discussion below does not include transactions that occurred subsequent to September 30, 2021. See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 18. Subsequent Events” for additional information regarding transactions subsequent to the balance sheet date.
51
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Debt and Financing Arrangements
Our financing activities include short-term borrowing under our asset-backed senior revolving credit facilities, the issuance of long-term asset-backed senior and mezzanine term debt, borrowing under our mortgage repurchase financing, issuance of convertible debt, and new issuances of equity. Historically, we have required access to external financing resources in order to fund growth, expansion into new markets and strategic initiatives and we expect this to continue in the future. Our access to capital markets can be impacted by factors outside our control, including economic conditions.
We primarily use non-recourse asset-backed debt, consisting of asset-backed senior credit facilities and asset-backed mezzanine debt facilities to provide financing for our real estate inventory purchases and renovations. Our business is capital intensive and maintaining adequate liquidity and capital resources is needed as we continue to scale and accumulate additional inventory. While there can be no assurances that these trends will continue, we have observed increased availability and engagement for this lending product across a variety of financial institutions and we have seen improved terms and an increase in our borrowing capacity in recent years. We actively manage our relationships with multiple financial institutions and seek to optimize duration, flexibility, efficiency and cost of funds.
Our asset-backed facilities are each collateralized by a specified pool of assets, consisting of real estate inventory, restricted cash and equity interests in certain consolidated subsidiaries of Opendoor that directly or indirectly own our real estate inventory.
Our real estate-owning subsidiaries’ assets and credit generally are not available to satisfy the debts and other obligations of any other Opendoor entities except to the extent other Opendoor entities are also a party to the relevant financing arrangements. Our asset-backed debt is non-recourse to Opendoor except for limited guarantees provided by an Opendoor subsidiary for certain obligations in situations involving “bad acts” by an Opendoor entity and certain other limited circumstances that are generally under our control.
Our senior credit facilities generally provide for advance rates of 80% to 90% against our cost basis in the underlying properties upon acquisition and our mezzanine term facilities will finance up to 100% of our cost basis in the underlying properties upon acquisition. The maximum initial advance rates for a given financed property vary by facility and generally decrease on a fixed timeline that varies by facility based on the length of time the property has been financed and any other facility-specific adjustments.
52
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
The following table summarizes certain details related to our non-recourse asset-backed debt and other secured borrowings as of September 30, 2021(in thousands, except interest rates):
| Outstanding Amount | ||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | Borrowing Capacity | Current | Non-Current | Weighted Average Interest Rate | End of Revolving / Withdrawal Period | Final Maturity Date | ||||||||||||||||||||||||||||||||
| Non-Recourse Asset-Backed Debt: | ||||||||||||||||||||||||||||||||||||||
| Asset-Backed Senior Credit Facilities | ||||||||||||||||||||||||||||||||||||||
| Revolving Facility 2018-2 | $ | 1,000,000 | $ | 999,206 | $ | — | 2.84 | % | September 23, 2022 | December 23, 2022 | ||||||||||||||||||||||||||||
| Revolving Facility 2018-3 | 750,000 | 650,000 | — | 2.47 | % | May 26, 2024 | May 26, 2024 | |||||||||||||||||||||||||||||||
| Revolving Facility 2019-1 | 900,000 | 632,366 | — | 2.84 | % | June 30, 2023 | June 30, 2023 | |||||||||||||||||||||||||||||||
| Revolving Facility 2019-2 | 1,030,000 | 1,028,206 | — | 2.55 | % | July 8, 2023 | July 8, 2023 | |||||||||||||||||||||||||||||||
| Revolving Facility 2019-3 | 925,000 | 627,938 | — | 3.25 | % | August 22, 2022 | August 21, 2023 | |||||||||||||||||||||||||||||||
| Revolving Facility 2021-1 | 125,000 | 112,096 | — | 2.15 | % | October 31, 2022 | October 31, 2022 | |||||||||||||||||||||||||||||||
| Term Debt Facility 2021-S1 | 400,000 | — | 250,000 | 3.48 | % | April 1, 2024 | April 1, 2025 | |||||||||||||||||||||||||||||||
| Term Debt Facility 2021-S2 | 600,000 | — | 500,000 | 3.20 | % | September 10, 2024 | September 10, 2025 | |||||||||||||||||||||||||||||||
| Total | $ | 5,730,000 | $ | 4,049,812 | $ | 750,000 | ||||||||||||||||||||||||||||||||
| Issuance Costs | (3,234) | |||||||||||||||||||||||||||||||||||||
| Carrying Value | $ | 746,766 | ||||||||||||||||||||||||||||||||||||
| Asset-Backed Mezzanine Term Debt Facilities | ||||||||||||||||||||||||||||||||||||||
| Term Debt Facility 2016-M1 | $ | 324,000 | $ | — | $ | 324,000 | 10.00 | % | October 31, 2023 | March 31, 2025 | ||||||||||||||||||||||||||||
| Term Debt Facility 2020-M1 | 300,000 | — | 300,000 | 10.00 | % | January 23, 2023 | January 23, 2026 | |||||||||||||||||||||||||||||||
| Total | $ | 624,000 | $ | — | $ | 624,000 | ||||||||||||||||||||||||||||||||
| Issuance Costs | (2,777) | |||||||||||||||||||||||||||||||||||||
| Carrying Value | $ | 621,223 | ||||||||||||||||||||||||||||||||||||
| Total Non-Recourse Asset-Backed Debt | $ | 6,354,000 | $ | 4,049,812 | $ | 1,367,989 | ||||||||||||||||||||||||||||||||
| Recourse Debt - Other Secured Borrowings: | ||||||||||||||||||||||||||||||||||||||
| Mortgage Financing | ||||||||||||||||||||||||||||||||||||||
| Repo Facility 2019-R1 | $ | 100,000 | $ | 19,728 | $ | — | 1.84 | % | May 26, 2022 | May 26, 2022 | ||||||||||||||||||||||||||||
| Total Recourse Debt | $ | 100,000 | $ | 19,728 | $ | — | ||||||||||||||||||||||||||||||||
Asset-backed Senior Credit Facilities
In some cases, the undrawn borrowing capacity amounts under the asset-backed senior credit facilities as reflected in the table are not fully committed and any borrowings above those amounts are subject to the applicable lender’s discretion. As of September 30, 2021, the Company had fully committed borrowing capacity with respect to asset-backed senior credit facilities of $3,837.4 million The total outstanding amount presented above includes $4,049.8 million of current liabilities and $750.0 million of non-current liabilities; the carrying value of the non-current liabilities is reduced by issuance costs of $3.2 million.
The revolving or withdrawal period end dates and final maturity dates reflected in the table above are inclusive of any extensions that are at the sole discretion of the Company. Certain of our asset-backed senior credit facilities also have additional extension options that are subject to lender approval that are not reflected in the table above. Historically, we have had success in renewing these facilities to the extent we have wished to do so.
Asset-Backed Mezzanine Term Debt Facilities
In addition to the asset-backed senior credit facilities, we have issued asset-backed mezzanine term debt facilities which are subordinated to the related senior facilities. See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated
53
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Financial Statements – Note 7. Credit Facilities and Long-Term Debt” for additional information regarding our non-recourse asset-backed debt.
Mortgage Financing
We primarily use debt financing to fund our mortgage loan originations. In 2019 we entered into a master repurchase agreement to finance substantially all of the mortgage loans that we originate. Once our mortgage business sells a loan in the secondary mortgage market, we use the sale proceeds to reduce the outstanding balance under the repurchase facility. See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 7. Credit Facilities and Long-Term Debt” for additional information regarding our master repurchase agreement.
Convertible Senior Notes
In August 2021, the Company issued 0.25% senior senior notes due in 2026 (the "2026 Notes") with an aggregate principal amount of $977.5 million. The tables below summarizes certain details related to our convertible senior notes:
| September 30, 2021 | Aggregate Principal Amount | Unamortized Debt Issuance Costs | Net Carrying Amount | |||||||||||||||||
| 2026 Notes | $ | 977,500 | $ | (25,085) | $ | 952,415 | ||||||||||||||
See “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 7. Credit Facilities and Long-Term Debt” for additional information regarding our convertible senior notes, including conversion rate, conversion and redemption dates, and the related capped call transaction.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2021 | 2020 | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (5,903,558) | $ | 1,037,354 | ||||||||||
| Net cash used in investing activities | $ | (431,825) | $ | (50,820) | ||||||||||
| Net cash provided by (used in) financing activities | $ | 6,673,106 | $ | (1,027,797) | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 337,723 | $ | (41,263) | ||||||||||
Net Cash (Used in) Provided by Operating Activities
Net cash (used in) provided by operating activities was $(5,903.6) million and $1,037.4 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash used in operating activities was primarily driven by the $5,805.8 million increase in inventory and a $119.9 million increase in escrow receivables correlated to the increase in revenue during the first nine months of 2021. For the nine months ended September 30, 2020, net cash provided by operating activities was primarily driven by a $1,146.8 million decrease in inventory, as we substantially paused purchasing additional homes in March 2020 in response to the COVID-19 pandemic and the consequent health risks. The impact of the change in operating working capital was partially offset by our net loss, net of non-cash items, of $100.8 million.
Net Cash Used in Investing Activities
Net cash used in investing activities was $431.8 million and $50.8 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash used in investing activities primarily consisted of the $372.9 million increase in marketable securities, $20.1 million for the purchase of Pro.com, net of cash acquired, and the $15.1 million purchase of strategic investments in certain privately held companies. For the nine months ended September 30, 2020, cash used in investing activities primarily consisted of the $38.8 million increase in marketable securities. In addition, we
54
OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
used $12.1 million for capital expenditures, including internally developed software, employee computers and leasehold improvements.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by (used in) financing activities was $6,673.1 million and $(1,027.8) million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash provided by financing activities was primarily attributable to $4,944.6 million net proceeds from asset-backed debt and $886.1 million in proceeds from the February 2021 Offering, net of $28.9 million of issuance costs. In addition, we received $977.5 million in proceeds from the issuance of the 2026 Notes, net of $24.4 million of issuance costs and offset by the $118.8 million purchase of the Capped Calls related to the 2026 Notes. For the nine months ended September 30, 2020, cash used in financing activities was primarily attributable to the net repayment of $1,037.1 million to our asset-backed debt facilities as we reduced inventory levels in response to COVID-19.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business in our commitments under contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except for the categories of contractual obligations included in the table below, which have been updated to reflect our contractual obligations as of September 30, 2021:
| Payment Due by Year | |||||||||||||||||||||||||||||
| (in thousands) | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | ||||||||||||||||||||||||
Senior revolving credit facilities(1) | $ | 4,076,771 | $ | 4,076,771 | $ | — | $ | — | $ | — | |||||||||||||||||||
Senior and mezzanine term debt facilities(2) | 1,710,572 | 87,085 | 174,170 | 1,449,317 | — | ||||||||||||||||||||||||
Convertible senior notes(3) | 989,692 | 2,417 | 4,888 | 982,387 | |||||||||||||||||||||||||
Mortgage financing(4) | 19,747 | 19,747 | — | — | — | ||||||||||||||||||||||||
Purchase commitments(5) | 2,259,850 | 2,259,850 | — | — | — | ||||||||||||||||||||||||
| Total | $ | 9,056,632 | $ | 6,445,870 | $ | 179,058 | $ | 2,431,704 | $ | — | |||||||||||||||||||
______________
(1)Represents the principal amounts outstanding as of September 30, 2021. Includes estimated interest payments, calculated using the variable rate in existence at period end over an assumed holding period of 90 days. Borrowings under the senior revolving credit facilities are payable as the related inventory is sold. The payment is expected to be within one year of September 30, 2021.
(2)Represents the principal amounts outstanding as of September 30, 2021 and interest payments assuming the principal balances remain outstanding until maturity. The final maturity dates of the senior and mezzanine term debt facilities vary, as discussed above.
(3)Represents the principal amounts outstanding as of September 30, 2021 and interest payments assuming the principal balances remain outstanding until maturity.
(4)Represents the principal amounts outstanding as of September 30, 2021. The facility provides short-term financing between the origination of a mortgage loan and when Opendoor Home Loans sells the loan to an investor. Included estimated interest payments, calculated using the variable rate in existence at period end over the Company’s average holding period for mortgage loans.
(5)As of September 30, 2021, we were under contract to purchase 6,231 homes for an aggregate purchase price of $2,259.9 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the condensed consolidated financial statements. Based on this definition, critical accounting policies and estimates are discussed in “Part II – Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the Annual Report. There have been no significant changes to these critical accounting estimates during the first nine months of 2021, except as noted below. In addition, we have other key accounting policies and estimates that are described in “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies” in this Quarterly Report on Form 10-Q.
Public and Sponsor Warrants
On April 30, 2020, SCH consummated its initial public offering of 41,400,000 units, consisting of one share of Class A common stock and one third of one warrant exercisable for Class A common stock, at a price of $10.00 per unit. Each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, SCH completed the private placement of 6,133,333 warrants to SCH’s sponsor at a price of $1.50 per warrant (the “Sponsor Warrants”). Each Sponsor Warrant allows the sponsor to purchase one share of Class A common stock at $11.50 per share. As of December 31, 2020, there were 19,933,333 warrants outstanding.
The Sponsor Warrants and shares of common stock issuable upon the exercise of Sponsor Warrants may not be transferred, assigned, or sold until 30 days after the completion of a business combination. Additionally, the Sponsor Warrants are eligible for cash and cashless exercises, at the holder’s option, and are redeemable only if the Reference Value, as defined in the Warrant Agreement, is less than $18.00 per share. If the Sponsor Warrants are held by someone other than the sponsors and certain permitted transferees, the Sponsor Warrants will redeemable and exercisable on the same basis as the Public Warrants.
We evaluated the Public and Sponsor Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity, and concluded that the Sponsor Warrants do not meet the criteria to be classified in shareholders’ equity. Specifically the exercise and settlement features for the Sponsor Warrants preclude them from being considered indexed to the Company’s own stock given that a change in the holder of the Sponsor Warrants may alter the settlement of the Sponsor Warrants. Since the holder of the instrument is not an input to a standard option pricing model, a consideration with respect to the indexation guidance, a change in the holder for the Sponsor Warrants impacting their value means the Sponsor Warrants are not indexed to the Company’s own stock. Since the Sponsor Warrants meet the definition of a derivative under ASC 815, we recorded these warrants as liabilities on the balance sheet at fair value upon the consummation of the Business Combination, with subsequent changes in their respective fair values recognized in the condensed consolidated statement of operations at each reporting period. The Company concluded that the Public Warrants, which do not have the same exercise and settlement features as the Sponsor Warrants, meet the criteria to be classified in shareholders' equity.
On July 9, 2021, the Company completed the redemption of all of its outstanding Public and Sponsor Warrants and in connection with the redemption, the Public Warrants stopped trading on the Nasdaq Global Select Market.
Recent Accounting Pronouncements
For information on recent accounting standards, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies”.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily consist of fluctuations in interest rates.
Interest Rate Risk
We are subject to market risk by way of changes in interest rates on borrowings under our inventory financing facilities and mortgage financing repurchase agreement. As of September 30, 2021 and December 31, 2020 we had outstanding borrowings of $4,069.5 million and $346.3 million, respectively, which bear interest at a floating rate based on a London Interbank Offered Rate (“LIBOR”) reference rate plus an applicable margin. Accordingly, fluctuations in market interest rates may increase or decrease our interest expense. We may use interest rate cap derivatives, interest rate swaps or other interest rate hedging instruments to economically hedge and manage interest rate risk with respect to our variable floating rate debt. Many of our floating rate debt facilities also have LIBOR floors. Assuming no change in the outstanding borrowings on our credit facilities, we estimate that a one percentage point increase in LIBOR would increase our annual interest expense by approximately $36.2 million and $4.4 million as of September 30, 2021 and December 31, 2020, respectively.
In July 2017 the U.K. Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of 2021. It is not possible to predict the effect of any changes in the methods by which the LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United States or elsewhere. Such developments may cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease to exist, resulting in the application of a successor base rate under our senior revolving credit facilities, which in turn could have unpredictable effects on our interest payment obligations under our senior revolving credit facilities.
Inflation Risk
We do not believe that inflation has had a material effect on our business, results of operations or financial condition. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability to do so could harm our business, results of operations and financial condition.
Item 4. Controls and Procedures.
Inherent Limitations on Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level.
Material Weaknesses
Management identified control deficiencies that constituted a material weakness in our internal control over financial reporting for the year ended December 31, 2020 related to our information technology general controls over certain accounting and proprietary systems used in our financial reporting. Specifically, our systems lacked controls over access and program change management that are needed to ensure access to financial data is adequately restricted to appropriate personnel. Additionally, key components of the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) were not fully implemented, including control and monitoring activities related to: (1) electing and developing general controls activities over technology to support the achievement of objectives; and
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(2) electing, developing, and performing ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning.
Remediation Activities
Management has been actively engaged in implementing remedial actions since the fourth quarter of 2020 and has made substantial progress during the nine months ended September 30, 2021, which included the following:
•implemented certain key policies and appropriate controls to strengthen our information technology environment that included access and change management controls, segregation of conflicting roles, and restricting user access to key systems;
•identified and documented relevant business processes and controls and strengthened related policies and procedures; and
•completed our preliminary rounds of control assessments for design and operating effectiveness, and implemented corrective actions to remediate any additional control gaps identified.
In addition, as a result of the correction of prior period amounts as described in “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies” management identified an additional material weakness as of December 31, 2020 related to the accounting and classification of significant and unusual transactions. The review performed to evaluate the accounting for the Business Combination was incomplete in that a thorough analysis of the Warrants was not performed under Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”). Specifically, while the equity classification of warrants with provisions similar to those of the Sponsor Warrants was historically broadly accepted industry practice, our management did not sufficiently analyze the propriety of this classification and did not identify the error in this accounting practice until the SEC’s issuance of the Staff Statement on April 12, 2021. This material weakness resulted in the correction of our consolidated financial statements as of and for the year ended December 31, 2020. This deficiency is a result of our previously smaller accounting team as a private company coupled with insufficient controls to ensure the completeness of all material components of each significant and unusual transaction evaluated. To remediate this material weakness we:
•hired additional personnel subsequent to the Business Combination and are continuing to expand our team; and
•strengthened our controls over accounting for significant and unusual transactions with a focus on ensuring the analysis is complete and includes each of the material components of the transaction.
Management believes the controls designed and implemented in our remediation efforts have effectively addressed the material weaknesses noted above and our enhanced control environment appropriately conforms with the key components of the COSO framework. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the relevant controls are in operation for a sufficient period of time, tested and concluded by management to be operating effectively.
The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above. Our management and board of directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.
Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Changes in Internal Control over Financial Reporting
Other than as described above, there have been no material changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
In August 2019, the Federal Trade Commission (“FTC”) sent a civil investigative demand to Opendoor Labs Inc., our wholly-owned subsidiary, seeking documents and information relating primarily to statements in our advertising and website comparing selling homes to us with selling homes in a traditional manner using an agent and relating to statements that our offers reflect or are based on market prices. Thereafter, we responded cooperatively to the civil investigative demand and related follow-up requests from the FTC. On December 23, 2020, the FTC notified us that they intend to recommend that the agency pursue an enforcement action against us and certain of our officers, if we are unable to reach a negotiated settlement acceptable to all parties. The FTC has indicated that they believe certain of our advertising claims relating to the amount of our offers, the repair costs charged to home sellers, and the amount of net proceeds a seller may receive from selling to us versus selling in the traditional manner were inaccurate and/or inadequately substantiated. We are engaged in settlement negotiations with the FTC. There can be no assurances that we will be successful in negotiating a favorable settlement.
In addition to the foregoing, we are currently and have in the past been subject to legal proceedings and regulatory actions in the ordinary course of business. We do not anticipate that the ultimate liability, if any, arising out of any such matters will have a material effect on our financial condition, results of operations or cash flows. In the future, we may be subject to further legal proceedings and regulatory actions in the ordinary course of business and we cannot predict whether any such proceeding or matter will have a material effect on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
In the course of conducting our business operations, we are exposed to a variety of risks. These risks are generally inherent to the U.S. residential real estate industry or otherwise generally impact iBuyers like us. Any of the risk factors we described in "Part I – Item 1A. Risk Factors," in our Annual Report or described below, have affected or could materially adversely affect our business, financial condition and results of operations. The market price of shares of our common stock could decline, possibly significantly or permanently, if one or more of these risks and uncertainties occurs. Certain statements in “Risk Factors” are forward-looking statements. See “Forward-Looking Statements.”
Except as set forth below, there have been no material changes to the Company's risk factors since the Annual Report.
Risks Related to Our Business and Industry
The COVID-19 pandemic adversely affected our business in 2020. The extent to which COVID-19 will impact our future operations is uncertain and cannot be predicted at this time.
Our success depends on a high volume of residential real estate transactions throughout the markets in which we operate. This transaction volume affects all of the ways that we generate revenue, including our ability to acquire new homes and generate associated service fees, our ability to sell homes that we own, the generation of commissions from our brokerage business, the number of loans our mortgage business originates and resells, and the number of transactions our title and settlement business closes. The COVID-19 pandemic significantly and adversely affected our business beginning in March 2020 when governmental authorities put in place limitations on in-person activities related to the sale of residential real estate. As a result of these restrictions and safety concerns for our customers and employees, we paused acquisitions of homes beginning in March 2020 and sold down the home inventory on our platform during the second and third quarters of 2020. We resumed making acquisitions of homes across all of our markets in August 2020.
Although we believe we have successfully adapted our operations to date to effectively execute on our business model during the ongoing COVID-19 pandemic, there remains uncertainty as to COVID-19’s overall impact on the U.S. economy, the impact of variants, future limitations that may be imposed by governmental authorities on processes and procedures attendant to residential real estate transactions as a result of COVID-19, and long-term trends in consumer spending on real estate transactions, among other things. We cannot predict the extent to which our transaction volumes and financial results may be adversely affected by the foregoing.
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We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed, we identified a material weakness related to our general information technology controls, including the design and implementation of access and change management controls. Additionally, key components of the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework have not been fully implemented, including control and monitoring activities relating to: (1) electing and developing general control activities over technology to support the achievement of objectives; and (2) electing, developing, and performing ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning. We also identified a material weakness related to the accounting and classification of significant and unusual transactions, which led to the correction of prior period amounts described in “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies.”
We have engaged a third-party consultant, have designed and implemented measures to improve our internal control over financial reporting and have expanded, and will continue to expand, our accounting, legal and IT security teams to remediate these material weaknesses. We cannot predict the success of such measures or the outcome of our assessment of these measures at this time. We can give no assurance that these measures will remediate the deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations.
As a public company, beginning with our second annual report on Form 10-K, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for future annual reports on Form 10-K to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will also be required to attest to the effectiveness of our internal control over financial reporting in future annual reports on Form 10-K to be filed with the SEC. We will be required to disclose changes made in our internal controls and procedures on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. We have begun the process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 in the future, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion.
Risks Related to Our Liquidity and Capital Resources
We utilize a significant amount of debt and financing arrangements in the operation of our business, and so our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.
As of December 31, 2020 we had approximately $486.3 million aggregate principal amount of indebtedness outstanding, including $479.2 million of non-recourse asset-backed loans. As of September 30, 2021, we had approximately $5,443.5 million aggregate principal amount of indebtedness outstanding, including $5,423.8 million of non-recourse asset-backed loans. Our leverage could have meaningful consequences to us, including increasing our vulnerability to economic downturns, limiting our ability to withstand competitive pressures, or reducing our flexibility to respond to changing business and economic conditions. We are also subject to general risks associated with debt financing, including (1) our cash flow may not be sufficient to satisfy required payments of principal and interest; (2) we may not be able to refinance our existing indebtedness or refinancing terms may be less favorable to us than the terms of our existing debt; (3) debt service obligations or facility prepayments could reduce funds available for capital investment and general corporate purposes; (4) any default on our indebtedness could result in acceleration of the indebtedness and foreclosure on the homes collateralizing that indebtedness,
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with our attendant loss of any prospective income and equity value from such property; and (5) aged real estate may be ineligible for financing on our debt facilities potentially forcing the sale of aged real estate for prices that do not allow us to meet our margin targets or cover our costs to repay those facilities. Any of these risks could place strains on our cash flows, reduce our ability to grow and adversely affect our results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
The following tables showing the correction of prior period amounts should be read in conjunction with Note 1 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. This correction affected our consolidated balance sheet, consolidated statement of operations, consolidated statement of changes in temporary equity and shareholders’ equity (deficit) and consolidated statement of cash flows for year ended December 31, 2020.
The Company determined, based on consideration of quantitative and qualitative factors, that the error had an immaterial impact, individually and in aggregate. As such, the Company corrected its accounting for Sponsor Warrants in its Quarterly Report on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021.
The following table provides the impact of the correction on the Company's consolidated balance sheet as of December 31, 2020 (in thousands):
| As of December 31, 2020 | ||||||||||||||||||||
| Previously Stated | Adjustments | As Corrected | ||||||||||||||||||
| Warrant liabilities | $ | — | 47,349 | $ | 47,349 | |||||||||||||||
| Total liabilities | $ | 575,575 | 47,349 | $ | 622,924 | |||||||||||||||
| Additional paid-in capital | $ | 2,677,155 | (81,143) | $ | 2,596,012 | |||||||||||||||
| Accumulated deficit | (1,077,243) | 33,794 | (1,043,449) | |||||||||||||||||
| Total shareholders' equity | $ | 1,600,007 | (47,349) | $ | 1,552,658 | |||||||||||||||
The following table provides the impact of the correction on the Company's consolidated statement of operations for the year ended December 31, 2020 (in thousands):
| Year Ended December 31, 2020 | ||||||||||||||||||||
| Previously Stated | Adjustments | As Corrected | ||||||||||||||||||
| DERIVATIVE AND WARRANT FAIR VALUE ADJUSTMENT | $ | (25,941) | 33,794 | $ | 7,853 | |||||||||||||||
| LOSS BEFORE INCOME TAXES | $ | (286,697) | 33,794 | $ | (252,903) | |||||||||||||||
| NET LOSS | $ | (286,760) | 33,794 | $ | (252,966) | |||||||||||||||
| Net loss per share attributable to common shareholders: | ||||||||||||||||||||
| Basic | $ | (2.62) | $ | 0.31 | $ | (2.31) | ||||||||||||||
| Diluted | $ | (2.62) | $ | 0.31 | $ | (2.31) | ||||||||||||||
Other than changes made to reflect the impact of the recognition of the fair value of the Sponsor Warrants liability at the Closing Date to additional paid-in capital and the subsequent remeasurement of the fair value of the warrant liability at
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December 31, 2020 to accumulated deficit, there have been no changes to the Company's consolidated statement of temporary equity and shareholders’ equity (deficit) (in thousands).
| Year Ended December 31, 2020 | ||||||||||||||||||||
| Previously Stated | Adjustments | As Corrected | ||||||||||||||||||
| Additional paid-in capital | $ | 2,677,155 | (81,143) | $ | 2,596,012 | |||||||||||||||
| Accumulated deficit | $ | (1,077,243) | 33,794 | $ | (1,043,449) | |||||||||||||||
| Total shareholders' equity | $ | 1,600,007 | (47,349) | $ | 1,552,658 | |||||||||||||||
The following table provides the impact of the correction on the Company's consolidated statement of cash flows for the year ended December 31, 2020 (in thousands):
| Year Ended December 31, 2020 | ||||||||||||||||||||
| Previously Stated | Adjustments | As Corrected | ||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
| Net loss | $ | (286,760) | 33,794 | $ | (252,966) | |||||||||||||||
| Adjustments to reconcile net loss to cash, cash equivalents, and restricted cash provided by (used in) operating activities: | ||||||||||||||||||||
| Warrant fair value adjustment | $ | 2,622 | (33,794) | $ | (31,172) | |||||||||||||||
| DISCLOSURES OF NONCASH FINANCING ACTIVITIES: | ||||||||||||||||||||
| Recognition of warrant liability | $ | — | 81,143 | $ | 81,143 | |||||||||||||||
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Item 6. Exhibits.
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.
Exhibit No. | Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||
| 2.1 | 8-K | 001-39253 | 2.1 | 09/17/2020 | ||||||||||||||||||||||
| 3.1 | 8-K | 001-39253 | 3.1 | 12/18/2020 | ||||||||||||||||||||||
| 3.2 | S-1/A | 333-251529 | 3.3 | 01/15/2021 | ||||||||||||||||||||||
| 4.1 | S-4/A | 333-249302 | 4.5 | 11/06/2020 | ||||||||||||||||||||||
| 4.2 | 8-K | 001-39253 | 4.1 | 04/30/2020 | ||||||||||||||||||||||
| 4.3 | 10-Q | 001-39253 | 4.3 | 05/12/2021 | ||||||||||||||||||||||
| 4.4 | 8-K | 001-39253 | 4.1 | 08/24/2021 | ||||||||||||||||||||||
| 10.1 | # | * | ||||||||||||||||||||||||
| 31.1 | * | |||||||||||||||||||||||||
| 31.2 | * | |||||||||||||||||||||||||
| 32.1 | ** | |||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | * | ||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | * | ||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | * | ||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | * | ||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | * | ||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | * | ||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||||||||||||||||
________________
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan.
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OPENDOOR TECHNOLOGIES INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OPENDOOR TECHNOLOGIES INC. | |||||||||||||||||
| Date: | November 10, 2021 | By: | /s/ Eric Wu | ||||||||||||||
| Name: | Eric Wu | ||||||||||||||||
| Title: | Chief Executive Officer | ||||||||||||||||
| Date: | November 10, 2021 | By: | /s/ Carrie Wheeler | ||||||||||||||
| Name: | Carrie Wheeler | ||||||||||||||||
| Title: | Chief Financial Officer | ||||||||||||||||
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