# Offerpad Solutions Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Offerpad Solutions Inc.](/companies/opad.md) (CIK 1825024)
- Form: 10-Q
- Filed: 2024-11-04
- Accepted by EDGAR: Nov 4, 2024, 17:09 ET
- Period: 2024-09-30
- Accession: 0000950170-24-120899
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1825024/000095017024120899/opad-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1825024/000095017024120899/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $208.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $744.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $190.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $682.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $17.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $61.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $947.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $3.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$8.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$32.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $5.1m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $14.6m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $24.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $93.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$13.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$44.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.49 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.49 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 27,439,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 27,388,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$12.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $1.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $48.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $323.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $338.5m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $263.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $273.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $64.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 63,951 characters.

*The following discussion and analysis provides information that Offerpad’s management believes is relevant to an assessment and understanding of Offerpad’s consolidated results of operations and financial condition. The discussion should be read together with the unaudited interim condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and accompanying notes included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024.*

*This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q. Offerpad’s 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” in Part I, Item 1A of Offerpad’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.*

### Overview

### Our Business

Offerpad, dedicated to simplifying the process of buying and selling homes, is committed to providing comprehensive solutions that remove the friction from real estate. Our advanced real estate platform offers a range of services, from consumer cash offers to B2B renovation solutions and industry partnership programs, all tailored to meet the unique needs of our clients. Since 2015, we’ve leveraged local expertise in residential real estate alongside proprietary technology to guide homeowners at every step, and have transacted on homes representing approximately $11.5 billion of aggregate revenue through September 30, 2024.

We are currently headquartered in Chandler, Arizona and operate in over 1,800 cities and towns in 26 metropolitan markets across 17 states as of September 30, 2024.

### Current Economic Conditions and Health of the U.S. Residential Real Estate Industry

Our business and operating results are impacted by the general economic conditions and the health of the U.S. residential real estate industry, particularly the single-family home resale market. Our business model primarily depends on a high volume of residential real estate transactions throughout the markets in which we operate. This transaction volume affects substantially all of the ways that we generate revenue, including our ability to acquire new homes and generate associated fees, and our ability to sell homes that we own.

The uncertain economic outlook and evolving residential real estate market conditions have continued to challenge our operating results through the first nine months of 2024. The elevated and volatile mortgage interest rate environment has persisted throughout the year, with the average thirty-year fixed mortgage rate generally increasing during the first half of the year, peaking in the mid-7% range in April 2024, before decreasing to close to 6% at the end of September 2024 following the Federal Reserve Board’s reduction to its benchmark interest rate. As the Federal Reserve Board lowers its benchmark interest rate, mortgage rates generally decrease, which reduces the cost of owning a home, and should, in turn, increase the number of potential home buyers who can obtain mortgage financing and affect the prices home buyers may be willing to pay for homes. However, it remains difficult to predict the near-term direction of consumer demand for residential real estate due to the many different factors that impact such demand.

The elevated and volatile mortgage interest rate environment has continued to negatively impact housing affordability and create uncertainty for home buyers, which has challenged consumer demand for residential real estate. Additionally, the sustained elevated levels of inflation in the broader economy, along with other macroeconomic and geopolitical concerns, have continued to challenge consumer confidence. Further, recent severe weather events have negatively impacted the economic conditions in certain of the geographic markets in which we operate, resulting in slowdowns in real estate transaction volumes in such markets. As a result of these conditions, we have remained focused on proactively optimizing our capital allocation across our highest performing and most efficient markets. Additionally, we recently reduced our home acquisition pace as we continue to balance our real estate inventory levels to optimize our return.

Against this backdrop, our gross profit margin has remained steady at around 8% throughout the year, reflecting our continued progress toward improving the stability of our gross profit margin. Further, our net loss improved on a quarter-over-quarter basis for the second consecutive quarter, as we have continued to focus on operating efficiencies throughout the business.

While we generated solid operating results during the first nine months of 2024, the ongoing challenging residential real estate market conditions continued to have an impact on our operating results. These conditions have required us to use pricing adjustments and other incentives in recent periods, which have had a negative impact on our operating results during the year. Further, there continues to be uncertainty regarding the near-term macroeconomic conditions, including the path of inflation in the broader economy, the direction of mortgage interest rates, which have reversed course from a decrease in the third quarter of 2024 and increased in the early stages of the fourth quarter of 2024, and the impact of geopolitical conflicts. We anticipate that the sustained elevated and volatile mortgage interest rate environment, economic uncertainties and affordability pressures will continue to impact consumer demand for residential real estate during the fourth quarter of 2024. As a result of these market dynamics, we may be required to use similar pricing adjustments and incentives in the future.

### Factors Affecting Our Performance

We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed below.

### Market Penetration in Existing Markets

Residential real estate is one of the largest industries, with roughly $1.9 trillion in value of homes transacted in 2023 in the United States, and is highly fragmented with over 100,000 real estate brokerages, according to the National Association of Realtors (NAR). In 2023, we estimate that we captured roughly 0.5% market share of real estate transactions across our 25 active markets as of December 31, 2023. Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple services to meet the unique needs of customers could lead to continued market share growth and accelerated adoption of the digital model. We have demonstrated higher market share in certain markets, providing the backdrop to grow our overall market penetration as our offerings expand and evolve. By providing a consistent, transparent, and unique experience, we expect to continue to build upon our past success and further strengthen our brand and consumer adoption.

We are also increasing our focus on our partner network, which includes our homebuilder services, our agent partnership program and our agent referral network, to drive growth in our existing markets by expanding our reach and serving a greater number of customers. Our agent partnership program provides referral fees to agents who sell or select our cash offer. This program is designed to enable customers to utilize our services in a way that best suits their home-selling situation, while also serving as a valuable resource for real estate agents.

In order to drive additional value from our agent partnership program, we implemented various enhancements to the program during 2024. Under the enhanced program, our partner agents can continue to request a cash offer on behalf of their clients, and now also have the ability to list an acquired home prepared for resale. Additionally, partner agents in the top tier of the program have access to sellers in defined zones and have the potential to list other Offerpad-owned homes in their zone.

Further, during the second quarter of 2024, we launched a new integration with Realtor.com, allowing customers to request a cash offer from Offerpad directly through the Realtor.com website. We anticipate this integration will further expand our reach and diversify our lead sources.

### Expansion into New Markets

Since our launch in 2015, we have expanded into 25 markets as of December 31, 2023, which covered roughly 22% of the 4.7 million homes sold in the United States in 2023. Given this current coverage, we believe there is significant opportunity to both increase market penetration in our existing markets and to grow our business through new market expansion over the long-term. Also, because of our strategic approach to our asset-light platform offerings, which include our listing and renovation services, and our agent partnership program, we believe a significant portion of the total addressable market is serviceable with our business model. As we expand our reach through these other service offerings, we expect to continue to serve customers in markets beyond our direct service area. Further, this strategic approach has enabled us to enter into new markets to offer certain of our service offerings, without offering all of our buying and selling services in such markets. In connection with this approach, we began offering renovation services in two additional markets during 2024. This, together with adjusting operations in existing markets has brought our total markets served to 26 as of September 30, 2024.

Although we recently expanded into two new markets, we have decelerated our market expansion plans in recent years given the challenging residential real estate market conditions and the uncertainty regarding the near-term macroeconomic conditions, including the path of inflation in the broader economy, the direction of mortgage interest rates and the impact of geopolitical conflicts. We intend to continue evaluating expansion plans on an ongoing basis in order to maintain our flexibility in assessing the overall timing of our expansion plan and appropriate market entry points in the future.

### Renovation Services

Our renovation services represent an important component of our asset-light platform offerings. Through our renovation services offering, we are able to leverage our existing logistics, operations, technology and skill-sets to provide renovation services to other businesses, allowing other companies and homeowners to utilize our renovations team to update their portfolio of homes for rent or to sell. When providing renovation services, we receive a renovation project fee, and are also typically compensated with a service fee that is based on a percentage of the overall renovation project fee. Although our renovation services offering is in the early stages, representing approximately 2% of our total consolidated revenue during each of the three and nine months ended September 30, 2024, we believe these services could be a more significant component of our business over time.

### Expand Relationships with Home Buyers

Another component of our asset-light platform offerings includes our program that allows investors and single-family rental companies an opportunity to purchase homes from homeowners, matching investors with sellers. These transactions occur in several forms, including assigning the original purchase contract to the end buyer and collecting a fee at closing. We expect this program will allow us to help more homeowners sell their home and expand our ability to reach more customers, while also providing customers with the benefit of receiving an optimized offer for their home. This offering represented less than 1% of our total consolidated revenue during each of the three and nine months ended September 30, 2024.

### Ancillary Products and Services

We aim to deliver other additional products and services tied to the core real estate transaction in a smooth, efficient, digital driven platform, focused on transparency and ease of use. Although further developing these products and services will require significant investment, growing our current offerings and offering additional ancillary products and services, potentially including energy efficiency solutions, smart home technology, insurance, and home warranty services, we believe will strengthen our unit economics and allow us to better optimize pricing. Generally, the revenue and margin profiles of our ancillary products and services are different from our cash offering service that accounts for the vast majority of our revenue, with most ancillary products and services having a smaller average revenue per transaction than our cash offering service, but a higher margin.

Below is a summary of our current ancillary products and services:

- *Title and Escrow:* We have a national relationship with a leading title and escrow company, through which we are able to leverage our size and scale to provide exceptional title and escrow closing services with favorable economics.
- *Offerpad Home Loans (“OPHL”):* We have historically provided access to mortgage services through either our in-house mortgage solution, OPHL, or a third-party lending partner.

Our ancillary products and services represented less than 1% of our total consolidated revenue during each of the three and nine months ended September 30, 2024.

### Unit Economics

We view Contribution Margin and Contribution Margin after Interest (see “—Non-GAAP Financial Measures”) as key performance indicators for unit economic performance, which are currently primarily driven by our cash offer transactions. Future financial performance improvements are expected to be driven by expanding unit level margins through initiatives such as:

- Continued optimization of acquisition, renovation, and resale processes and strategies, as we increase our market penetration in existing markets;
- Effectively increasing and expanding our listing service business alongside the cash offer business, optimizing customer and agent community engagement and increasing conversion of requests for home purchases; and
- Introducing and scaling additional ancillary products and services to complement our core cash offer and listing service products.

### Operating Leverage

We utilize our technology and product teams to design systems and workflows to make our operations teams more efficient and able to support and scale with the business. Many positions are considered volume based, and as our business grows, we focus on developing more automation tools to gain additional leverage. Additionally, in periods when our business is growing, we expect to be able to gain operating leverage on portions of our cost structure that are more fixed in nature as opposed to purely variable. These types of costs include general and administrative expenses and certain marketing and information technology expenses, which grow at a slower pace than proportional to revenue growth.

### Real Estate Inventory Financing

Our business model requires significant capital to purchase real estate inventory. Real estate inventory financing is a key enabler to our growth and we rely on our non-recourse asset-backed financing facilities, which primarily consist of senior and mezzanine secured credit facilities to finance our home purchases. The loss of adequate access to these types of facilities, or the inability to maintain these types of facilities on favorable terms, would impair our performance. *See “—Liquidity and Capital Resources—Financing Activities.”*

### Seasonality

The residential real estate market is seasonal and varies from market to market. Typically, the greatest number of transactions occur in the spring and summer, with fewer transactions occurring in the fall and winter. Our financial results, including revenue, margins, real estate inventory, and financing costs, have historically had seasonal characteristics generally consistent with the residential real estate market, a trend we expect to continue in the future, subject to the market conditions discussed above.

### Risk Management

Our business model is based upon acquiring homes at a price which will allow us to provide a competitive offer to the consumer, while being able to add value through the renovation process, and relist the home so that it sells at a profit and in a relatively short period of time. We have invested significant resources into our underwriting and asset management systems. Our real estate operations team, including our pricing team, together with our software engineering and data science teams are responsible for underwriting accuracy, portfolio health, and workflow optimization. Our underwriting tools are constantly updated to adjust to the latest market conditions, leveraging inputs from our internal data systems, as well as third-party and other proprietary data sources. This allows us to assess and adjust to changes in the local housing market conditions based on our technology, analysis and local real estate experience, in order to mitigate our risk exposure. Further, our listed homes are typically in market-ready and move-in ready condition following the repairs and renovations we conduct.

Historically, we have been able to manage our portfolio risk in part by our ability to manage holding periods for our real estate inventory. Traditionally, resale housing pricing moves gradually through cycles; therefore, shorter real estate inventory holding periods limit pricing exposure. As we increased our scale and improved our workflow optimization in prior years, our average real estate inventory holding period of homes sold improved from 138 days in 2016 to 97 days during the fourth quarter of 2023, which is consistent with our expected average real estate inventory holding period and our historical norm.

During 2024, the average holding period of homes sold has remained consistent at around 110 days. Based on the current residential real estate market conditions, we anticipate our average real estate inventory holding period in the fourth quarter of 2024 will increase to around 140 days. This anticipated increase reflects our reduction in home acquisition pace during the third quarter of 2024, causing our overall real estate inventory mix to shift and include a lower composition of newer acquired homes, combined with the longer average time of homes on the market and the normal seasonal increase that occurs in the fall and winter.

### 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 (and related margins)

To provide investors with additional information regarding our margins, we have included Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins), 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 used by management in evaluating unit level economics and operating performance across our 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 ancillary 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 real estate inventory as of the end of the period presented. Contribution Profit provides investors a measure to assess Offerpad’s ability to generate returns on homes sold during a reporting period after considering home acquisition costs, renovation and repair costs, and adjusting for holding costs and selling costs. Contribution Profit After Interest further impacts gross profit by including interest costs (including senior and mezzanine secured credit facilities) 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 presented period.

Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest (and related margins) 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 real estate inventory at the end of the period, costs required to be recorded under GAAP in the same period.

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) net real estate inventory valuation adjustment plus (2) interest expense associated with homes sold in the presented period and recorded in cost of revenue. Net real estate inventory valuation adjustment is calculated by adding back the real estate inventory valuation adjustment charges recorded during the period on homes that remain in real estate inventory at period end and subtracting the real estate inventory valuation adjustment 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.

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 performance across the key phases of processing a home (acquisitions, renovations, and resale) for a specific resale cohort.

#### Contribution Profit / Margin

We calculate Contribution Profit as Adjusted Gross Profit, minus (1) direct selling costs incurred on homes sold during the presented period, minus (2) holding costs incurred in the current period on homes sold during the period recorded in sales, marketing, and operating, minus (3) holding costs incurred in prior periods on homes sold in the current period recorded in sales, marketing, and operating, plus (4) other income, net which is primarily composed of interest income earned on our cash and cash equivalents and fair value adjustments of derivative financial instruments. The composition of our holding costs is described in the footnotes to the reconciliation table below. We define Contribution Margin as 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 outflow directly associated with a specific resale cohort.

#### Contribution Profit / Margin After Interest

We define Contribution Profit After Interest as Contribution Profit, minus (1) interest expense associated with homes sold in the presented period and recorded in cost of revenue, minus (2) interest expense associated with homes sold in the presented period, recorded in costs of sales, and previously excluded from Adjusted Gross Profit, and minus (3) interest expense under our senior and mezzanine secured credit facilities incurred on homes sold during the period. This includes interest expense recorded in prior periods in which the sale occurred. Our senior and mezzanine secured credit facilities are secured by our homes in real estate inventory and 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—Financing Activities.”* We define Contribution Margin After Interest as 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 fully burdened with costs of financing.

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:

*(in thousands, except percentages and homes sold, unaudited)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Gross profit (GAAP)** | **$17,140** | **$23,973** | **$61,606** | **$53,489** |
| Gross margin | 8.2% | 10.2% | 8.3% | 5.0% |
| Homes sold | 615 | 703 | 2,204 | 2,962 |
| **Gross profit per home sold** | **$27.9** | **$34.1** | **$28.0** | **$18.1** |
| Adjustments: |  |  |  |  |
| Real estate inventory valuation adjustment - current period (1) | 848 | 918 | 1,060 | 985 |
| Real estate inventory valuation adjustment - prior period (2) | (535) | (318) | (765) | (58,125) |
| Interest expense capitalized (3) | 1,367 | 235 | 4,456 | 6,270 |
| **Adjusted gross profit** | **$18,820** | **$24,808** | **$66,357** | **$2,619** |
| Adjusted gross margin | 9.0% | 10.6% | 8.9% | 0.2% |
| Adjustments: |  |  |  |  |
| Direct selling costs (4) | (5,767) | (5,593) | (19,197) | (29,396) |
| Holding costs on sales - current period (5)(6) | (693) | (453) | (2,892) | (2,328) |
| Holding costs on sales - prior period (5)(7) | (341) | (72) | (577) | (2,166) |
| Other income, net (8) | 512 | 3,837 | 1,881 | 5,084 |
| **Contribution profit (loss)** | **$12,531** | **$22,527** | **$45,572** | **$(26,187)** |
| Contribution margin | 6.0% | 9.6% | 6.1% | (2.4)% |
| Homes sold | 615 | 703 | 2,204 | 2,962 |
| **Contribution profit (loss) per home sold** | **$20.4** | **$32.0** | **$20.7** | **$(8.8)** |
| Adjustments: |  |  |  |  |
| Interest expense capitalized (3) | (1,367) | (235) | (4,456) | (6,270) |
| Interest expense on homes sold - current period (9) | (1,865) | (2,622) | (9,787) | (11,782) |
| Interest expense on homes sold - prior period (10) | (1,687) | (554) | (2,948) | (13,924) |
| **Contribution profit (loss) after interest** | **$7,612** | **$19,116** | **$28,381** | **$(58,163)** |
| Contribution margin after interest | 3.7% | 8.2% | 3.8% | (5.4)% |
| Homes sold | 615 | 703 | 2,204 | 2,962 |
| **Contribution profit (loss) after interest per home sold** | **$12.4** | **$27.2** | **$12.9** | **$(19.6)** |

(1) Real estate inventory valuation adjustment – current period is the real estate inventory valuation adjustments recorded during the period presented associated with homes that remain in real estate inventory at period end.

(2) Real estate inventory valuation adjustment – prior period is the real estate inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented.

(3) Interest expense capitalized represents all interest related costs, including senior and mezzanine secured credit facilities, incurred on homes sold in the period presented that were capitalized and expensed in cost of sales at the time of sale.

(4) Direct selling costs represents selling costs incurred related to homes sold in the period presented. This primarily includes broker commissions and title and escrow closing fees.

(5) Holding costs primarily include insurance, utilities, homeowners association dues, property taxes, cleaning, and maintenance costs.

(6) Represents holding costs incurred on homes sold in the period presented and expensed to Sales, marketing, and operating on the Condensed Consolidated Statements of Operations.

(7) Represents holding costs incurred in prior periods on homes sold in the period presented and expensed to Sales, marketing, and operating on the Condensed Consolidated Statements of Operations.

(8) Other income, net principally represents interest income earned on our cash and cash equivalents and fair value adjustments of derivative financial instruments.

(9) Represents both senior and mezzanine interest expense incurred on homes sold in the period presented and expensed to interest expense on the Condensed Consolidated Statements of Operations.

(10) Represents both senior and mezzanine secured credit facilities interest expense incurred in prior periods on homes sold in the period presented and expensed to interest expense on the Condensed Consolidated Statements of Operations.

#### Adjusted Net Income (Loss) and Adjusted EBITDA

We also present Adjusted Net Income (Loss) and Adjusted EBITDA, which are non-GAAP financial measures, which our management team uses to assess our underlying financial performance. We believe these measures provide insight into period over period performance, adjusted for non-recurring or non-cash items.

We calculate Adjusted Net Income (Loss) as GAAP Net Income (Loss) adjusted for the change in fair value of warrant liabilities. We define Adjusted Net Income (Loss) Margin as Adjusted Net Income (Loss) as a percentage of revenue.

We calculate Adjusted EBITDA as Adjusted Net Income (Loss) adjusted for interest expense, amortization of capitalized interest, taxes, depreciation and amortization and stock-based compensation expense. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue.

Adjusted Net Income (Loss) and Adjusted EBITDA are supplemental to our operating performance measures calculated in accordance with GAAP and have important limitations. For example, Adjusted Net Income (Loss) and Adjusted EBITDA exclude the impact of certain costs required to be recorded under GAAP and 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.

The following table presents a reconciliation of our Adjusted Net Income (Loss) and Adjusted EBITDA to our GAAP Net Income (Loss), which is the most directly comparable GAAP measure, for the periods indicated:

*(in thousands, except percentages, unaudited)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net loss (GAAP)** | **$(13,537)** | **$(19,986)** | **$(44,834)** | **$(101,777)** |
| Change in fair value of warrant liabilities | (14) | $(131) | (349) | (177) |
| **Adjusted net loss** | **$(13,551)** | **$(20,117)** | **$(45,183)** | **$(101,954)** |
| Adjusted net loss margin | (6.5)% | (8.6)% | (6.1)% | (9.5)% |
| Adjustments: |  |  |  |  |
| Interest expense | 5,114 | 4,406 | 14,600 | 13,705 |
| Amortization of capitalized interest (1) | 1,367 | 235 | 4,456 | 6,270 |
| Income tax (benefit) expense | 24 | 6 | 93 | 171 |
| Depreciation and amortization | 150 | 175 | 464 | 556 |
| Amortization of stock-based compensation | 715 | 2,017 | 7,831 | 5,915 |
| **Adjusted EBITDA** | **$(6,181)** | **(13,278)** | **$(17,739)** | **$(75,337)** |
| Adjusted EBITDA margin | (3.0)% | (5.7)% | (2.4)% | (7.0)% |

(1) Amortization of capitalized interest represents all interest related costs, including senior and mezzanine interest related costs, incurred on homes sold in the period presented that were capitalized and expensed in cost of sales at the time of sale.

### Results of Operations

The following details our consolidated results of operations and includes a discussion of our operating results and significant items explaining the material changes in our operating results during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

### Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $208,067 | $234,228 | $(26,161) | (11.2)% |
| Cost of revenue | 190,927 | 210,255 | (19,328) | (9.2)% |
| **Gross profit** | 17,140 | 23,973 | (6,833) | (28.5)% |
| Operating expenses: |  |  |  |  |
| Sales, marketing and operating | 16,864 | 27,235 | (10,371) | (38.1)% |
| General and administrative | 8,254 | 14,124 | (5,870) | (41.6)% |
| Technology and development | 947 | 2,156 | (1,209) | (56.1)% |
| Total operating expenses | 26,065 | 43,515 | (17,450) | (40.1)% |
| **Loss from operations** | (8,925) | (19,542) | 10,617 | (54.3)% |
| Other income (expense): |  |  |  |  |
| Change in fair value of warrant liabilities | 14 | 131 | (117) | (89.3)% |
| Interest expense | (5,114) | (4,406) | (708) | 16.1% |
| Other income, net | 512 | 3,837 | (3,325) | (86.7)% |
| Total other expense | (4,588) | (438) | (4,150) | 947.5% |
| **Loss before income taxes** | (13,513) | (19,980) | 6,467 | (32.4)% |
| Income tax expense | (24) | (6) | (18) | 300.0% |
| **Net loss** | $(13,537) | $(19,986) | $6,449 | (32.3)% |

Offerpad Solutions Inc. \| Third Quarter 2024 Form 10-Q \| 30

#### Revenue

Revenue decreased by $26.2 million, or 11.2%, to $208.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to lower sales volumes. We sold 615 homes during the three months ended September 30, 2024 compared to 703 homes during the three months ended September 30, 2023, representing a decrease of 12.5%. This decrease was primarily due to our intentional reduction in home acquisition pace as we adjusted our home purchase criteria through more conservative acquisition underwriting, resulting in higher expected internal rates of return based on current residential real estate market conditions. This reduction in home acquisition pace has allowed us to manage overall inventory growth in light of the ongoing elevated and volatile mortgage interest rate environment, which continues to negatively impact housing affordability and velocity, and create uncertainty for home buyers, challenging consumer demand for residential real estate. The decrease in homes sold was partially offset by a modest increase in the average resale home price from $327,000 in the three months ended September 30, 2023 to $335,000 in the three months ended September 30, 2024. This increase was primarily due to a shift in the mix of homes sold in the respective periods, with a greater percentage of homes sold in geographic markets that tend to share relatively higher median price points during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

#### Cost of Revenue and Gross Profit

Cost of revenue decreased by $19.3 million, or 9.2%, to $190.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily attributable to lower sales volumes, which was partially offset by a higher average home acquisition price.

Gross profit margin was 8.2% for the three months ended September 30, 2024 compared to 10.2% for the three months ended September 30, 2023. The decrease in gross profit margin was primarily due to the wider than normal underwritten spreads associated with real estate inventory acquired towards the end of 2022 and in the early stages of 2023 in response to the considerable softening in consumer demand for residential real estate. This decrease in gross profit margin was also due to our increased use of pricing adjustments and other incentives in recent periods in response to the ongoing challenging residential real estate market conditions.

#### Sales, Marketing and Operating

Sales, marketing and operating expense decreased by $10.4 million, or 38.1%, to $16.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to a $6.4 million decrease in advertising expense as we repositioned and optimized our marketing efforts in response to the ongoing challenging residential real estate market conditions, and decreased average employee headcount.

#### General and Administrative

General and administrative expense decreased by $5.9 million, or 41.6%, to $8.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to decreased average employee headcount and a decrease in fees associated with our credit facilities.

#### Technology and Development

Technology and development expense decreased by $1.2 million, or 56.1%, to $0.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily attributable to decreased average employee headcount.

#### Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities for the three months ended September 30, 2024 and 2023 represents gains of less than $0.1 million, and $0.1 million, respectively, as a result of the fair value adjustment of our warrant liabilities.

#### Interest Expense

Interest expense increased by $0.7 million, or 16.1%, to $5.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in expense was primarily attributable to a $43.4 million increase in the average outstanding balance of our senior and mezzanine secured credit facilities, from $234.9 million during the three months ended September 30, 2023 to $278.3 million during the three months ended September 30, 2024. The increase was also due to a 0.5% increase in the weighted average variable interest rates associated with our senior and mezzanine secured credit facilities.

#### Other Income, Net

Other income, net during the three months ended September 30, 2024 principally represents interest income earned on our cash and cash equivalents. Other income, net during the three months ended September 30, 2023 represents the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that were principally associated with interest rate fluctuations, and interest income earned on our cash and cash equivalents.

#### Income Tax Expense

We recorded income tax expense of less than $0.1 million during each of the three months ended September 30, 2024 and 2023, and our effective tax rate was an expense of 0.2% and less than 0.1% for the respective periods. Our effective tax rate during the three months ended September 30, 2024 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards and state taxes.

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $744,547 | $1,073,954 | $(329,407) | (30.7)% |
| Cost of revenue | 682,941 | 1,020,465 | (337,524) | (33.1)% |
| **Gross profit** | 61,606 | 53,489 | 8,117 | 15.2% |
| Operating expenses: |  |  |  |  |
| Sales, marketing and operating | 59,546 | 98,626 | (39,080) | (39.6)% |
| General and administrative | 30,747 | 41,316 | (10,569) | (25.6)% |
| Technology and development | 3,684 | 6,709 | (3,025) | (45.1)% |
| Total operating expenses | 93,977 | 146,651 | (52,674) | (35.9)% |
| **Loss from operations** | (32,371) | (93,162) | 60,791 | (65.3)% |
| Other income (expense): |  |  |  |  |
| Change in fair value of warrant liabilities | 349 | 177 | 172 | 97.2% |
| Interest expense | (14,600) | (13,705) | (895) | 6.5% |
| Other income, net | 1,881 | 5,084 | (3,203) | (63.0)% |
| Total other expense | (12,370) | (8,444) | (3,926) | 46.5% |
| **Loss before income taxes** | (44,741) | (101,606) | 56,865 | (56.0)% |
| Income tax expense | (93) | (171) | 78 | (45.6)% |
| **Net loss** | $(44,834) | $(101,777) | $56,943 | (55.9)% |

#### Revenue

Revenue decreased by $329.4 million, or 30.7%, to $744.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily attributable to lower sales volumes and a lower average sales price per home. We sold 2,204 homes during the nine months ended September 30, 2024 compared to 2,962 during the nine months ended September 30, 2023, representing a decrease of 25.6%. Additionally, the average resale home price decreased from $360,000 in the nine months ended September 30, 2023 to $334,000 in the nine months ended September 30, 2024. During the early stages of 2023, we focused on selling our existing inventory of homes acquired prior to the significant market transition that occurred in the middle of 2022, resulting in a higher number of homes sold during the first half of 2023 as compared to the first half of 2024. The decrease in average sales price per home during the nine months ended September 30, 2024 was primarily due to our increased focus on geographic markets that tend to share relatively lower median price points, as well as homes closer to or below the median price in a given market as higher mortgage interest rates and sustained elevated levels of inflation in the broader economy have continued to negatively impact the residential real estate market conditions. We have also continued to refine our target home purchase price range to focus on acquiring homes with the greatest price stability within each market.

#### Cost of Revenue and Gross Profit

Cost of revenue decreased by $337.5 million, or 33.1%, to $682.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This decrease was primarily attributable to lower sales volumes, a lower average home acquisition price, and a decrease in the real estate inventory valuation adjustment.

Gross profit margin was 8.3% for the nine months ended September 30, 2024 compared to 5.0% for the nine months ended September 30, 2023. The increase in gross profit margin was primarily due to an increase in the difference between the average home resale price and the average home acquisition price during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, and a $6.4 million decrease in the real estate inventory valuation adjustment during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. These changes were primarily due to our focus on selling our existing inventory of homes acquired prior to the significant market transition that occurred in the middle of 2022 during the early stages of 2023, resulting in a lower gross profit margin during the first half of 2023 as compared to the first half of 2024.

#### Sales, Marketing and Operating

Sales, marketing and operating expense decreased by $39.1 million, or 39.6%, to $59.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to an $17.4 million decrease in advertising expense as we repositioned and optimized our marketing efforts in response to the ongoing challenging residential real estate market conditions, decreased average employee headcount and a decrease in variable costs associated with the decrease in homes sold.

#### General and Administrative

General and administrative expense decreased by $10.6 million, or 25.6%, to $30.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to a decrease in fees associated with our credit facilities, decreased average employee headcount, lower insurance costs, and decreased legal, accounting and professional fees.

#### Technology and Development

Technology and development expense decreased by $3.0 million, or 45.1%, to $3.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in expense was primarily attributable to decreased average employee headcount.

#### Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities for the nine months ended September 30, 2024 and 2023 represents gains of $0.3 million and $0.2 million, respectively, as a result of the fair value adjustment of our warrant liabilities.

#### Interest Expense

Interest expense increased by $0.9 million, or 6.5%, to $14.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in expense was primarily attributable to a 0.7% increase in the weighted average variable interest rates associated with our senior and mezzanine secured credit facilities. This increase was partially offset by a $174.1 million decrease in the average outstanding balance of our senior and mezzanine secured credit facilities, from $429.6 million during the nine months ended September 30, 2023 to $255.5 million during the nine months ended September 30, 2024.

#### Other Income, Net

Other income, net during the nine months ended September 30, 2024 principally represents interest income earned on our cash and cash equivalents. Other income, net during the nine months ended September 30, 2023 represents interest income earned on our cash and cash equivalents, and the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into to manage risks that were principally associated with interest rate fluctuations.

#### Income Tax Expense

We recorded income tax expense of $0.1 million and $0.2 million during the nine months ended September 30, 2024 and 2023, respectively, and our effective tax rate was an expense of 0.2% and less than 0.1% for the respective periods. Our effective tax rate during the nine months ended September 30, 2024 differed from the federal statutory rate of 21% primarily due to net operating loss carryforwards and state taxes.

### Liquidity and Capital Resources

#### Overview

Cash and cash equivalents balances consist of operating cash on deposit with financial institutions. Our principal sources of liquidity have historically consisted of cash generated from our operations and financing activities. As of September 30, 2024, we had cash and cash equivalents of $48.5 million and had a total undrawn borrowing capacity under our senior and mezzanine secured credit facilities of $755.3 million, $239.2 million of which is committed and $516.1 million uncommitted.

With the exception of the year ended December 31, 2021, during which we generated net income, we have incurred losses each year from inception and during the three and nine months ended September 30, 2024, and may incur additional losses in the future. Since our launch in 2015, we have invested in the development and expansion of our operations. These investments include improvements in infrastructure and a continual improvement to our software and technology platform. We have also invested in sales and marketing as we have increased our market penetration in existing markets, and grown our business through new market expansion and the increased offering of asset-light platform services.

We expect our working capital requirements to continue to increase over the long term, as we seek to increase our real estate inventory and expand our operations. We believe our cash on hand, together with proceeds from the resale of homes and cash from future borrowings available under each of our existing credit facilities, or the entry into new debt financing arrangements or the issuance of equity instruments, will be sufficient to meet our short-term working capital and capital expenditure requirements for at least the next twelve months. However, our ability to fund our working capital and capital expenditure requirements will depend in part on the residential real estate market conditions in the markets in which we operate and in the U.S. in general, and various other general economic, financial, competitive, legislative, regulatory, geopolitical and other conditions that may be beyond our control. Depending on these and other market conditions, we may seek additional financing. Volatility in the credit markets, rising interest rates and softened consumer demand for residential real estate may have an adverse effect on our ability to obtain debt financing on favorable terms or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.

#### Pre-Funded Warrants

During January 2023, we sold and issued pre-funded warrants to purchase shares of our Class A common stock, resulting in gross proceeds of approximately $90.0 million. The pre-funded warrants became exercisable during March 2023. All of the pre-funded warrants were subsequently exercised during 2023, upon which, 10.7 million shares of our Class A common stock were issued. Participating investors included Brian Bair, our founder, chief executive officer and chairman of our Board; Roberto Sella, a member of our Board; First American Financial Corporation (“First American”), a holder of more than 10% of our outstanding Class A common stock; and Kenneth DeGiorgio, a member of our Board and chief executive officer of First American.

#### Financing Activities

Our financing activities primarily include borrowing under our senior secured credit facilities, mezzanine secured credit facilities and new issuances of equity (including the issuance of the pre-funded warrants, as discussed above). Historically, we have required access to external financing resources in order to fund growth, increase penetration in existing markets, expansion into new markets and other 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.

Buying and selling high-valued assets, such as single-family residential homes, is very cash intensive and has a significant impact on our liquidity and capital resources. We use non-recourse secured credit facilities, consisting of both senior secured credit facilities and mezzanine secured credit facilities, to finance a significant portion of our real estate inventory and related home renovations. Our senior and mezzanine secured credit facilities, however, are not fully committed, meaning the applicable lender may not be obligated to advance new loan funds if they choose not to do so. Our ability to obtain and maintain access to these or similar kinds of credit facilities is significant for us to operate the business.

#### Senior Secured Credit Facilities

The following summarizes certain details related to our senior secured credit facilities (in thousands, except interest rates):

| As of September 30, 2024 | Borrowing Capacity Committed | Uncommitted | Total | Outstanding Amount | Weighted- Average Interest Rate | End of Revolving / Withdrawal Period | Final Maturity Date |
| --- | ---: | ---: | ---: | ---: | ---: | --- | --- |
| Senior financial institution 1 | $150,000 | $250,000 | $400,000 | $98,142 | 8.09% | December 2025 | June 2026 |
| Senior financial institution 2 | 100,000 | 100,000 | 200,000 | 37,190 | 8.07% | January 2025 | July 2025 |
| Senior financial institution 3 | 100,000 | 50,000 | 150,000 | 52,952 | 8.54% | January 2025 | April 2025 |
| Related party | 30,000 | 20,000 | 50,000 | 13,330 | 10.31% | March 2025 | September 2025 |
| Senior financial institution 4 | — | 30,000 | 30,000 | 8,736 | 9.82% | August 2025 | February 2026 |
| **Senior secured credit facilities** | $380,000 | $450,000 | $830,000 | $210,350 |  |  |  |

As of September 30, 2024, we had five senior secured credit facilities that we use to fund the purchase of homes and build our real estate inventory, four with separate financial institutions and one with a related party, which holds more than 5% of our Class A common stock. Borrowings under the senior secured credit facilities accrue interest at a rate based on a SOFR reference rate, plus a margin which varies by facility. Each of our senior secured credit facilities also have interest rate floors. We may also pay fees on our senior secured credit facilities, including a commitment fee and fees on certain unused portions of the committed borrowing capacity under the respective credit agreements.

Borrowings under our senior secured credit facilities are collateralized by the real estate inventory financed by the senior secured credit facility. The lenders have legal recourse only to the assets securing the debt and do not have general recourse against us with limited exceptions. We have, however, provided limited non-recourse carve-out guarantees under our senior and mezzanine secured credit facilities for certain of the SPEs’ obligations. Each senior secured credit facility contains eligibility requirements that govern whether a property can be financed. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.

#### Mezzanine Secured Credit Facilities

In addition to the senior secured credit facilities, we use mezzanine secured credit facilities which are structurally and contractually subordinated to the related senior secured credit facilities. The following summarizes certain details related to our mezzanine secured credit facilities (in thousands, except interest rates):

| As of September 30, 2024 | Borrowing Capacity Committed | Uncommitted | Total | Outstanding Amount | Weighted- Average Interest Rate | End of Revolving / Withdrawal Period | Final Maturity Date |
| --- | ---: | ---: | ---: | ---: | ---: | --- | --- |
| Related party facility 1 | $45,000 | $25,000 | $70,000 | $16,752 | 13.82% | June 2025 | December 2025 |
| Mezzanine financial institution 1 | 22,500 | 22,500 | 45,000 | 7,702 | 13.92% | January 2025 | July 2025 |
| Mezzanine financial institution 2 | 26,667 | 13,333 | 40,000 | 12,550 | 12.54% | January 2025 | April 2025 |
| Related party facility 2 | 8,000 | 14,000 | 22,000 | 4,324 | 13.81% | March 2025 | September 2025 |
| **Mezzanine secured credit facilities** | $102,167 | $74,833 | $177,000 | $41,328 |  |  |  |

As of September 30, 2024, we had four mezzanine secured credit facilities, two with separate financial institutions and two with a related party, which holds more than 5% of our Class A common stock. Borrowings under the mezzanine secured credit facilities accrue interest at a rate based on a SOFR reference rate, plus a margin which varies by facility. Each of our mezzanine secured credit facilities also have interest rate floors. We may also pay fees on our mezzanine secured credit facilities, including a commitment fee and fees on certain unused portions of the committed borrowing capacity under the respective credit agreements.

Borrowings under our mezzanine secured credit facilities are collateralized by a second lien on the real estate inventory financed by the relevant credit facility. The lenders have legal recourse only to the assets securing the debt, and do not have general recourse against us with limited exceptions. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.

#### Covenants for Senior Secured Credit Facilities and Mezzanine Secured Credit Facilities

Our secured credit 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 facilities and related financing documents require the Company 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 tangible net worth).

As of September 30, 2024, we were in compliance with all covenants and no event of default had occurred.

### Cash Flows

The following summarizes our cash flows for the nine months ended September 30, 2024 and 2023:

*($ in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(12,404) | $276,955 |
| Net cash (used in) provided by investing activities | (1,199) | 322 |
| Net cash used in financing activities | (7,905) | (304,168) |
| **Net change in cash, cash equivalents and restricted cash** | $(21,508) | $(26,891) |

#### Operating Activities

Net cash (used in) provided by operating activities was ($12.4) million and $277.0 million for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, net cash used in operating activities primarily resulted from a $44.8 million net loss during the period, which included $7.8 million of non-cash stock-based compensation expense and a $2.0 million non-cash real estate inventory valuation adjustment. This was partially offset by an $18.0 million decrease in real estate inventory as a result of sales volumes increasing at a higher rate compared to home acquisitions.

For the nine months ended September 30, 2023, net cash provided by operating activities primarily resulted from a $366.7 million decrease in real estate inventory due to an intentional reduction in real estate inventory levels given the impact of the softened consumer demand for residential real estate, which occurred during the second half of 2022 and continued through the first quarter of 2023. During this period of time, we focused on selling our existing real estate inventory of homes acquired in the first half of 2022 and significantly reduced the number of new homes acquired in the second half of 2022 and throughout the first quarter of 2023. Net cash provided by operating activities during the nine months ended September 30, 2023 was also impacted by the $101.8 million net loss during the period, which included an $8.4 million non-cash real estate inventory valuation adjustment as a result of the softened consumer demand for residential real estate.

#### Investing Activities

Net cash (used in) provided by investing activities was ($1.2) million and $0.3 million during the nine months ended September 30, 2024 and 2023, respectively. Net cash used in investing activities during the nine months ended September 30, 2024 principally represents purchases of property and equipment.

Net cash provided by investing activities during the nine months ended September 30, 2023 represents proceeds from the sale of derivative instruments, which was partially offset by purchases of derivative instruments.

#### Financing Activities

Net cash used in financing activities was $7.9 million and $304.2 million during the nine months ended September 30, 2024 and 2023, respectively. Net cash used in financing activities during the nine months ended September 30, 2024 primarily consisted of $635.9 million of repayments of credit facilities and other debt, which was partially offset by $628.1 million of borrowings from credit facilities and other debt. This net decrease in credit facility funding of $7.8 million was directly related to the decrease in financed real estate inventory during the period.

Net cash used in financing activities during the nine months ended September 30, 2023 primarily consisted of $1,080.8 million of repayments of credit facilities and other debt, which was partially offset by $687.7 million of borrowings from credit facilities and other debt. This net decrease in credit facility funding of $393.1 million was directly related to the decrease in financed real estate inventory during the period. This was partially offset by $90.0 million of proceeds from the issuance of pre-funded warrants, net of issuance costs of $0.8 million.

### Material Cash Requirements and Other Obligations

Information regarding our material cash requirements and other obligations is provided in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

There have been no material changes in our material cash requirements and other obligations since December 31, 2023 through September 30, 2024.

### Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In doing so, we make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. Although we believe our estimates, judgments and assumptions are reasonable, actual results may differ from our estimates under different assumptions, judgments or conditions given the inherent uncertainty involved with such matters, which would impact our financial statements. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

There have been no material changes to the critical accounting estimates included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Our significant accounting policies and methods used in the preparation of our condensed consolidated financial statements are described in *Note 1. Nature of Operations and Significant Accounting Policies* in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to *Note 1. Nature of Operations and Significant Accounting Policies* in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 348 characters.

There have been no material changes to our exposure to market risk since December 31, 2023. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

## Controls and procedures

As filed, 1,621 characters.

### Limitations on Effectiveness of Disclosure Controls and Procedures

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 the 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 principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and our principal financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 323 characters.

The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the Company’s risk factors since the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Filed Nov 4, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-120899. Last ingested by Listed: Oct 30, 2026, 21:42 ET. No prices; not investment advice.