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Offerpad Reports Fourth Quarter and Full-Year 2022 Results

Reduced legacy inventory and strengthened balance sheet with new equity capital

Offerpad Solutions Inc. (“Offerpad”) (NYSE: OPAD), a leading tech-enabled platform for residential real estate, today released financial results for the three months ended and year ended December 31, 2022.

Fourth Quarter 2022 Financial Results – compared with the prior-year fourth quarter:

  • Revenue was $677.2 million compared to $867.5 million
  • Gross Profit was ($44.9) million* compared to $70.3 million
  • Net Income was ($121.1) million* compared to $12.8 million
  • Adjusted EBITDA was ($103.7) million* compared to $7.7 million

* Reported amounts include an inventory impairment charge of $44.1 million

“I’m pleased to share we’ve made significant progress on two key challenges, selling inventory acquired prior to the sharp market dislocation and securing additional capital to strengthen our balance sheet,” said Brian Bair, Chairman and CEO. “We are nearing the end of our legacy inventory disposition process, and early results from homes acquired after September 1, 2022 are showing positive returns.”

“In addition, the investment of $90 million of new equity capital from both new and existing shareholders at the end of January further demonstrates continued confidence in our strategy,” said Bair.

Q4 2022 Financial Results

 

Q4 2022

Q4 2021

Percentage Change

Homes acquired

539

3,049

(82%)

Homes sold

1,865

2,423

(23%)

Revenue

$677.2M

$867.5M

(22%)

Gross profit1

($44.9M)

$70.3M

n.a.

Net income (loss)1, 2

($121.1M)

$12.8M

n.a

Adjusted net loss1

($124.5M)

($2.8M)

(4,280%)

Adjusted EBITDA1

($103.7M)

$7.7M

n.a.

Gross profit (loss) per home sold

($24,100)

$29,000

n.a.

Contribution profit (loss) after interest per home sold

($32,800)

$18,400

n.a.

1 Includes $44.1 million charge in Q4 2022 for inventory impairments.

2 Includes $3.4 million non-cash credit in Q4 2022 and a $15.6 million non-cash credit in Q4 2021 to mark to market the Warrant Liability.

Operational highlights for full-year 2022 include:

  • Sold over 10,000 homes in a year for the first time in Offerpad history;
  • Earned a 93 percent customer satisfaction rating1;
  • Increased total listing, buyer and mortgage transactions by 90% year-over-year; and
  • Cash offer requests from the Agent Partnership Program increased 80% year-over-year.

1 Based on survey of approximately 3,400 customers who sold their home to Offerpad in 2022.

Full-Year 2022 Financial Results

 

2022

2021

Percentage Change

Homes acquired

9,034

9,023

0%

Homes sold

10,635

6,373

67%

Revenue

$4.0B

$2.1B

91%

Gross profit1

$182.4M

$207.8M

(12%)

Net income (loss)1, 2

($148.6M)

$6.5M

n.a.

Adjusted net income (loss)1

($172.1M)

$4.0M

n.a.

Adjusted EBITDA1

($103.8M)

$29.9M

n.a.

Gross profit per home sold

$17,200

$32,600

(47%)

Contribution profit after interest per home sold

$9,300

$22,900

(59%)

Cash and cash equivalents

$97.2M

$169.8M

(43%)

1 Includes $93.8 million charge in 2022 for inventory impairments.

2 Includes $23.5 million non-cash credit in 2022 and a $2.5 million non-cash credit in 2021 to mark to market the Warrant Liability.

Additional information regarding Offerpad’s fourth quarter and full-year 2022 financial results and management commentary can be found by accessing the Company’s Quarterly Letter to Shareholders on the Offerpad investor relations website.

First Quarter 2023 Outlook

“Our strategy this year builds upon our long-standing mission to provide a comprehensive solution center, while incorporating new approaches that further capitalize on our existing foundation and expertise. Specifically, we plan to retain and build our foundational cash offer and listing service, responsibly grow our business with an increased focus on existing market penetration and expand our capital light business-to-business partnerships and services,” noted Bair.

Offerpad is providing its first quarter outlook for 2023 as follows:

 

Q1 2023 Outlook

Homes Sold

1,300 – 1,450

Revenue

$480M – $540M

Adjusted EBITDA4

($35)M – ($55)M

4 See Non-GAAP financial measures below for an explanation of why a reconciliation of this guidance cannot be provided.

“We expect our first quarter 2023 results to reflect sequential bottom line improvement driven by improving returns and cost reductions,” said Mike Burnett, CFO of Offerpad. “Consistent with our purposeful decrease in homes acquired during the latter half of 2022, we expect a sequential decline in revenue as we continue to optimize our portfolio.”

Conference Call and Webcast Details

Offerpad Chairman and CEO Brian Bair and CFO Mike Burnett will host a conference call and accompanying webcast on February 22, 2023, at 5 p.m. ET. The webcast can be accessed on Offerpad’s Investor Relations website. Participants can register here to receive a personalized dial in number and PIN. Access to a replay of the webcast will be available from the same website address shortly after the live webcast concludes.

About Offerpad

Offerpad’s mission is to deliver the best home buying and selling experience so you can spend less time ‘real estat-ing’ and more time living. From cash offers and flexible listing options to mortgages and buyer services, Offerpad has been helping homeowners since 2015. We pair our local expertise in residential real estate with proprietary technology to put you in control of the process and help find the right solution that fits your needs. Visit Offerpad.com for more information.

#OPAD_IR

Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to future events or Offerpad’s future financial or operating performance. For example, statements regarding Offerpad’s financial outlook for the first quarter 2023, expectations regarding profitability and anticipated growth in the industry in which Offerpad operates are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “pro forma,” “may,” “should,” “could,” “might,” “plan,” “possible,” “project,” “strive,” “budget,” “forecast,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,” “potential” or “continue,” or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that may impact such forward-looking statements include, but are not limited to, Offerpad’s ability to respond to general economic conditions; the health of the U.S. residential real estate industry; Offerpad’s ability to grow market share in its existing markets or any new markets it may enter; the impact of the COVID-19 pandemic; Offerpad’s ability to manage its growth effectively; Offerpad’s ability to accurately value and manage inventory, and to maintain an adequate and desirable supply of inventory; Offerpad’s ability to successfully launch new product and service offerings, and to manage, develop and refine its technology platform; Offerpad’s ability to maintain and enhance its products and brand, and to attract customers; Offerpad’s ability to achieve and maintain profitability in the future; the success of strategic relationships with third parties; and Offerpad’s failure to meet the New York Stock Exchange’s continued listing standards. These and other important factors discussed under the caption "Risk Factors" in Offerpad’s Annual Report on Form 10-K for the year ended December 31, 2022 to be filed with the Securities and Exchange Commission on or about February 28, 2023, and Offerpad’s other reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by Offerpad and its management, are inherently uncertain. Nothing in this press release should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Offerpad undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

OFFERPAD SOLUTIONS INC.

Condensed Consolidated Statements of Operations

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 31,

 

December 31,

 

(in thousands, except per share data)

2022

 

2021

 

2022

 

2021

 

Revenue

$

677,214

 

$

867,540

 

$

3,952,314

 

$

2,070,446

 

Cost of revenue

 

722,074

 

 

797,248

 

 

3,769,892

 

 

1,862,631

 

Gross (loss) profit

 

(44,860

)

 

70,292

 

 

182,422

 

 

207,815

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales, marketing and operating

 

48,761

 

 

51,474

 

 

238,931

 

 

146,872

 

General and administrative

 

13,300

 

 

12,286

 

 

58,718

 

 

30,317

 

Technology and development

 

2,978

 

 

3,197

 

 

12,090

 

 

10,860

 

Total operating expenses

 

65,039

 

 

66,957

 

 

309,739

 

 

188,049

 

(Loss) income from operations

 

(109,899

)

 

3,335

 

 

(127,317

)

 

19,766

 

Other income (expense):

 

 

 

 

 

 

 

 

Change in fair value of warrant liabilities

 

3,360

 

 

15,649

 

 

23,522

 

 

2,464

 

Interest expense

 

(15,135

)

 

(6,178

)

 

(45,991

)

 

(15,848

)

Other income, net

 

861

 

 

 

 

1,532

 

 

248

 

Total other (expense) income

 

(10,914

)

 

9,471

 

 

(20,937

)

 

(13,136

)

(Loss) income before income taxes

 

(120,813

)

 

12,806

 

 

(148,254

)

 

6,630

 

Income tax expense

 

(324

)

 

 

 

(359

)

 

(170

)

Net (loss) income

$

(121,137

)

$

12,806

 

$

(148,613

)

$

6,460

 

Net (loss) income per share, basic

$

(0.49

)

$

0.05

 

$

(0.61

)

$

0.05

 

Net (loss) income per share, diluted

$

(0.49

)

$

0.05

 

$

(0.61

)

$

0.05

 

Weighted average common shares outstanding, basic

 

247,379

 

 

238,395

 

 

245,148

 

 

118,571

 

Weighted average common shares outstanding, diluted

 

247,379

 

 

261,897

 

 

245,148

 

 

143,220

 

OFFERPAD SOLUTIONS INC.

Condensed Consolidated Balance Sheets

 

 

 

 

As of December 31,

 

(in thousands, except par value per share)

2022

 

 

2021

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

97,241

 

$

169,817

 

Restricted cash

 

43,058

 

 

24,616

 

Accounts receivable

 

2,350

 

 

6,165

 

Inventory

 

664,697

 

 

1,132,571

 

Prepaid expenses and other current assets

 

6,833

 

 

9,808

 

Total current assets

 

814,179

 

 

1,342,977

 

Property and equipment, net

 

5,194

 

 

5,146

 

Other non-current assets

 

5,696

 

 

4,959

 

TOTAL ASSETS

$

825,069

 

$

1,353,082

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

4,647

 

$

6,399

 

Accrued and other current liabilities

 

28,252

 

 

35,027

 

Secured credit facilities and other debt, net

 

605,889

 

 

861,762

 

Secured credit facilities and other debt - related party

 

60,176

 

 

164,434

 

Total current liabilities

 

698,964

 

 

1,067,622

 

Warrant liabilities

 

539

 

 

24,061

 

Other long-term liabilities

 

3,689

 

 

3,830

 

Total liabilities

 

703,192

 

 

1,095,513

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Class A common stock, $0.0001 par value; 2,000,000 shares authorized; 232,379 and 224,154 shares issued and outstanding as of December 31, 2022 and 2021, respectively

 

23

 

 

22

 

Class B common stock, $0.0001 par value; 20,000 shares authorized; 14,816 shares issued and outstanding as of December 31, 2022 and 2021, respectively

 

2

 

 

2

 

Additional paid in capital

 

402,521

 

 

389,601

 

Accumulated deficit

 

(280,669

)

 

(132,056

)

Total stockholders’ equity

 

121,877

 

 

257,569

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

825,069

 

$

1,353,082

 

OFFERPAD SOLUTIONS INC.

Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

Year Ended December 31

($ in thousands)

2022

 

 

2021

 

 

Cash flows from operating activities:

 

 

 

 

Net (loss) income

$

(148,613

)

$

6,460

 

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation

 

1,022

 

 

523

 

Gain on sale of property and equipment

 

 

 

(246

)

Amortization of debt financing costs

 

2,948

 

 

916

 

Impairment of inventory

 

93,810

 

 

2,843

 

Stock-based compensation

 

8,307

 

 

3,079

 

Change in fair value of warrant liabilities

 

(23,522

)

 

(2,464

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

3,815

 

 

(3,845

)

Inventory

 

374,064

 

 

(949,591

)

Prepaid expenses and other assets

 

(275

)

 

(5,288

)

Accounts payable

 

(1,752

)

 

4,130

 

Accrued and other liabilities

 

(4,402

)

 

21,563

 

Net cash provided by (used in) operating activities

 

305,402

 

 

(921,920

)

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

(1,070

)

 

(13,687

)

Proceeds from sales of property and equipment

 

 

 

2,032

 

Net cash used in investing activities

 

(1,070

)

 

(11,655

)

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities and other debt

 

3,178,033

 

 

2,764,071

 

Repayments of credit facilities and other debt

 

(3,540,466

)

 

(1,912,837

)

Payment of debt financing costs

 

(646

)

 

(7,632

)

Proceeds from exercise of stock options

 

4,898

 

 

902

 

Payments for taxes related to stock-based awards

 

(285

)

 

 

Proceeds from Business Combination

 

 

 

284,011

 

Issuance cost of common stock

 

 

 

(51,249

)

Proceeds from issuance of Class C preferred stock, net

 

 

 

 

Net cash (used in) provided by financing activities

 

(358,466

)

 

1,077,266

 

Net change in cash, cash equivalents and restricted cash

 

(54,134

)

 

143,691

 

Cash, cash equivalents and restricted cash, beginning of period

 

194,433

 

 

50,742

 

Cash, cash equivalents and restricted cash, end of period

$

140,299

 

$

194,433

 

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet:

 

 

 

 

Cash and cash equivalents

$

97,241

 

$

169,817

 

Restricted cash

 

43,058

 

 

24,616

 

Total cash, cash equivalents and restricted cash

$

140,299

 

$

194,433

 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash payments for interest

$

59,732

 

$

21,875

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

Transfer of property and equipment, net to inventory

$

 

$

14,464

 

Acquisition of warrant liabilities

$

 

$

26,525

 

Conversion of preferred stock to common stock

$

 

$

184,123

 

Conversion of treasury stock

$

 

$

10,650

 

Non-GAAP Financial Measures

In addition to Offerpad’s results of operations above, Offerpad reports 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 Offerpad’s operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income.

Offerpad may calculate or present its non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures Offerpad reports may not be comparable with those of companies in Offerpad’s industry or in other industries. Offerpad has not provided a quantitative reconciliation of forecasted Adjusted EBITDA to forecasted net income (loss) within this press release because Offerpad is unable to calculate certain reconciling items without making unreasonable efforts. These items, which include, but are not limited to, stock-based compensation with respect to future grants and forfeitures, could materially affect the computation of forward-looking net income (loss), are inherently uncertain and depend on various factors, some of which are outside of Offerpad’s control.

Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins)

To provide investors with additional information regarding Offerpad’s margins, Offerpad has included Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins), which are non-GAAP financial measures. Offerpad believes 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 Offerpad’s markets. Each of these measures is intended to present the economics related to homes sold during a given period. Offerpad does 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 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. Offerpad believes these measures facilitate meaningful period over period comparisons and illustrate Offerpad’s 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 Offerpad’s 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.

Accordingly, these measures should not be considered in isolation or as a substitute for analysis of Offerpad’s results as reported under GAAP. Offerpad includes a reconciliation of these measures to the most directly comparable GAAP financial measure, which is gross profit.

Adjusted Gross Profit / Margin

Offerpad calculates Adjusted Gross Profit as gross profit under GAAP adjusted for (1) net inventory impairment plus (2) interest expense associated with homes sold in the presented period and recorded in cost of revenue. Net inventory impairment is calculated by adding back the inventory impairment charges recorded during the period on homes that remain in inventory at period end and subtracting the inventory impairment charges recorded in prior periods on homes sold in the current period. Offerpad defines Adjusted Gross Margin as Adjusted Gross Profit as a percentage of revenue.

Offerpad views 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

Offerpad calculates 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 which is primarily comprised of interest income earned on our cash and cash equivalents and income earned from the sale of certain fixed assets. The composition of Offerpad’s holding costs is described in the footnotes to the reconciliation table below. Offerpad defines Contribution Margin as Contribution Profit as a percentage of revenue.

Offerpad views 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

Offerpad defines 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 Offerpad’s 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. Offerpad’s senior and mezzanine secured credit facilities are secured by their homes in 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. Offerpad defines Contribution Margin After Interest as Contribution Profit After Interest as a percentage of revenue.

Offerpad views 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 Offerpad’s Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to Offerpad’s gross profit, which is the most directly comparable GAAP measure, for the periods indicated:

 

Three Months Ended

December 31,

 

Year Ended

December 31,

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

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Gross profit (GAAP)

$

(44,860

)

$

70,292

 

$

182,422

 

$

207,815

 

Gross margin

 

-6.6

%

 

8.1

%

 

4.6

%

 

10.0

%

Homes sold

 

1,865

 

 

2,423

 

 

10,635

 

 

6,373

 

Gross profit per home sold

$

(24.1

)

$

29.0

 

$

17.2

 

$

32.6

 

Adjustments:
Inventory impairment - current period (1)

 

44,075

 

 

985

 

 

58,413

 

 

1,205

 

Inventory impairment - prior period (2)

 

(25,469

)

 

(511

)

 

(1,205

)

 

(160

)

Interest expense capitalized (3)

 

3,081

 

 

3,511

 

 

12,660

 

 

6,294

 

Adjusted gross profit

$

(23,173

)

$

74,277

 

$

252,290

 

$

215,154

 

Adjusted gross margin

 

-3.4

%

 

8.6

%

 

6.4

%

 

10.4

%

Adjustments:
Direct selling costs (4)

 

(20,584

)

 

(19,894

)

 

(97,381

)

 

(48,066

)

Holding costs on sales - current period (5)(6)

 

(1,251

)

 

(1,339

)

 

(8,342

)

 

(4,262

)

Holding costs on sales - prior period (5)(7)

 

(1,209

)

 

(558

)

 

(918

)

 

(214

)

Other income (8)

 

861

 

 

-

 

 

1,532

 

 

248

 

Contribution profit

$

(45,356

)

$

52,486

 

$

147,181

 

$

162,860

 

Contribution margin

 

-6.7

%

 

6.0

%

 

3.7

%

 

7.9

%

Homes sold

 

1,865

 

 

2,423

 

 

10,635

 

 

6,373

 

Contribution profit per home sold

$

(24.3

)

$

21.7

 

$

13.8

 

$

25.6

 

Adjustments:
Interest expense capitalized (3)

 

(3,081

)

 

(3,511

)

 

(12,660

)

 

(6,294

)

Interest expense on homes sold - current period (9)

 

(5,858

)

 

(2,575

)

 

(32,022

)

 

(10,228

)

Interest expense on homes sold - prior period (10)

 

(6,943

)

 

(1,749

)

 

(3,737

)

 

(468

)

Contribution profit after interest

$

(61,238

)

$

44,651

 

$

98,762

 

$

145,870

 

Contribution margin after interest

 

-9.0

%

 

5.1

%

 

2.5

%

 

7.0

%

Homes sold

 

1,865

 

 

2,423

 

 

10,635

 

 

6,373

 

Contribution profit after interest per home sold

$

(32.8

)

$

18.4

 

$

9.3

 

$

22.9

 

(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 period is the 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 principally represents interest income earned on our cash and cash equivalents and income earned from the sale of certain fixed assets.

(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

Offerpad also presents Adjusted Net Income (Loss) and Adjusted EBITDA, which are non-GAAP financial measures, which the management team uses to assess Offerpad’s underlying financial performance. Offerpad believes these measures provide insight into period over period performance, adjusted for non-recurring or non-cash items.

Offerpad calculates Adjusted Net Income (Loss) as GAAP Net Income (Loss) adjusted for the change in fair value of warrant liabilities. Offerpad defines Adjusted Net Income (Loss) Margin as Adjusted Net Income (Loss) as a percentage of revenue.

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

Adjusted Net Income (Loss) and Adjusted EBITDA are supplemental to Offerpad’s 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 Offerpad’s industry or companies in other industries. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of Offerpad’s results as reported under GAAP.

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

Three Months Ended

December 31,

 

Year Ended

December 31,

(in thousands, except percentages, unaudited)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income (loss) (GAAP)

$

(121,137

)

$

12,806

 

$

(148,613

)

$

6,460

 

Change in fair value of warrant liability

 

(3,360

)

 

(15,649

)

 

(23,522

)

 

(2,464

)

Adjusted net (loss) income

$

(124,497

)

$

(2,843

)

$

(172,135

)

$

3,996

 

Adjusted net (loss) income margin

 

(18.4

%)

 

(0.3

%)

 

(4.4

%)

 

0.2

%

Adjustments:
Interest expense

 

15,135

 

 

6,178

 

 

45,991

 

 

15,848

 

Amortization of capitalized interest (1)

 

3,081

 

 

3,511

 

 

12,660

 

 

6,294

 

Income tax expense

 

324

 

 

-

 

 

359

 

 

170

 

Depreciation and amortization

 

258

 

 

90

 

 

1,022

 

 

523

 

Amortization of share based compensation

 

2,014

 

 

763

 

 

8,307

 

 

3,079

 

Adjusted EBITDA

 

(103,685

)

 

7,699

 

 

(103,796

)

 

29,910

 

Adjusted EBITDA margin

 

(15.3

%)

 

0.9

%

 

(2.6

%)

 

1.4

%

(1) Amortization of capitalized interest represents all interest related costs, including senior and mezzanine secured 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.

 

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