Opendoor Technologies Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read together with the historical condensed consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report on Form 10-Q, and in “Part I - Item 1A. Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). Overview Opendoor’s mission is to empower everyone with the freedom to move and make it possible to buy, sell and move at the tap of a button. We are transforming what has historically been a complex, uncertain, time-consuming and mostly offline process into a simple, online experience. Since our inception in 2014, we have built scalable pricing capabilities, technology-enabled centralized operations, and a suite of digital-first consumer products. These investments have enabled us to help customers buy or sell homes in over 120,000 transactions and expand our footprint to 44 markets across the country. Most importantly, we have grown rapidly while delighting our customers with an experience that brings simplicity, certainty and speed to the home selling and buying process. Financial Highlights During the three months ended September 30, 2021, compared to the three months ended September 30, 2020: • Revenue increased by $1.9 billion to $2.3 billion • Homes sold increased by 4,756 to 5,988 • Gross profit increased by $166.7 million to $202.5 million; gross margin decreased from 10.6% to 8.9% • Net loss decreased by $24.0 million to $(56.8) million • Adjusted Net Loss decreased by $19.2 million to $(17.3) million • Contribution Profit increased by $149.7 million to $169.7 million; Contribution Margin increased from 5.9% to 7.5% • Adjusted EBITDA increased by $55.5 million to $34.5 million; Adjusted EBITDA Margin increased from (6.2)% to 1.5% During the three months ended September 30, 2021: • Expanded to 44 markets with 5 new market launches • Grew inventory to $6.3 billion, representing 17,164 homes • Issued $977.5 million aggregate principal amount of 0.25% convertible senior notes due in 2026 Business Impact of COVID-19 In response to the COVID-19 pandemic and the consequent health risks, we substantially ceased purchasing additional homes in March 2020 to safeguard the health and safety of our customers and employees. In addition to pausing new acquisitions, we sold down homes in inventory at a healthy pace, leading to a low point in inventory of $152 million as of September 30, 2020 compared to $1,312 million as of December 31, 2019. As our revenues are dependent on inventory levels available for sale, we experienced sequential, quarter-over-quarter declines in revenue in the second, third and fourth quarters of 2020. After retooling certain operational processes to enable “contactless” transactions, we resumed making offers to purchase homes in select markets in May 2020 and resumed operations across all of our markets by the end of August 2020. We have been actively rebuilding our inventory since August 2020, exceeded pre-COVID-19 inventory levels in Q2 2021, and ended the third quarter of 2021 with $6,268.1 million in inventory. Likewise, we returned to sequential revenue growth in the first three 37 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) quarters of 2021 and we expect this trend to continue in the fourth quarter of 2021. See “— Components of Our Results of Operations — Revenue .” Our Business Model Revenue and margin model We acquire homes directly from individual sellers and resell those homes to buyers, including both individual consumers and institutional investors. Upon acquiring a home, we typically make necessary renovations and repairs before listing it for sale on our website, our mobile app, Multiple Listing Services (“MLS”) and other online real estate portals. Our average hold period for homes purchased since January 2020, from acquisition to resale, ranged from 70 to 100 days and varied by market. Home sales comprise the vast majority of our revenues today, but we expect increasing contribution from adjacent services as we grow our existing services and add new services over time. To achieve our long-term margin objectives, we must both maintain pricing accuracy as the business expands and increase customer adoption of our newer services, such as Buy with Opendoor and Opendoor Home Loans. We also plan to achieve operating leverage by growing our revenue at a faster pace than our fixed cost base, which includes general and administrative as well as technology and development expenses. Given the size of the opportunity in front of us, we plan to invest aggressively in the near term and appropriately balance trade-offs between growth and margin as we scale. Offers We generate demand for our services through organic awareness and word-of-mouth, paid media spend, and partnership channels such as our relationships with homebuilders and online portals. Home sellers can visit our website or mobile app and answer a few questions about their home’s condition, features and upgrades. For eligible homes, customers receive a preliminary offer, which can be refreshed at any time through their personalized seller dashboard. The vast majority of our preliminary offers are algorithmically generated and require minimal human intervention. In order to finalize our offer, we conduct a free assessment to confirm all of the home details and leverage human expertise to identify any repairs that may need to be performed. We have developed purpose-built software to guide home assessment workflows and collect over 100 unique data points regarding a home’s condition and quality, which we incorporate as structured data into our underlying pricing models. Once completed, we finalize our offer, taking into consideration any necessary repairs, and produce the purchase agreement for the seller. Our objective is to provide a transparent and competitive cash offer, which we believe instills trust in our potential customers. Our business model is designed to generate margins primarily from our service charge to sellers, as well as adjacent products and services associated with a transaction. We closely track the number of potential sellers who accept the Opendoor offer versus listing their home on the MLS. This conversion rate is an important measure of the strength of our value proposition and driver of future growth. Home acquisition and renovation Once a seller has received and accepted our final purchase offer, we enable the seller to close the transaction on a flexible timeline. This is a particularly important feature to sellers, as their home sale can accommodate other life events (including the purchase of their next home) and further differentiates our service from a traditional sale. Depending on the condition of the home, we leverage our vetted contractor network within each market to complete required repairs and upgrades. Our repair scopes are focused on high-return investments and ensuring the home is in market-ready condition. We continuously refine and adjust our repair strategies based on our operating experience in markets and reviewing neighborhood-level resale outcomes. Home resale Post-renovation, we market our homes across a wide variety of channels to generate buyer awareness and demand. These include the Opendoor website and mobile app, local MLS and syndication across real estate portals. We also generate buyer awareness through Opendoor signage for listed properties. Efficiently turning our inventory, inclusive of repairing, listing, and 38 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) reselling the home, is important to our financial performance, as we bear holding costs (including utilities, property taxes and insurance) and financing costs during our ownership period. As part of the listing and marketing process, we determine an appropriate pricing strategy for each home. Our proprietary pricing engine helps automate many of these steps, including relevant adjustments over time. We measure our inventory performance compared to local market trends, and our pricing models can incorporate granular, relative demand signals to optimize pricing and sell-through across the portfolio. Our resale models, in conjunction with our pricing team, aim to maximize resale margin while maintaining appropriate transaction velocity and overall inventory health. When we receive an acceptable offer on a given home, we enter into a resale contract. Buyers will then typically conduct an inspection on the property, finalize their mortgage application process and ultimately take possession of the home upon closing of the transaction. Factors Affecting our Business Performance Market Penetration in Existing Markets Residential real estate is one of the largest consumer markets, with approximately $1.9 trillion of home value transacted annually. Given we operate in a highly fragmented industry and offer a differentiated value proposition to the incumbent agent-led transaction, we believe there is significant opportunity to expand our share in our existing cities. By providing a consistent, high-quality and differentiated experience to our customers, we hope to continue to drive positive word-of-mouth, awareness and trust in our platform. We believe this creates a virtuous cycle, whereby more home sellers will request an offer from Opendoor, allowing us to deepen our market penetration. Expansion into New Markets Since our inception in 2014, we have expanded into 44 markets as of September 30, 2021. The following table represents the number of markets as of the periods presented: September 30, June 30, March 31, Year Ended December 31, (in whole numbers) 2021 2021 2021 2020 2019 2018 Number of markets (at period end) 44 39 27 21 21 18 After launching 12 markets in 2018, we focused on centralizing our operations platform in 2019 for long-term scalability. We launched three additional markets in 2019 and did not launch any markets in 2020, primarily due to COVID-19. We planned to double the markets we serve by the end of 2021 and have achieved that goal, having launched 23 new markets in the first nine months of the year. We believe our centralized systems allow for a higher velocity and lower cost market launch process. For example, we are generally able to launch a market with only a small field team focused on home renovation oversight, with all other key functions managed centrally, including marketing, customer sales and support and pricing. We view the first year of a market launch as an investment period during which we refine our pricing models, renovation strategies and cost structure. Historically, we have seen Contribution Margin for purchase cohorts in new markets reach positive, steady-state levels approximately one year after initial launch. The significant number of new market launches in 2018 contributed to our lower Contribution Margin in 2019; as those same markets matured, we were able to improve Contribution Margin performance in 2020. We are making substantial investments to support our market launches in 2021, which will impact both Contribution Margin and Adjusted EBITDA as these new markets mature. Adjacent Services We believe home sellers and buyers value simplicity and convenience. To that end, we are building an online, integrated suite of home services, which currently include title insurance and escrow services, Buy with Opendoor, and Opendoor Home Loans. We believe that vertically integrating services that are adjacent to the core real estate transaction will allow us to deliver a superior, seamless experience to the consumer. Our success with title insurance services helps validate our view that 39 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) customers prefer an online, integrated experience. We expect that these adjacent services will also be accretive to our Contribution Margin. We will continue to evaluate new ways to improve our end-to-end solution and expect to invest in additional adjacent products and services over time. Unit economics We view Contribution Margin and Contribution Margin after Interest as key measures of unit economic performance. Our long-term financial performance depends, in part, on continuing to expand unit margins through the following initiatives: • Pricing engine optimization and enhancements, especially as we enter new markets and expand our reach in existing markets. • Lowering platform costs through process refinement, greater automation and self-service, and more efficient forms of financing. • Successful introduction of additional services that supplement the core transaction margin profile. Seasonality The residential real estate market is seasonal, with greater demand from home buyers in the spring and summer, and typically weaker demand in late fall and winter. We expect our financial results and working capital requirements to reflect seasonal variations over time, although our growth and market expansion have obscured the impact of seasonality in our historical financials and may continue to do so. That said, we generally expect stronger sequential revenue growth in the first quarter of the year versus the third and fourth quarters. Risk management We have invested significant time and resources into our pricing engine and inventory management systems. Our engineering, data science and pricing teams collectively focus on pricing accuracy for both home acquisition and disposition, as well as managing our inventory health across markets. While residential real estate markets are subject to fluctuations, as with any market, we believe we are well-positioned to manage our inventory risk exposure due to the following: • Our business model is based on transaction velocity and short-duration hold times, with our average days in possession typically ranging from 70 to 100 days for homes acquired since January 2020. We have historically concentrated our home purchases on the more liquid segments of the residential real estate market, thus limiting our duration risk. Moreover, residential real estate prices tend to move gradually relative to other asset classes, which meaningfully reduces our exposure to price fluctuations during our ownership period. • Our pricing models and inventory management systems are designed to recalibrate to market signals on a daily basis. Accordingly, changing market conditions are reflected in our pricing for new acquisitions, leaving only previously-acquired inventory at risk to potential market volatility. In addition, we employ sophisticated resale pricing management systems that allow as to optimize sell-through and margin using real-time, local market demand information, including down to an individual home level. We believe that the quality and scale of information we utilize in our inventory management decisions, and our ability to manage these decisions across a scaled, diversified portfolio, provides us with a structural advantage over individual sellers or agents in the traditional home selling process. • At any moment in time, a significant portion of our inventory is under resale contract; this means we have already found buyers for those homes and are in the process of closing the resale transactions. This further limits our exposure to the remaining homes in inventory. • Our listed homes are not occupied and are in sale-ready condition given the repairs and renovations we perform. We believe that this increases the attractiveness and liquidity of our portfolio. • Our operations across 44 markets and multiple price and home types allow us to benefit from significant diversification effects. Individual buyers and sellers or local operators are exposed to price and behavioral effects 40 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) that are associated with specific markets or home segments. Our scale and diverse coverage allow us to mitigate such exposures across a wider range of markets and home segments so that our overall risk per home decreases as we increase the breadth of markets, price points and home types across which we operate. We will continue to make substantial investments in our pricing systems and risk management functions. Inventory Financing Our business model is working capital intensive and inventory financing is a key enabler of our growth. We rely on our access to non-recourse asset-backed debt, which consist of senior credit facilities and asset-backed mezzanine term debt facilities, to finance our home acquisitions. See “— Liquidity and Capital Resources — Debt and Financing Arrangements. ” Non-GAAP Financial Measures In addition to our results of operations below, we report certain financial measures that are not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). These measures have limitations as analytical tools when assessing our operating performance and should not be considered in isolation or as a substitute for GAAP measures, including gross profit and net income. We may calculate or present our non-GAAP financial measures differently than other companies who report measures with similar titles and, as a result, the non-GAAP financial measures we report may not be comparable with those of companies in our industry or in other industries. Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest To provide investors with additional information regarding our margins and return on inventory acquired, we have included Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest, which are non-GAAP financial measures. We believe that Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest are useful financial measures for investors as they are supplemental measures used by management in evaluating unit level economics and our operating performance in our key markets. Each of these measures is intended to present the economics related to homes sold during a given period. We do so by including revenue generated from homes sold (and adjacent services) in the period and only the expenses that are directly attributable to such home sales, even if such expenses were recognized in prior periods, and excluding expenses related to homes that remain in inventory as of the end of the period. Contribution Profit provides investors a measure to assess Opendoor’s ability to generate returns on homes sold during a reporting period after considering home purchase costs, renovation and repair costs, holding costs and selling costs. Contribution Profit After Interest further impacts gross profit by including senior interest costs attributable to homes sold during a reporting period. We believe these measures facilitate meaningful period over period comparisons and illustrate our ability to generate returns on assets sold after considering the costs directly related to the assets sold in a given period. Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest are supplemental measures of our operating performance and have limitations as analytical tools. For example, these measures include costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, costs required to be recorded under GAAP in the same period. These measures also exclude the impact of certain restructuring costs that are required under GAAP. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We include a reconciliation of these measures to the most directly comparable GAAP financial measure, which is gross profit. Adjusted Gross Profit / Margin We calculate Adjusted Gross Profit as gross profit under GAAP adjusted for (1) inventory impairment in the current period, (2) inventory impairment in prior periods, and (3) restructuring in cost of revenue. Inventory impairment in the current period is calculated by adding back the inventory impairment charges recorded during the period on homes that remain in inventory at period end. Inventory impairment in prior periods is calculated by subtracting the inventory impairment charges recorded in prior periods on homes sold in the current period. We define Adjusted Gross Margin as Adjusted Gross Profit as a percentage of revenue. 41 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) We view this metric as an important measure of business performance as it captures gross margin performance isolated to homes sold in a given period and provides comparability across reporting periods. Adjusted Gross Profit helps management assess home pricing, service fees and renovation performance for a specific resale cohort. Contribution Profit / Margin We calculate Contribution Profit as Adjusted Gross Profit, minus (1) holding costs incurred in the current period on homes sold during the period, (2) holding costs incurred in prior periods on homes sold in the current period, and (3) direct selling costs incurred on homes sold during the current period. The composition of our holding costs is described in the footnotes to the reconciliation table below. Contribution Margin is Contribution Profit as a percentage of revenue. We view this metric as an important measure of business performance as it captures the unit level performance isolated to homes sold in a given period and provides comparability across reporting periods. Contribution Profit helps management assess inflows and outflows directly associated with a specific resale cohort. Contribution Profit / Margin After Interest We define Contribution Profit After Interest as Contribution Profit, minus interest expense under our senior credit facilities incurred on the homes sold during the period. This may include interest expense recorded in periods prior to the period in which the sale occurred. Our senior credit facilities are secured by our homes in inventory. For our senior revolving credit facilities, drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See “— Liquidity and Capital Resources — Debt and Financing Arrangements. ” We do not include interest expense associated with our mezzanine debt facilities in this calculation. We use a mix of debt and equity capital to finance our inventory and that mix will vary over time. In addition, we expect to continue to evolve our cost of financing as we include other debt sources beyond mezzanine capital. As such, we do not view our current mezzanine interest expense to be reflective of our long-term cost of financing. Contribution Margin After Interest is Contribution Profit After Interest as a percentage of revenue. We view this metric as an important measure of business performance. Contribution Profit After Interest helps management assess Contribution Margin performance, per above, when burdened with senior cost of financing. 42 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to our gross profit, which is the most directly comparable GAAP measure, for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Gross profit (GAAP) $ 202,489 $ 35,811 $ 458,392 $ 181,432 Gross Margin 8.9 % 10.6 % 10.9 % 7.8 % Adjustments: Inventory impairment – Current Period (1) 31,597 64 32,153 252 Inventory impairment – Prior Periods (2) (307) (2,803) (54) (10,540) Restructuring in cost of revenue (3) — 1 — 1,902 Adjusted Gross Profit $ 233,779 $ 33,073 $ 490,491 $ 173,046 Adjusted Gross Margin 10.3 % 9.8 % 11.7 % 7.4 % Adjustments: Direct selling costs (4) (51,902) (8,909) (96,055) (67,685) Holding costs on sales – Current Period (5)(6) (6,777) (1,011) (19,349) (15,276) Holding costs on sales – Prior Periods (5)(7) (5,371) (3,140) (1,650) (11,419) Contribution Profit $ 169,729 $ 20,013 $ 373,437 $ 78,666 Contribution Margin 7.5 % 5.9 % 8.9 % 3.4 % Adjustments: Interest on homes sold – Current Period (8)(9) (6,731) (1,060) (17,268) (16,779) Interest on homes sold – Prior Periods (8)(10) (3,654) (2,591) (1,049) (10,477) Contribution Profit After Interest $ 159,344 $ 16,362 $ 355,120 $ 51,410 Contribution Margin After Interest 7.0 % 4.8 % 8.5 % 2.2 % ________________ (1) Inventory impairment — Current Period is the inventory valuation adjustments recorded during the period presented associated with homes that remain in inventory at period end. (2) Inventory impairment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented. (3) Restructuring in cost of revenue consists mainly of severance and employee termination benefits that were recorded to cost of revenue due to a reduction in workforce in Q2 2020 following the outbreak of the COVID-19 pandemic. (4) Represents selling costs incurred related to homes sold in the relevant period. This primarily includes broker commissions, external title and escrow-related fees and transfer taxes. (5) Holding costs include mainly property taxes, insurance, utilities, association dues, cleaning and maintenance costs. Holding costs are included in Sales, marketing, and operations on the condensed consolidated statements of operations. (6) Represents holding costs incurred in the period presented on homes sold in the period presented. (7) Represents holding costs incurred in prior periods on homes sold in the period presented. (8) This does not include interest on mezzanine term debt facilities or other indebtedness. See “— Liquidity and Capital Resources — Debt and Financing Arrangements .” (9) Represents the interest expense under our senior credit facilities incurred on homes sold in the current period during the period. (10) Represents the interest expense under our senior credit facilities incurred on homes sold in the current period during prior periods. 43 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Adjusted Net Loss and Adjusted EBITDA We also present Adjusted Net Loss and Adjusted EBITDA, which are non-GAAP financial measures that management uses to assess our underlying financial performance. These measures are also commonly used by investors and analysts to compare the underlying performance of companies in our industry. We believe these measures provide investors with meaningful period over period comparisons of our underlying performance, adjusted for certain charges that are non-recurring, non-cash, not directly related to our revenue-generating operations or not aligned to related revenue. Adjusted Net Loss and Adjusted EBITDA are supplemental measures of our operating performance and have important limitations. For example, these measures exclude the impact of certain costs required to be recorded under GAAP. These measures also include impairment costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, impairment costs required to be recorded under GAAP in the same period. These measures could differ substantially from similarly titled measures presented by other companies in our industry or companies in other industries. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We include a reconciliation of these measures to the most directly comparable GAAP financial measure, which is net loss. Adjusted Net Loss We calculate Adjusted Net Loss as GAAP net loss adjusted to exclude non-cash expenses of stock-based compensation, marketable equity securities fair value adjustment, derivative and warrant fair value adjustment, intangible amortization, and payroll tax on initial RSU release. It also excludes non-recurring restructuring charges, gain on lease termination, and convertible note payment-in-kind (“PIK”) interest and issuance discount amortization. Adjusted Net Loss also aligns the timing of impairment charges recorded under GAAP to the period in which the related revenue is recorded in order to improve the comparability of this measure to our non-GAAP financial measures of unit economics, as described above. Our calculation of Adjusted Net Loss does not currently include the tax effects of the non-GAAP adjustments because our taxes and such tax effects have not been material to date. Adjusted EBITDA We calculated Adjusted EBITDA as Adjusted Net Loss adjusted for depreciation and amortization, property financing and other interest expense, interest income, and income tax expense. Adjusted EBITDA is a supplemental performance measure that our management uses to assess our operating performance and the operating leverage in our business. 44 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) The following table presents a reconciliation of our Adjusted Net Loss and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure, for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Net loss (GAAP) $ (56,819) $ (80,853) $ (471,060) $ (198,968) Adjustments: Stock-based compensation 62,011 2,523 465,059 9,162 Marketable equity securities fair value adjustment (1) (51,013) — (51,013) — Derivative and warrant fair value adjustment (1) (3,499) 24,329 (12,179) 25,219 Intangibles amortization expense (2) 1,005 986 2,176 3,134 Inventory impairment – Current Period (3) 31,597 64 32,153 252 Inventory impairment — Prior Periods (4) (307) (2,803) (54) (10,540) Restructuring (5) — 17,217 79 30,541 Convertible note PIK interest and discount amortization (6) — 2,416 — 7,824 Gain on lease termination — — (5,237) — Payroll tax on initial RSU release — — 5,124 — Other (7) (248) (322) (647) (367) Adjusted Net Loss $ (17,273) $ (36,443) $ (35,599) $ (133,743) Adjustments: Depreciation and amortization, excluding amortization of intangibles and right of use assets 8,417 6,115 24,745 17,011 Property financing (8) 37,582 5,236 56,846 32,010 Other interest expense (9) 5,968 4,724 13,529 17,559 Interest income (10) (511) (665) (2,184) (4,007) Income tax expense 326 35 610 234 Adjusted EBITDA $ 34,509 $ (20,998) $ 57,947 $ (70,936) Adjusted EBITDA Margin 1.5 % (6.2) % 1.4 % (3.0) % ________________ (1) Represents the gains and losses on our financial instruments, which are marked to fair value at the end of each period. (2) Represents amortization of intangibles acquired in the OSN and Open Listings acquisitions which contribute to revenue generation and are recorded as part of purchase accounting. The acquired intangible assets have useful lives ranging from 2 to 5 years and amortization is expected until the intangible assets are fully amortized. (3) Inventory impairment — Current Period is the inventory impairment charge recorded during the period presented associated with homes that remain in inventory at period end. (4) Inventory impairment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented. (5) Restructuring costs consist mainly of employee termination benefits, relocation packages and retention bonuses as well as costs related to the exiting of certain non-cancelable leases. In 2020, these costs related mainly to a reduction in workforce implemented in April 2020 as well as our exercise of the early termination option related to our San Francisco headquarters. (6) Includes non-cash payment-in-kind (“PIK”) interest and amortization of the discount on the convertible notes issued from July through November 2019 (the “2019 Convertible Notes”). We exclude convertible note PIK interest and amortization from Adjusted Net Loss since these are non-cash in nature and were converted into equity in September 2020 when the Company entered into the Convertible Notes Exchange Agreement with the convertible note holders. 45 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) (7) Includes primarily gain or loss on disposal of fixed assets, gain or loss on interest rate lock commitments, gain or loss on the sale of available for sale securities, and sublease income. (8) Includes interest expense on our asset-backed debt facilities. (9) Includes amortization of debt issuance costs and loan origination fees, commitment fees, unused fees, other interest related costs on our asset-backed debt facilities, and interest expense incurred on the 2026 convertible senior notes outstanding. (10) Consists mainly of interest earned on cash, cash equivalents and marketable securities. Components of Our Results of Operations Revenue We generate revenue primarily from the sale of homes that we previously acquired from homeowners. In addition, we generate revenue from additional services we provide to both home sellers and buyers, which consists primarily of title insurance and escrow services, Buy with Opendoor and Opendoor Home Loans. Home sales revenue from selling residential real estate is recognized when title to and possession of the property has transferred to the buyer and we have no continuing involvement with the property, which is generally the close of escrow. The amount of revenue recognized for each home sale is equal to the sale price of the home net of any concessions. Cost of Revenue Cost of revenue includes the property purchase price, acquisition costs, direct costs to renovate or repair the home and real estate inventory valuation adjustments, if any. These costs are accumulated in real estate inventory during the property holding period and charged to cost of revenue under the specific identification method when the property is sold. Additionally, for our revenue other than home sales revenue, cost of revenue consists of any costs incurred in delivering the service, including associated headcount expenses such as salaries, benefits and stock-based compensation. Operating Expenses Sales, Marketing and Operations Expense Sales, marketing and operations expense consists primarily of resale broker commissions (paid to the home buyers’ real estate agents, if applicable), resale closing costs, holding costs related to real estate inventory including utilities, property taxes and maintenance, and expenses associated with product marketing, promotions and brand-building. Sales, marketing and operations expense also includes any headcount expenses in support of sales, marketing, and real estate operations such as salaries, benefits and stock-based compensation. General and Administrative Expense General and administrative expense consists primarily of headcount expenses, including salaries, benefits and stock-based compensation for our executive, finance, human resources, legal and administrative personnel, third-party professional services fees and rent expense. We incurred a significant increase in stock-based compensation in the first half of 2021 as a result of certain performance-based awards and historical RSUs satisfying their liquidity event vesting conditions. The increase in stock-based compensation impacts each line item within Operating expenses. Stock-based compensation declined in the third quarter of 2021 given that a majority of the expense related to certain performance-based awards was recognized as of June 30, 2021. See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 12. Share-based awards." Technology and Development Expense Technology and development expense consists primarily of headcount expenses, including salaries, benefits and stock-based compensation for employees in the design, development, testing, maintenance and operation of our mobile applications, 46 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) websites, tools and applications that support our products. Technology and development expense also includes amortization of capitalized software development costs. Derivative and Warrant Fair Value Adjustment Derivative and warrant fair value adjustment consists of unrealized and realized gains and losses as a result of marking our warrants and embedded derivatives related to the 2019 Convertible Notes to fair value at the end of each reporting period and subsequent settlement through exercise of warrants and conversion of the 2019 Convertible Notes to equity. Interest Expense Interest expense consists primarily of interest paid or payable and the amortization of debt discounts and debt issuance costs. Interest expense varies period over period, primarily due to fluctuations in our inventory volumes and changes in LIBOR, which impact the interest incurred on our senior revolving credit facilities (see “— Liquidity and Capital Resources — Debt and Financing Arrangements ”). We expect our overall interest expense to increase as inventory increases. Subject to market conditions and cost of capital trade-offs, we will evaluate opportunities to expand our sources of financing over time, which may allow us to diversify our mix of financing sources to include more cost effective financing relative to our higher cost mezzanine term debt facilities. Other Income — Net Other income-net consists primarily of change in fair value of and dividend income from our investment in equity securities as well as interest income from our investment in debt securities. Income Tax Expense We record income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance. 47 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Results of Operations The following tables set forth our results of operations for each of the periods presented: Three Months Ended September 30, Change in (in thousands, except percentages) 2021 2020 $ % Revenue $ 2,266,354 $ 338,613 $ 1,927,741 569 % Cost of revenue 2,063,865 302,802 1,761,063 582 % Gross profit 202,489 35,811 166,678 465 % Operating expenses: Sales, marketing and operations 153,496 27,336 126,160 462 % General and administrative 90,105 40,168 49,937 124 % Technology and development 27,295 13,184 14,111 107 % Total operating expenses 270,896 80,688 190,208 236 % Loss from operations (68,407) (44,877) (23,530) 52 % Derivative and warrant fair value adjustment 3,499 (24,329) 27,828 N/M Interest expense (43,550) (12,376) (31,174) 252 % Other income-net 51,965 764 51,201 6702 % Loss before income taxes (56,493) (80,818) 24,325 (30) % Income tax expense (326) (35) (291) 831 % Net loss $ (56,819) $ (80,853) $ 24,034 (30) % N/M - Not meaningful. Nine Months Ended September 30, Change in (in thousands, except percentages) 2021 2020 $ % Revenue $ 4,199,014 $ 2,334,235 $ 1,864,779 80 % Cost of revenue 3,740,622 2,152,803 1,587,819 74 % Gross profit 458,392 181,432 276,960 153 % Operating expenses: Sales, marketing and operations 319,087 156,290 162,797 104 % General and administrative 502,800 99,074 403,726 407 % Technology and development 102,360 45,809 56,551 123 % Total operating expenses 924,247 301,173 623,074 207 % Loss from operations (465,855) (119,741) (346,114) 289 % Derivative and warrant fair value adjustment 12,179 (25,219) 37,398 N/M Interest expense (70,375) (57,393) (12,982) 23 % Other income-net 53,601 3,619 49,982 1381 % Loss before income taxes (470,450) (198,734) (271,716) 137 % Income tax expense (610) (234) (376) 161 % Net loss $ (471,060) $ (198,968) $ (272,092) 137 % N/M - Not meaningful. Revenue Revenue increased by $1,927.7 million, or 569%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in revenue was primarily attributable to higher sales volumes, driven by our efforts to rebuild inventory, as well as higher average revenue per home. We sold 5,988 homes during the three months ended September 30, 2021, compared to 1,232 homes during the three months ended September 30, 2020, representing an increase of 386% and a revenue per home sold increase of 38% between periods. Average resale prices were positively impacted by home price appreciation, buybox expansion, and intracity mix. 48 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Revenue increased by $1,864.8 million, or 80%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in revenue was primarily attributable to higher sales volumes in the second and third quarters of 2021 compared to the corresponding quarters of 2020, as well as higher revenue per home. The higher sales volumes are a reflection of our efforts to rebuild inventory beginning in August 2020, following our temporary pause in home purchases at the start of the COVID-19 pandemic. See “— Business Impact of COVID-19 ”. We surpassed pre-COVID-19 inventory levels in the second quarter of 2021. We sold 11,931 homes during the nine months ended September 30, 2021, compared to 9,064 homes during the nine months ended September 30, 2020, representing an increase of 32%, while revenue per home sold increased 37% between periods. Average resale prices were positively impacted by home price appreciation and buybox expansion. Cost of Revenue and Gross Profit Cost of revenue increased by $1,761.1 million, or 582%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily attributable to higher sales volumes and a 40% increase in cost of revenue per home as a result of inventory mix, home price appreciation and buybox expansion. The increase in cost of revenue per home is consistent with the 38% increase in revenue per home. Cost of revenue increased by $1,587.8 million, or 74%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase in cost of revenue was primarily attributable to higher sales volumes and a 32%increase in cost of revenue per home as a result of inventory mix, home price appreciation and buybox expansion. Gross margin decreased from 10.6% to 8.9% for the three months ended September 30, 2020 and September 30, 2021, respectively. The gross margin decrease was primarily due to the impact of $31.6 million of impairment recorded during the three months ended September 30, 2021 on homes that are in inventory as of September 30, 2021. The gross margin decrease was partially offset by improvements in repair and renovation efficiency. For the same periods, Adjusted Gross Margin improved from 9.8% to 10.3% and Contribution Margin increased from 5.9% to 7.5%, due to improvements in repair and renovation efficiency, as well as lower holding and selling costs. See “— Non-GAAP Financial Measures .” Gross margin improved from 7.8% to 10.9% for the nine months ended September 30, 2020 and September 30, 2021, respectively. For the same periods, Adjusted Gross Margin improved from 7.4% to 11.7%. Gross margin improvement was primarily due to a combination of healthy inventory mix, home price appreciation and the effectiveness of our inventory resale systems. In addition, we saw improvements in repair and renovation efficiency. Contribution Margin increased from 3.4% to 8.9% for the same periods, due largely to a higher Adjusted Gross Margin as well as improvements in direct selling and holding costs. See “— Non-GAAP Financial Measures . Operating Expenses Sales, Marketing and Operations . Sales, marketing and operations increased by $126.2 million, or 462%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to a $29.4 million increase in advertising expense as we increased marketing to drive acquisition volumes in both existing and new markets. Resale transaction costs and broker commissions increased $43.0 million, consistent with the 386%% increase in the number of homes sold. Property holding costs increased by $30.4 million, consistent with increased inventory levels. Headcount expenses, including salaries, benefits and stock-based compensation, increased $13.1 million consistent with the increase in headcount. Sales, marketing and operations increased by $162.8 million, or 104%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to a $75.3 million increase in advertising expense as we increased marketing to drive acquisition volumes in both existing and new markets launched in 2021, relative to the limited marketing spend in 2020 due to the onset of COVID-19. In addition, stock-based compensation increased $9.1 million reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering (as defined herein) satisfied the liquidity event vesting condition of certain RSUs. Resale transaction costs and broker commissions increased $28.7 million, consistent with the 32% increase in the number of homes sold. Property holding costs increased by $32.1 million consistent with increased inventory levels. Headcount expenses, including salaries and benefits increased $10.3 million consistent with the increase in headcount. 49 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) General and Administrative . General and administrative increased by $49.9 million, or 124%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to $50.8 million of additional stock-based compensation from the commencement of expense recognition of certain performance awards following the consummation of the Business Combination (as defined herein) in December 2020 as well as the expense recognition of certain restricted stock units ("RSUs") upon the fulfillment of the liquidity event vesting condition satisfied by the February 2021 Offering. General and administrative increased by $403.7 million, or 407%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to $399.9 million of additional stock-based compensation from the commencement of expense recognition of certain performance awards following the consummation of the Business Combination in December 2020 as well as the expense recognition of certain RSUs upon the fulfillment of the liquidity event vesting condition satisfied by the February 2021 Offering. Technology and Development . Technology and development increased by $14.1 million, or 107%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to a $7.2 million increase in stock-based compensation reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs. Technology and development increased by $56.6 million, or 123%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to a $46.9 million increase in stock-based compensation reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in the first quarter of 2021 when the February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs. Derivative and Warrant Fair Value Adjustment Derivative and warrant fair value adjustment increased by $27.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The expense recorded for the three months ended September 30, 2020 was primarily attributable to a $23.3 million increase in the fair value of the derivative liability in extinguishment of the Company's 2019 Convertible Notes. The gain recorded for the three months ended September 30, 2021 is attributable to a decrease in the fair value of the Sponsor Warrants of $3.5 million, which is primarily attributable to the decline in the Company's stock price over this period. Derivative and warrant fair value adjustment increased by $37.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The expense recorded for the nine months ended September 30, 2020 was primarily attributable to a $23.3 million increase in the fair value of the derivative liability in extinguishment of the Company's 2019 Convertible Notes. The gain for the nine months ended September 30, 2021 was primarily attributable to a decrease in the fair value of the Sponsor Warrants of $12.2 million which is primarily attributable to the decline in the Company's stock price over this period. Interest Expense Interest expense increased by $31.2 million, or 252%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily attributable to increases in the average outstanding balance of our asset-backed senior credit facilities and mezzanine term debt facilities, which is consistent with our increase in inventory over the same periods. Interest expense increased by $13.0 million, or 23%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily attributable to increases in the average outstanding balances of our asset-backed senior credit facilities and mezzanine term debt facilities, which is consistent with our increase in inventory over the same periods. The increase in interest expense from our asset backed credit facilities is partially offset by a $7.8 50 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) million decrease in interest expense and amortization of debt issuance costs related to the 2019 Convertible Notes, which were converted into equity in September 2020. Other Income — Net Other income – net increased by $51.2 million and $50.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, respectively. The increase is primarily related to the $51.0 million fair value adjustment on marketable equity securities recorded in the third quarter of 2021 when a company in which we invested went public. Income Tax Expense Income tax expense increased by a nominal amount for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020. Liquidity and Capital Resources Overview Our principal sources of liquidity have historically consisted of cash generated from our operations and from financing activities. As of September 30, 2021, we had cash and cash equivalents of $1,358.8 million, restricted cash of $484.5 million, marketable securities of $481.1 million, and total outstanding balances on our asset-backed debt and other secured borrowings of $5,443.5 million. In addition, we had undrawn borrowing capacity of $930.2 million under our asset-backed senior credit facilities (as described further below), of which $101.8 million is fully committed. In August 2021, we issued convertible senior notes with an aggregate principal amount of $977.5 million. On December 18, 2020, we consummated a merger with Social Capital Hedosophia Holdings Corp. II, (“SCH”), a special purpose acquisition company, which resulted in Opendoor Labs Inc. becoming a wholly owned subsidiary of SCH and the subsequent renaming of SCH to Opendoor Technologies Inc. (the "Business Combination"). The Business Combination had a significant impact on our reported financial position and in particular a net increase in cash of $970 million. The increases in cash includes approximately $600 million in proceeds from the private placement ("PIPE Investment") consummated simultaneously with the Business Combination. See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 2. Business Combination ” for more information. On February 9, 2021, we completed an underwritten public offering (the “February 2021 Offering”) in which we sold 32,817,421 shares of our common stock at a public offering price of $27.00 per share, including the exercise in full by the underwriters of their option to purchase up to 4,280,533 additional shares of common stock, which was completed on February 11, 2021. We received aggregate net proceeds from the February 2021 Offering of approximately $859.5 million after deducting underwriting discounts and commissions and offering expenses payable by us. We have incurred losses from inception through September 30, 2021 and expect to incur additional losses for the foreseeable future. Our ability to service our debt, fund working capital, business operations and capital expenditures will depend on our ability to generate cash from operating activities, which is subject to our future operating success, and obtain inventory acquisition financing on reasonable terms, which is subject to factors beyond our control, including general economic, political and financial market conditions. We expect our working capital requirements to continue to increase in the immediate future, as we seek to increase our inventory and expand into more markets across the United States. We believe our cash, cash equivalents, and marketable securities together with cash we expect to generate from future operations and borrowings, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. The discussion below does not include transactions that occurred subsequent to September 30, 2021. See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 18. Subsequent Events ” for additional information regarding transactions subsequent to the balance sheet date. 51 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Debt and Financing Arrangements Our financing activities include short-term borrowing under our asset-backed senior revolving credit facilities, the issuance of long-term asset-backed senior and mezzanine term debt, borrowing under our mortgage repurchase financing, issuance of convertible debt, and new issuances of equity. Historically, we have required access to external financing resources in order to fund growth, expansion into new markets and strategic initiatives and we expect this to continue in the future. Our access to capital markets can be impacted by factors outside our control, including economic conditions. We primarily use non-recourse asset-backed debt, consisting of asset-backed senior credit facilities and asset-backed mezzanine debt facilities to provide financing for our real estate inventory purchases and renovations. Our business is capital intensive and maintaining adequate liquidity and capital resources is needed as we continue to scale and accumulate additional inventory. While there can be no assurances that these trends will continue, we have observed increased availability and engagement for this lending product across a variety of financial institutions and we have seen improved terms and an increase in our borrowing capacity in recent years. We actively manage our relationships with multiple financial institutions and seek to optimize duration, flexibility, efficiency and cost of funds. Our asset-backed facilities are each collateralized by a specified pool of assets, consisting of real estate inventory, restricted cash and equity interests in certain consolidated subsidiaries of Opendoor that directly or indirectly own our real estate inventory. Our real estate-owning subsidiaries’ assets and credit generally are not available to satisfy the debts and other obligations of any other Opendoor entities except to the extent other Opendoor entities are also a party to the relevant financing arrangements. Our asset-backed debt is non-recourse to Opendoor except for limited guarantees provided by an Opendoor subsidiary for certain obligations in situations involving “bad acts” by an Opendoor entity and certain other limited circumstances that are generally under our control. Our senior credit facilities generally provide for advance rates of 80% to 90% against our cost basis in the underlying properties upon acquisition and our mezzanine term facilities will finance up to 100% of our cost basis in the underlying properties upon acquisition. The maximum initial advance rates for a given financed property vary by facility and generally decrease on a fixed timeline that varies by facility based on the length of time the property has been financed and any other facility-specific adjustments. 52 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) The following table summarizes certain details related to our non-recourse asset-backed debt and other secured borrowings as of September 30, 2021(in thousands, except interest rates): Outstanding Amount September 30, 2021 Borrowing Capacity Current Non-Current Weighted Average Interest Rate End of Revolving / Withdrawal Period Final Maturity Date Non-Recourse Asset-Backed Debt: Asset-Backed Senior Credit Facilities Revolving Facility 2018-2 $ 1,000,000 $ 999,206 $ — 2.84 % September 23, 2022 December 23, 2022 Revolving Facility 2018-3 750,000 650,000 — 2.47 % May 26, 2024 May 26, 2024 Revolving Facility 2019-1 900,000 632,366 — 2.84 % June 30, 2023 June 30, 2023 Revolving Facility 2019-2 1,030,000 1,028,206 — 2.55 % July 8, 2023 July 8, 2023 Revolving Facility 2019-3 925,000 627,938 — 3.25 % August 22, 2022 August 21, 2023 Revolving Facility 2021-1 125,000 112,096 — 2.15 % October 31, 2022 October 31, 2022 Term Debt Facility 2021-S1 400,000 — 250,000 3.48 % April 1, 2024 April 1, 2025 Term Debt Facility 2021-S2 600,000 — 500,000 3.20 % September 10, 2024 September 10, 2025 Total $ 5,730,000 $ 4,049,812 $ 750,000 Issuance Costs (3,234) Carrying Value $ 746,766 Asset-Backed Mezzanine Term Debt Facilities Term Debt Facility 2016-M1 $ 324,000 $ — $ 324,000 10.00 % October 31, 2023 March 31, 2025 Term Debt Facility 2020-M1 300,000 — 300,000 10.00 % January 23, 2023 January 23, 2026 Total $ 624,000 $ — $ 624,000 Issuance Costs (2,777) Carrying Value $ 621,223 Total Non-Recourse Asset-Backed Debt $ 6,354,000 $ 4,049,812 $ 1,367,989 Recourse Debt - Other Secured Borrowings: Mortgage Financing Repo Facility 2019-R1 $ 100,000 $ 19,728 $ — 1.84 % May 26, 2022 May 26, 2022 Total Recourse Debt $ 100,000 $ 19,728 $ — Asset-backed Senior Credit Facilities In some cases, the undrawn borrowing capacity amounts under the asset-backed senior credit facilities as reflected in the table are not fully committed and any borrowings above those amounts are subject to the applicable lender’s discretion. As of September 30, 2021, the Company had fully committed borrowing capacity with respect to asset-backed senior credit facilities of $3,837.4 million The total outstanding amount presented above includes $4,049.8 million of current liabilities and $750.0 million of non-current liabilities; the carrying value of the non-current liabilities is reduced by issuance costs of $3.2 million. The revolving or withdrawal period end dates and final maturity dates reflected in the table above are inclusive of any extensions that are at the sole discretion of the Company. Certain of our asset-backed senior credit facilities also have additional extension options that are subject to lender approval that are not reflected in the table above. Historically, we have had success in renewing these facilities to the extent we have wished to do so. Asset-Backed Mezzanine Term Debt Facilities In addition to the asset-backed senior credit facilities, we have issued asset-backed mezzanine term debt facilities which are subordinated to the related senior facilities. See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated 53 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Financial Statements – Note 7. Credit Facilities and Long-Term Debt ” for additional information regarding our non-recourse asset-backed debt. Mortgage Financing We primarily use debt financing to fund our mortgage loan originations. In 2019 we entered into a master repurchase agreement to finance substantially all of the mortgage loans that we originate. Once our mortgage business sells a loan in the secondary mortgage market, we use the sale proceeds to reduce the outstanding balance under the repurchase facility. See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 7. Credit Facilities and Long-Term Debt ” for additional information regarding our master repurchase agreement. Convertible Senior Notes In August 2021, the Company issued 0.25% senior senior notes due in 2026 (the "2026 Notes") with an aggregate principal amount of $977.5 million. The tables below summarizes certain details related to our convertible senior notes: September 30, 2021 Aggregate Principal Amount Unamortized Debt Issuance Costs Net Carrying Amount 2026 Notes $ 977,500 $ (25,085) $ 952,415 See “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 7. Credit Facilities and Long-Term Debt ” for additional information regarding our convertible senior notes, including conversion rate, conversion and redemption dates, and the related capped call transaction. Cash Flows The following table summarizes our cash flows for the periods presented: Nine Months Ended September 30, (in thousands) 2021 2020 Net cash (used in) provided by operating activities $ (5,903,558) $ 1,037,354 Net cash used in investing activities $ (431,825) $ (50,820) Net cash provided by (used in) financing activities $ 6,673,106 $ (1,027,797) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 337,723 $ (41,263) Net Cash (Used in) Provided by Operating Activities Net cash (used in) provided by operating activities was $(5,903.6) million and $1,037.4 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash used in operating activities was primarily driven by the $5,805.8 million increase in inventory and a $119.9 million increase in escrow receivables correlated to the increase in revenue during the first nine months of 2021. For the nine months ended September 30, 2020, net cash provided by operating activities was primarily driven by a $1,146.8 million decrease in inventory, as we substantially paused purchasing additional homes in March 2020 in response to the COVID-19 pandemic and the consequent health risks. The impact of the change in operating working capital was partially offset by our net loss, net of non-cash items, of $100.8 million. Net Cash Used in Investing Activities Net cash used in investing activities was $431.8 million and $50.8 million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash used in investing activities primarily consisted of the $372.9 million increase in marketable securities, $20.1 million for the purchase of Pro.com, net of cash acquired, and the $15.1 million purchase of strategic investments in certain privately held companies. For the nine months ended September 30, 2020, cash used in investing activities primarily consisted of the $38.8 million increase in marketable securities. In addition, we 54 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) used $12.1 million for capital expenditures, including internally developed software, employee computers and leasehold improvements. Net Cash Provided by (Used in) Financing Activities Net cash provided by (used in) financing activities was $6,673.1 million and $(1,027.8) million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, cash provided by financing activities was primarily attributable to $4,944.6 million net proceeds from asset-backed debt and $886.1 million in proceeds from the February 2021 Offering, net of $28.9 million of issuance costs. In addition, we received $977.5 million in proceeds from the issuance of the 2026 Notes, net of $24.4 million of issuance costs and offset by the $118.8 million purchase of the Capped Calls related to the 2026 Notes. For the nine months ended September 30, 2020, cash used in financing activities was primarily attributable to the net repayment of $1,037.1 million to our asset-backed debt facilities as we reduced inventory levels in response to COVID-19. Contractual Obligations and Commitments There have been no material changes outside the ordinary course of business in our commitments under contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except for the categories of contractual obligations included in the table below, which have been updated to reflect our contractual obligations as of September 30, 2021: Payment Due by Year (in thousands) Total Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Senior revolving credit facilities (1) $ 4,076,771 $ 4,076,771 $ — $ — $ — Senior and mezzanine term debt facilities (2) 1,710,572 87,085 174,170 1,449,317 — Convertible senior notes (3) 989,692 2,417 4,888 982,387 Mortgage financing (4) 19,747 19,747 — — — Purchase commitments (5) 2,259,850 2,259,850 — — — Total $ 9,056,632 $ 6,445,870 $ 179,058 $ 2,431,704 $ — ______________ (1) Represents the principal amounts outstanding as of September 30, 2021. Includes estimated interest payments, calculated using the variable rate in existence at period end over an assumed holding period of 90 days. Borrowings under the senior revolving credit facilities are payable as the related inventory is sold. The payment is expected to be within one year of September 30, 2021. (2) Represents the principal amounts outstanding as of September 30, 2021 and interest payments assuming the principal balances remain outstanding until maturity. The final maturity dates of the senior and mezzanine term debt facilities vary, as discussed above. (3) Represents the principal amounts outstanding as of September 30, 2021 and interest payments assuming the principal balances remain outstanding until maturity. (4) Represents the principal amounts outstanding as of September 30, 2021. The facility provides short-term financing between the origination of a mortgage loan and when Opendoor Home Loans sells the loan to an investor. Included estimated interest payments, calculated using the variable rate in existence at period end over the Company’s average holding period for mortgage loans. (5) As of September 30, 2021, we were under contract to purchase 6,231 homes for an aggregate purchase price of $2,259.9 million. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of September 30, 2021. 55 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted) Critical Accounting Policies and Estimates Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the condensed consolidated financial statements. Based on this definition, critical accounting policies and estimates are discussed in “ Part II – Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates ” in the Annual Report. There have been no significant changes to these critical accounting estimates during the first nine months of 2021, except as noted below. In addition, we have other key accounting policies and estimates that are described in “ Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies ” in this Quarterly Report on Form 10-Q. Public and Sponsor Warrants On April 30, 2020, SCH consummated its initial public offering of 41,400,000 units, consisting of one share of Class A common stock and one third of one warrant exercisable for Class A common stock, at a price of $10.00 per unit. Each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, SCH completed the private placement of 6,133,333 warrants to SCH’s sponsor at a price of $1.50 per warrant (the “Sponsor Warrants”). Each Sponsor Warrant allows the sponsor to purchase one share of Class A common stock at $11.50 per share. As of December 31, 2020, there were 19,933,333 warrants outstanding. The Sponsor Warrants and shares of common stock issuable upon the exercise of Sponsor Warrants may not be transferred, assigned, or sold until 30 days after the completion of a business combination. Additionally, the Sponsor Warrants are eligible for cash and cashless exercises, at the holder’s option, and are redeemable only if the Reference Value, as defined in the Warrant Agreement, is less than $18.00 per share. If the Sponsor Warrants are held by someone other than the sponsors and certain permitted transferees, the Sponsor Warrants will redeemable and exercisable on the same basis as the Public Warrants. We evaluated the Public and Sponsor Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity , and concluded that the Sponsor Warrants do not meet the criteria to be classified in shareholders’ equity. Specifically the exercise and settlement features for the Sponsor Warrants preclude them from being considered indexed to the Company’s own stock given that a change in the holder of the Sponsor Warrants may alter the settlement of the Sponsor Warrants. Since the holder of the instrument is not an input to a standard option pricing model, a consideration with respect to the indexation guidance, a change in the holder for the Sponsor Warrants impacting their value means the Sponsor Warrants are not indexed to the Company’s own stock. Since the Sponsor Warrants meet the definition of a derivative under ASC 815, we recorded these warrants as liabilities on the balance sheet at fair value upon the consummation of the Business Combination, with subsequent changes in their respective fair values recognized in the condensed consolidated statement of operations at each reporting period. The Company concluded that the Public Warrants, which do not have the same exercise and settlement features as the Sponsor Warrants, meet the criteria to be classified in shareholders' equity. On July 9, 2021, the Company completed the redemption of all of its outstanding Public and Sponsor Warrants and in connection with the redemption, the Public Warrants stopped trading on the Nasdaq Global Select Market. Recent Accounting Pronouncements For information on recent accounting standards, see “ Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies” . 56 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC.