Opendoor Technologies Inc. 10-K

Item 7. 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 consolidated results of operations and financial condition. The discussion should be read together with the historical audited annual consolidated financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021, and 2020. 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 “Forward-Looking Statements,” “Risk Factors” or in other parts of this Annual Report on Form 10-K. Overview Opendoor’s mission is to power life’s progress, one move at a time. We are building a managed marketplace for residential real estate via two core product offerings: our first-party (1P) product and our third-party (3P) product. We are working towards a future where both 1P and 3P sales take place on our platform, enabling sellers and buyers to experience a simple and certain transaction that dramatically improves the traditional process. Since our inception in 2014, we have built scalable pricing capabilities, technology-enabled centralized operations, and a suite of digital-first consumer products that enabled us to help customers buy or sell homes in over 215,000 transactions and expand our footprint to 53 markets across the country. Financial Highlights Year Ended December 31, (in millions, except percentages, homes sold, number of markets, and homes in inventory) 2022 2021 2020 2021 to 2022 Change 2020 to 2021 Change Revenue $ 15,567 $ 8,021 $ 2,583 $ 7,546 $ 5,438 Homes sold 39,183 21,725 9,913 17,458 11,812 Gross profit $ 667 $ 730 $ 220 $ (63) $ 510 Gross margin 4.3 % 9.1 % 8.5 % Net loss $ (1,353) $ (662) $ (253) $ (691) $ (409) Adjusted Net Loss $ (574) $ (116) $ (175) $ (458) $ 59 Contribution Profit $ 525 $ 525 $ 110 $ — $ 415 Contribution Margin 3.4 % 6.5 % 4.3 % Adjusted EBITDA $ (168) $ 58 $ (98) $ (226) $ 156 Adjusted EBITDA Margin (1.1) % 0.7 % (3.8) % Number of markets (at period end) 53 44 21 9 23 Inventory (at period end) $ 4,460 $ 6,096 $ 466 $ (1,636) $ 5,630 Homes in inventory (at period end) 12,788 17,009 1,826 (4,221) 15,183 Current Housing Environment The residential real estate market started 2022 quite strong with housing transaction volume, velocity, and home price appreciation (HPA) trending at or near historical highs. However, the second half of 2022 was dominated by concerns of elevated inflation, rising interest rates, and increasing possibility of recession. In response to surprisingly persistent inflationary pressures, the U.S. Federal Reserve Board implemented a series of rate increases, increasing the Federal Funds Rate from 0.25% to 4.5% at the end of the year and marking the most aggressive response by the U.S. Federal Reserve Board since the early 1980s. These actions pushed long-term interest rates higher with mortgage rates following suit. The ensuing decline in housing affordability drove a sharp pullback in home buyer demand, which precipitated a very rapid slowdown in both transaction velocity and home price appreciation (“HPA”) in the second half of 2022. 40 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) In light of the market uncertainty and our reduced volume expectations, we scaled back our operational capacity by reducing both third-party labor and our internal workforce. In addition, on November 2, 2022, we announced a workforce reduction of approximately 550 employees, representing 18% of our workforce at that time. We provided post-employment benefits to impacted employees for a total cash cost of approximately $17 million, which was recognized and primarily paid in 2022. Overall economic dynamics as of the beginning of 2023 look more balanced than as of the second half of 2022. In particular, the seasonal relative improvement in listing prices, contract prices, and clearance has been, so far, better than in a typical year. Of course, there remains significant macro risk in the outlook, with inflation, rate volatility and recession probabilities still at high levels. The extent to which these factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict. As a result, we are entering 2023 with a conservative bias in our home pricing, which reflects our current expectation for negative year-over-year HPA for 2023. Business Impact of COVID-19 In response to the COVID-19 pandemic and the consequent health risks, we substantially paused 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 most of our homes in inventory at a healthy pace, leading to a low point in inventory of $152 million as of September 30, 2020. 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 surpassed pre-COVID-19 inventory levels in the second quarter of 2021 and ended the year with inventory of $4.5 billion as of December 31, 2022. While we believe we have adapted our operations to function effectively during the ongoing COVID-19 pandemic, our business remains sensitive to potential future disruptions of the real estate market caused by COVID-19 and its variants. 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 the fact that 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. We are launching our 3P product in certain markets where our sellers will connect directly with our buyers thereby expanding our target audience to additional sellers. We expect this marketplace to reduce our inventory exposure, capital intensity and macroeconomic risk, which we believe has the potential to positively impact our results. We also expect to launch our new partnership agreement with Zillow, Inc. in early 2023 that will allow home sellers on the Zillow, Inc. platform to request an offer directly from Opendoor, which will create an additional channel for us to drive brand awareness and acquire customers. Expansion into New Markets We operated in 53 markets as of December 31, 2022. The following table represents the number of markets as of the periods presented: Year Ended December 31, (in whole numbers) 2022 2021 2020 Number of markets (at period end) 53 44 21 41 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) We launched seven new markets in the first half of 2022, before we slowed our new market expansion plans due to the deteriorating macro environment in the latter half of the year, during which we launched two new markets. 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 underwriting performance for purchase cohorts in new markets improve approximately one year after initial launch. However, given our “risk-off” stance in our 1P business pending stabilization of macro conditions, we do not expect to make significant investments to support our 2022 market launches. As a result, we also expect the revenue contribution from these markets to be immaterial until we see a sustained period of stabilization and recovery in the macro environment. Adjacent Services We believe home sellers and buyers value simplicity and certainty. To that end, we are building an online, integrated suite of home services, which currently include title insurance and escrow services, brokerage services and mortgage services. In 2022, we shifted from a correspondent mortgage model to a referral model with a strategic partner to offer our customers a broader suite of mortgage products and services. Our success with title insurance and escrow services helps validate our view that customers prefer an online, integrated experience. 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 with the expectation that these adjacent services will continue to improve our unit economics and Contribution Margin. Unit Economics We view Contribution Margin as a key measure of unit economic performance. Our long-term financial performance depends, in part, on continuing to maintain and expand unit margins through the following initiatives: • Optimization and enhancements of our pricing engine • Platform efficiency improvements through greater automation and self-service • Incremental attach of services, which supplement the core transaction margin profile • Expansion of our 3P product offering, which will reduce our inventory exposure and capital intensity, and eliminate any holding and selling costs associated with taking ownership of the home Inventory Management Effectively managing our overall inventory position and balancing growth, margin, and risk are critical to our financial performance. Since our inception, we have prioritized investment in our pricing capabilities across our home acquisition processes and our forecasting and resale systems, and will continue to do so. As part of our overall risk management framework, we consider both individual market and aggregate portfolio exposures. We typically seek to maximize the resale margin performance of our inventory in the context of managing overall risk and inventory health through monitoring sell-through rates, holding periods, and portfolio aging. Our performance in 2022 reflects the sharp transition in the housing market from peak levels earlier this year to lower transaction velocity and home price appreciation well beyond typical seasonal trends. Given these macroeconomic pressures, we have been focused on managing for overall inventory health and risk. As part of that focus, we have continued to adjust down listed prices on our inventory to stay in-line with the market and drive resale clearance. Related to those price actions, we have recorded inventory valuation adjustments of $737 million during the year ended December 31, 2022. We have also proactively reduced our acquisition pace via higher spreads embedded in our offers and lower marketing investment. While this allows us to manage overall inventory growth, we expect future margins on those acquisition cohorts to be in-line with our expectations for positive contribution margins. We expect to resume a higher acquisition pace as the housing market stabilizes. As one key measure of inventory management performance, we evaluate our portfolio metrics relative to the broader market (as observed on the multiple listing services (“MLS”)). One such metric is our percentage of homes “on the market” for greater than 120 days as measured from initial listing date. As of December 31, 2022, such homes represented 55% of our portfolio, compared to 33% for the broader market when filtered for the types of homes we are able to underwrite and acquire 42 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) in a given market based on characteristics such as price range, home type, home location, year built and lot size (which we refer to as our “buybox".) This metric is impacted by the mix of homes in our inventory. Beginning early in the third quarter of 2022, we significantly reduced our offer pace and subsequent closings of new home acquisitions in light of our risk management objective and overall macroeconomic uncertainty. When newly acquired homes represent a smaller proportion of our overall inventory, average days on market for our portfolio generally increases and we expect this trend to continue into early 2023. Inventory Financing Our business model is working capital intensive and inventory financing is a key enabler of our growth. We primarily rely on our access to non-recourse asset-backed debt, which consists of asset-backed senior debt facilities and asset-backed mezzanine term debt facilities, to finance our home acquisitions. See “— Liquidity and Capital Resources — Debt and Financing Arrangements. ” Seasonality The residential real estate market is seasonal, with greater demand and home price appreciation from home buyers in the spring and summer, and typically weaker demand and lower home price appreciation in late fall and winter. In general, we expect our financial results and working capital requirements to reflect seasonal variations over time. However, other factors, including growth, market expansion and changes in macroeconomic conditions, such as rising inflation and interest rate increases as recently observed, have obscured the impact of seasonality in our historical financials and we expect may continue to do so. 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 and Contribution Profit To provide investors with additional information regarding our margins and return on inventory acquired, we have included Adjusted Gross Profit and Contribution Profit, which are non-GAAP financial measures. We believe that Adjusted Gross Profit and Contribution Profit are useful financial measures for investors as they are supplemental measures used by management in evaluating unit level economics and our operating performance. 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. Adjusted Gross Profit and Contribution Profit 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. 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 valuation adjustment in the current period, (2) inventory valuation adjustment in prior periods, and (3) restructuring in cost of revenue. Restructuring in 43 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) cost of revenue reflects the costs associated with the reduction in our workforce in 2020, a portion of which were related to personnel included in cost of revenue. Inventory valuation adjustment in the current period is calculated by adding back the inventory valuation adjustments recorded during the period on homes that remain in inventory at period end. Inventory valuation adjustment in prior periods is calculated by subtracting the inventory valuation adjustments 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. See “— Critical Accounting Policies and Estimates — Real Estate Inventory” for detailed discussion of inventory valuation adjustment. 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 certain costs incurred on homes sold during the current period including: (1) holding costs incurred in the current period, (2) holding costs incurred in prior periods, and (3) direct selling costs. 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. The following table presents a reconciliation of our Adjusted Gross Profit and Contribution Profit to our gross profit, which is the most directly comparable GAAP measure, for the periods indicated: Year Ended December 31, (in millions, except percentages) 2022 2021 2020 Gross profit (GAAP) $ 667 $ 730 $ 220 Gross Margin 4.3 % 9.1 % 8.5 % Adjustments: Inventory valuation adjustment – Current Period (1)(2) 458 39 — Inventory valuation adjustment – Prior Periods (1)(3) (39) — (11) Restructuring in cost of revenue (4) — — 2 Adjusted Gross Profit $ 1,086 $ 769 $ 211 Adjusted Gross Margin 7.0 % 9.6 % 8.2 % Adjustments: Direct selling costs (5) (414) (195) (73) Holding costs on sales – Current Period (6)(7) (109) (47) (17) Holding costs on sales – Prior Periods (6)(8) (38) (2) (11) Contribution Profit $ 525 $ 525 $ 110 Contribution Margin 3.4 % 6.5 % 4.3 % ________________ (1) Inventory valuation adjustment includes adjustments to record real estate inventory at the lower of its carrying amount or its net realizable value. See “— Critical Accounting Policies and Estimates — Real Estate Inventory. ” (2) Inventory valuation adjustment — Current Period is the inventory valuation adjustments recorded during the period presented associated with homes that remain in inventory at period end. (3) Inventory valuation adjustment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented. 44 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) (4) 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 the second quarter of 2020 following the outbreak of the COVID-19 pandemic. (5) 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. (6) Holding costs include mainly property taxes, insurance, utilities, homeowners association dues, cleaning and maintenance costs. Holding costs are included in Sales, marketing, and operations on the Consolidated Statements of Operations. (7) Represents holding costs incurred in the period presented on homes sold in the period presented. (8) Represents holding costs incurred in prior periods on homes sold in the period presented. 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, not aligned to related revenue, or not reflective of ongoing operating results that vary in frequency and amount. 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 inventory valuation adjustments that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, inventory valuation adjustments 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, equity securities fair value adjustment, derivative and warrant fair value adjustment, and intangibles amortization expense. It excludes expenses that are not directly related to our revenue-generating operations such as restructuring charges and legal contingency accruals. It excludes loss on extinguishment of debt as these expenses were incurred as a result of decisions made by management to repay portions of our outstanding credit facilities early; these expenses are not reflective of ongoing operating results and vary in frequency and amount. It also excludes non-recurring payroll tax on initial RSU release, gain on lease termination, goodwill impairment and convertible note payment-in-kind (“PIK”) interest and issuance discount amortization. Adjusted Net Loss also aligns the timing of inventory valuation adjustments 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. 45 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, 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: Year Ended December 31, (in millions, except percentages) 2022 2021 2020 Net loss (GAAP) $ (1,353) $ (662) $ (253) Adjustments: Stock-based compensation 171 536 38 Equity securities fair value adjustment (1) 35 (35) — Derivative and warrant fair value adjustment (1) — (12) (8) Intangibles amortization expense (2) 9 4 4 Inventory valuation adjustment – Current Period (3)(4) 458 39 — Inventory valuation adjustment – Prior Periods (3)(5) (39) — (11) Restructuring (6) 17 — 31 Convertible note PIK interest and discount amortization (7) — — 8 Loss on extinguishment of debt 25 — 11 Gain on lease termination — (5) — Goodwill impairment 60 — — Payroll tax on initial RSU release — 5 — Legal contingency accrual and related expenses 46 14 4 Other (8) (3) — 1 Adjusted Net Loss $ (574) $ (116) $ (175) Adjustments: Depreciation and amortization, excluding amortization of intangibles 41 33 22 Property financing (9) 329 119 38 Other interest expense (10) 56 24 22 Interest income (11) (22) (3) (5) Income tax expense 2 1 — Adjusted EBITDA $ (168) $ 58 $ (98) Adjusted EBITDA Margin (1.1) % 0.7 % (3.8) % ________________ (1) Represents the gains and losses on certain financial instruments, which are marked to fair value at the end of each period. (2) Represents amortization of acquisition-related intangible assets. The acquired intangible assets have useful lives ranging from 1 to 5 years and amortization is expected until the intangible assets are fully amortized. (3) Inventory valuation adjustment includes adjustments to record real estate inventory at the lower of its carrying amount or its net realizable value. (4) Inventory valuation adjustment — Current Period is the inventory valuation adjustments recorded during the period presented associated with homes that remain in inventory at period end. (5) Inventory valuation adjustment — Prior Periods is the inventory valuation adjustments recorded in prior periods associated with homes that sold in the period presented. (6) Restructuring costs consist mainly of employee termination benefits, relocation packages and bonuses as well as costs related to the exiting of certain non-cancelable leases. (7) 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. 46 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) (8) Includes primarily gain or loss on interest rate lock commitments, gain or loss on the sale of available for sale securities, sublease income, and income from equity method investments. (9) Includes interest expense on our non-recourse asset-backed debt facilities. (10) Includes amortization of debt issuance costs and loan origination fees, commitment fees, unused fees, other interest related costs on our asset-backed debt facilities, interest expense related to the 2026 convertible senior notes outstanding, and interest expense on other secured borrowings. (11) Consists mainly of interest earned on cash, cash equivalents and marketable securities. Components of Our Results of Operations Revenue We generate the majority of our revenue 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 and brokerage services. 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 and direct costs to renovate or repair the home. 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. Real estate inventory is reviewed for valuation adjustments at least quarterly. If the carrying amount or basis is not expected to be recovered, an inventory valuation adjustment is recorded to cost of revenue and the related assets are adjusted to their net realizable value. 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 broker commissions (paid to the home buyers’ real estate agents and third-party listing 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. 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 websites, tools, applications, and mobile apps that support our products. Technology and development expense also includes amortization of capitalized software development costs. 47 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Goodwill Impairment Expense Goodwill impairment expense consists of impairment charges recorded as a result of goodwill impairment testing. Restructuring Expense Restructuring expense consists primarily of severance and other termination benefits for employees whose roles have been eliminated as well as costs related to the exiting of certain non-cancelable leases with no future benefits to the Company. 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. Loss on Extinguishment of Debt Loss on extinguishment of debt is the result of the Company’s partial or full termination of a debt facility and is comprised of amounts paid to the lenders in excess of the book basis, as well as unamortized deferred costs associated with the facility. 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 the Benchmark Rates, 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 (Loss) Income — Net Other (loss) income-net consists primarily of changes in fair value of, and dividend income, from our investment in equity securities as well as interest income from our investment in money market funds, time deposits, and 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. 48 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth our results of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, Change in (in millions, except percentages) 2022 2021 $ % Revenue $ 15,567 $ 8,021 $ 7,546 94 % Cost of revenue 14,900 7,291 7,609 104 % Gross profit 667 730 (63) (9) % Operating expenses: Sales, marketing and operations 1,006 544 462 85 % General and administrative 346 620 (274) (44) % Technology and development 169 134 35 26 % Goodwill impairment 60 — 60 N/M Restructuring 17 — 17 N/M Total operating expenses 1,598 1,298 300 23 % Net operating loss (931) (568) (363) 64 % Derivative and warrant fair value adjustment — 12 (12) (100) % Loss on extinguishment of debt (25) — (25) N/M Interest expense (385) (143) (242) 169 % Other (loss) income-net (10) 38 (48) (126) % Loss before income taxes (1,351) (661) (690) 104 % Income tax expense (2) (1) (1) 100 % Net loss $ (1,353) $ (662) $ (691) 104 % N/M - Not meaningful. Revenue Revenue increased by $7.5 billion, or 94%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase in revenue was primarily attributable to higher sales volumes as well as higher revenue per home. We sold 39,183 homes during the year ended December 31, 2022, compared to 21,725 homes during the year ended December 31, 2021, representing an increase of 80%. Revenue per home sold increased 8% between periods due to inventory mix, buybox expansion and home price appreciation. Cost of Revenue and Gross Profit Cost of revenue increased by $7.6 billion, or 104%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase in cost of revenue was primarily attributable to higher sales volumes and a 13% increase in cost of revenue per home, excluding inventory valuation adjustments, as a result of inventory mix, buybox expansion, and home price appreciation at the time of inventory acquisition. In addition, we recorded $458 million of inventory valuation adjustments during the year ended December 31, 2022 to adjust the cost basis of homes remaining in inventory at December 31, 2022 to their net realizable value as compared to $39 million of inventory valuation adjustments during the year ended December 31, 2021. Gross profit decreased from $730 million to $667 million and gross margin decreased from 9.1% to 4.3% for the year ended December 31, 2021 and December 31, 2022, respectively. For the same periods, Adjusted Gross Margin decreased from 9.6% to 7.0%. The decrease in gross margin and Adjusted Gross Margin reflects our decision to prioritize risk management and resale clearance in the second half of 2022 at the expense of resale margin performance. As a result of the fast downturn in the housing market due to macroeconomic conditions, market conditions at the time of sale were weaker than we believed they would be at the time of pricing our inventory acquisitions. In addition, gross margin and Adjusted Gross Margin for the year ended December 31, 2021 benefited from a fresh book of inventory after we sold down our inventory in response to the COVID-19 pandemic and more favorable macroeconomic conditions as compared to the year ended December 31, 2022. 49 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Contribution Margin decreased from 6.5% to 3.4% for the same periods, due to the reasons noted above as well as due to increased direct selling and holding costs. See “— Non-GAAP Financial Measures .” Operating Expenses Sales, Marketing and Operations . Sales, marketing and operations increased by $462 million, or 85%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily attributable to a $219 million increase in resale transaction costs and broker commissions, consistent with the 94% increase in revenue. Property holding costs increased by $91 million, consistent with increased inventory levels and longer inventory holding periods compared to the year ended December 31, 2021 when we held a fresh book of inventory. Advertising expense increased by $77 million, from $123 million for the year ended December 31, 2021 to $200 million for the year ended December 31, 2022 as we increased marketing to drive acquisition volumes in both existing and new markets. Headcount expenses, including salaries and benefits, increased $50 million consistent with the increase in headcount. General and Administrative . General and administrative decreased by $274 million, or 44%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily attributable to $354 million reduction in stock-based compensation due to the expense recognition of certain performance awards during the year ended December 31, 2021 following the consummation of the Business Combination in December 2020, the expense recognition of certain RSUs upon the fulfillment of the liquidity event vesting condition satisfied by the February 2021 Offering and the reversal of expense in December 2022 related to the forfeiture of certain executive performance awards. The reduction in stock-based compensation was partially offset by a $46 million legal contingency accrual and related expenses recorded during the year ended December 31, 2022 in connection with the FTC consent order finalized in October 2022. Headcount expenses, including salaries and benefits increased $21 million consistent with the increase in headcount. Technology and Development . Technology and development increased by $35 million, or 26%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily attributable to a $26 million increase in headcount expenses, including salaries and benefits, consistent with the increase in headcount. Goodwill Impairment . Goodwill impairment increased by $60 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. During the fourth quarter of 2022, the market price of our common stock declined significantly causing the Company to perform an interim quantitative test for goodwill impairment. Based on the quantitative analysis, the Company recorded a goodwill impairment charge of $60 million for the year ended December 31, 2022. There was no impairment of goodwill identified for the years ended December 31, 2021 and 2020. Restructuring. Restructuring increased by $17 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The restructuring expenses recorded in the year ended December 31, 2022, represented severance, and other termination benefits for employees whose roles were eliminated, and other restructuring costs related to winding down the Company’s mortgage lending and brokerage services. Derivative and Warrant Fair Value Adjustment Derivative and warrant fair value adjustment decreased by $12 million, or 100%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The gain recorded in the year ended December 31, 2021 was attributable to a decrease in the fair value of the Sponsor Warrants between the time of the Business Combination and the completion of their redemption in July 2021. Loss on Extinguishment of Debt Loss on extinguishment of debt increased by $25 million, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The loss on extinguishment of debt of $25 million in December 31, 2022 resulted from the Company’s voluntary partial early repayment of an asset-backed mezzanine term debt facility. Interest Expense Interest expense increased by $242 million, or 169%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily attributable to increases in the average outstanding balances of our asset- 50 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) backed senior debt facilities and mezzanine term debt facilities, which is consistent with our increase in inventory over the same periods. In addition, interest expense from our asset-backed senior revolving credit facilities, which bear interest at a floating reference rate based on LIBOR or SOFR, has increased due to higher reference rates during the year ended December 31, 2022 compared to the year ended December 31, 2021. Other (Loss) Income — Net Other (loss) income – net decreased by $48 million, or 126%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease is primarily related to the fair value adjustments recorded on marketable equity securities. The Company recorded a $35 million gain in 2021 when a company in which we invested went public and then recorded a $35 million loss in 2022 when the company’s stock price declined. The fair value loss recorded in 2022 is offset by a $20 million increase in interest income due to higher interest rates during the year ended December 31, 2022 compared to the year ended December 31, 2021. During 2022, the terms of certain of our asset-backed senior revolving credit facilities were modified to replace LIBOR-based floating reference rates with SOFR-based floating reference rates. As of December 31, 2022, all such floating reference rates in our asset-backed senior revolving credit facilities were based on SOFR. Income Tax Expense Income tax expense increased by a nominal amount for the year ended December 31, 2022 compared to the year ended December 31, 2021. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The following table sets forth our results of operations for the years ended December 31, 2021 and 2020: Year Ended December 31, Change in (in millions, except percentages) 2021 2020 $ % Revenue $ 8,021 $ 2,583 $ 5,438 211 % Cost of revenue 7,291 2,363 4,928 209 % Gross profit 730 220 510 232 % Operating expenses: Sales, marketing and operations 544 189 355 188 % General and administrative 620 132 488 370 % Technology and development 134 56 78 139 % Restructuring — 29 (29) (100) % Total operating expenses 1,298 406 892 220 % Net operating loss (568) (186) (382) 205 % Derivative and warrant fair value adjustment 12 8 4 50 % Loss on extinguishment of debt — (11) 11 (100) % Interest expense (143) (68) (75) 110 % Other income-net 38 4 34 850 % Loss before income taxes (661) (253) (408) 161 % Income tax expense (1) — (1) N/M Net loss $ (662) $ (253) $ (409) 162 % N/M - Not meaningful. Revenue Revenue increased by $5.4 billion, or 211%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in revenue was primarily attributable to higher sales volumes in 2021 compared to 2020, as well as higher revenue per home. We sold 21,725 homes during the year ended December 31, 2021, compared to 9,913 homes during the year ended December 31, 2020, representing an increase of 119%, while revenue per home sold increased 42% between periods. The higher sales volumes are a reflection of growing market share in existing markets and, to a lesser extent, 51 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) our expansion into new markets. We successfully grew our inventory levels throughout 2021, allowing us to sell-through significantly more homes relative to 2020, when we had much lower inventory levels due to our temporary pause in home purchases at the start of the COVID-19 pandemic. Average resale prices were positively impacted by price mix within markets, overall home price appreciation and buybox expansion. Cost of Revenue and Gross Profit Cost of revenue increased by $4.9 billion, or 209%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase in cost of revenue was primarily attributable to higher sales volumes and a 41% increase in cost of revenue per home as a result of inventory mix, home price appreciation and buybox expansion. Gross margin improved from 8.5% to 9.1% for the year ended December 31, 2020 and December 31, 2021, respectively. For the same periods, Adjusted Gross Margins improved from 8.2% to 9.6%. The gross margin increase was primarily due to a combination of higher resale prices relative to our net purchase price for homes, repair and renovation efficiencies, and the effectiveness of our inventory resale systems. Contribution Margin increased from 4.3% to 6.5% for the same periods, due largely to higher Adjusted Gross Margins 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 $355 million, or 188%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to a $123 million increase in resale transactions costs and broker commissions, consistent with the 119% increase in the number of homes sold. In addition, advertising expense increased by $90 million 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. Property holding costs increased by $71 million consistent with increased inventory levels. Personnel expenses, including salaries and benefits increased $28 million consistent with the increase in headcount. General and Administrative . General and administrative increased by $488 million, or 370%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to $430 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. Personnel expenses, including salaries and benefits increased $22 million consistent with the increase in headcount. Technology and Development . Technology and development increased by $78 million, or 139%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to an $56 million increase in stock-based compensation reflecting both an increase in headcount as well as the recognition of stock-based compensation beginning in 2021 when the February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs. Personnel expenses, including salaries and benefits increased $12 million consistent with the increase in headcount. Restructuring. Restructuring decreased by $29 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The restructuring expenses recorded in the year ended December 31, 2020, represent severance, and other termination benefits for employees whose roles were eliminated, and other restructuring costs related to the exiting of certain non-cancelable leases with no future benefit to the Company. Derivative and Warrant Fair Value Adjustment Derivative and warrant fair value adjustment increased by $4 million, or 50% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The adjustments recorded in the years ended December 31, 2020 and December 31, 2021 were primarily attributable to a gains of $34 million and $12 million, respectively, due to a decrease in the fair value of the Sponsor Warrants between the time of the Business Combination and the completion of their redemption in July 2021. The gains recorded for the year ended December 31, 2020 were offset by a $23 million increase in the fair value of a derivative liability in extinguishment of the Company's 2019 Convertible Notes. 52 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Loss on Extinguishment of Debt Loss on extinguishment of debt decreased by $11 million, or 100%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The loss on extinguishment of debt of $11 million in 2020 resulted from the Company’s early termination of one of its mezzanine term debt facilities. The Company did not have any meaningful losses on extinguishment of debt during the year ended December 31, 2021. Interest Expense Interest expense increased by $75 million, or 110%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to increases in the average outstanding balances of our asset-backed senior debt 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 was partially offset by a $8 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 $34 million, or 850%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily related to the $35 million fair value adjustment on marketable equity securities recorded in 2021 when a company in which we invested went public. Income Tax Expense Income tax expense increased by a nominal amount for the year ended December 31, 2021 compared to the year ended December 31, 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 December 31, 2022, we had cash and cash equivalents of $1.1 billion, restricted cash of $654 million, and marketable securities of $144 million. The decline in our cash, cash equivalents and marketable securities balance of $934 million as compared to December 31, 2021 resulted from a combination of operating losses and borrowing less from our asset-backed senior revolving credit facilities relative to our real estate inventory as part of deleveraging of our inventory. The decrease in our restricted cash balance of $193 million as compared to December 31, 2021 was a result of lower balances of resale proceeds being held in restricted cash accounts and the repayment of asset-backed debt. The Company had total outstanding balances on our asset-backed debt of $4.4 billion and aggregate principal outstanding from the 2026 Notes of $978 million. In addition, we had undrawn borrowing capacity of $7.5 billion under our non-recourse asset-backed debt facilities (as described further below), of which $2.3 billion was committed. 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 million after deducting underwriting discounts and commissions and offering expenses payable by us. In August 2021, we issued 0.25% convertible senior notes due in 2026 (the “2026 Notes”) with an aggregate principal amount of $978 million, which resulted in net proceeds after underwriting fees and other transactions costs of $953 million. In connection with the issuance of the 2026 Notes, the Company purchased capped calls from certain financial institutions at a cost of $119 million. As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend 53 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material. We have incurred losses from inception through December 31, 2022 and expect to incur additional losses in the 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. Our working capital requirements may increase should our inventory balance increase. 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 Annual Report on Form 10-K. Debt and Financing Arrangements Our financing activities include: short-term borrowings under our asset-backed senior revolving credit facilities and, prior to the discontinuation of our mortgage origination business, our mortgage repurchase financing; the issuance of long-term asset-backed senior term debt, asset-backed mezzanine term debt, and 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 debt facilities and asset-backed mezzanine term 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. We intend to actively manage our relationships with multiple financial institutions and seek to optimize duration, flexibility, efficiency and cost of funds, but there can be no assurance that we will be able to obtain sufficient capital for our business or to do so on acceptable financial and other terms. 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. The terms of our inventory financing facilities require an Opendoor subsidiary to comply with customary financial covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to tangible net worth). As of December 31, 2022, the Company was in compliance with all financial covenants. Our property financing subsidiaries’ assets and credit generally are not available to satisfy the debts and other obligations of any other Opendoor entities. Our asset-backed debt is non-recourse to Opendoor and our subsidiaries that are not party to the relevant financing arrangements, 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. Our asset-backed senior debt facilities generally provide for advance rates of 80% to 90% against our cost basis in the underlying properties upon acquisition. Our mezzanine term facilities may finance up to 95% to 100% of our cost basis in the underlying properties upon acquisition. The maximum initial advance rates vary by facility and generally decrease on a fixed timeline that varies by facility based on the length of time a given property has been financed and other facility-specific adjustments, including adjustments based on collateral performance. At times, we may be required to keep amounts in restricted cash accounts to collateralize our asset-backed term debt facilities if the property borrowing base is insufficient to satisfy the borrowing base requirements. These amounts may fluctuate due to seasonality, timing of property acquisitions and resales, and the outstanding loan balances under our asset-backed term debt facilities. 54 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, 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 December 31, 2022 (in millions, except interest rates): Outstanding Amount December 31, 2022 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 Revolving Credit Facilities Revolving Facility 2018-2 $ 1,000 $ 472 $ — 4.86 % June 7, 2024 June 7, 2024 Revolving Facility 2018-3 1,000 194 — 3.98 % October 20, 2025 October 20, 2025 Revolving Facility 2019-1 900 55 — 4.41 % June 30, 2023 June 30, 2023 Revolving Facility 2019-2 1,850 167 — 3.92 % July 8, 2023 July 8, 2024 Revolving Facility 2019-3 925 — — 3.86 % April 5, 2024 April 4, 2025 Revolving Facility 2022-1 525 289 — 8.15 % December 31, 2022 October 31, 2023 Asset-backed Senior Term Debt Facilities Term Debt Facility 2021-S1 400 — 400 3.48 % April 1, 2024 April 1, 2025 Term Debt Facility 2021-S2 600 — 500 3.20 % September 10, 2024 September 10, 2025 Term Debt Facility 2021-S3 1,000 — 750 3.75 % January 31, 2027 July 31, 2027 Term Debt Facility 2022-S1 250 — 250 4.07 % March 1, 2025 September 1, 2025 Term Debt Facility 2022-S2 500 200 — 8.48 % January 31, 2023 December 31, 2023 Total $ 8,950 $ 1,377 $ 1,900 Issuance Costs (1) (17) Carrying Value $ 1,376 $ 1,883 Asset-backed Mezzanine Term Debt Facilities Term Debt Facility 2020-M1 $ 2,500 $ — $ 1,000 10.00 % April 1, 2025 April 1, 2026 Term Debt Facility 2022-M1 $ 500 $ — $ 150 10.00 % September 15, 2025 September 15, 2026 Total $ 3,000 $ — $ 1,150 Issuance Costs (13) Carrying Value $ 1,137 Total Non-Recourse Asset-backed Debt $ 11,950 $ 1,376 $ 3,020 Asset-backed Senior Revolving Credit Facilities We classify the senior revolving credit facilities as current liabilities on our consolidated balance sheets. In some cases, the borrowing capacity amounts under the asset-backed senior revolving credit facilities as reflected in the table are not fully committed and any borrowings above the committed amounts are subject to the applicable lender’s discretion. As of December 31, 2022, we had committed borrowing capacity with respect to asset-backed senior revolving credit facilities of $3.2 billion. The revolving 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 revolving credit facilities also have additional extension options that are subject to lender approval that are not reflected in the table above. Asset-backed Senior Term Debt Facilities We classify our senior term debt facilities as non-current liabilities in our consolidated balance sheets. The carrying value of the non-current liabilities is reduced by issuance costs of $17 million. In some cases, the borrowing capacity amounts under the asset-backed senior term debt facilities as reflected in the table are not fully committed and any borrowings above the committed amounts are subject to the applicable lender’s discretion. As of December 31, 2022, we had committed borrowing capacity with respect to asset-backed senior term debt facilities of $2.1 billion. 55 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) The 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 term debt facilities also have additional extension options that are subject to lender approval that are not reflected in the table above. Asset-backed Mezzanine Term Debt Facilities In addition to the asset-backed senior revolving credit facilities and asset-backed senior term debt facilities, we have issued asset-backed mezzanine term debt facilities which are subordinated to the related senior facilities. The borrowing capacity amounts under the asset-backed mezzanine term debt facilities as reflected in the table are not fully committed and any borrowing above the committed amounts are subject to the applicable lender's discretion. As of December 31, 2022, we had committed borrowing capacity with respect to asset-backed mezzanine term debt facilities of $1.2 billion. Mortgage Financing We primarily used debt financing to fund our mortgage loan originations. In 2019, we entered into a master repurchase agreement(the “Repurchase Agreement”) to finance substantially all of the mortgage loans that we originated. Once our mortgage business sold a loan in the secondary mortgage market, we used the sale proceeds to reduce the outstanding balance under the repurchase facility. The Repurchase Agreement was terminated in October 2022. Convertible Senior Notes In August 2021, we issued the 2026 Notes with an aggregate principal amount of $978 million. The table below summarizes certain details related to our 2026 Notes (in millions): December 31, 2022 Aggregate Principal Amount Unamortized Debt Issuance Costs Net Carrying Amount 2026 Notes $ 978 $ (19) $ 959 See “ Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 7. Credit Facilities and Long-Term Debt ” for additional information regarding our debt and financing arrangements. Special Purpose Entities The Company established certain special purpose entities (“SPEs”) for the purpose of financing the Company’s purchase and renovation of real estate inventory through the issuance of asset-backed debt. The Company is the primary beneficiary of the various variable interest entities (“VIE”) within these financing structures and consolidates these VIEs. See “ Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 6. Variable Interest Entities ” for additional information regarding our VIEs. 56 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) The following table summarizes the assets and liabilities related to the VIEs consolidated by the Company as well as the assets, liabilities and equity related to Opendoor Technologies Inc (Parent Company Only) (“Parent Company”) and subsidiaries that are not VIEs, as of December 31, 2022 (in millions): VIE Non-VIE Total CURRENT ASSETS: Cash and cash equivalents $ — $ 1,137 $ 1,137 Restricted cash 636 18 654 Marketable securities — 144 144 Real estate inventory 4,858 61 4,919 Inventory valuation adjustment (450) (9) (459) Real estate inventory, net 4,408 52 4,460 Other current assets (1) 38 33 71 Total current assets 5,082 1,384 6,466 OTHER ASSETS (2) — 142 142 TOTAL ASSETS $ 5,082 $ 1,526 $ 6,608 CURRENT LIABILITIES: Current senior revolver asset-backed debt 1,177 — 1,177 Current senior term asset-backed debt 199 — 199 Other current liabilities (3) 72 57 129 Total current liabilities 1,448 57 1,505 Long term mezzanine asset backed debt 1,137 — 1,137 Long term senior term asset backed debt 1,883 — 1,883 CONVERTIBLE SENIOR NOTES — 959 959 LEASE LIABILITIES – Net of current portion — 38 38 TOTAL LIABILITIES $ 4,468 $ 1,054 $ 5,522 SHAREHOLDERS’ EQUITY: $ 614 $ 472 $ 1,086 ________________ (1) The Company’s consolidated other current assets include the following assets as shown in the Consolidated Balance Sheets: Escrow Receivable, $30 million; Other Current Assets $41 million. (2) The Company’s consolidated Other Assets include the following assets as shown in the Consolidated Balance Sheets: Property and Equipment - Net, $58 million; Right of Use Assets, $41 million; Goodwill, $4 million; Intangibles - Net, $12 million; and Other Assets, $27 million. (3) The Company’s Other Current Liabilities include the following liabilities as shown in the Consolidated Balance Sheets: Accounts Payable and Other Accrued Liabilities, $110 million; Interest Payable, $12 million; and Lease Liabilities - Current, $7 million. 57 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, (in millions) 2022 2021 2020 Net cash provided by (used in) operating activities $ 730 $ (5,794) $ 682 Net cash provided by (used in) investing activities $ 234 $ (476) $ (22) Net cash (used in) provided by financing activities $ (1,751) $ 7,342 $ 161 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (787) $ 1,072 $ 821 Net Cash Provided by (Used in) Operating Activities Net cash provided by (used in) operating activities was $730 million, $(5.8) billion and $682 million for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, cash provided by operating activities was primarily driven by a $896 million decrease in real estate inventory. For the year ended December 31, 2021, cash used in operating activities was primarily driven by a $5.7 billion increase in real estate inventory and an $83 million increase in escrow receivables correlated to the increase in revenue during the year. For the year ended December 31, 2020, cash provided by operating activities was primarily driven by an $834 million reduction in real estate inventory offset by our net loss net of non-cash items of $149 million. Net Cash Provided by (Used in) Investing Activities Net cash provided by (used in) investing activities was $234 million, $(476) million and $(22) million for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, cash provided by investing activities primarily consisted of a $300 million net decrease in marketable securities, partially offset by a $37 million increase in property and equipment, and $19 million for strategic investments in certain privately held companies. For the year ended December 31, 2021, cash used in investing activities primarily consisted of $394 million in investments in marketable securities, $33 million for the acquisitions of Pro.com and RedDoor, net of cash acquired, the $15 million purchase of strategic investments in certain privately held companies, and $33 million in capital expenditures, including internally developed software. For the year ended December 31, 2020, cash used in investing activities primarily consisted of capital expenditures. Net Cash (Used in) Provided by Financing Activities Net cash (used in) provided by financing activities was $(1.8) billion, $7.3 billion and $161 million for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, cash used in financing activities was primarily attributable to $1.7 billion net principal payments on non-recourse asset-backed debt. For the year ended December 31, 2021, cash provided by financing activities was primarily attributable to $5.7 billion net proceeds from non-recourse asset-backed debt and $886 million in proceeds from the February 2021 Offering, net of $29 million of issuance costs. In addition, we received $978 million in proceeds from the issuance of the 2026 Notes, net of $25 million of issuance costs and offset by $119 million purchase of the Capped Calls related to the 2026 Notes. For the year ended December 31, 2020, cash provided by financing activities was primarily attributable to proceeds from the Business Combination and PIPE Investment in the amount of $1.0 billion, partially offset by the repayment of $816 million of our asset-backed debt and other secured borrowings. 58 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) Contractual Obligations and Commitments Contractual obligations are cash amounts that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business. Below is a table that shows our contractual obligations as of December 31, 2022: Payment Due by Year (in millions) Total Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Senior revolving credit facilities (1) $ 1,199 $ 1,199 $ — $ — $ — Senior and mezzanine term debt facilities (2) 3,878 400 1,498 1,980 — Convertible senior notes (3) 988 2 5 981 — Operating leases (4) 62 11 17 14 20 Purchase commitments (5) 331 331 — — — Total $ 6,458 $ 1,943 $ 1,520 $ 2,975 $ 20 ________________ (1) Represents the principal amounts outstanding as of December 31, 2022. 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 December 31, 2022. (2) Represents the principal amounts outstanding as of December 31, 2022 and estimated 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 December 31, 2022 and interest payments assuming the principal balances remain outstanding until maturity. (4) Represents future payments for long-term operating leases that have commenced as of December 31, 2022. (5) As of December 31, 2022, we were under contract to purchase 1,011 homes for an aggregate purchase price of $331 million. 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 consolidated financial statements. Based on this definition, we have identified the critical accounting policies and estimates addressed below. In addition, we have other key accounting policies and estimates that are described in “ Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies” . Real Estate Inventory Real estate inventory carrying value is equal to the lower of cost or net realizable value and each home constitutes the unit of account. Real estate inventory cost includes but is not limited to the property purchase price, acquisition costs and direct costs to renovate or repair the home, less inventory valuation adjustments, if any. The property purchase price is net of our service fee and represents the cash proceeds paid to the home seller. Real estate inventory is reviewed for valuation adjustments on a quarterly basis. If the carrying amount for a given home is not expected to be recovered, an inventory valuation adjustment is recorded to cost of revenue and the home’s carrying value is adjusted to its net realizable value. Inventory valuation 59 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) adjustments are not offset by any expected gains and are not reversed or adjusted should the expected net realizable value subsequently increase. For homes under resale contract, the net realizable value is the contract price less expected selling costs and any expected concessions. For all other homes, the net realizable value is our internal projection price less expected selling costs. Changes in our pricing assumptions may lead to a change in the outcome of our inventory valuation adjustment, and actual results may also differ from our assumptions. Stock-Based Compensation Our stock-based awards include stock options, restricted stock units (“RSUs”), shares of restricted stock (“Restricted Shares”), and shares granted under our Employee Stock Purchase Plan (“ESPP”). We recognize the cost of stock option awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. We elected to recognize the effect of forfeitures in the period that they occur. We determine the fair value of stock options using the Black-Scholes-Merton option pricing model, which is impacted by the following assumptions: • Expected Term. We use the simplified method when calculating the expected term due to insufficient historical exercise data. Management elected to use the simplified method instead of historical experience due to a lack of relevant historical data resulting from changes in option vesting schedules and changes in the pool of employees receiving option grants. • Expected Volatility. As our shares were not actively traded on Nasdaq until December 2020, the volatility used for stock options granted prior to the Company becoming listed is based on a benchmark of comparable companies within the automotive sales industry and certain real estate technology companies. For stock options granted after the Company became listed, we use the implied volatility from traded Opendoor call options. • Expected Dividend Yield. The dividend rate used is zero as we have never paid any cash dividends on our common stock and do not anticipate doing so in the foreseeable future. • Risk-Free Interest Rate. The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. We evaluate the assumptions used to value our share-based awards on each grant date. Following the Company’s common stock being listed on Nasdaq, the fair value of our stock has been determined based on the quoted market price. Prior to our common stock being listed on Nasdaq, the grant date fair value of our common stock was determined with the assistance of an independent third-party valuation specialist. The grant date fair value of our common stock was determined using valuation methodologies which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability. Prior to our common stock being listed on Nasdaq, we determined that an Option Pricing Model (“OPM”) was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock. Application of the OPM involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Specifically, we have historically used the OPM back solve analysis in combination with the market comparables approach to estimate the fair value of our common stock. OPM back solve analysis derives the implied equity value for one type of equity security from a contemporaneous transaction involving another type of security; we utilized the OPM back solve analysis with respect to our convertible preferred stock to derive a value of our common stock. In certain periods where there is not a contemporaneous transaction, we utilized the market comparables approach to estimate an enterprise equity valuation which is then allocated using OPM to determine the common stock value. The grant date fair value calculated using the methodology discussed above is also utilized with respect to RSUs with performance and service conditions to vest and restricted shares. For RSUs with a performance condition based on a liquidity event, as well as a service condition to vest, no compensation expense is recognized until the performance condition has been satisfied. Subsequent to the liquidity event, compensation expense is recognized to the extent the requisite service period has been completed and compensation expense thereafter is recognized on an accelerated attribution method. Under the accelerated attribution method, compensation expense is recognized over the remaining requisite service period for each service condition tranche as though each tranche is, in substance, a separate award. In February 2021, the Company completed an underwritten public offering, which met the liquidity event vesting condition and triggered the recognition of compensation expense for 60 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in millions, except share and per share data and ratios,or as noted) RSUs for which the time-based vesting condition had been satisfied or partially satisfied. For further information on the February 2021 underwritten public offering, see “ Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 13. Shareholders’ Equity” . We determined the grant date fair value of RSUs with market-based vesting conditions by using Monte Carlo simulations. The assumptions for stock price volatility, contractual term, dividend yield, and stock price used in the Monte Carlo simulations are determined using the same methodology as described above. The exception is that with respect to the stock price volatility used for the Monte Carlo simulations, the Company took into consideration the capital structure of each comparable company comprising the benchmark to isolate each comparable company’s equity volatility without the effect of leverage and then re-levered using our capital structure. If we consider the performance conditions probable to be satisfied, we recognize the cost of these RSUs by treating each market-based condition as an unit of account and recognizing the cost over the requisite service period with respect to each unit. We determine the requisite service period by comparing the derived service period to achieve the market-based condition and the explicit service-based period, if any, using the longer of the two service periods as the requisite service period. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different. For more detailed information about our historical and outstanding grants and our valuation of our share-based compensation and awards, see “ Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 14. Share-Based Awards” . Public and Sponsor Warrants On April 30, 2020, SCH consummated its initial public offering (the “IPO”) 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 allowed the sponsor to purchase one share of Class A common stock at $11.50 per share. The Sponsor Warrants and shares of common stock issuable upon the exercise of Sponsor Warrants 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. 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 did not meet the criteria to be classified in shareholders’ equity. Specifically the exercise and settlement features for the Sponsor Warrants precluded them from being considered indexed to the Company’s own stock given that a change in the holder of the Sponsor Warrants may alter the settlement of the Sponsor Warrants. Since the holder of the instrument is not an input to a standard option pricing model, a consideration with respect to the indexation guidance, 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 consolidated statement of operations at each reporting period. The Company concluded that the Public Warrants, which did 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 II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies” . 61 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC.