Document

 
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-251529
 
Prospectus Supplement No. 2
(To Prospectus dated March 12, 2021)

OPENDOOR TECHNOLOGIES INC.
https://cdn.kscope.io/ec7cc2360860c54dbe32c304ab688cc5-image_01a.jpg
 
This prospectus supplement updates, amends and supplements the prospectus dated March 12, 2021 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration No. 333-251529). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.
 
This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the SEC on May 12, 2021, which is set forth below.
 
This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.
 
Opendoor Technologies Inc.’s common stock and warrants are quoted on the Nasdaq Global Select Market under the symbols “OPEN” and “OPENW,” respectively. On May 11, 2021, the closing prices of our common stock and warrants were $17.45 and $6.22, respectively.
 
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 6 OF THE PROSPECTUS.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus supplement is May 12, 2021


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission file number 001-39253
Opendoor Technologies Inc.
(Exact name of registrant as specified in its charter)
Delaware98-1515020
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
410 N. Scottsdale Road,Suite 1600
Tempe,AZ85281
(Address of Principal Executive Offices)(Zip Code)
(415) 896-6737
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per shareOPENThe Nasdaq Stock Market LLC
Warrants to purchase common stockOPENWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of registrant’s common stock outstanding as of May 5, 2021 was approximately 577,694,841.



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OPENDOOR TECHNOLOGIES INC.
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Opendoor,” the “Company,” “we,” “us,” and “our,” and similar references refer to Opendoor Technologies Inc. and its wholly owned subsidiaries following the Business Combination (as defined herein) and to Opendoor Labs Inc. prior to the Business Combination.
As a result of the Business Combination completed on December 18, 2020, Opendoor Labs Inc. share and per share amounts presented in this Quarterly Report on Form 10-Q, for periods prior to the Business Combination, have been retroactively converted by application of the exchange ratio of 1.618. For more information regarding the business combination, please see “Part I – Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – The Business Combination”.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition; business strategy and plans; expectations regarding the impact of COVID-19; market opportunity and expansion and objectives of management for future operations, including our statements regarding the benefits and timing of the roll out of new markets, products, or technology; and efforts to remediate our material weaknesses in internal control over financial reporting, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast”, “future”, “intend,” “may,” “might”, “opportunity”, “plan,” “possible”, “potential,” “predict,” “project,” “should,” “strategy”, “strive”, “target,” “will,” or “would”, including their antonyms or other similar terms or expressions may identify forward-looking statements. The absence of these words does not mean that a statement is not forward-looking.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, risks related to:
our public securities’ potential liquidity and trading;
our ability to raise financing in the future;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
the impact of the regulatory environment and complexities with compliance related to such environment;
our ability to remediate our material weaknesses;
factors relating to our business, operations and financial performance, including:
the impact of the COVID-19 pandemic;
our ability to maintain an effective system of internal controls over financial reporting;
our ability to grow market share in our existing markets or any new markets we may enter;
our ability to respond to general economic conditions;
the health of the U.S. residential real estate industry;
risks associated with our real estate assets and increased competition in the U.S. residential real estate industry;
our ability to manage our growth effectively;
our ability to achieve and maintain profitability in the future;
our ability to access sources of capital, including debt financing and securitization funding to finance our real estate inventories and other sources of capital to finance operations and growth;
our ability to maintain and enhance our products and brand, and to attract customers;
our ability to manage, develop and refine our technology platform, including our automated pricing and valuation technology;
the success of our strategic relationships with third parties; and
other factors detailed under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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OPENDOOR TECHNOLOGIES INC.
As a result of a number of known and unknown risks and uncertainties, including without limitation the important factors described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and on Part I. Item 1A “ Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.



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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31, 2021December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$2,039,876 $1,412,665 
Restricted cash143,311 92,863 
Marketable securities58,619 47,637 
Mortgage loans held for sale pledged under agreements to repurchase8,307 7,529 
Escrow receivable19,264 1,494 
Real estate inventory, net840,632 465,936 
Other current assets ($414 and $373 carried at fair value)
33,292 24,987 
Total current assets3,143,301 2,053,111 
PROPERTY AND EQUIPMENT – Net31,042 29,228 
RIGHT OF USE ASSETS47,114 49,517 
GOODWILL30,945 30,945 
INTANGIBLES – Net8,104 8,684 
OTHER ASSETS ($10,000 and $0 carried at fair value)
11,206 4,097 
TOTAL ASSETS
(1)
$3,271,712 $2,175,582 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities$41,413 $25,270 
Current portion of credit facilities and other secured borrowings596,563 346,322 
Interest payable1,228 1,081 
Lease liabilities, current portion4,490 20,716 
Total current liabilities643,694 393,389 
CREDIT FACILITIES – Net of current portion136,473 135,467 
WARRANT LIABILITIES62,621 47,349 
LEASE LIABILITIES – Net of current portion45,241 46,625 
OTHER LIABILITIES122 94 
Total liabilities
(2)
888,151 622,924 
COMMITMENTS AND CONTINGENCIES (See Note 17)
SHAREHOLDERS’ EQUITY:
Common stock, $0.0001 par value; 3,000,000,000 shares authorized; 585,691,729 and 540,714,692 shares issued and outstanding, respectively
58 54 
Additional paid-in capital3,697,382 2,596,012 
Accumulated deficit(1,313,885)(1,043,449)
Accumulated other comprehensive income41 
Total shareholders’ equity 2,383,561 1,552,658 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$3,271,712 $2,175,582 
________________
(1)The Company’s consolidated assets at March 31, 2021 and December 31, 2020 include the following assets of certain variable interest entities (“VIEs”) that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $9,108 and $15,849; Restricted cash, $133,887 and $81,408; Real estate inventory, net, $820,961 and $460,680; Escrow receivable, $18,839 and $1,364; Other current assets, $10,220 and $5,365; and Total assets of $993,015 and $564,666, respectively.
(2)The Company’s consolidated liabilities at March 31, 2021 and December 31, 2020 include the following liabilities for which the VIE creditors do not have recourse to Opendoor: Accounts payable and other accrued liabilities, $4,090 and $2,335; Interest payable, $1,220 and $1,059; Current portion of credit facilities and other secured borrowings, $588,774
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and $339,173; Credit facilities, net of current portion, $136,473 and $135,467; and Total liabilities, $730,557 and $478,034, respectively.
See accompanying notes to condensed consolidated financial statements.
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OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
20212020
REVENUE$747,274 $1,255,795 
COST OF REVENUE650,142 1,164,748 
GROSS PROFIT97,132 91,047 
OPERATING EXPENSES:
Sales, marketing and operations69,066 81,689 
General and administrative222,084 29,583 
Technology and development50,677 15,787 
Total operating expenses341,827 127,059 
LOSS FROM OPERATIONS(244,695)(36,012)
DERIVATIVE AND WARRANT FAIR VALUE ADJUSTMENT(15,272)(1,012)
INTEREST EXPENSE(10,999)(27,727)
OTHER INCOME – Net624 2,675 
LOSS BEFORE INCOME TAXES(270,342)(62,076)
INCOME TAX EXPENSE(94)(120)
NET LOSS$(270,436)$(62,196)
Net loss per share attributable to common shareholders:
Basic$(0.48)$(0.74)
Diluted$(0.48)$(0.74)
Weighted-average shares outstanding:
Basic565,381 84,027 
Diluted565,381 84,027 

















See accompanying notes to condensed consolidated financial statements.
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OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20212020
NET LOSS$(270,436)$(62,196)
OTHER COMPREHENSIVE INCOME:
Unrealized loss on marketable securities(35)(299)
COMPREHENSIVE LOSS$(270,471)$(62,495)
See accompanying notes to condensed consolidated financial statements.
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OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY
EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except number of shares)
(Unaudited)
Temporary EquityShareholders’ Equity (Deficit)
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Series C
Convertible
Preferred Stock
Series D
Convertible
Preferred Stock

Series E
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
BALANCE–December 31, 201940,089,513 $9,763 23,840,816 $20,049 29,070,700 $80,519 63,470,884 $257,951 157,952,523 $1,013,220 83,748,443 — $57,362 $(790,483)$18 $(733,103)
Vesting of restricted stock— — — — — — — — — — 441,326 — 36 — — 36 
Exercise of stock options— — — — — — — — — — 237,548 — 426 — — 426 
Stock-based compensation— — — — — — — — — — — — 2,970 — — 2,970 
Other comprehensive loss— — — — — — — — — — — — — — (299)(299)
Net loss— — — — — — — — — — — — — (62,196)— (62,196)
BALANCE–March 31, 202040,089,513 $9,763 23,840,816 $20,049 29,070,700 $80,519 63,470,884 $257,951 157,952,523 $1,013,220 84,427,317 $— $60,794 $(852,679)$(281)$(792,166)
Temporary EquityShareholders’ Equity (Deficit)
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Series C
Convertible
Preferred Stock
Series D
Convertible
Preferred Stock

Series E
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity (Deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
BALANCE-December 31, 2020— — — — — — — — — — 540,714,692 54 2,596,012 (1,043,449)41 1,552,658 
Issuance of common stock in connection with the February 2021 Offering— — — — — — — — — — 32,817,421 857,219 — — 857,222 
Vesting of restricted stock— — — — — — — — — — 331,227 — 16 — — 16 
Vesting of restricted stock units— — — — — — — — — — 11,736,872 — — 
Exercise of stock options— — — — — — — — — — 91,517 — 266 — — 266 
Stock-based compensation— — — — — — — — — — — — 243,869 — — 243,869 
Other comprehensive loss— — — — — — — — — — — — — — (35)(35)
Net loss— — — — — — — — — — — — — (270,436)— (270,436)
BALANCE–March 31, 2021— $— — $— — $— — $— — $— 585,691,729 $58 $3,697,382 $(1,313,885)$$2,383,561 
See accompanying notes to condensed consolidated financial statements.
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OPENDOOR TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(270,436)$(62,196)
Adjustments to reconcile net loss to cash, cash equivalents, and restricted cash (used in) provided by operating activities:
Depreciation and amortization – net of accretion10,302 9,522 
Amortization of right of use asset2,457 3,660 
Stock-based compensation238,832 2,970 
Derivative and warrant fair value adjustment15,272 1,012 
Gain on settlement of lease liabilities(5,237)— 
Inventory valuation adjustment20 6,221 
Changes in fair value of derivative instruments(41)(44)
Payment-in-kind interest— 1,349 
Net fair value adjustments and gain (loss) on sale of mortgage loans held for sale(977)(355)
Origination of mortgage loans held for sale(32,082)(17,658)
Proceeds from sale and principal collections of mortgage loans held for sale32,281 15,453 
Changes in operating assets and liabilities:
Escrow receivable(17,770)(826)
Real estate inventories(374,665)480,170 
Other assets(9,128)6,379 
Accounts payable and other accrued liabilities15,680 (4,597)
Interest payable344 (1,590)
Lease liabilities(9,559)(3,088)
Net cash (used in) provided by operating activities(404,707)436,382 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment(4,141)(5,684)
Purchase of marketable securities(34,583)(69,778)
Proceeds from sales, maturities, redemptions and paydowns of marketable securities23,437 20,310 
Purchase of non-marketable equity securities(10,000)— 
Net cash used in investing activities(25,287)(55,152)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options250 411 
Proceeds from the February 2021 Offering886,067 — 
Issuance cost of common stock(28,848)— 
Proceeds from credit facilities and other secured borrowings704,047 662,268 
Principal payments on credit facilities and other secured borrowings(453,806)(1,008,407)
Payment of loan origination fees and debt issuance costs(57)(1,187)
Net cash provided by (used in) financing activities1,107,653 (346,915)
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH677,659 34,315 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – Beginning of period1,505,528 684,822 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period$2,183,187 $719,137 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION – Cash paid during the period for interest$9,091 $25,186 
RECONCILIATION TO CONDENSED CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents$2,039,876 $409,257 
Restricted cash143,311 309,880 
Cash, cash equivalents, and restricted cash$2,183,187 $719,137 
See accompanying notes to condensed consolidated financial statements.
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)

1.DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Opendoor Technologies Inc. (the “Company” and “Opendoor”) including its consolidated subsidiaries and certain variable interest entities (“VIEs”), is a leading digital platform for buying and selling homes. Opendoor streamlines the home selling and buying transaction and creates an end-to-end experience online. Since its inception through March 31, 2021, the Company had completed approximately 90,000 home transactions. As of March 31, 2021, the Company operated in 27 markets across the United States. The Company was incorporated in Delaware on December 30, 2013.
Correction of Prior Period Amounts
On April 12, 2021, subsequent to the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Acting Director of the Division of Corporation Finance and the Acting Chief Accountant of the SEC issued a Staff Statement (the “Staff Statement”) on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”).
The Company took into consideration the guidance in the Staff Statement and Accounting Standards Codification 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity ("ASC 815-40") and evaluated the Public and Sponsor Warrants (each as defined herein and collectively the "Warrants"). The Warrants were issued in a private placement simultaneously with the closing of the initial public offering of Social Capital Hedosophia Holdings Corp. II (“SCH”), assumed by the Company through the Business Combination (as defined herein) on December 18, 2020, and classified in shareholders' equity as of and for the year ended December 31, 2020. While the Company concluded the Public Warrants meet the criteria to continue to be classified in shareholders' equity, the Company concluded the Sponsor Warrants do not meet the scope exception from derivative accounting prescribed by ASC 815-40 and should therefore be recorded as a liability on the Company’s consolidated balance sheet at fair value as of the closing of the Business Combination, with subsequent changes in their fair value recognized in the Company’s consolidated statement of operations at each reporting date. The accounting for the Sponsor Warrants does not impact the Company's financial statements in any reporting periods prior to the Business Combination, as the Company assumed the Warrants through the Business Combination which was accounted for as a reverse recapitalization.
The fair value of the Sponsor Warrants as of the Closing Date on December 18, 2020 and December 31, 2020 amounted to $81.1 million and $47.3 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $33.8 million. The impact of the misstatement as of December 31, 2020 resulted in an understatement of the private warrants liability of $47.3 million, and an overstatement of accumulated deficit and additional paid-in capital of $33.8 million and $81.1 million respectively.
The Company evaluated the impact of error related to the accounting treatment of Sponsor Warrants with respect to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and determined, based on consideration of quantitative and qualitative factors, that the error had an immaterial impact, individually and in aggregate. As such, the Company is correcting its accounting for Sponsor Warrants in this Quarterly Report on Form 10-Q.
The following table provides the impact of the correction on the Company's Condensed Consolidated Balance Sheet as of December 31, 2020, as presented herein (in thousands):
Previously StatedAdjustmentsAs Corrected
Warrant liabilities$— 47,349 $47,349 
Total liabilities$575,575 47,349 $622,924 
Additional paid-in capital$2,677,155 (81,143)$2,596,012 
Accumulated deficit(1,077,243)33,794 (1,043,449)
Total shareholders' equity$1,600,007 (47,349)$1,552,658 
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 and for the three month periods ended March 31, 2021 and 2020 include the accounts of Opendoor, its wholly owned subsidiaries and VIEs where the Company is the primary beneficiary. The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements herein.
As a result of the Business Combination completed on December 18, 2020, prior period share and per share amounts presented in the accompanying consolidated financial statements and these related notes have been retroactively converted. See “Note 2— Business Combination” for additional information.
The accompanying interim condensed consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”) filed on March 4, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ materially from such estimates. Significant estimates, assumptions and judgments made by management include, among others, the determination of the fair value of common stock, share-based awards, warrants, derivatives, convertible notes, and inventory impairment (“real estate inventory valuation adjustment”). Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s financial statements will be affected. The COVID-19 pandemic introduced significant additional uncertainties with respect to estimates, judgments and assumptions, which may materially impact these estimates.
Significant Risks and Uncertainties
The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic; its rates of revenue growth; its ability to manage advertising inventory or pricing; engagement and usage of its products; the effectiveness of its investment of resources to pursue strategies; competition in its market; the stability of the residential real estate market; the impact of interest rate changes on demand and its costs; changes in technology, products, markets or services by the Company or its competitors; the addition or loss of significant customers; its ability to maintain or establish relationships with listings and data providers; its ability to obtain or maintain licenses and permits to support its current and future businesses; actual or anticipated changes to its products and services; changes in government regulation affecting its business; the outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; its management of its growth; its ability to attract and retain qualified employees and key personnel; its ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments; the protection of customers’ information and other privacy concerns; the protection of its brand and intellectual property; and intellectual property infringement and other claims, among other things.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments in marketable securities, and mortgage loans held for sale pledged under agreements to repurchase (“MLHFS”). The Company places cash and cash equivalents and investments with major financial institutions, which management assesses to be of high credit quality, in order to limit exposure of the Company’s investments.
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
Similarly, the Company’s credit risk on mortgage loans held for sale is mitigated due to a large number of customers. Further, the Company’s credit risk on mortgage loans held for sale is mitigated by the fact that the Company typically sells mortgages on the secondary market within a relatively short period of time after which the Company’s exposure is limited to borrower defaults within the initial few months of the mortgage.
The Company’s significant accounting policies are discussed in “Part II – Item 8 – Financial Statements and Supplementary Data – Note 1. Description of Business and Accounting Policies” in the Annual Report. There have been no changes to these significant accounting policies for the three month period ended March 31, 2021, except as noted below.
Derivative Instruments
The Company’s derivative instruments are comprised of interest rate caps, interest rate lock commitments (“IRLCs”), and embedded conversion options related to the convertible notes. The Company’s derivative instruments are freestanding in nature and some are utilized as economic hedges. These derivative instruments are recorded at fair value with changes recognized as a gain or loss to operations. Beginning in 2021, the Company changed the fair value classification of IRLCs from Level 2 to Level 3 as the Company began to adjust observable input data for the estimated pull-through rate, a Company specific input that is unobservable to market participants. See “Note 5 — Derivative Instruments” and "Note 8 — Fair Value Disclosures" for further discussion.
Non-marketable equity securities
Our non-marketable equity securities are strategic investments in a privately held company. Non-marketable equity securities are investments that do not have a readily determinable fair value, which are measured at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, are recorded in Other income-net on our consolidated statements of operations. We assess whether an impairment loss on our non-marketable equity securities has occurred due to declines in fair value or other market conditions. If any impairment is identified for non-marketable equity securities, we write down the investment to its fair value.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment and definite-lived intangible assets, among other long-term assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to the extent the carrying amount of the underlying asset exceeds its fair value. Impairment loss of $2.6 million was recognized for the three months ended March 31, 2021. Of this amount, $1.9 million and $0.7 million are included in Technology and development and General and administrative, respectively. There were no impairment charges recognized during the three months ended March 31, 2020. The impairment loss recognized for the three months ended March 31, 2021 is related to abandonment of property and equipment and sublease of certain right of use assets.

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 sale 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
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OPENDOOR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
(Unaudited)
certain permitted transferees, the Sponsor Warrants will be redeemable and exercisable on the same basis as the Public Warrants.
The Company evaluated the Public and Sponsor Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity, and concluded that the Sponsor Warrants do not meet the criteria to be classified in shareholders’ equity. Specifically, the exercise and settlement features for the Sponsor Warrants 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), the fact that a change in the holder may impact the value of the Sponsor Warrants means the Sponsor Warrants are not indexed to the Company’s own stock. Since the Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the balance sheet at fair value upon the consummation of the Business Combination, with subsequent changes in their respective fair values recognized in the 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.
Recently Issued Accounting Standards
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this ASU as of January 1, 2021 and the adoption of this ASU did not have a material impact to the Company’s consolidated financial statements given that the Company has a full valuation allowance and the scenarios for which the guidance offer simplification are not significant for the Company.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04 which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter- Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company may elect to take advantage of this optional guidance in its transition away from LIBOR within certain debt contracts. While the goal of the reference rate reform transition is for it to be economically neutral to entities, the Company has not yet adopted this standard nor has the Company determined the impact the adoption of this guidance will have on the Company’s financial position, results of operations or cash flows.
2.BUSINESS COMBINATION
Opendoor Labs Inc. entered into a merger agreement (the “Merger Agreement”) with Social Capital Hedosophia Holdings Corp. II, (“SCH”) on September 15, 2020. Pursuant to the Merger Agreement, Hestia Merger Sub Inc., a newly formed subsidiary of SCH (“Merger Sub”), merged with and into Opendoor Labs Inc. Upon the completion of the transactions contemplated by the terms of the Merger Agreement (the “Closing”) on December 18, 2020, the separate corporate existence of Merger Sub ceased and Opendoor Labs Inc. survived the merger and became a wholly owned subsidiary of SCH. On December 18, 2020, SCH also filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SCH was domesticated as a Delaware corporation, changing its name from “Social Capital Hedosophia Holdings Corp. II” to “Opendoor Technologies Inc.” These transactions are collectively referred to as the “Business Combination.”
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
The Business Combination was accounted for as a reverse recapitalization whereby SCH was determined as the accounting acquiree and Opendoor Labs Inc. as the accounting acquirer. This accounting treatment is equivalent to Opendoor Labs Inc. issuing stock for the net assets of SCH, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Business Combination are those of Opendoor Labs Inc. At the Closing, the Company received consideration of $376.6 million in cash as a result of the reverse recapitalization.
In connection with the Business Combination, SCH entered into subscription agreements with certain investors, whereby it issued 60,005,000 shares of common stock at $10.00 per share (“PIPE Shares”) for an aggregate purchase price of $600.1 million (“PIPE Investment”), which closed simultaneously with the consummation of the Business Combination. Upon the Closing, the PIPE Shares were automatically converted into shares of the Company's common stock on a one-for-one basis.
Upon the Closing, holders of Opendoor Labs Inc. common stock received shares of Opendoor Technologies common stock in an amount determined by application of the exchange ratio of 1.618 (“Exchange Ratio”), which was based on Opendoor Labs Inc.’s implied price per share prior to the Business Combination. For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio.
In connection with the Business Combination, the Company incurred approximately $43.6 million of equity issuance costs, consisting of underwriting, legal, and other professional fees, which are recorded to additional paid-in capital as a reduction of proceeds.
3.REAL ESTATE INVENTORY
The following table presents the components of inventory, net of applicable real estate inventory valuation adjustments, as of the dates presented (in thousands):
March 31,
2021
December 31,
2020
Work-in-process$206,943 $183,004 
Finished goods633,689 282,932 
Total real estate inventory$840,632 $465,936 
4.CASH, CASH EQUIVALENTS, AND INVESTMENTS
The amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents, and marketable securities as of March 31, 2021 and December 31, 2020, are as follows (in thousands):
March 31, 2021
Cost
Basis
Unrealized
Gains
Unrealized
Losses
Fair Value
Cash and Cash
Equivalents
Marketable
Securities
Cash$718,476 $— $— $718,476 $718,476 $— 
Money market funds1,252,134 — — 1,252,134 1,252,134 — 
Commercial paper83,881 — 83,884 60,244 23,640 
Corporate debt securities30,209 (9)30,208 9,022 21,186 
U.S. agency securities6,996 — 6,999 — 6,999 
Asset-backed securities6,792 (4)6,794 — 6,794 
Total$2,098,488 $20 $(13)$2,098,495 $2,039,876 $58,619 
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
December 31, 2020
Cost
Basis
Unrealized
Gains
Unrealized
Losses
Fair Value
Cash and Cash
Equivalents
Marketable
Securities
Cash$709,924 $— $— $709,924 $709,924 $— 
Money market funds618,197 — — 618,197 618,197 — 
Commercial paper81,037 — 81,038 81,038 — 
Corporate debt securities29,891 26 (2)29,915 3,506 26,409 
Asset-backed securities12,518 19 (4)12,533 — 12,533 
U.S. agency securities6,993 — 6,995 — 6,995 
U.S. Treasury securities1,700 — — 1,700 — 1,700 
Total$1,460,260 $48 $(6)$1,460,302 $1,412,665 $47,637 
A summary of debt securities with unrealized losses aggregated by period of continuous unrealized loss is as follows (in thousands):
Less than 12 Months12 Months or GreaterTotal
March 31, 2021Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Commercial paper$26,595 $— $— $— $26,595 $— 
Corporate debt securities22,450 (9)$— $— 22,450 (9)
Asset-backed securities3,277 (4)$— $— 3,277 (4)
Total$52,322 $(13)$— $— $52,322 $(13)
Less than 12 Months12 Months or GreaterTotal
December 31, 2020Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Commercial paper$19,296 $— $— $— $19,296 $— 
Corporate debt securities7,538 (2)$— $— 7,538 (2)
Asset-backed securities4,611 (4)$— $— 4,611 (4)
Total$31,445 $(6)$— $— $31,445 $(6)
The scheduled contractual maturities of debt securities as of March 31, 2021 are as follows (in thousands):
March 31, 2021Fair Value
Within
1 Year
After
1 Year
through
5 Years
Commercial paper$83,884 $83,884 $— 
Corporate-debt securities30,208 30,208 — 
U.S. agency securities6,999 6,999 — 
Asset-backed securities6,794 6,794 — 
Total$127,885 $127,885 $— 
As of March 31, 2021, the Company had $10.0 million of non-marketable equity securities without a readily determinable fair value, carried at cost under the Measurement Alternative. The Company did not record any adjustments to the carrying value of its non-marketable equity securities.
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
5.DERIVATIVE INSTRUMENTS
The Company uses certain types of derivative instruments in the normal course of business and the Company’s use of derivatives includes interest rate caps to manage interest rate risk, IRLCs with respect to our MLHFS, and embedded conversion options with respect to the Company’s convertible notes. Derivative transactions can be measured in terms of notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which interest and other payments are determined.
Interest Rate Caps
The Company uses free-standing derivative instruments in the normal course of business as economic hedges to manage interest rate risks with respect to its variable senior revolving credit facilities. The interest rate caps were carried at fair value in Other current assets with changes in fair value included in Other income. The Company’s interest rate cap position expired in November 2020.
Interest Rate Lock Commitments
In originating mortgage loans, the Company enters into IRLCs with prospective borrowers which are freestanding derivative instruments. IRLCs are a commitment that binds the Company, subject to loan underwriting and approval process, to fund the loan at a specified interest rate, regardless of fluctuations in the market interest rates between commitment date and funding date. The interest rate risk associated with the fluctuations in market interest rates between commitment date and funding date with respect to IRLCs is mitigated as the Company operates under the best effort basis whereby at the time of commitment, the Company enters into a sales commitment with a third-party for the same prospective loan. The fair value of interest rate lock commitments is presented in Other current assets. The change in fair value on IRLCs is a component of Other revenue.
Embedded Conversion Options
In connection with the Company’s issuance of convertible notes in 2019 (the “Convertible Notes”), the Company bifurcated the embedded conversion features associated with the Convertible Notes. The Convertible Notes and the related bifurcated embedded conversion options were extinguished in September 2020. Prior to extinguishment, the embedded conversion options were measured at fair value and were presented in Derivative and warrant liabilities. The change in fair value of the embedded conversion options is a component of Derivative and warrant fair value adjustment.
The following table presents the total notional amounts and fair values for the Company’s derivatives (in thousands):
Notional
Amount
Fair Value Derivatives
March 31, 2021AssetLiability
Interest rate lock commitments$17,958 $414 $— 
Notional
Amount
Fair Value Derivatives
December 31, 2020AssetLiability
Interest rate lock commitments$15,130 $373 $— 
The following table presents the net gains and losses recognized on derivatives within the respective line items in the statement of operations for the periods indicated (in thousands):
Three Months Ended March 31,
20212020
Revenue$41 $48 
Other income, net$— $(4)
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
6.VARIABLE INTEREST ENTITIES
The Company utilizes VIEs in the normal course of business to support the Company’s financing needs. The Company determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with the VIE and reconsiders that conclusion on an on-going basis.
The Company established certain special purpose entities (“SPEs”) for the purpose of financing the Company’s purchase and renovation of real estate inventory through the issuance of senior revolving credit facility debt and mezzanine term debt. The Company is the primary beneficiary of the various VIEs within these financing structures and consolidates these VIEs. The Company is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the SPEs through its role in designing the SPEs and managing the real estate inventory they purchase and sell. The Company has a potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.
The following table summarizes the assets and liabilities related to the VIEs consolidated by the Company as of March 31, 2021 and December 31, 2020 (in thousands):
March 31,
2021
December 31,
2020
Assets
Cash and cash equivalents$9,108 $15,849 
Restricted cash133,887 81,408 
Real estate inventory820,961 460,680 
Other(1)
29,059 6,729 
Total assets$993,015 $564,666 
Liabilities
Credit facilities$725,247 $474,640 
Other(2)
5,310 3,394 
Total liabilities$730,557 $478,034 
________________
(1)Includes escrow receivable and other current assets.
(2)Includes accounts payable and other accrued liabilities and interest payable.
The creditors of the VIEs generally do not have recourse to the Company’s general credit solely by virtue of being creditors of the VIEs, with the exception of limited guarantees provided by an Opendoor subsidiary for credit facilities. See “Note 7 — Credit Facilities and Long-Term Debt” for further discussion of the recourse obligations with respect to the VIEs.
7.CREDIT FACILITIES AND LONG-TERM DEBT
Non-Recourse Asset-backed Financing Facilities
The Company utilizes inventory financing facilities consisting of asset-backed senior revolving credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. The credit facilities are secured by the assets and equity of one or more SPEs. Each SPE is a consolidated subsidiary of Opendoor and a separate legal entity. Neither the assets nor credit of any such SPE are generally available to satisfy the debts and other obligations of any other Opendoor entities, except to the extent other Opendoor entities are also a party to the financing arrangements. These facilities are non-recourse to Opendoor and, with limited exceptions, non-recourse to other Opendoor subsidiaries. These SPEs are variable interest entities and Opendoor is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the entities through its role in designing the entities and managing the real estate inventory purchased and sold by the entities. The Company has potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Asset-backed Senior Revolving Credit Facilities
The Company classifies the senior revolving credit facilities as current liabilities on the Company’s consolidated balance sheets as amounts drawn to acquire and renovate homes are required to be repaid as the related real estate inventory is sold, which the Company expects to occur within 12 months. The following table summarizes certain details related to the Company’s credit facilities outstanding as of March 31, 2021 and December 31, 2020 (in thousands, except interest rates):
March 31, 2021
Borrowing
Capacity
Outstanding
Amount
Weighted
Average
Interest Rate
End of
Revolving
Period
Final
Maturity
Date
Revolving Facility 2018-2$750,000 $— — %September 23, 2022December 23, 2022
Revolving Facility 2018-3100,000 30,472 3.62 %June 1, 2023June 1, 2023
Revolving Facility 2019-1300,000 50,893 2.86 %March 4, 2022March 4, 2022
Revolving Facility 2019-21,030,000 398,952 2.70 %July 8, 2021July 7, 2022
Revolving Facility 2019-3475,000 108,457 3.25 %August 22, 2022August 21, 2023
Total$2,655,000 $588,774 
December 31, 2020
Outstanding
Amount
Weighted Average
Interest Rate
Revolving Facility 2018-1$— 4.28 %
Revolving Facility 2018-2— 4.36 %
Revolving Facility 2018-325,385 4.19 %
Revolving Facility 2019-132,535 3.58 %
Revolving Facility 2019-2230,352 3.08 %
Revolving Facility 2019-350,901 3.60 %
Total$339,173 
As of March 31, 2021, the Company had multiple senior revolving credit facilities with various financial institutions with a total borrowing capacity of $2,655.0 million. Undrawn borrowing capacity amounts under the senior revolving credit facilities as reflected in the table above are in some cases not fully committed and any borrowings above the fully committed amounts are subject to the applicable lender’s discretion. As of March 31, 2021, the Company had fully committed borrowing capacity with respect to the Company’s senior revolving credit facilities of $1,464.5 million.
These facilities are typically structured with an initial 24 month revolving period during which time amounts can be borrowed, repaid and borrowed again. The borrowing capacity is generally available until the end of the applicable revolving period as reflected in the table above. Outstanding amounts drawn under each senior revolving credit facility are required to be repaid on the facility maturity date or earlier if accelerated due to an event of default or other mandatory repayment event. The final maturity dates and revolving period end dates reflected in the table above are inclusive of any extensions that are at the sole discretion of the Company. The Company’s senior revolving credit facilities may also have extensions subject to lender discretion that are not reflected in the table above.
Borrowings accrue interest at a rate based on a LIBOR reference rate plus a margin that varies by facility. The Company may also pay fees on certain unused portions of the committed borrowing capacity, as defined in the respective credit agreements. The Company’s senior revolving credit facility arrangements typically include upfront fees that may be paid at execution of the applicable agreements or be earned at execution and payable over time. These facilities are generally fully prepayable at any time without penalty other than customary LIBOR breakage costs.
These borrowings are collateralized by cash, equity in the real estate owning SPEs, and the real estate inventory funded by the relevant revolving credit facility. The lenders have legal recourse only to the real estate-owning SPE borrowers, certain SPE guarantors, and the assets securing the debt, and do not have general recourse to the Company.
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
The senior revolving credit facilities have aggregated borrowing bases, which increase or decrease based on the cost and value of the properties financed under a given facility and the time that those properties are in the Company’s possession. When the Company resells a home, the proceeds are used to reduce the outstanding balance under the related revolving senior credit facility. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or partial repayment of the facility.
Asset-backed Mezzanine Term Debt Facilities
The Company classifies its mezzanine term debt facilities as long-term liabilities on the Company’s consolidated balance sheets because its borrowings under these facilities are generally not required to be repaid until the applicable final maturity date. These facilities are structurally and contractually subordinated to the related senior revolving credit facilities. The following table summarizes certain details related to the Company’s mezzanine term debt facilities as of March 31, 2021 (in thousands, except interest rates):
March 31, 2021
Borrowing
Capacity
Outstanding
Amount
Interest
Rate
End of Draw
Period
Final
Maturity
Date
Term Debt Facility 2016-M1$149,000 $40,000 10.00 %October 31, 2023March 31, 2025
Term Debt Facility 2020-M1300,000 100,000 10.00 %January 23, 2023January 23, 2026
Total$449,000 $140,000 
Issuance Costs(3,527)
Carrying Value$136,473 
As of March 31, 2021, the Company had $140.0 million in total principal outstanding under multiple mezzanine term debt facilities with various financial institutions. Undrawn amounts under the mezzanine term debt facilities of $309.0 million as reflected in the table above are fully committed and generally may be drawn at any time during the draw period; however, any amounts repaid reduce total borrowing capacity as repaid amounts are not available to be reborrowed. The final maturity dates as reflected in the table above are inclusive of any extensions at the sole discretion of the Company. The Company’s mezzanine term debt facilities may also have extensions subject to lender discretion that are not reflected in the table above.
Borrowings under a given term debt facility accrue interest at a fixed rate. The Company’s mezzanine term debt facility arrangements may include upfront issuance costs that are capitalized as part of the facilities’ respective carrying values. These facilities are fully prepayable at any time but may be subject to certain prepayment penalties.
These borrowings are collateralized by cash and equity in certain holding companies that own the Company’s real estate owning SPEs. The lenders generally have legal recourse only to the applicable borrowers of the debt and their assets securing the debt and do not have recourse to Opendoor and, with limited exceptions, do not have recourse to other Opendoor subsidiaries.
The facilities have aggregated property borrowing bases, which increase or decrease based on the cost and the value of the properties financed under a given facility and time in the Company’s possession of those properties and the amount of cash collateral pledged by the relevant SPE borrower. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or cash or through partial repayment of the facility.
Covenants
The Company’s inventory financing facilities include customary representations and warranties, covenants and events of default. Financed properties are subject to customary eligibility criteria and concentration limits.
The terms of these facilities and related financing documents require Opendoor to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to equity). As of March 31, 2021, the Company was in compliance with all financial covenants and no event of default had occurred.
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Mortgage Financing
The following tables summarize certain details related to the Company’s mortgage financing (in thousands, except interest rates):
March 31, 2021
Borrowing
Capacity
Outstanding
Amount
Weighted Average Interest RateEnd of Revolving Period
Final
Maturity
Date
Repo Facility 2019-R1$50,000 $7,789 1.94 %April 29, 2021April 29, 2021
December 31, 2020Outstanding AmountWeighted Average Interest Rate
Repo Facility 2019-R1$7,149 1.94 %
To provide capital for Opendoor Home Loans, we utilize a master repurchase agreement (the “Repurchase Agreement”) which is classified as a current liability on our balance sheets. In March 2019, we entered into the Repurchase Agreement with a lender to provide short-term funding for mortgage loans originated by Opendoor Home Loans. The facility provides short-term financing between the issuance of a mortgage loan and when Opendoor Home Loans sells the loan to an investor. In accordance with the Repurchase Agreement, the lender agrees to pay Opendoor Home Loans a negotiated purchase price for eligible loans and Opendoor Home Loans simultaneously agrees to repurchase such loans from the lender within a specified timeframe and at an agreed upon price that includes interest. Opendoor Labs Inc. is the guarantor with respect to the Repurchase Agreement and the obligation to repurchase loans previously transferred under the arrangement for the benefit of the lender.
As of March 31, 2021, the Repurchase Agreement has a borrowing capacity of $50.0 million, of which $20.0 million is fully committed. The Repurchase Agreement includes customary representations and warranties, covenants and provisions regarding events of default. As of March 31, 2021, $8.2 million in mortgage loans were financed under the facility, and Opendoor was in compliance with all financial covenants and no event of default had occurred. On April 28, 2021, the Company amended the Repurchase Agreement to extend the final maturity date to May 28, 2021.
Transactions under the Repurchase Agreement bear interest at a rate based on one-month LIBOR plus an applicable margin, as defined in the Repurchase Agreement, and are secured by residential mortgage loans available for sale. The Repurchase Agreement contains margin call provisions that provide the lender with certain rights in the event of a decline in the market value of the assets purchased under the Repurchase Agreement. The Repurchase Agreement is recourse to Opendoor Labs Inc.
8.FAIR VALUE DISCLOSURES
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at fair value on a recurring and nonrecurring basis and for estimating fair value for financial instruments not recorded at fair value.
Fair Value Hierarchy
Fair value measurements of assets and liabilities are categorized based on the following hierarchy:
Level 1 — Fair value determined based on quoted prices in active markets for identical assets or liabilities.
Level 2 — Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.
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OPENDOOR TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Level 3 — Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.
Estimation of Fair Value
The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions, and classification of the Company’s assets and liabilities.
Asset/Liability Class
Valuation Methodology, Inputs and
Assumptions
Classification
Cash and cash equivalentsCarrying value is a reasonable estimate of fair value based on short-term nature of the instruments.Estimated fair value classified as Level 1
Restricted cashCarrying value is a reasonable estimate of fair value based on short-term nature of the instruments.Estimated fair value classified as Level 1
Marketable securitiesPrices obtained from third-party vendors that compile prices from various sources and often apply matrix pricing for similar securities when no price is observable.Level 2 recurring fair value measurement
Mortgage loans held for sale pledged under agreements to repurchaseFair value is estimated based on observable market data including quoted market prices, deal price quotes, and sale commitments.Level 2 recurring fair value measurement
Other current assets
Interest rate lock commitmentsFair value of the underlying loan based on observable quoted market prices in the secondary market and sale commitments, with adjustments for the estimated pull-through rate.Level 2 recurring fair value measurement for fair value based on observable inputs. Level 3 recurring fair value measurement for fair value with unobservable inputs.
Other assets
Non-marketable equity securities Fair value is estimated using the observable transaction price.Level 2 non-recurring fair value measurement for fair value based on transaction price.
Credit facilities and other secured borrowings
Credit facilitiesFair value is estimated using discounted cash flows based on current lending rates for similar credit facilities with similar terms and remaining time to maturity.
Carried at amortized cost.
Estimated fair value classified as Level 2.
Loans sold under agreements to repurchaseFair value is estimated using discounted cash flows based on current lending rates for similar asset-backed financing facilities with similar terms and remaining time to maturity.
Carried at amortized cost.
Estimated fair value classified as Level 2.
Warrant liabilities
Sponsor WarrantsFair value is estimated using the price of the Public Warrants and applying an adjustment for short-term marketability restrictions.Level 2 recurring fair value measurement
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables present the levels of the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis (in thousands).
March 31, 2021Balance at Fair ValueLevel 1Level 2Level 3
Marketable securities:
Commercial paper$23,640 $— $23,640 $— 
Corporate debt securities21,186 — 21,186 — 
U.S. agency securities6,999 — 6,999 — 
Asset-backed securities6,794 — 6,794 — 
Mortgage loans held for sale pledged under agreements to repurchase8,307 — 8,307 — 
Other current assets:
Interest rate lock commitments414 — 414 
Total assets$67,340 $— $66,926 $414 
Warrant liabilities:
Sponsor Warrants62,621 — 62,621 — 
Total liabilities$62,621 $— $62,621 $— 
December 31, 2020Balance at Fair ValueLevel 1Level 2Level 3
Marketable securities:
Corporate debt securities$26,409 $— $26,409 $— 
Asset-backed securities12,533 — 12,533 — 
U.S. agency securities6,995 — 6,995 — 
U.S. Treasury securities1,700 — 1,700 — 
Mortgage loans held for sale pledged under agreements to repurchase7,529 — 7,529 — 
Other current assets:
Interest rate lock commitments373 373 
Total assets$55,539 $— $55,539 $— 
Warrant liabilities:
Sponsor Warrants47,349 — $47,349 — 
Total liabilities$47,349 $— $47,349 $— 
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Fair Value of Financial Instruments
The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company’s financial instruments other than assets and liabilities measured at fair value on a recurring basis (in thousands).
March 31, 2021
Carrying
Value
Fair ValueLevel 1Level 2
Assets:
Cash and cash equivalents$2,039,876 $2,039,876 $2,039,876 $— 
Restricted cash143,311 143,311 143,311 — 
Other assets:
Non-marketable equity securities10,000 10,000 — 10,000 
Liabilities:
Credit facilities and other secured borrowings$733,036 $736,563 $— $736,563 
December 31, 2020
Carrying
Value
Fair ValueLevel 1Level 2
Assets:
Cash and cash equivalents$1,412,665 $1,412,665 $1,412,665 $— 
Restricted cash92,863 92,863 92,863 — 
Liabilities:
Credit facilities and other secured borrowings$481,789 $486,322 $— $486,322 
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 Fair values (in thousands):
Warrants
Embedded
Conversion Option
Interest rate lock commitments
Balance as of December 31, 2019$4,538 $41,697 $— 
Net change in fair value1,012 — — 
Balance as of March 31, 2020$5,550 $41,697 $— 
Balance as of December 31, 2020$— $— $— 
Additions— — 414 
Balance as of March 31, 2021$— $— $414 
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
9.PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2021 and December 31, 2020, consisted of the following (in thousands):
March 31,
2021
December 31,
2020
Internally developed software$52,030 $47,823 
Computers6,260 5,511 
Furniture and fixtures2,992 3,279 
Leasehold improvements2,178 2,456 
Software implementation costs1,789 1,680 
Office equipment1,777 2,056 
Security systems1,227 681 
Total68,253 63,486 
Accumulated depreciation and amortization(37,211)(34,258)
Property and equipment – net$31,042 $29,228 
Depreciation and amortization expense of $5.6 million and $5.0 million was recorded for the three months ended March 31, 2021 and 2020, respectively.
10.GOODWILL AND INTANGIBLE ASSETS
There were no additions to goodwill for the three months ended March 31, 2021 or twelve months ended December 31, 2020. No impairment of goodwill was identified for the three months ended March 31, 2021 and 2020.
Intangible assets subject to amortization consisted of the follow as of March 31, 2021 and December 31, 2020, respectively (in thousands, except years):
March 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Remaining Weighted Average Useful Life
(Years)
Developed technology$2,921 $(2,921)$— 0
Customer relationships7,400 (2,947)4,453 3.4
Trademarks5,400 (1,907)3,493 3.4
Non-competition agreements100 (100)— 0
Intangible assets – net$15,821 $(7,875)$7,946 
December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Remaining Weighted Average Useful Life
(Years)
Developed technology$2,921 $(2,921)$— 0
Customer relationships7,400 (2,622)4,778 3.7
Trademarks5,400 (1,652)3,748 3.7
Non-competition agreements100 (100)— 0
Intangible assets – net$15,821 $(7,295)$8,526 
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
The Company also has domain name intangible assets, which are not subject to amortization, with a carrying amount of $0.2 million as of both March 31, 2021 and December 31, 2020, respectively.
Amortization expense for intangible assets was $0.6 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, expected amortization of intangible assets is as follows:
Fiscal Years(In thousands)
2021$1,740 
20222,320 
20232,320 
20241,566 
Total$7,946 
11.SHAREHOLDERS’ EQUITY
On February 9, 2021, the Company completed an underwritten public offering (the “February 2021 Offering”) in which the Company sold 32,817,421 shares of its 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. The Company 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 the Company upon closing. The February 2021 Offering satisfied the liquidity event vesting condition of certain RSUs. For further information on the RSUs, see “Note 12 — Share-Based Awards”.
12.SHARE-BASED AWARDS
Stock options and RSUs
Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Options are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years. Incentive stock options granted to a 10% shareholder are exercisable over a maximum term of five years from the date of grant.
A summary of the stock option activity for the three months ended March 31, 2021, is as follows:
Number of
Options
(in thousands)
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
Balance-December 31, 202024,158 $1.91 5.4$502,767 
Exercised(99)2.65 
Forfeited(92)2.58 
Expired(2)3.02 
Balance-March 31, 202123,965 $1.91 5.1$461,961 
Exercisable-March 31, 202119,766 $1.61 4.5$387,097 
There were no options granted during the three months ended March 31, 2021.
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
RSUs typically vest upon both a service-based requirement, generally over a four year period, and a performance condition. For certain awards, the performance condition is met by the completion of a Company liquidity event, which is generally defined as a change of control event or the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company’s common stock. The February 2021 Offering met the liquidity event vesting condition and triggered the recognition of compensation expense for certain RSUs for which the time-based vesting condition had been satisfied or partially satisfied. If a participant terminates service, any portion of an RSU unit that has met the service-based requirement will remain outstanding and remain eligible to vest when the performance condition has been satisfied. The vesting requirements of the RSUs typically have a maximum term of seven years from the date of grant.
A summary of the RSU activity for the three months ended March 31, 2021, is as follows:
Number of
RSUs
(in thousands)
Weighted-
Average
Grant-Date
Fair Value
Unvested and outstanding-December 31, 202046,525 $10.88 
Granted17,471 21.77 
Vested(11,737)4.95 
Forfeited(153)5.63 
Unvested and outstanding-March 31, 202152,106 $15.88 
Restricted Shares
We have granted Restricted Shares to certain continuing employees, primarily in connection with acquisitions. The Restricted Shares vest upon satisfaction of a service condition, which generally ranges from three to four years.
A summary of the Restricted Shares activity for the three months ended March 31, 2021 is as follows:
Number of
Restricted Shares
(in thousands)
Average
Grant-Date
Fair Value
Unvested-December 31, 20202,148 $3.74 
Granted— — 
Vested(311)3.58 
Unvested-March 31, 20211,837 $3.76 
Vested and outstanding-March 31, 2021— — 
Stock-based compensation expense
Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function as presented in the statements of operations for the three months ended March 31, 2021 and 2020, as follows (in thousands):
Three Months Ended March 31,
20212020
General and administrative$197,036 $1,554 
Sales, marketing and operations6,406 352 
Technology and development35,390 1,064 
Total stock-based compensation expense$238,832 $2,970 
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
During 2020 and during the three months ended March 31, 2021, the Company issued market condition RSUs to certain executives. The grant-date fair value for the awards is $357.4 million and $22.4 million, respectively, and will be recognized over a requisite service period ranging from 6 months to 3.5 years and 6 months to 3 years, respectively. The Company recognized $133.2 million of compensation expense during the three months ended March 31, 2021 related to all market condition awards outstanding.
As of March 31, 2021, there was $651.8 million of unamortized stock-based compensation costs related to unvested RSUs, stock options, and Restricted Shares. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 2.7 years.
Valuation of options
The Black-Scholes Model used to value stock options incorporates the following assumptions:
Fair Value of Common Stock
The fair value of the common stock underlying the stock option awards was determined by the board of directors. Given the absence of a public trading market, the board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting at which awards were approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights, preferences and privileges of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) stage and development of the Company’s business; (v) general economic conditions and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale, given prevailing market conditions.
Volatility
The expected stock price volatilities are estimated based on the historical and implied volatilities of comparable publicly traded companies as the Company does not have sufficient history of trading its common stock.
Risk-Free Interest Rate
The risk-free interest rates are based on U.S. Treasury yields in effect at the grant date for notes with comparable terms as the awards.
Expected Life
The expected term of options granted to employees is determined using the simplified method, which allows the Company to estimate the expected life as the midpoint between the vesting period and the contractual term, as the Company's historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term.
Dividend Yield
The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy.
Valuation of RSUs and Restricted Stock
Prior to the Business Combination, given the absence of a public trading market, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of common stock at each meeting at which awards were approved. These factors include, but were not limited to, contemporaneous valuations of common stock performed by an independent valuation specialist; developments in the Company’s business and stage of development; the Company’s operational and financial performance and condition; issuances of preferred stock and the rights and preferences of preferred stock relative to common stock; current condition of capital markets and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company; and the lack of marketability of the Company’s common stock. For financial reporting purposes, the Company considers the amount of time between the valuation date and the grant date to determine
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates. The determination includes an evaluation of whether the subsequent valuation indicates that any significant change in valuation had occurred between the previous valuation and the grant date.
13.WARRANTS
Public and Sponsor Warrants
Prior to the Business Combination, SCH issued 6,133,333 Sponsor Warrants and 13,800,000 Public Warrants (collectively “Warrants”). Upon Closing, the Company assumed the Warrants. Each whole warrant entitles the holder to purchase one share of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The Warrants are exercisable at any time commencing the later of a) 30 days after the completion of the Business Combination and b) 12 months from the date of the closing of the SCH’s initial public offering on April 30, 2020, and terminating five years after the Business Combination.
Once the Public Warrants become exercisable, the Company may redeem the outstanding warrants, in whole and not in part, upon a minimum of 30 days’ prior written notice of redemption (“Redemption Period”). There are two scenarios in which the Company may redeem the Warrants. For purposes of the redemption scenarios, “Reference Value” shall mean the last reported sales price of the Company’s common stock for any twenty trading days within the thirty trading-day period ending on the third trading day prior to the date on which notice of the redemption is given.
The Company may redeem the outstanding Warrants for cash at a price of $0.01 per warrant if the Reference Value equals or exceeds $18.00 per share. The warrant holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period at $11.50 per share. The Sponsor Warrants are exempt from redemption if the Reference Value is at or above $18.00 and the Sponsor Warrants continue to be held by the original warrant holder (“Sponsor") or a permitted transferee.
The Company may redeem the outstanding Warrants at a price of $0.10 per warrant if the Reference Value equals or exceeds $10.00 per share. If the Reference Value is less than $18.00, the Sponsor Warrants must also be concurrently called for redemption with the Public Warrants. The warrant holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period on a cashless basis. The cashless exercise entitles the warrant holders to receive a set number of shares based on the redemption date and the redemption fair value as defined in the warrant agreement.
In connection with the Business Combination, on January 12, 2021, the Company filed a Registration Statement on Form S-1. This Registration Statement relates to the issuance of an aggregate of up to 19,933,333 shares of common stock issuable upon the exercise of its publicly-traded warrants. As of March 31, 2021, there were 19,933,333 warrants outstanding and no warrants have been exercised. As of March 31, 2021, the Company had Warrant liabilities of $62.6 million related to the Sponsor Warrants and recorded a Derivative and warrant fair value adjustment of $15.3 million for the change in fair value of the Sponsor Warrants for three months ended March 31, 2021.
Warrants to Purchase Series D Preferred Stock
On June 12, 2018, the Company issued warrants to purchase 485,262 shares of Series D Preferred Stock at a price of $0.006 (“Penny Warrants”). On November 12, 2020, the Penny Warrants were exercised and the Company issued 485,262 shares of Series D Preferred Stock in exchange for proceeds of $3.0 thousand. As of March 31, 2021, there were no Penny Warrants outstanding.
Commitment to Issue Warrants
In June 2018, the Company entered into a commitment to issue warrants (“Warrant Commitment”). The Warrant Commitment obligates the Company to issue warrants on an annual basis until 2025 (“Issuance Date”). The Warrant Commitment and the Company’s obligation to issue warrants was terminated upon the consummation of the Business Combination through notice provided by the Company and acknowledged by the counterparty.
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
On each Warrant Commitment Issuance date in June 2019 and June 2020, the Company issued warrants to purchase 121,356 shares and 242,713 shares of Series E Preferred Stock at a price of $5.92 per share (“Series E Warrants”). On November 7, 2020 the Series E Warrants were exercised and the Company issued 364,069 shares of Series E in exchange for proceeds of $2.2 million. As of March 31, 2021, there were no Series E Warrants or Warrant Commitments outstanding.
The Penny Warrants, the Warrant Commitment, and the Series E Warrants have been determined to be liabilities under ASC 480 as the underlying preferred shares have certain liquidation preferences in the event of a deemed liquidation. The Company recorded no warrant fair value adjustment for the three months ended March 31, 2021 and an increase to the warrant fair value adjustments of $1.0 million for the three months ended March 31, 2020.
14.INCOME TAXES
The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred operating losses to date. Due to projected and actual losses in the current and prior years, the Company believes that based on the weight of available evidence, it is more likely than not that all of the deferred tax assets will not be realized and recorded a full valuation allowance on its net deferred tax assets as of March 31, 2021 and December 31, 2020. Therefore, only an immaterial amount of state tax expense has been recorded for the three months ended March 31, 2021.
The Company’s provision for income taxes was $0.1 million for each of the three months ended March 31, 2021 and 2020, with an effective tax rate of (0.03)% and (0.19)%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the recording of a full valuation allowance against the net deferred tax assets.
15.RELATED PARTIES
Prior to the Business Combination, one of the Preferred Stock investors held more than a 10% interest in the Company and had one seat as a member of the board of directors and another seat as an observer of the board of directors.
In 2019, an executive early exercised their option to purchase 1,479,459 shares of unvested common stock at a price per share of $1.01 by issuing a promissory note to the Company for a total price of $1.5 million with an interest rate of 2.31% per annum. The promissory note was still outstanding as of March 31, 2021.
The Warrant Commitment and the subsequent Series E Warrants were issued to a counterparty that has an equity interest in the Company and a seat on the Company’s board of directors. The board member has significant influence with respect to the counterparty to the Warrant Commitment. The issuance of the Warrant Commitment and Series E Warrants was in exchange for on-going advisory services that the counterparty provided to the Company. See “Note 13 — Warrants” for further information.
16.NET LOSS PER SHARE
The Company uses the two-class method to calculate basic net loss per share and apply the more dilutive of the two-class method, treasury stock method or if-converted method to calculate diluted net loss per share. No dividends were declared or paid for the three months ended March 31, 2021 or 2020. Undistributed earnings for each period are allocated to participating securities, including the Preferred Stock for applicable periods, based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. As there is no contractual obligation for the Preferred Stock to share in losses, the Company’s basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average shares of common stock outstanding during periods with undistributed losses.
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common shareholders for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Basic and diluted net loss per share:
Numerator:
Net loss attributable to common shareholders – basic and diluted$(270,436)$(62,196)
Denominator:
Weighted average shares outstanding – basic and diluted565,381 84,027 
Basic and diluted net loss per share$(0.48)$(0.74)
There were no preferred dividends declared or accumulated for the period.
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive, or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period (in thousands):
Three Months Ended March 31,
20212020
Common Stock Warrants19,933 3,370 
Series D Preferred Stock Warrants— 485 
Series E Preferred Stock Warrants— 121 
RSUs52,106 22,839 
Options23,965 34,680 
Unvested Shares from Early Exercise36 136 
Restricted Shares1,837 3,080 
Redeemable convertible preferred stock— 314,424 
Total anti-dilutive securities97,877 379,135 
17.COMMITMENTS AND CONTINGENCIES
Interest Rate Lock Commitments
The Company entered into interest rate lock commitments with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rate to the borrower. These commitments are treated as derivatives and are carried at fair value. See “Note 5 — Derivative Instruments” for more information.
Purchase Commitments
As of March 31, 2021, the Company was in contract to purchase 4,027 homes for an aggregate purchase price of $1,302.5 million.
Lease Commitments
During the three months ended March 31, 2021, the Company did not enter into any material new leases, lease renewals, or lease modifications. On September 25, 2020, the Company exercised an option to early terminate the San Francisco headquarters lease, effective September 30, 2021. In September 2020, the Company did not anticipate returning to the San Francisco space, so the Company accelerated amortization of the right-of-use asset and incurred and paid early termination fees. In January 2021, the Company terminated the San Francisco lease prior to the anticipated termination date of September 30, 2021, which resulted in a $5.2 million gain recognized in the consolidated statements of operations for the three months ended March 31, 2021.
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Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share amounts, ratios, or as noted)
Legal Matters
From time to time, the Company may be subject to potential liability relating to the ownership and operations of the Company’s properties. Accruals are recorded when the outcome is probable and can be reasonably estimated.
There are various claims and lawsuits arising in the normal course of business pending against the Company, some of which seek damages and other relief which, if granted, may require future cash expenditures. In addition, from time to time the Company receives inquiries and audit requests from various government agencies and fully cooperates with these requests. The Company does not believe that it is reasonably possible that the resolution of these matters would result in any liability that would materially affect the Company’s consolidated results of operations or financial condition except as noted below.
On December 23, 2020, the Federal Trade Commission (“FTC”) notified the Company that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers, if the Company is unable to reach a negotiated settlement acceptable to all parties. This notice is related to an initial FTC civil investigative demand sent to the Company in August 2019 seeking documents and information relating primarily to statements in Opendoor’s advertising and website comparing selling homes to Opendoor with selling homes in a traditional manner using an agent and relating to statements that Opendoor’s offers reflect or are based on market prices. The Company is engaged in settlement negotiations with the FTC and has accrued an immaterial amount for this matter. Any settlement could result in material monetary remedies and/or compliance requirements that could have a materially adverse impact on its financial results. The Company cannot make an estimate of the possible loss or range of loss incremental to the amount accrued, if any, resulting from negotiations with the FTC at this time.
18.SUBSEQUENT EVENTS
On April 1, 2021, the Company entered into a new senior term debt facility with $400.0 million in borrowing capacity, a 3.48% interest rate and a final maturity date of April 1, 2025.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read together with the historical condensed consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q.
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report on Form 10-Q, and in “Part I - Item 1A. Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”).
Overview
Opendoor’s mission is to empower everyone with the freedom to move. Since our inception in 2014, we have reimagined the residential real estate transaction to provide a new, radically simple way to buy and sell a home with more convenience, control and cost savings than ever before. We believe our consumer-first orientation, scalable and integrated home transaction platform and our proprietary, machine learning-based pricing models are among our core advantages and differentiators for our business. Collectively, these underpin Opendoor’s digital suite of services, which brings simplicity, certainty and speed to the home selling and buying process.
February 2021 Offering
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 currently intend to use the net proceeds from this offering to invest in increasing existing market penetration, to expand into new markets, and for working capital and general corporate purposes.
The Business Combination
We entered into a Merger Agreement with SCH, a special purpose acquisition company, on September 15, 2020. Pursuant to the Merger Agreement, Merger Sub, a newly formed subsidiary of SCH, merged with and into Opendoor Labs Inc. Upon the consummation of the Closing on December 18, 2020, the separate corporate existence of Merger Sub ceased; Opendoor Labs Inc. survived and became a wholly owned subsidiary of SCH, which was renamed Opendoor Technologies Inc.
The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under the guidance in ASC 805, Opendoor Technologies was treated as the “acquired” company for financial reporting purposes. Opendoor Labs Inc. was deemed the accounting predecessor of the combined business, and Opendoor Technologies, as the parent company of the combined business, was the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC. The Business Combination had a significant impact on our reported financial position and results as a consequence of the reverse recapitalization. The most significant changes in Opendoor Technologies’ reported financial position and results are a net increase in cash of $970 million. The increase in cash includes approximately $600 million in proceeds from the private placement (“PIPE Investment”) consummated substantially simultaneously with the Business Combination, offset by additional transaction costs for the Business Combination. The transaction costs for the Business Combination are approximately $44 million, of which $14.5 million represents deferred underwriter fees related to SCH’s initial public offering.
As a result of the Business Combination, we became an SEC-registered and Nasdaq-listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal and administrative resources. We estimate that these incremental costs will be approximately $15 million per year.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Business Impact of COVID-19
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported and subsequently spread worldwide. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. 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. After ensuring our ability to close transactions safely, seeing the lifting of shelter-in-place mandates, and retooling certain operational processes to enable “contactless” transactions, we resumed making offers to purchase homes in select markets in May 2020. We resumed operations across all of our markets by the end of August 2020.
Despite pausing new acquisitions in March 2020, we continued to sell down inventory at a healthy pace, leading to a low point in home inventory of $152 million as of September 30, 2020 compared to inventory of $1,312 million as of December 31, 2019. As our revenues are dependent on inventory levels available for sale, our top line was pressured due to limited inventory. Accordingly, we experienced sequential, quarter-over-quarter declines in revenue in the second, third and fourth quarters of 2020. We have been actively rebuilding our inventory since August 2020, leading to sequential growth in the fourth quarter of 2020 and the first quarter of 2021. Likewise, we returned to sequential revenue growth in the first quarter of 2021 and we expect this trend to continue for the remainder of the year. 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 our current offerings mature and we introduce additional 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 Opendoor Home Loans, Buy with Opendoor, and List with Opendoor. 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 an initial home valuation range, which can be refreshed at any time through their personalized seller dashboard. The majority of our initial offers are algorithmically generated and do not require any human intervention.
In order to finalize our offer, we conduct a free assessment to confirm all of the home details and 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 competitive cash offer to sellers and we believe this approach builds trust with our potential customers. Our business model is designed to generate margins from our service charge to sellers and adjacent products and services associated with a transaction, and not from the spread between acquisition price and resale price.
We closely track the number of potential sellers who accept the Opendoor offer versus listing their home on the MLS, and this conversion rate is an important factor for our growth.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
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 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 27 markets as of March 31, 2021. The following table represents the number of markets as of the periods presented:
March 31,Year Ended December 31,
(in whole numbers)2021202020192018
Number of markets (at period end)27212118
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 plan to double the markets we serve by the end of 2021 and have launched six new markets in the first quarter of the year. We believe our centralized systems will allow for a higher velocity and lower cost market launch process in the future. We are able to launch a market with only a small field team focused on home assessments and subcontractor oversight, with all other key functions managed centrally, including marketing, customer sales and support and pricing.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
We view 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 purchase cohort Contribution Margins for 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 Margins in 2019; as those same markets matured, we were able to improve Contribution Margin performance in 2020.
We expect to make substantial investments to support our market launches in 2021, which will impact both Contribution Margin and 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, listing and real estate brokerage services, and mortgage services. 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 thesis that customers prefer an online, integrated experience. We expect that these adjacent services will also be accretive to our Contribution Margins.
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.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
Our pricing models and inventory management systems are designed to recalibrate to market signals on a daily basis. Accordingly, changing market conditions will be immediately reflected in our pricing for new acquisitions, leaving only previously-acquired inventory at risk to potential market volatility.
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 resale condition given the repairs and renovations we perform. We believe that this increases the salability and liquidity of our portfolio.
We operate in 27 distinct markets as of March 31, 2021, affording us diversification across our inventory portfolio. While there are macro forces that may impact all markets, local real estate markets tend to be idiosyncratic in terms of their individual supply-demand dynamics.
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 financing facilities, which consist of senior revolving 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 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
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
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 and (2) inventory impairment in prior periods. 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.
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 revolving 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 revolving credit facilities are secured by our homes in inventory and drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See “— Liquidity and Capital Resources — Debt and Financing Arrangements.” We do not include interest expense associated with our mezzanine term debt facilities in this calculation as we do not view such facilities as reflective of our expected long term capital structure and 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 fully burdened with expected long-term costs of financing.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)
The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to our gross profit, which is the most directly comparable GAAP measure, for the periods indicated:
Three Months Ended March 31,
(in thousands, except percentages)20212020
Gross profit (GAAP)$97,132 $91,047 
Gross Margin13.0 %7.3 %
Adjustments:
Inventory impairment – Current Period(1)
20 6,222 
Inventory impairment – Prior Periods(2)
(114)(8,421)
Adjusted Gross Profit$97,038 $88,848 
Adjusted Gross Margin13.0 %7.1 %
Adjustments:
Direct selling costs(3)
(17,340)(36,648)
Holding costs on sales – Current Period(4)(5)
(2,126)(4,876)
Holding costs on sales – Prior Periods(4)(6)
(1,426)(8,768)
Contribution Profit$76,146 $38,556 
Contribution Margin10.2 %3.1 %
Adjustments:
Interest on homes sold – Current Period(7)(8)
(2,333)(6,563)
Interest on homes sold – Prior Periods(7)(9)
(902)(8,578)
Contribution Profit After Interest
$72,911 $23,415 
Contribution Margin After Interest9.8 %1.9 %
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(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)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.
(4)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 Consolidated Statements of Operations.
(5)Represents holding costs incurred in the period presented on homes sold in the period presented.
(6)Represents holding costs incurred in prior periods on homes sold in the period presented.
(7)This does not include interest on mezzanine term debt facilities or other indebtedness. See “— Liquidity and Capital Resources — Debt and Financing Arrangements.”
(8)Represents the interest expense under our senior revolving credit facilities incurred on homes sold for the current period during the period.
(9)Represents the interest expense under our senior revolving credit facilities incurred on homes sold for the current period during prior periods.
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.
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OPENDOOR TECHNOLOGIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular amounts in thousands, except share and per share data and ratios, or as noted)