Q2 2023 Offerpad Solutions Inc Earnings Call
Good afternoon. Thank.
Thank you for attending the offer part of second quarter 2023 earnings call. My name is Bethany and I'll be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone.
Pad, we ask all analysts to limit themselves to one question and one follow up.
I'll now turn the call over to Stephanie Layton Senior Vice President of Investor Relations and E. S. G at offer pad, Stephanie and good afternoon, everyone. Welcome to offer pad solutions second quarter 2023 earnings call, our chairman and Chief Executive Officer, Brian Bird, Chief Financial Officer to water.
Don.
And your Vice President Finance, James Grout are here with me today.
The call today management will make forward looking statements as defined in the private Securities Litigation Reform Act of 1995 forward looking statements are inherently uncertain and events could differ significantly from management's expectation.
Please refer to the risks uncertainties and other factors relating to the company's business described in our filings with the U S Securities and Exchange Commission.
Except as required by applicable law occupied does not intend to update or alter our forward looking statement, whether as a result of new information future events or otherwise.
Today's call management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading non-GAAP financial measures.
Reconciliations of arthropods non-GAAP measures to the comparable GAAP measures are available in the financial tables.
Our earnings release unoccupied website.
I'll now turn the call over to Brian .
Thanks, Stephanie.
Everyone I appreciate you joining us.
Today, I'll cover Q2 highlights market trends and operational updates before.
Before we begin I would like to introduce <unk>, our new Chief Financial Officer.
<unk> is a highly regarded CFO with extensive experience and has accomplished career.
He previously served as CFO at Axon and spent 13 years in various roles at GE, including serving as CFO for their health record in enterprise software businesses.
I believe his strengths and expertise will add significant value to offer pad by helping drive profitable growth and improving our operational excellence.
We are excited to have jawad as part of our senior leadership team.
Turning to our second quarter results, we beat our financial expectations across the board our homes sold revenue and adjusted EBITDA all exceeded the top end of our second quarter guidance ranges.
This outperformance reflects the improvements we've made to our business processes and our elevated focus on profitability.
Other highlights for the quarter include.
Reporting our highest gross margin since quarter three 2021 at nine 7%.
<unk> nine 5% contribution margin after interest per homes sold and homes acquired after September one 2022, which is above our target range of 3% to 6% and surpassing 31000 lifetime renovations.
We emphasized last quarter that our plan to produce positive adjusted EBITDA by year end is not dependent on market acceleration.
We were prepared to perform through a period of depressed residential transaction volume and that is exactly what we did in the second quarter.
We remain confident in our ability to execute our 2023 plan.
As we move into the second half of the year the economy and housing market continued to show resilience.
Mortgage rates, reaching 7% low supply continues to support stabilizing resale prices as buyers outnumber sellers in many markets. However, the elevated mortgage rates are also contributing to the lower transaction volume and adding to the affordability challenge for many potential homeowners.
Our forecasted 2023 acquisition volume reflects our expectation that current market conditions will continue throughout the remainder of the year.
Our acquisition volume increased by 131% from quarter, one to quarter. Two we have demonstrated our ability to increase our pace in this present environment.
On the operation side, our renovation service is more important than ever the average age of homes in our markets has over 30 years old.
This plays to our strength of buying a home and adding value our ability to renovate as a key differentiator and competitive advantage.
Our culture of continuous improvement has been a key driver supporting our ability to meet our goals this year.
As an example, we recently made tech advances with our customer facing app and enhancements in our ability to leverage forward looking data when underwriting homes.
Our commitment to providing the seamless real estate transaction experience for our customers is evident in the significant enhancements made to our mobile and online applications.
We've incorporated upgraded features that deliver meaningful and relevant information to sellers granting them full visibility from request to closing.
New features will include video tutorials seller push notifications, the ability to upload and signed documents and direct messaging with the sellers dedicated <unk> team members.
Further providing transparency and control for our customers. Additionally.
Additionally, we expect these changes can help boost the overall efficiency and reduce costs for offer pad.
We've also integrated new tools to incorporate forward looking data to better predict market trends.
The goal is to use this data to make more competitive offers on desirable properties and increased our acquisition volume after.
At the same time, we can reduce risk exposure by not pursuing the homes that are likely to be low performing properties.
Upgrading our data driven systems facilitates intelligent growth, but our experienced local real estate professionals remain critical to our success.
We believe combining human and artificial intelligence is key to making the best decisions possible.
Well on the note of technology I'm very excited about the tremendous potential to harness the power of artificial intelligence.
Since the beginning machine learning has added valuable insights, helping us become smarter with every home, we buy and now with the rapid advancements of AI like NLP and computer vision the possibilities are endless.
From the way, we find and communicate with likely customers underwrite and price of home and sell our homes there are amazing possibilities with AI.
I am enthusiastic about the potential for thoughtfully incorporating AI across our company's operations with the right strategic integration, we can unlock incredible innovations that propel us forward.
Coming back to the operational front I wanted to provide an exciting update on our flex sell program.
As a reminder, the program gives customers even more flexibility they can accept our instant cash offer or test the open market with an offer pet agent, while retaining the cash offer as a backup.
Given the major shift in market conditions last year, we passed <unk>. However, I'm thrilled to announce we plan to relaunch this program and I'll offer pad markets in quarter three.
From the very beginning our vision has revolved around being a comprehensive real estate solutions center for everyone.
In addition to serving the needs of homebuyers and sellers, our reach extends to business to business partners and real estate agents across the nation.
Our direct plus program that can ask investors with sellers continues to build as we onboard new investor partners.
Our renovation team continues to expand its impact by renovating non offer pads single and multifamily homes.
To further pursue our real estate solution center goals, we are committed to even more resources to strengthen and expand our homebuilder alliance with agent partnership programs.
With around 100 homebuilder brands, our homebuilder program provides customers with a cash offer on their current home and the flexibility to select a closing date.
Homebuilders benefit is offer pad removes the contingency hurdle with occur at home.
Additionally, our agent partnership program has proven to be a desirable offering generating over 130000 agent initiate offer requests.
This valuable lead generation channel for offer pad is also a simple solution for home sellers, while their agent receives a referral fee upon the successful close a win for all.
In conclusion, the achievement of surpassing our second quarter goals and stills, even greater confidence in the success of our 2023 strategy simply put our product offerings are strong led by our cash offer.
More and more customers start their real estate journey with US first and have consistently raised this over 90% customer satisfaction.
With proven ability to scale, even in a challenging macro environment and our commitment to continuous improvement we are well prepared to seize the opportunity once again.
As we evolve our processes and products they become even more efficient and add increased value to our customers.
We set out to change the way real estate transaction forever and that's exactly what we're doing I'll now turn the call over to Jawad.
Thanks, Brian I'm very excited to be at all from Pat and worked with this incredibly talented group of individuals I'd also like to acknowledge Mike for helping make my transition a smooth one and for building a world class finance team.
I'm also excited to share our strong financial results this quarter.
Our expectation and that momentum will accelerate throughout 2023 as reflected in our top and bottom line results.
There are three things in particular that I wanted to highlight.
The key leading indicators of our business model are trending in the right direction.
Second we've made substantial progress towards reaching profitability and third our balance sheet continues to strengthen.
I'd like to start by highlighting the positive trend in our key leading indicators.
We've reduced our inventory of homes is greater than 180 days down to less than 2% well below our previously stated target of 10%.
Our acquisition of homes grew month over month in the quarter.
Time to cash or our holding period reflected a 47 day sequential improvement at 138 days in Q2 compared to 185 days in Q1.
In fact for the month of June time to cash was 94 days solidly below our 100 day target.
We expect holding times to continue to trend down this year and will likely remain below our 100 day average target in Q3, which lowers our holding costs and reduces our exposure to market volatility.
And finally, we're seeing a market improvement in the contribution margin for the cohort of homes acquired on or after September of 2022 as opposed to those acquired prior to this timeframe in the second quarter. We saw contribution margins of nine 5% were $31000 per home for homes acquired <unk>.
After September of 2022. This is an important measure of our unit economics and speaks to the strengthening performance of homes in our inventory.
Moving to the P&L, we generated $230 million of revenue exceeding the top end of our guidance range by 15%.
Our revenue was driven by the sale of 650 homes, which also exceeded the top end of our guidance range at an average selling price of $348000.
The lower average selling price in the second quarter is the result of our intentional focus on acquiring homes near the median in each market.
This is where we see the strongest demand at highest transaction volume the.
The $22 $3 million net loss in the second quarter reflects a 62% improvement over Q1, and our adjusted EBITDA for the quarter improved to negative $17 3 million compared to negative $44 $8 million in the first quarter. This reflects a 61% increase in adjusted EBITDA quarter over quarter.
The sequential quarterly improvement in adjusted EBITDA was driven by significant increases in gross profit and disciplined cost reductions gross profit increased over 200% primarily due to improved margins on more recently acquired homes and a lower number of legacy cohort sales are nine.
7% gross margin reflects both a quarter over quarter and year over year improvement from the one 2% gross margin in Q1, 2023, and eight 6% gross margin in Q2 last year.
This is consistent with our expectation that gross margins and contribution margins would trend upward. This year is the last of our inventory acquired prior to September one 2022 is sold and the positive performance of inventory acquired in recent periods is recognized.
On the cost side total operating expenses decreased 25% from $59 million in Q1 to $44 million in Q2, due to previously announced head count reductions and other general cost reduction measures.
Year over year operating costs decreased 48%. This is the fifth consecutive quarter of operating expense reductions demonstrating our rigorous commitment to disciplined cost management at our current level, we are well positioned to realize improving margins in the second half of the year.
From a balance sheet perspective, our unrestricted cash balance increased to $115 million at the end of Q2 up from $108 million at the end of Q1 inventory increased to $211 million from $173 million in the first quarter.
This reflects an increase from 557 homes in inventory at the end of Q1 to 747 homes in inventory at the end of Q2. This increase in inventory was driven by the 840 homes, we acquired in the second quarter, which exceeded our expectations and was more than double the 364 homes that we acquire.
In the first quarter.
Our inventory build coupled with the aforementioned reduction in inventory aged over 180 days to less than 2% highlights the quality of our current inventory.
Our June 30 debt balance was $191 million during the second quarter, we successfully extended the maturity date for our largest credit facility to June 2025, while maintaining our favorable terms and conditions, including interest rates spreads and advance rates.
We continue to have a blue chip roster of lending partners that provide a strong foundation to our debt capital structure.
Looking forward to the second half of the year, we expect Q3 to reflect the second quarter over quarter improvement in time to cash as well as increases in acquisition inventory and contribution margin after interest.
We also expect Q3 to continue the trend of sequential improvement for gross margin net loss and adjusted EBITDA that began in Q1.
Specifically in the third quarter of 2023, we expect to sell between 607 hundred homes generating revenue of between $200 million and $240 million.
We also expect adjusted EBITDA to be between negative $17 million and negative $9 million, which represents another significant sequential improvement, bringing us closer to meeting our expectation of achieving positive adjusted EBITDA in the fourth quarter of this year.
Our results in the first half of this year are a reflection of this team's rigorous commitment to adapting to changing market and economic conditions. Our revenue streams will continue to diversify beyond our cash offering and we are excited to share more updates on these areas in the coming months.
Our business has never been more resilient than it is today and has never been better positioned to capitalize on the tremendous opportunity in front of us.
I joined off a pad to help this team forever changed the way real estate transaction, making it more efficient and driving more value.
Given the volatility uncertainty and ambiguity facing home sellers and buyers today, there has perhaps never been a more pressing time for our mission. We were built for this moment and we can't wait to continue sharing our progress with you.
And with that I'll turn the call over to the operator to begin the question and answer session.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove a question. Please press star followed by two again to ask a question. Please press star one to ask.
All analysts to limit themselves to one question and one follow up after which you may re enter the queue for any additional questions and as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly ask questions are registered.
Our first question comes from the line of Jay Lee with Jpmorgan. Please go ahead.
Great. Thanks for taking my question two so I'll first of all you talked about home acquisition muscle or muscle was curious revised today.
From a home acquisition per month perspective.
With 500 per month.
Right number to think about.
And the early on your unit economics and margins.
Sure.
And protocols acuity mix shift.
Compare that contribution margin gross margin product.
This too far after September of last year.
Hello Martin.
Or.
Stable or should it come up as you accelerate your own home acquisition fees.
Okay. Thanks, Dave This is James.
On your first question around our acquisition pace overall, so like kind of like what Brian mentioned, we have in and seeing improvement month over month.
That overall target of 500 per home.
Excuse me 500 per month.
One thing that's important to keep in mind there is as ever.
We're on a path here to profitability.
Acquisition volume is only one of the levers that that's out there right. So the returns on those homes also our cost saving efforts and the mix shift with those other product lines is important.
We're continuing to work on that and seeing that improvement month over month, but we'll always be focused on as me.
Maximizing that return versus volume expectation for the business.
And to your second question there in terms of that that new cohort performance and how contribution margin and margin should.
Proceed going forward.
The important thing there is when you look at how we've been underwriting over the past.
Three or so quarters really the largest spreads that we are underwriting to where that Q4 Q1 timeframe and then as the conditions have been improving and we've been even more comfortable in certain markets we have been.
Releasing some of that conservatism there all while making sure that we're buying the right homes that are performing.
So now that when you look forward into Q3, and Q4 Youll see less of the drag on gross margin and contribution margin from the legacy stuff, but you will see those returns starts start to normalize for those cohorts going forward. So we should see.
Those new cohorts start to come down more in line with our expectations for our long term contribution margin.
Well thank you.
Thank you.
Our next question comes from the line of Nick Jones with JMP Securities. Please go ahead.
Great. Thanks for taking the questions.
The first one I guess can you maybe.
Touch on how the kind of and I buy your solution or offer pad solution is being received in the marketplace. Today is some of the questions. We get is around.
With prices being pretty stable the market, having little supply.
And I by our combat and provide value.
And this kind of environment is there any kind of clarity on like how things have changed over the last.
I guess 12 months, and what kind of homeowners and buyers sellers and buyers.
But how they're receiving the AD buying solutions. Thanks.
Yeah, Hey, Nick it's Brian .
It is important to note request volume has been consistent all year.
Seeing very similar to what we saw in the uptick the last couple of years.
Cash offers.
I would say are more important than ever a lot of the customers that are coming to us for a cash offer number one reason is certainty and control, but also it allows them because of the limited supply to find them to buy their next home.
Under there without contingencies and their timeframe and so similar to what we saw before when the market low supply and we saw really hot.
Creased home price appreciation now youre seeing the lack of supply so if a potential seller finds a home that they want we're able to close on their schedule to make sure that they can get that home. So that's what we're seeing and the.
Other thing a lot of the noise out of the cash buyers is.
Dawn I mean actually I think thats.
There is really only two cash buyers right now behind it at volume and so we're seeing more and more opportunity there than we have before.
And then obviously as we add in more of our product sound that it even makes more and more of our solutions cycle as well.
Great and then maybe to follow up on some of the newer products like drug plus the listing service renovation as a service. However, what's the uptake on those and how should we think about those maybe starting to show up in the P&L or the model over time. Thanks.
So overall bike with we're signing up new New partners every day for both of those both for direct plus and for renovate what's exciting what's exciting to see is we're seeing more customers using our renovation service, while using our direct plus service to buy to buy their home and then using our renovation as a service to help us.
Renovate the home for them.
Which is which has been great obviously with the transaction level focused on that that's going to affect especially for single family and some of the other.
The other people buying in those channels, but we've been really happy with with.
The market conditions of where those those those products are going right now.
And so we're seeing good growth in both of those products.
Great. Thanks, Brad.
Thank you.
Our next question comes from the line of Ryan Tomasello with Stifel. Please go ahead.
Yeah.
Hey, everyone. Thanks for taking the questions.
Yes, a follow up on the prior remarks.
Reading between the lines it sounds like maybe maintaining a more tempered purchase volume stance.
Over this quarter and next but I guess, maybe stronger margins filling that gap to still allow you to hit the profitability targets.
I mean, how sustainable do you think these higher spreads are in the current environment given how tight inventory conditions are and what are you looking for in terms of market conditions to get more comfort Ram.
Ramping volumes do you feel like that is completely under your control.
To widen.
I am sorry, widen the acquisition funnel with lower spreads or.
Or perhaps is the ability to ramp volumes somewhat limited given the conditions out there. Thanks.
Alright, I'll jump in and then and then let James to July jump in after that but.
First and foremost thank you for what we're buying our buy box I really like we're right around the medium home price.
So I really like what we're buying right now.
In this environment, and which is great and is as weak as we scale up we can move that buy box up as we wanted to get more market penetration and start buying more homes.
Right now what we're focused on is the sensitivity of mortgage rates, even a 10th of a basis points right now as things were close just watching and monitoring really well, especially as interest rates get up above seven but overall like this market has been extremely resilient from the volume you know theres a 20%.
A reduction in transactions across the country and if you look at some of the signs you could argue it could be even more than that but we are seeing a lot of opportunity to continue to grow by really good product and a really disciplined way right now and <unk> and.
Really focused controlling what we can control.
And I'm really happy.
With where we've done with our legacy inventory and where we are today and now we can just focus on what we're buying going forward.
And so I really like the position we're at that across the board there James.
I think one thing just to add to that Ryan.
Sure.
Our letter to the shareholders. We shared a couple interesting graphs that breakout the contribution margin and it highlights the other services in particular and that would be those other renovation direct plus the flex listing and buyer services, there and what's been great to see the business as we brought down our volume as we've seen those other lines of business.
As we had hoped and expected to come in and provide more value into the overall profitability for contribution margin right. So as we look going forward and that pace on exactly how many homes do we need to acquired for that profitability. It really is.
Our strategy around ramping all of those collectively and having that diversified income.
Which gives us a lot of.
Opportunity in levers there to go and approach that.
Okay.
And then just an update on how you feel about the balance sheet here in terms of capital have.
Have you thought about how much volume you think you can drive off of the current equity base.
How that compares to the volume you ultimately need to drive for.
Not only cash flow breakeven, including the net negative carrying costs on the financing side, but also ultimately to generate.
Positive.
Returns here.
In terms of the business model.
Yes, I think theres, a couple sides to that.
The first one is with.
Our current capital structure in terms of cash and our credit facilities on the debt side and we do have a plan that supports things going forward with that right.
The important thing about the leverage side of the business is coming out of the legacy inventory.
If you look at that sequential improvement in cash quarter over quarter and a big part of that is going to be driven by leverage returning to normalized levels and you.
You take this back to our ability to extend and renew our largest credit facility with the same some favorable terms we've had in place to maintain those good relationships with our partners that allows us to be very efficient with our capital.
Yes.
It's a very.
Those facilities are daily warehouse facilities that have a lot of activity happening on them regularly and that allows us to buy at the volumes that we're anticipating.
Yes, Brian This is John I would like to chime in here, So I feel great about the balance sheet and the team has done a lot of great work to get the credit facilities, where we want them. We got as James mentioned really good relationships, there and we've got the ability to Howard.
Our volume growth.
It reflects the market.
Opportunities that are in front of us, but the thing that I love. The question about are non cash offer solutions because that ultimately is one of the big reasons I joined the company. We are positioning offer pad to be more asset light over time with more of our revenues coming from direct plus and flex and renovations and that's going to.
Sort of the need for us to have too much reliance on the on the credit facilities, but the credit facility, we do have and we feel great about.
Thanks appreciate the color.
Thank you.
Our next question comes from the line of Michael <unk> with Goldman Sachs. Please go ahead.
Hey, good afternoon, and thank you for the question I have one on the gross margins for the September 22, and later cohort.
Really strong at nearly 13% how are you thinking about the drivers of that 13% gross margin.
Whats the headline service fee.
How much is home price appreciation during the holding period.
Much contribution from <unk>.
Renovation.
And just as a quick follow up.
To some of the questions asked earlier on the call.
How are you thinking about your target home inventory balance.
Obviously, you guys are carrying $3 to 4000 homes at one point.
What's the right way to think about what that looks like into 'twenty.
<unk>, 2024%, 25%. Thank you.
Okay I'll jump in first it's Brian and then I'll, let I'll, let James jump in but.
The thing that Youre seeing what the performance is with our risk and underwriting is obviously the more uncertainty where in the market is coming out of it with our legacy inventory we're underwriting.
More conservative risk built into that as we see them.
Market started to stabilize we've taken some of that risk off like I said, we've been focused on.
The whole prices between $2 50 to $4 50 price points.
And that's a really good really good spot right now the affordability is really strong Midwest markets have been performing well as long with the Florida markets and so we've been hyper focused on the type of products that we're buying.
The other thing just to note on that is that the value we're getting in renovation.
As really strong maybe you can argue is stronger than ever.
Most of our inventory that we're seeing hitting the market.
Yes.
As homes that homes that need renovation that can get value and renovations and so a lot of the data.
Most of the like 51% of the homes, we're seeing right now and maybe older than 1990, something like to that Stan so adding value through renovation has been has been key as well so I would think underwriting.
We're right in the homes, and then adding value through renovation and then thats really important because as our houses then hit the market. We have a really desirable product that people can buy and then which limits our tightened a cash as well, which I am very happy is below 100 days again.
And that's.
That's where we like to be.
As we move forward, but that's bad.
And I think just to add on on the inventory side.
If you look back historically.
Obviously it ranges in there is some seasonality in there, but kind of our inventory turnover is usually it's about a 100%.
On a quarterly basis, so whatever we whatever our ending inventory is we will sell that many homes in the following quarter.
There is.
Plenty of seasonal trends that factor into that from a quarter from a quarter by quarter basis, but so if you think about just generally a 500 a month acquisition target that would suggest about a 500 unit inventory carry seasonally adjusted but.
I think what's important is kind of back to our earlier comments around.
Diversifying our product mix, focusing on direct plus and the opportunities there that's going to that's going to change as we go forward just based on what the market conditions are doing and how these other product lines are ramping.
We will continue to evolve that but overall, our current capital base on our credit facility structure that would support that level of activity and Mark I know this wasn't your question, but just something that James said, maybe think of this as well is that one of the strengths have just the cash offer as well re launching flex sale.
What did I talked about a little bit earlier is going to be key as well because as people see limited inventory if they want if they want to explore the open market and see what they can get on the retail side, we can help them with that as well and then have our cash offer as a backup.
That was a very popular product before we passed it and re launching that again, we'll give we'll give people again that flexibility.
What the market can do but also the cash offer.
So I just wanted to hit on that as well.
Okay. Thanks for the thoughts, Brian and James I appreciate it.
Awesome. Thanks.
Thank you.
Our next question comes from the line of Jon Cohen, Tony with Jefferies. Please go ahead.
Hey, great. Thanks for taking my questions.
Two about inventory and growth so.
Starting with inventory so you saw.
<unk> home's purchase.
But youre expecting homes sold to be about flat in the third quarter.
If you keep making progress towards your goal of 500 home purchases per month in Q3.
Our math suggests that would sort of imply youre going to end next quarter with about 1000 homes in your inventory balance.
Does that mean that we should expect to see sort of a substantial step up in homes sold during the fourth quarter.
And second question when you think about transitioning the business from right sizing inventory levels and improving efficiencies to re accelerating growth next year. What are some key areas sort of permanent efficiencies that you've been able to draw out of the business that will help you improve.
Sort of the balance between growth and profitability over time.
<unk>.
Yes, I think a lot of I'll jump in the efficiencies I think there's countless efficiencies. We've we've learned a lot and we've done a lot of look backs as well.
The market.
Hip to hit the pause button.
With the rapid interest rates from last year, we've learned a lot in underwriting is absolutely key.
And to all of the above and the type of inventory that we want to buy.
It's going to be key also the renovations, we continue to get more efficiency out of our renovations at our red teams.
And the other thing is just with with our customer engagement as well as we're not buying thousands of homes a month, we've been able to focus on different projects you want to rollout.
For a while in our customer communication has never been stronger than ever.
And we're getting that from the feedback of our of our customer satisfaction scores and everything else, but as it comes from the property level.
The the segmentation.
And underwriting we have a project internally called limelight we focus.
Highly on the type of homes, so we get smarter and better with every home that we buy and so we're constantly trying to learn.
And how do you get better and so I think our efficiencies are super strong.
Strong and I think everyone's more aligned than ever of what success looks like it is we talked a lot about growth.
That's a meter to increase our buybacks like I said from.
As if we can get the volatility now is coming more from the mortgage markets. Then it is really anything else on the real estate markets.
And so that that volatility is definitely something again like I said, we are watching closely but as we get more comfortable there in certain markets. We can move from higher up the value of homes and then also take on certain kind of renovation homes as well to help us on the growth side. So again, the ability to grow but really grow disciplined right.
And what we're doing and we are.
Laser focused on being profitable. That's every day the teams are talking about that.
And Thats really important now and make it through what we just did in Super proud of where we've been and really excited of where we're going but as massive.
On the path to profitability, but I'll, let you congestion yes.
And John on your question around inventory and sales pace there right. So when you look at Q2 650 homes sold if you exclude the legacy inventory of those homes acquired.
In August and earlier from last year.
There was 491 of the new inventory that was sold in that in Q2. So the midpoint of our range of $6 50 is about a 32% increase quarter on quarter, there, but you're spot on in terms of inventory growth.
Expect things to increase there going forward.
The one thing I would caution, though right in Q4 in particular from real estate perspective. It is the seasonal slow months with the holidays.
And just with market conditions things or have uncertainty this year, how things will play out right. So that's why we can to remain diligent and cautious.
With the inventory that we're acquiring right now to make sure that it's going to be good performing holds for Q4.
I'll just jump in on there the seasonality over the last couple of years because of lack of supply has not been what we've seen traditionally the lack of supply we haven't seen it.
We've seen some seasonality, but not near the seasonality that we've seen maybe a few years ago. So the lack of supply is definitely is.
Certainly in a little bit of different ratchet the seasonality side, but again, it's something that we're watching closely but December is definitely one of those months.
Yes, John This is John I wanted to weigh in here as well.
The challenging year I wasn't here for it but I love the way that we responded.
Ill take really difficult decisions and makes it tough decisions and actions to rightsize, our cost structure and what I see now is a business that has fundamentally right size and gotten it at cost and infrastructure.
Positioned to grow profitably from here and so for me, it's not just profitability to cash flow. So we're.
Give our guidance on profitability, but we're also laser focused on getting that cash flow positive as well.
And that's something that we're going to drive very hard towards.
There's still a lot of uncertainty in the market, Brian mentioned volatility in the mortgage market and for sure. There is still some uncertainty, but I feel really good about companies positioned to grow from here.
Great. Thanks, Thanks for all the details.
Thank you.
Our next question comes from the line of Jay Mccanless with Wedbush. Please go ahead.
Hey, good morning, Thanks for taking my questions.
The first one I had.
In terms of the people who are selling homes to you Brian .
Is it typically primary homeowners family selling or have you seen an uptick in people, who maybe thought there could be a landlord couldnt pull at all and or some of these airbnb owners. We've heard that are that are starting to bill. If you could maybe talk about that supplier base of your.
Rooms, now versus maybe where it was a year ago or two years ago.
Yes, I think I think fundamentally it's a Greg I was actually going to start with the Airbnb. When you said that I was thinking about that because there is definitely a little pocket that's happening right. There I think fundamentally just as where interest rates, where they're at there's definitely the story of people locked into their three year, 4% mortgage and so theres not a lot of people that are moving.
Because of what the nicer kitchen are nicer cabinets or bigger backyard right now.
So most people are moving moving for a purpose majority of the people that were.
That are that were that were buying the homes from.
Our owner occupants that are that are living in the homes. The vast majority of that but in saying that we are seeing a lot of.
Lot more action that we've seen with short term rentals.
And even some of the long term rentals on that on that end of it. So we're seeing we're definitely seeing volume from from that end of it as well and to your point I think there was a rush for the short term rentals in the Airbnb and those of the World and I think those are there. They are having whatever were just seeing more activity on that end as well but.
But definitely vast majority are people that are owner occupied that are selling us their homes.
Okay, that's great.
Then.
My second question kind of.
Unpack, what youre talking about with mortgage rate volatility Brian is there a.
Is 8% too high even at these new spreads and sticking around the medium price, which sounds great I think thats the right approach right now but is there a.
A ceiling.
Mortgage rates 30 year rates go above the underwriting doesn't work for what you are buying and what youre trying to sell right now.
Whats interesting.
Obviously, we're watching it very closely I would have told you that.
While ago, 7% would have been.
<unk> been in and we've seen still because of lack of supply you are still seeing strong demand with anything that we're putting on the market.
I think the one thing that maybe doesn't get mentioned enough is because we haven't had the home price depreciation that everyone was expecting coming through this and the job shops are are still holding strong you still have people with a lot of equity in their current home. So people that are selling their home might have two to $300000 of equity up to that.
That they now can put down as a down payment.
That can offset some of the cost so instead of getting a mortgage at 500000 theyre getting a mortgage at 250 or 200000, which is offsetting some of the burden of the interest rates.
So we're still seeing about.
25%, maybe cash buyers.
Some of that equity.
<unk>.
But also youre seeing a lot of first time homebuyers as well I think that our.
Sure.
That had been moved out of the market or that are coming out of a rental the tape and Randy the last year or two that they wanted to get in on and buying a house why why they can.
And so anyway, that's a long winded answer, but I hope that answered where what your question was.
Yeah, absolutely. Thanks.
Thank you. Thank you.
That concludes the question and answer session.
And that concludes today's conference call I would like to thank you all for your participation you may now disconnect your lines.
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Yeah.
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Thank you all for your participation you may now disconnect your lines.
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