Q4 2023 Offerpad Solutions Inc Earnings Call
Moderator: www.offerpadsol.com Good afternoon. Thank you for attending the Offerpad fourth quarter 2023 earnings call. My name is Matt, and I'll be your moderator for today's call.
Okay.
[music].
Good afternoon. Thank you for your 10 million to offer Pat for quarter 2023 earnings call. My name is Matt and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call up an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.
Moderator: All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I will now like to pass the conference over to our host, Taylor Giles with Offerpad. Taylor, please go ahead.
I would now like to pass the conference over to Oracles Taylor childhood I'll forget Taylor. Please go ahead.
Taylor Giles: Good afternoon, and welcome to Offerpad's fourth quarter of fiscal 2023. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Baer, and Interim Principal Financial Officer and Senior Vice President of Finance, James Gratz. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations
Good afternoon, and welcome to offer pads fourth quarter and fiscal 2023 earnings call.
I'm joined today by offer pads, Chairman and Chief Executive Officer, Brian Bird and interim principal financial Officer, and senior Vice President of Finance James Graff.
During our call today management will make forward looking statements as defined in the private Securities Litigation Reform Act 1995.
Forward looking statements are inherently uncertain and events could differ significantly from management's expectations. Please.
Taylor Giles: Please refer to the risks, uncertainties, and other factors relating to the company and business described in our filing with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter this forward rule, whether as a result of new information, future events, or other. On today's call, management won't refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading non-GAAP financial measures. The reconciliation of Offerpad non-GAAP measures to the comparable GAAP measures is available in the financial tables of the fourth quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.
These refer to the risks uncertainties and other factors relating to the company's business described in our filings with the U S Security and Exchange Commission.
As required by applicable law.
<unk> does not intend to update or alter our forward looking statements, whether as a result of new information future events or otherwise.
On 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 the.
A reconciliation of offer pad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the fourth quarter earnings release on <unk> website.
I'll turn the call over to Brian.
Brian Baer: Thank you, Taylor, and thank you all for joining our fourth quarter 2023 call. The past year represented a pivotal moment for the company in terms of our operational advancement and execution capabilities, despite enduring a volatile and challenging macroeconomic landscape. Even with the market difficulties, we cleared through virtually all of our legacy inventory obtained prior to the market transition by the end of the second quarter last year, and I've seen meaningful improvements in contribution margin in the second half of the year. Our focus is strong on our commitment to our core vision and strengths, which start with the foundation of our cash offer. Our Renovate product line, alongside our ability to involve agents to be part of our solutions, is prospering, and our ability to manage our expenses has never been better. By doubling down on the things we can control, we delivered a solid fourth quarter.
Thank you Taylor and thank you all for joining our fourth quarter 2023 call.
The past year represented a pivotal moment for the company in terms of our operational advancement and execution capabilities, Despite enduring a volatile and challenging macroeconomic landscape.
With the market difficulties, we cleared through virtually all of our legacy inventory obtained prior to the market transition by the end of the second quarter last year.
I have seen meaningful improvements in contribution margin in the second half of the year.
Our focus is strong and our commitment to our core vision and strengths, which start with the foundation of our cash offer.
Renovate product line alongside our ability to involve agents to be part of our solutions is prospering and our ability to manage our expenses has never been better.
By doubling down on the things we can control we delivered a solid fourth quarter, our revenue of $240 million adjusted EBITDA of negative $7 million as well as our 712 homes sold were all within guidance.
Brian Baer: Our revenue of $240 million, adjusted EBITDA of negative $7 million, as well as our 712 homes sold were all within guidance. 2023 brought its share of wins.
So we are back to our desired growth trajectory 2023 broad its share of wins.
Brian Baer: We demonstrated a clear path towards sustainable profitability with a just-to-even-up of over 1,200 basis points year-over-year. We grew our partnership and ecosystem networks, especially within our agent partnership programs, greatly expanding our coverage. And we continued to grow our asset-light revenue streams, which accounted for more than 35% of our contribution margin after interest in the second half of 2023. I will discuss these accomplishments, then review our three strategic imperatives before transitioning the call to James for an in-depth discussion of the numbers and guidance.
We demonstrated a clear path towards sustained profitability with adjusted EBITDA up over 200 basis points year over year, we grew our partnership and ecosystem networks, especially within our agent partnership programs greatly expanding our coverage and we continue to grow our asset light revenue streams, which accounted for more than 35% of our contribution.
Margin after interest in the second half of 2023.
I will discuss these accomplishments then review our three strategic imperatives before transitioning the call to games for an in depth discussion of the numbers and guidance.
Brian Baer: During 2023, we improved adjusted EBITDA in each consecutive quarter, while also delivering revenue growth in the last three quarters of the year. We plan to continue these trends and exit 2024 with sustainable adjusted EBITDA profitability and a direct line of sight to positive free cash. To do this, we have better defined the scope and deliverables of roles across Offerpad's workforce, continue to enhance our tech stack, expand our partnership programs, and we are improving our customer acquisition cost and marketing reach through more efficient spend and partner engagement. For instance, we are focusing activities and capital in market shielding the highest returns within our buy, while optimizing our product lines in our other markets.
During 2023, we improved adjusted EBITDA in each consecutive quarter, while also delivering revenue growth in the last three quarters of the year.
We plan to continue these trends and exit 2024 with sustainable adjusted EBITDA profitability and a direct line of sight to positive free cash flow.
To do this we have better defined the scope and deliverables of roles across offer pads workforce continue to enhance our tech stack.
And our partnership programs and we are improving our customer acquisition costs and marketing reach through more efficient spend and partner engagement.
For instance, we are focusing activities and capital in markets, yielding the highest returns within our buy box, while optimizing our product lines in our other markets.
Brian Baer: Offerpad's mission to take the friction out of real estate has always included serving our customers with buying and selling solutions. And through additional services that include our asset-light revenue streams from listings to direct plus to offer pad renovations. Combined, these accounted for 43% of our unit transactions in 2023 versus 24% in 2022. In fact, we grew revenue in our renovation business by nearly 70 percent and saw a 148 percent increase in closed renovation projects compared to the previous quarter. Altogether, these other services delivered an exceptional incremental contribution margin of nearly $5,000 per home sold in 2023, a significant leap from previous years at less than $1,000 per home. Our momentum with our B2B clients continues to grow as they rely on our capacity to efficiently deliver top-notch renovations, thereby enhancing their own profitability and customer satisfaction.
After Pat's mission to take the friction out of real estate has always included serving our customers with buying and selling solutions and through additional services that include our asset light revenue streams from listings to direct class offer pad renovated.
Combined these accounted for 43% of our unit transactions in 2023 versus 24% in 2022.
In fact, we grew revenue in our renovation business by nearly 70% and saw a 148% increase in closed renovation projects compared to the previous quarter.
Altogether. These other services delivered an exceptional incremental contribution margin of nearly $5000 per homes sold in 2023 are significantly from previous years at less than $1000 per home our momentum with our BTB clients continues to grow as they rely on our capacity to efficiently deliver topnotch renovations.
Thereby enhancing their own profitability and customer satisfaction.
Brian Baer: We're now working with national, regional, and local clients across the country, including single-family and multifamily operators. By allowing our renovation clients to plug into our operations, they gain access to Offerpad's extensive experience, cost savings, and commitment to delivering high-quality work. As a case point, one of our larger renovation clients in 2023 came to Offerpad because they were dissatisfied with the quality and turnaround time of their home renovation. We executed a pilot program of 30 homes to show them the quality and value we could help them create.
We're now working with national regional and local clients across the country, including single family and multifamily operators by align with our renovation clients to plug into our operations. They gain access to offer pads extensive experience cost savings and commitment to delivering high quality work.
The case 0.1 of our larger renovate clients in 2023 came to offer pad because they were dissatisfied with the quality and turnaround time of their home renovations.
We executed a pilot program of 30 homes to show them, the quality and value we could help them create.
Brian Baer: Over 300 homes later, we are their preferred renovation partner. It's this dedication to quality and efficiency that enabled us to generate over $12 million in renovation revenue during our first year operating this product. Our partner network is a key lever in our growth strategy. It encompasses our home builder services, our agent partnership program, and our agent referral network.
Over 300 homes later, we are their preferred renovation partner.
This dedication to quality inefficiency that enabled us to generate over $12 million and renovate revenue during our first year operating in this product line.
Our partner network is a key lever in our growth strategy.
It encompasses our homebuilder services, our agent partnership program and our agent referral network.
Brian Baer: By incentivizing partners to leverage Offerpad for property buying, selling, and renovations, we expand our reach and serve customers in markets beyond our direct service. Since 2019, our agent partnership program has provided an industry-leading referral fee to agents who sell or select our cash offers. With more than 130,000 cash offer requests, the agent partnership program has grown from generating 5% of our overall requests to more than 20% last quarter. This program is tailored to meet consumers at their exact point of need, enabling them to utilize Offerpad in the way that best suits their home selling situation, while also serving as a valuable resource for real estate agents. In late January, we announced major enhancements to the program. The Offerpad Pro tier allows agents to continue to request a cash offer on behalf of their clients and, for the first time, have the ability to list an acquired home for resale. Offerpad Max is our top tier, invite-only subscription fee based program designed for highly motivated agents with significant marketing regions. Max agents will receive the same benefits as pro agents with several added advantages.
By Incentivizing partners to leverage off our pad for property buying selling and renovations, we expand our reach and serve customers and markets beyond our direct service area.
Since 2019, our agent partnership program has provided an industry, leading referral fee to agents, who seller select our cash offer with.
With more than 130000 cash offer requests the agent partnership program has grown from generating 5% of our overall request to more than 20% last quarter. This program is tailored to meet consumers at their exact point of need enabling them to utilize off a pad and the way that best suits their home selling situation while also.
<unk> is a valuable resource for real estate agents.
In late January we announced major enhancements to the program.
The <unk> pro tier allows agents to continue to request a cash offer on behalf of their clients and for the first time have the ability to listed acquired home and ready for resale.
After Pat matches, our top tier invite only subscription fee based program designed for highly motivate agents with significant marketing reach and influence.
<unk> agents, where we see the same benefits as pro agents with several added advantages importantly, they will gain access to highly qualified sellers and defined zones and they'll have the potential to lift other offer Pat owned homes in their zones.
Brian Baer: Importantly, they will gain access to highly qualified sellers in defined zones, and they'll have the potential to list other Offerpad-owned homes in their zone. Initial available subscriptions have sold quicker than anticipated. Meanwhile, we are swiftly expanding our available zones for Offerpad Max with plans to expand to additional markets in the near future. All of this supports our three strategic pillars. First and foremost, it is our mission to take the friction out of real estate, starting with the cash shop. Our second imperative is to continue to make great progress on our AssetLite product, offering end-to-end services that encompass the entire process of selling, buying, and home ownership. Offerpad's third imperative is expanding our partner ecosystem to enhance our reach to meet customers where they are. We are delivering on all three of these imperatives.
Initial available subscriptions have so quicker than anticipated. Meanwhile, we are swiftly expanding our available zones for offer pad Max with plans to expand to additional markets in the near future.
All of this supports our three strategic imperatives first and foremost is our mission to take the friction out of real estate, starting with the cash offer.
Our second imperative is to continue to make great progress on our asset light product line.
Offering end to end services that encompass the entire process of selling buying and homeownership.
Offer pads third imperative is expanding our partner ecosystem to enhance our reach to meet customers, where they are we are delivering on all three of these imperatives.
Brian Baer: Reflecting on 2023 and the many challenges and tough decisions we faced, I'm so proud of the Offerpad team, grateful for our customers and partners, and optimistic that we are moving toward a return to sustained profitability and growth. We have a robust strategic roadmap, a solid operational foundation, and a huge market opportunity ahead of us. I'll now turn the call over to James. With as many years in senior financial leadership at Offerpad, he has taken over the reins as interim principal financial officer seamlessly. Thank you, James.
Reflecting on 2023, and the many challenges and tough decisions, we faced I am so proud of the <unk> team grateful to our customers and partners and optimistic that we are moving toward a return to sustained profitability and growth.
We have a robust strategic roadmap, a solid operational foundation and a huge market opportunity ahead of us.
I'll now turn the call over to James with his many years in senior finance leadership at offer pads. He has taken over the reins as interim principal financial officer seamlessly.
Thank you James.
James Gratz: Thank you, Brian. From a financial perspective, our three imperatives are producing the results needed to drive business excellence, as we expect to achieve sustainable, positive adjusted EBITDA. In the fourth quarter, we continue to scale back our cost structure and narrow our operating margins. In 2023, our operating expenses, when excluding property-related selling and holding costs and contribution margins, decreased by $69 million compared to 2022. Through continued operating leverage, more efficient advertising spending, and expanded partnership channels, we plan to capture an additional $30 million in cost efficiencies in 2024. Remain diligent about how we allocate our spend to ensure the entire organization is streamlined while we strategically invest to capture our share of the market. We exited the year with a property portfolio and a strong, We had 940 homes in inventory, of which only 4.4% were owned over 180 days.
Thank you Brian.
From a financial perspective, our three imperatives are producing the results needed to drive business excellence as we expect to achieve sustainable positive adjusted EBITDA This year.
In the fourth quarter, we continue to scale back our cost structure and narrow our operating loss in 2023, our operating expenses when excluding property related selling and holding cost and contribution margin decreased by $69 million compared to 2022.
Through continued operating leverage more efficient advertising spending and expanded partnership channels, we plan to capture additional $30 million and cost efficiencies in 2024.
We remain diligent about how we allocate our spend to ensure the entire organization is streamlined while we strategically invest to capture our share of the market.
We exited the year with our property portfolio and our strong position, we had 940 homes in inventory of which only four 4% or one over 180 days with nearly half of those under contract to be sold.
James Gratz: Nearly half of those in our contract could be sold. This is down from 35% at the end of 2022 as we slowed our acquisition pace and focused on risk management of our legacy portfolio. The home sold in the quarter had an aggregate time to cash, or TTC, of 97 days, in line with our seasonal expectations. Q1 should see a slight growth in TTC before again reducing seasonally in the summer quarters of 2024. We acquired 678 homes, which was partially impacted after the quick rise in mortgage rates to above 8% early in the quarter, ultimately resulting in fewer transactions across the market.
This is down from 35% at the end of 2022, as we slowed our acquisition pace and we focused on risk management of our legacy portfolio.
The homes sold in the quarter had an aggregate time to cash or TTC of 97 days in line with our seasonal expectations.
Q1 should see a slight growth in TTC before again, reducing seasonally in the summer quarters of 2024.
We acquired 678 homes, which was partially impacted after the quick rise in mortgage rates to above 8% early in the quarter ultimately, resulting in fewer transactions across the market.
James Gratz: With rates decreasing through the end of the quarter, in January, we saw a better than normal historical increase in request volume, up nearly 60% over December. As a result, acquisition pace has improved to start the year, and we anticipate sequential quarterly growth in the first quarter to continue to support our cash offer business. We successfully renewed and extended three of our primary credit facilities to use to finance our inventory. As part of these renewals, we maintained key terms around advance rates and funding mechanics while we adjusted size to align with our expected needs over the coming year. Our lenders remain strong supporters of the business and continue to be great working partners.
With rates decreasing through the end of the quarter in January we saw better than normal historical increasing request volume up nearly 60% over December.
As a result acquisition pace has improved to start the year and we anticipate sequential quarterly growth in the first quarter.
To continue to support our cash offer business, we successfully renewed and extended three of our primary credit facilities used to finance our inventory.
As part of these renewals we maintained key turns around advance rates and funding mechanics, while we adjusted size to align with our expected needs over the coming years, our lenders remain strong supporters of the business and continue to be great working partners. Although our cash offer continues to be the foundation of our operations and results.
James Gratz: Although our cash offer continues to be the foundation of our operations and results, I'm excited about the momentum of our asset-light product lines and how they can transform Offerpad over time. In the second half of 2023, our asset-light product lines accounted for nearly half of our closed transactions, producing 2% of contributions. Additionally, the evolution of our agent partnership program opens up several interesting opportunities for us in 2024. For example, by enhancing the Offerpad Pro program to provide even more value to the agent. We anticipate increased agent partnership program-driven request volume. Also, the introduction of the Offerpad Max offering should allow us to better monetize the requests we generate that fall outside of our buy box, further diversifying our revenue. Turning to the numbers, revenue in the quarter was $240 million, which landed within our guided range. Our revenue was supported by the sale of 712 homes, also in line with our expectations.
Excited about the momentum of our asset light product lines and how they can transform off a pad over time.
The second half of 2023, our asset light product lines accounted for nearly half of our close transactions producing 2% contribution margin.
Additionally, the evolution of our agent partnership program opens up several interesting opportunities for us in 2024 by enhancing the offer pad pro program to provide even more value to the agent. We anticipate increased agent partnership program driven request volume.
Also the introduction of the offer panamax offering should allow us to better monetize the request regenerate that fall outside of our buy box further diversifying our revenue.
Turning to the numbers revenue in the quarter was $240 million, which landed within our guidance range. Our revenue was supported by the sale of 712 homes also in line with our expectations roughly $10 million in revenue moved from Q4 into Q1 due to the temporary unexpected interruption of one of our title partners at the.
James Gratz: Roughly $10 million of revenue moved from Q4 into Q1 due to the temporary unexpected interruption of one of our title partners at the end of the year. The team did a great job working through the challenge, limiting overall impact on our customers' time. Net loss in the quarter was $15 million, a 23% improvement from Q3, and an 87% improvement year-over-year.
End of the year the team did a great job working through the challenge limiting overall impact to our customers timelines net loss in the quarter was $15 million or 23% improvement from Q3, and an 87% improvement year over year.
James Gratz: We've now realized four consecutive quarters of improvement in that income. Fourth quarter adjusted EBITDA improved to negative $7 million, a 47% improvement from Q3, and a 93% or $97 million improvement as compared to Q4 of the prior year. This improvement was significant as we continue to optimize our operating expenses despite a slight decrease in contribution margins in the fourth quarter. Gross margin for the fourth quarter was 6.9% compared to 10.2% last quarter and was an improvement from negative 6.6% compared to the fourth quarter of last year. This was in large part driven by pricing decisions made to move homes with velocity as mortgage rates quickly rose from 7% to over 8% earlier in the fourth quarter. Total operating expenses decreased 36% from $44 million in Q3 to $28 million in Q4, driven by our advertising spend efficiency and cost management activities.
We've now realized four consecutive quarters of improvement in net income.
Fourth quarter, adjusted EBITDA improved to negative $7 million or 47% improvement from Q3, and a 93% or $97 million improvement as compared to Q4 the prior year.
This improvement was significant as we continue to optimize our operating expenses. Despite a slight decrease in contribution margins in the fourth quarter.
Gross margin for the fourth quarter was six 9% compared to 10, 2% last quarter and was an improvement from negative six 6% compared to the fourth quarter of last year. This was in large part driven by pricing decisions made to move homes with velocity as mortgage rates quickly rose, 7% to over 8% earlier in the fourth quarter.
Total operating expenses decreased 36% from $44 million in Q3 to $28 million in Q4, driven by our advertising spend efficiency and cost management activities.
James Gratz: Revenue for the full year 2023 was $1.3 billion, supported by the sale of $3674 homes. Net loss for the full year was $117 million, a 21% improvement from 2022. 2023 adjusted EBITDA was negative $82 million, also reflecting a 21% improvement from last year. Gross margin for the year was 5.3%, up from 4.6% in 2022. We ended the year with $76 million in unrestricted cash, $277 million in inventory, and asset-backed debt of $257 million.
Revenue for the full year 2023 was $1 3 billion.
By the sale of 3674 homes net.
Net loss for the full year was $117 million or 21% improvement from 2022.
2023, adjusted EBITDA was negative $82 million also reflecting a 21% improvement from last year.
Gross margin for the year was five 3% up from four 6% in 2022, we.
We ended the year with $76 million in unrestricted cash of $277 million in inventory and asset backed debt of $257 million.
James Gratz: Looking forward to the first quarter of 2024, we're expecting sequential improvements in most major metrics compared to the prior quarter. Sales pace is expected to seasonally improve, producing revenue between $245 and $285 million, supported by 750 to 850 homes sold. As we invest in growing acquisitions in the first quarter, adjusted EBITDA is expected to be between negative $10 and negative $2.5 million, up almost 90% year-over-year at the mid-term. Reflecting on 2023, I'm particularly proud of the team's ability to adapt and manage in a challenging and unpredictable macro environment.
Looking forward to the first quarter of 2024, we're expecting sequential improvement in most major metrics compared to the prior quarter.
Sales pace as expected seasonally improved producing revenue between 245 and $285 million supported by 750 to 850 homes sold.
As we invest in growing acquisitions in the first quarter. Adjusted EBITDA is expected to be between negative 10% negative $2 5 million up almost 90% year over year at the midpoint.
Reflecting on 2023, and particularly proud of the team's ability to adapt and manage through a challenging and unpredictable macro environment.
Moderator: This gives me confidence in our ability to execute on our strategic imperatives in 2024 while adapting to the new challenges and opportunities this year may bring. We've made the tough decisions to create a lean organization that's ready to meet our 2024 objectives on our march to return the company to profitability. With that, I'll open the call to questions. 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 that question, please press the star followed by two.
This gives me confidence in our ability to execute on our strategic imperatives in 2024, while adapting to the new challenges and opportunities. This year may bring.
We've made the tough decisions to create a lean organization that is ready to meet our 2024 objectives on our March to return the company to profitability.
That I will open the call for questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove their question. Please press star followed by two again to ask a question press Star one.
Moderator: Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question. We ask that you please limit yourself to one question and one follow-up and re-enter the queue if you have additional questions. We'll pause here briefly as questions are registered. The first question is from the line of Nick Jones with JMP. Your line is now open. Great, thanks for taking the questions. Two, if I could.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your questions. We ask that you. Please limit yourself to one question and one follow up and reenter the queue. If you have additional questions. We will fall off you briefly as questions are registered.
First question is from the line of Nick Jones with JMP. Your line is now open.
Great. Thanks for taking the questions two if I could first on how should we think about the path to acquiring 500 homes per month I think.
Brian Baer: First, how should we think about the path to acquiring 500 homes per month? I think it's a little lighter than maybe what the target initially was. Is that a goal that's achievable in 2024? And then a follow-up. Yeah, hey, Nick, Brian.
It's a little lighter than maybe what the targeted initially was that a goal thats achievable in 2024, and then a follow up.
Yeah.
Yeah, Hey, Nick it's Brian.
Ian.
Brian Baer: You know, the 500, that's obviously the goal we're looking at where we are very focused on the macro world out there and the dynamics of controlling what we can control. And so as we're as we're watching interest rates and what's happening out there, we're, we're focused on buying the type of homes we want in our buy box. And so if the opportunity is there, we're going to do it.
The on the 500, that's obviously the goal where we're looking at where we are very focused on obviously the macro world out there and the dynamics of controlling what we can control and so as we as we're watching.
First rates and what's happening out there, where we're focused on buying the types of homes, we want in our buy box and so if if the opportunity is there we're going we're going to do it we're more focused on property performance right now that I would say volume.
Brian Baer: We're more focused on property performance right now than I would say volume of the homes we're buying. And so that's that that's our focus. Great. And then, you know, in the prepared remarks, you talked about $5,000 of incremental contribution margin from kind of other services. How high can that go?
The homes, we're buying and so that's that's our focus.
Great and then.
And.
Prepared remarks, you talked about $5000, an incremental contribution margin from kind of other services how.
How high can that go to that.
Brian Baer: Could that, you know, as we think about the path to profitability, is that a key driver to getting there? And can you kind of contextualize, you know, how much more wood to chop there is in adding more dollars to the incremental contribution margin? Yeah, I'll jump in, and then I'll have James comment on the breakdown there. But, you know, through the adversity that we have felt in real estate over the last year and a half overall, I'll tell you, the win that we've had is we've had a lot of time to focus on these asset light products. And if you remember, I've said I wanted to be a solution center for everyone for a long time.
Think about path to profitability is that a key driver to getting there and can you kind of contextualize.
How much more wood to chop there is in adding more dollars incremental.
Contribution margin yeah.
And then I'll have al James comment on the breakdown there but.
The one thing you know through the adversity that that that we felt in the real estate over the last year and a half overall I'll tell you. The the the win that we've had is we've had a lot of time to focus on these asset light products and if you remember I said I wanted to be a solution center for everyone for a long time, and we are really getting some headway with a lot of this in.
Brian Baer: And we are really making some headway with a lot of this. And, you know, what we've been really focused on is cutting costs and focusing on what we can do really well. And, you know, one of those is a lot, you know, like specifically on the renovate side, the direct plus side that we'll talk a little bit more about. And then, you know, allowing others to plug into Offerpad and some of our services. And so I think, you know, and I'll say that, in general, the sky's the limit of what we can do on asset light stuff there.
What we've been really focused on is.
Cutting costs and focus on what we can do really well and one of those is a lot.
Specifically on the renovate side, the direct plus side that we'll talk a little bit more about.
Then.
Allowing others to plug into to offer pads some of our services and so on.
I think.
I'll say that the general the Sky's the limit of what we can do on the on the asset light stuff there, but I think we are just getting started again in this environment is as we will start by more homes as the market starts to normalize youll see those those light asset light and start to grow even more and more on I think across the board, but I'll, let James talk a little bit more about that.
James Gratz: But I think we are just getting started again in this environment, as we start buying more homes, as the market starts to normalize, you'll see those light asset lines start to grow even more and more on, you know, I think across the board. Yeah, hey, Nick.
Yeah, Hey, Nick So I think one thing that's really exciting about what we're seeing in our other lines of businesses. They are growing at the same time that the express the cash offer business is growing and so $5000 of incremental contribution margin per homes sold for 2023 that was seven grand per homes, just in the second half of the year.
James Gratz: So I think one thing that's really exciting about what we're seeing in our other lines of business is they're growing at the same time that the express, like the cash offer business, is growing. And so $5,000 of incremental contribution margin per home sold in 2023. That was $7 grand per home just in the second half of the year.
James Gratz: I think, you know, long term, we still have our six to 9% and target for contribution margin after interest. And ultimately, I think where we can get is our goal is to get to, you know, 50% of that being driven by the cash offer business and 50% of that coming from the other lines of businesses overall. So there's still some more room to cut there.
I think long term, we still have overall, our 6% to 9% and.
Target for contribution margin after interest and ultimately I think where we can get as our goal is to get to 50% of that being driven by the cash offer business and 50% of that coming from the other lines of businesses overall, so still some more room to chop there.
James Gratz: You know, I think we've got a lot of good momentum and some of those businesses, especially the renovation business right now. You know, so we'll just have a key focus on continuing to diversify. And one thing I'll add there just with the direct plus business is that the cash offer business. It's really in you almost have to segment out into two worlds. One of them is the cash offer business of the homes that we buy. So the customer gets a cash offer, and Offerpad is going to balance its books at home. And then the other section is the direct plus business, where the customer gets a cash offer; they've got the Offerpad experience up until closing. Offerpad doesn't close that home; one of our direct plus partners will close that home.
We've got a lot of good momentum in some of those businesses, especially like a renovate business right now.
So we'll just have to keep focus on continuing to diversify and one thing I'll add there just with the direct plus business is that the cash offer business.
It's really and you almost have to segment out into two worlds one of them is the cash offer business at the homes that we buy so the customer gets the cash offer and hopper pad is going to balance sheet at home and then the other section is the direct plus business, which the customer gets a cash offer they've got the offer pad experience up until closing or prepared does conclude.
Is that home what are our direct plus partners will close at home and so two significant.
Brian Baer: And so, two significant paths to that. And like today, I feel like we're making headway on both as they continue to grow. Thanks, guys.
Past that.
I'm actually I feel for where it can make it headway in both in.
And as they continue to grow.
Thanks, guys.
Thanks. Thank you for your question.
Moderator: Thank you for your question. The next question is from the line of Dalee with J.P. Morgan. Your line is now open.
The next question is from the line of Daily with JP Morgan. Your line is now open.
James Gratz: Great, thanks for taking my question of that to the first one on your expectations to reach a just a little bit profitable process for the year. Just to clarify, are you expecting to get just a little bit off for the full year or more a year at a just a little bit profitable, and what micro conditions are you assuming? and The Bible Falls.
Alright, Thanks for taking my question two the first one on your expectations to reach adjusted profit for the year just to clarify are you expecting to get adjusted EBITDA for the full year or the year.
And as I said it is a profitable one.
April conditions conditions are you assuming for that.
Last fall.
James Gratz: Yeah, hey, so right now, our expectations are for the full year to be adjusted, even profitable, you know, currently right now. I think overall, from a macro perspective, I'll let Brian go in a little bit more about what he's seeing there. But from a planning standpoint, we're planning around flat prices, flat transaction costs, flat interest rates, you know; it's not really trying to bake in any sort of tailwinds from decreasing rates or anything like that. But overall, you know, kind of expectations throughout the years following the first quarter, a period of investing in inventory growth there, then we should see some sequential increases there and improvements to ultimately produce full year, just even profitability. Okay, great.
Yeah, Hey, so right now our expectations are for the for the full year to be adjusted EBITDA profitable.
Currently right now I think overall from a macro perspective, I'll, let Brian go into a little bit more about what he's seeing there, but from a planning standpoint, we're planning around flat prices flat transaction costs flat interest rates.
Not really trying to bake in any sort of tailwind from decreasing rates or anything like that but overall kind of expectations throughout the years following the first quarter.
A period of investing in inventory growth. There then we should see some sequential increases their improvements to ultimately produce full year adjusted EBITDA profitability.
Okay, Great I guess another follow up it sounds like you guys are underwriting would be more of a recall.
Brian Baer: I guess another follow-up. It sounds like you guys are underwriting with more of a risk-off. What do you guys need to see to operate the business with volume in mind? Sorry, say the last part, the last part cut off, what we'd have to see on the website.
Buyers in the homes that you are acquiring so with that that's.
That is true what do you guys need to see to.
Operate the business.
With volume and mine as well.
Sorry, the last part the last part cut out, but we'd have to see on the wet side, sorry, I couldn't hear the last.
Brian Baer: Sorry, I couldn't hear the last part. I guess what do you guys need to see to drive or operate the business for volume growth as well? It sounds like you guys are operating more with profit in mind right now. So what do we need to see for you guys to go after more volume? Yeah, so a lot of it is assumption-based, right, on what the market's doing. Each, you know, very market specific, product line specific, just in general, like, and I've mentioned before, in different calls, that's, you know, to ramp up, that's, that's, you know, volume is one of the easiest metrics we can I would think more than anything else about the volatility in mortgage rates.
I guess, what you've asked what do you guys need to.
To try or operate the business for volume growth I'll call. It.
Sounded like you guys are operating more focus in mind right now so what do we need to see for you guys.
To go after more more volume.
Yes, so so a lot of it you know everything we do is assumption based right of what the market's doing each very market specific product line specific.
In general.
Mentioned before in different calls that to ramp up.
To wrap up volume is one of the easiest metrics, we can ramp up I would think more than anything else is the volatility in the in the mortgage rates I mean for example in the fourth quarter, we saw rates yet.
Brian Baer: I mean, for example, in the fourth quarter, we saw rates hit almost, you know, well, they hit over eight. And then we saw, you know, they were down to like the high sixes in November and December. And so more consistency in mortgage rates would definitely, you know, what's interesting is just when we talk about the macro world, you have sellers that are obviously locked into their current mortgage and equity of the lock in there, the lock in effect, but then you have buyers on the affordability side. And so, both of them desperately want something to happen. You can just see it.
Almost they hit over eight.
Then we saw them.
Down to like the high sixes in November December and so more consistency in the mortgage rates would definitely whats interesting is just when we talk about the macro world you have sellers that that they're obviously locked into their to their current mortgage and equity of the lock in there the lock in effect, but then you have buyers on the affordability.
<unk> side, and so but both of them desperately wants something to happen you can just see it and as interest rates dropped down below seven as you can see sellers willing to sell and then and you can see buyers that now want to buy in so that right now is so sensitive.
Brian Baer: And as interest rates drop down below seven, you can see sellers willing to sell, and then you can see buyers that now want to buy. And so, this right now is so sensitive.
Brian Baer: So we're watching that really, really, really closely. Just affordability overall, we'll tie into that. So everything is very interest rate driven right now and getting more consistency there. And again, you know, that doesn't need to go back down to where they were by any means.
So we're watching that really really really closely just affordability overall was tied to that so everything is very is very interest rate driven right now and just getting more consistency there.
And again that doesn't need to go back down to where they were by any means.
Brian Baer: But you know, it's just more consistency. So you can see the affordability and sellers willing to sell. Great, thank you. Thank you for your question. Next question is from the line of Ryan Tomasello with Stiefel. Your line is now open.
But.
It's just more consistency. So you can see the affordability and sellers willing to sell there too.
Great. Thank you.
Thank you for your question.
The next question is from the line of Ryan Tomasello with Stifel. Your line is now open.
Ryan Tomasello: Hi everyone, thanks for taking the questions. It would be helpful if you could just give us a quick overview of the revenue model, maybe a reminder, a refresher of the revenue model behind some of the more meaningful assets like service offers. From a gross margin perspective, I would assume things like rent seem to be a more material driver. And then, in addition to that, these various agent partnership programs. You know, just the volume and expense efficiencies, how you measure those relative to funneling volume from more traditional sources. Any added perks around that?
Hi, everyone. Thanks for taking the questions.
It would be helpful. If you can just give us a quick overview of the revenue model maybe.
Minder, a refresher of the revenue model behind some of the more meaningful asset light service offerings.
And the economics from a gross margin perspective, I would assume things like renovation that seem to be a more material driver.
And then in addition to that these various Asian partnership programs.
Just the.
Volume and expense efficiencies, how you measure those relative to funneling volume for more traditional sources.
Any added perks around that it looks like there was a membership fee involved if that can be meaningful.
Brian Baer: It looks like there's a membership fee involved, if that can be meaningful. Just in general, trying to understand the economics and revenue model behind the non-cash offer product. Sure, I'll get a high-level meeting James to get into some of the details there.
Just in general trying to understand the economics and revenue model behind the noncash offer products.
Okay sure I'll give a high level met James to get into some of the details there, but yes from a from a high level. One thing we wanted to accomplish is to get our products and services out to more people as fast as it's a.
Brian Baer: But yeah, from a high level, you know, one thing that we want to accomplish is get our products and services out to more people as fast as we can, as the faster we can, and the skillet is fast, and especially some of the asset light services. So, you know, we've always been focused on giving the customer the consumer choice, if they come to us to get a cash offer, or they could potentially list their home and whatever works best for them at that moment. And so be able to scale using agents to help us scale those programs, as we mentioned in the prepared remarks. That's been scaling, you know, fairly quickly. And as we see in this market, and the landscape seems to scale even faster, is giving agents the ability to plug into a lot of our services.
The faster, we can and to scale it as fast and especially some of the asset light services. So we've always been focused on giving.
The customer the consumer a choice if they come to us to get a cash offer where they could potentially lift their home and whatever works best for them at that moment.
And so be able to scale and using agents to help us scale those programs as we mentioned in the prepared remarks, that's been scaling.
<unk> fairly quickly and as we see and even in this market and the landscape seem that even scale, even faster is giving agents the ability to plug into a lot of our services.
Brian Baer: And that includes our renovation services, so they can basically use our renovation teams to upgrade or upscale a home that they need, but also some of the others are sold in our 60 program, that the ability to have the cash offer, be able to lift the house on the open market with knowing that they have the insurance of the cash offer in the backdrop. So the agents are, like we're scaling that fairly quickly. And, and, you know, from when we launched it, we're getting really good, really good feedback. And it's scaling very, very fast. And you know, some of the zones and other things that we're doing. But again, we want to find a solution for everybody.
That included that includes our renovation services. So they can basically use our renovation teams too to upgrade or upscale a home that they that they need but then also some of the others are sold in our 60 program that the ability to have the cash offer but able to list. The house on the open market with knowing that they have to be.
Reinsurance at the cash offer and the backdrop so.
The agents are or at least we're scaling that fairly quickly in and from when we launched it and we're getting we're getting really good really good feedback and it's scaling very very fast.
Some of the zones and other things that we're doing but again, we want to find a solution for everybody and that consumes the no matter, we want to meet the customer where they are at whether they want to use them.
Brian Baer: And that consumes the no matter what, we want to meet the customer where they're at, whether they want to use an agent or directly, we want to be there for them. But I'll let James talk a little bit about the, Excellent. Sure. Hey, Ryan.
Directly we wanted to be there for them, but I'll, let James talk a little bit about the.
Economic state.
Sure Hey, Ryan.
James Gratz: So I guess just to kind of walk through each of them really quickly, one by one. On the renovation side, like you mentioned, we are seeing some really good progress there and good momentum, kind of across the board and in various markets. The way the renovation revenue model works is effectively, you know, think about an average renovation cost. Right now, we're in the $15,000 range from an average reno cost for these customers.
So I guess just to kind of walk through each of them really quickly one by one.
On the renovate side like you mentioned, we are seeing some really good progress there.
And good momentum kind of across the board.
<unk> markets.
The renovation.
Revenue model works is effectively think about an average renovation costs right now were in the $15000 range from an average renewal cost to these customers and then we're capturing a service fee on top of that.
James Gratz: And then we're capturing a service fee on top. It can be anywhere from 20 to 30% or so of a service fee. So this comes through it, you know, call it a 20% risk margin, plus or minus. Overall, from an overhead perspective, that's a shared resource with our express business with folks in the markets and all that. So it's a nice kind of value, creative overall business line to tack onto our existing operations. On the direct plus side, like Brian mentioned, from a customer perspective, it's a very similar experience overall, where the request comes in, we're underwriting the home, and we manage that request all the way up until the time of closing.
Can be anywhere from 20% to 30% or so.
The service fee. So this comes through it call it a 20% gross margin plus or minus.
Overall from an overhead perspective, that's a shared resource from with our express business with folks in the markets and all that so it's a it's a nice kind of value accretive overall business line to tack onto our existing operations.
On the direct plus side.
Like Brian mentioned from a customer perspective, it's very similar.
Experience overall, where the request comes in we're underwriting the home and we're managing that request all the way up until the time of closing.
James Gratz: Effectively, what's happening at closing is we're transitioning, or we're assigning that contract to whoever the ultimate buyer of that home is, and so we're capturing our service fee as the revenue on that, for that project, or for that home. So really, that comes through at a very high gross margin, you know, I think 95% plus type gross margins there, and so it's effectively just a service fee. And then on the listing side, this is where the kind of interesting thing that Brian just talked through comes in. Again, this is also a service fee, so this comes through at a very high overall gross margin. For leads that we're referring out, the referral fee that's coming back through is just going to be a percent of the overall sales price that, ultimately, that agent closed on.
Effectively what's happening at closing as we're transitioning or assigning over that contract whoever the ultimate buyer of that home is and so we're capturing our service fee as the revenue on that for that project or for that that home. So really that that comes through at a very high gross margin I think 95% plus type gross margins there.
Since it's effectively just the service fee coming through.
And then on the listing side. This is where the kind of an interesting thing that Brian just talked through again. This was also service fees. This comes through at a very high overall gross margin there.
For leads that were referring out there the referral fee that's coming through back through is just going to be a percent of the overall sales price that ultimately that.
That agent closed on so that should come through again at 90% plus type gross margin there and again the subscription fee is it's our mechanism for.
James Gratz: So that should come through to, again, a 90% plus gross margin there. And again, the subscription fee is our mechanism for, you know, being able to engage with those types of very highly motivated and engaged agents within a market that are willing to invest capital up front in order to get access to leads and listings and all the other great products and services that Offerpad can offer them there. So again, as a subscription-based type fee coming through, that's another kind of 90% type gross margin, ultimately. Great, I really, really appreciate all that color.
Being able to engage with those types of very highly motivated.
And engaged agents within the market that are willing to invest capital upfront in order to get access to leads and listings and all the other great products and services that offer pad can can offer them. There. So again as a subscription based type type fee coming through that's another kind of 90% type gross margin ultimately.
Great really appreciate all that color very helpful and just a follow up here you mentioned another $30 million I think of cost efficiencies you expect to realize in 2024 is that mainly driven by the annual position.
Ryan Tomasello: Very helpful. And just a follow-up here. You mentioned another 30 million, I think, of cost efficiencies you expect to realize in 2024. Is that mainly driven by annualization?
James Gratz: of the expense efficiencies you drove last year, or is there any of that? So any color on where those savings are? Yeah, great question. It is a little bit of both.
The expense expense efficiencies drove last year or is any of that incremental.
So any color on where the where those savings are coming from thanks.
Yes, great question. It is a little bit of both so we did kind of continue to optimize the cost structure through the end of the year. So part of that is going to be coming through from that standpoint.
James Gratz: So we did kind of continue to optimize the cost structure through the end of the year. So part of that is going to be coming through from that standpoint. The other part is going to be a lot of our focus and attention invested in our partnership program. And then, overall, what that means from a CAC perspective and what we need to invest in kind of direct marketing in order to generate the amount of leads necessary for the business.
The other part is going to be a lot of our focus and attention invested in our partnership program and then overall what that means from a cash perspective, and where we need to invest into kind of direct marketing in order to generate the amount of leads.
Necessary for the business.
Moderator: So I view the annualization part really tied to the kind of expense management we're doing at the end of the year but then also will carry forward some more marketing efficiencies throughout the year as well. Okay, thanks for taking the question. Thank you for your question. Next question is from the line of Michael Ng with Goldman Sachs. Your line is now open. Hey, good afternoon.
So I view the innovation part really tied to what the kind of expense management, we're doing at the end of the year, but then also will carryforward some.
More marketing efficiencies throughout the year as well.
Okay. Thanks for taking the questions.
Thank you for your question. Thanks. Our next question comes from the line of Michael <unk> with Goldman Sachs. Your line is now open.
Hey, good afternoon, and thank you for the question it was encouraging to hear about the renewal and extension of the three credit facilities.
Mike Ng: Thank you for the question. It was encouraging to hear about the renewal and extension of the three credit facilities. I was just wondering if you could talk a little bit more about some of the changes in the terms of those facilities. I think you said there was an adjustment to the target size, like how should we think about how that translates into your home purchase and selling prices on a go-forward basis. And could you just remind us what the current capacity is today and what percentage of the capacity was renewed? Yeah, great question.
Wondering if you could talk a little bit more about.
Some of the changes in the terms of those facilities. I think you said there was an adjustment on target size like how should we think about how that translates into.
Your home purchase and selling prices on a go forward basis.
Could you just remind us what the current capacity.
Is today and.
What percentage of the capacity was renewed thank you.
Sure.
Yes, good question.
James Gratz: You know, so right now where we ended the year from an overall capacity standpoint, and don't expect, you know, imminent changes right now with any renewables coming up for a bit of time here, we had about $560 million of committed capacity and another 490 ish of uncommitted capacity for a little bit over $1 billion total. Historically, we've had the ability to flex in and out of our uncommitted capacity overall. But right now, we ended the year with about $260 million in total outstanding debt.
So right now where we ended the year from an overall capacity standpoint.
Expect.
Imminent changes right now with any renewals coming up for a bit of time here is we had about $560 million of committed capacity and another $4 90 ish of of uncommitted capacity for a little bit over $1 billion total.
Historically, we've we've had the ability to flex in and out of our uncommitted capacity overall, but right now with we ended the year with about $260 million of total outstanding debt.
James Gratz: We felt that the changes that we made in overall committed capacity were pretty prudent, just given our expectations of what we're seeing from a volume perspective, of the, you know, kind of the balance sheet side of the business there. So, again, I feel very good about those renewals that we put in place. Importantly, we maintain those key terms around advance rates and funding mechanics that really allow us to be really efficient with our capital and purchase the amount of homes that we do.
We felt that the changes that we made in overall committed capacity, we're pretty prudent just given our expectations of what we're seeing from a volume perspective.
The kind of the balance sheet side of the business there.
So again feel very good about those those renewals that we put in place.
Importantly, we maintain those key terms around advance rates and funding mechanics that really allow us to be really efficient with their capital and purchase the amount of homes that we do.
James Gratz: Great, thank you very much. Thank you for your question. The question and answer session has concluded. I will now turn the call over to Brian Baer, Chairman and CEO, for closing remarks. Alright, just really proud of the team and hitting the, you know, getting the scale, getting these asset light services up and going into 2024. But I appreciate everyone and all their hard work. And thank you to everyone for joining the call. That concludes the conference call. Thank you for your participation. You may now disconnect your line.
Okay, great. Thank you very much.
Mhm.
Thank you for your question.
The question and answer session has concluded I will now turn the call over to Brian Bear Chairman and CEO for closing remarks.
Alright, just really proud of the team and hitting the getting the scale and get these asset light services, the way up and going into 2024.
But appreciate that everyone in all of their hard work and thank you for everyone joining the call.
Yeah.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.