Q1 2024 Offerpad Solutions Inc Earnings Call
Tamiya: Good afternoon. Thank you for attending today's Offerpad First Quarter 2024 Earnings Call. My name is Tamiya, and I will be your moderator for today's 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 1 on your telephone keypad. I would now like to pass the conference over to your host, Taylor Giles. You may proceed.
Good afternoon. Thank you for attending today's offer pad first quarter 2024 earnings call.
Me: To me and I will be your moderator for today's call.
Me: 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 keypad I would now like to pass the conference over to your host Taylor Giles you May proceed.
Taylor Giles: Good afternoon, and welcome to Offerpad's first quarter 2024 earnings call. I'm joined today by Offerpad Chairman and Chief Executive Officer, Brian Bair, and Interim Principal Financial Officer and Senior Vice President of Finance, James Grout.
Taylor Giles: Good afternoon, and welcome to offer pads first quarter 2024 earnings call I'm joined today by acre patch, Chairman and Chief Executive Officer, Brian Bahr, and interim principal financial Officer, and senior Vice President of Finance James Graff during the.
Taylor Giles: During 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 expectations. Please refer to the risks, uncertainties, and other factors relating to the company's business described in our filing with the US Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements, whether as a result of new information, future events, or otherwise.
Taylor Giles: Our 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 expectations. 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.
Taylor Giles: Except as required by applicable law offered pad 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.
Taylor Giles: 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 reconciliations of Offerpad's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.
Taylor Giles: Financial measures the reconciliations of <unk> non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on offer pads website with that I'll turn the call over to Brian.
Brian Bair: Thanks Taylor, and thanks to those who joined the call. The first quarter of 2024 continued the positive trajectory I discussed in our last earnings call. With $285 million in revenue, we met the high end of our revenue guidance, reflecting a 19% increase versus Q4 of 2023 and marking our third consecutive quarter of top line growth. We also met the high end of our guidance for homes sold, coming in at 847, up 19% quarter over quarter. Adjusted EBITDA was also in line with expectations.
Brian Bair: Thanks, Taylor and thanks to those who joined the call.
Brian: The first quarter of 2020 for continued the positive trajectory I discussed in our last earnings call.
Brian: With $285 million in revenue, we met the high end of our revenue guidance reflected a 19% increase versus Q4 of 2023 and marking our third consecutive quarter of top line growth.
We also met the high end of our guidance for homes sold coming in at 847 up 19% quarter over quarter.
Brian: Adjusted EBITDA was also in line with expectations.
Brian Bair: Importantly, we remain confident in our ability to reach sustainable positive adjusted EVA growth in 2024. Both gross margin and contribution margins improved in the quarter as our asset-light platform services grew and time-to-cash, or TTC, was in line with expectations. Despite the ongoing macro challenges of affordability and locked-in sellers, our focus remains on the factors within our control. Our team's strong execution is driving the expansion of our platform scalability, encompassing four distinct platform services. As a reminder, those four services include Renovate, which allows B2B partners the opportunity to tap into our renovation technology; Cost Management, Logistics, and Ground Game within the Offerpad platform.
Brian: Importantly, we remain confident in our ability to reach sustainable positive adjusted EBITDA in 2024.
Brian: Both gross margin and contribution margins improved in the quarter as our asset light platform services grew and time to cash or DTC was in line with expectations.
Brian: Despite the ongoing macro challenges of affordability and locked in sellers, our focus remains on the factors within our control.
Brian: Our team's strong execution is driving the expansion of our platform scalability encompassing four distinct platform services.
Brian: As a reminder, those sports services include renovate which allows BTB partners the opportunity to tap into a renovation technology.
Brian: Cost management logistics and ground game within the <unk> platform.
Brian Bair: Similar to Renovate, Direct Plus enables B2B partners to integrate with our top of funnel strategies, conversion efficiencies, and in-house closing teams. This program allows us to help more homeowners and reach more customers, while also providing them with the benefit of receiving an optimized offer for their home. Our agent partnership program serves as our listing and referral platform with the goal of discovering the best solution for every customer. And finally, our cash offer stands as the foundation of our service.
Similar to renovate direct plus enables <unk> partners to integrate with our top of funnel strategies conversion efficiencies and in house closing teams.
Brian: This program allows us to help more homeowners and reach more customers, while also providing them with the benefit of receive it and optimize offer for their home.
Brian: Our agent partnership program serves as our lifting their referral platform with the goal to discover the best solution for every customer.
Brian: And finally, our cash offer stands as the foundation of our services.
Brian Bair: Renovate continues to thrive, demonstrating strong operating and financial performance. We consistently receive extremely positive feedback from our customers who value our timely, cost-efficient, and high-quality renovations. In quarter one, Renovate Projects grew 78% year over year and represented 11% of our overall contribution profit after entering. We successfully completed nearly 400 projects.
Brian: Renovate continues to thrive demonstrating strong operating and financial performance.
Brian: We consistently receive extremely positive feedback from our customers, who value our timely cost efficient and high quality renovations and quarter. One renovate projects grew 78% year over year and represented 11% of our overall contribution profit after interest we.
Brian: We successfully completed nearly 400 projects youll be more than $5 million in revenue and setting us on an annual run rate significantly above the $12 million, we achieved in 2023.
Brian Bair: You'll be more than $5 million in revenue, setting us on an annual run rate significantly above the 12 million we achieved in 2023. Alongside the success of Renovate, our other asset-light platform services continue to scale. Together, these three services represented 43% of total transactions in the quarter, reshaping our product mix and yielding higher contribution margin.
Brian: Alongside the success of renovate or other asset light platform services continued to scale.
Brian: Together. These three services represented 43% of total transactions in the quarter reshaping, our product mix and yielding higher contribution margins.
Brian Bair: These services have been instrumental in expanding our reach into markets where our cash offer solution is not currently available. We are pleased with the continued growth and great potential of these asset-light businesses, in conjunction with the performance we are seeing in our core cash offering. In the previous quarter, I emphasized the significance of our partner programs, including Home Builder Services, Agent Referral Network, and the recently enhanced Agent Partnership Program, or APP.
Brian: These services were instrumental in expanding our reach into markets, where our cash offer solution does not currently available. We are pleased with the continued growth and great potential of these asset light businesses in conjunction with the performance we are seeing in our core cash offering.
Brian: In the previous quarter I emphasize the significance of our partner programs, including Homebuilder services agent referral network and the recently enhanced agent partnership program or <unk>.
Brian Bair: As a reminder, APP offers industry-leading referral fees to agents whose sellers opt for our cash offer. This program has been a key contributor to our growth. In quarter one, APP requests represented over 20% of total requests, with acquisitions from those requests rising by 50% quarter over quarter.
Brian: As a reminder, AVP offers industry, leading referral fees to agents, who sellers opt for our cash offer.
Brian: This program has been a key contributor to our growth.
Brian: In quarter, one ABP request represented over 20% of total requests with acquisitions from those requests rising by 50% quarter over quarter.
Brian Bair: APP allows customers to use Offerpad in the way that works best for them, their agents, and Offerpad. Real estate continues to evolve and change, as we have seen at the recent NAR settlement. It's very important to note Offerpad's founding vision was to create a one-stop solution platform that removes the friction out of the real estate transaction and gives consumers what they want, certainty and control. Having a seamless platform where customers trade in their current home and find their next home is exactly why Offerpad was founded.
Brian: <unk> allows customers to use offer pad in the way that works best for them their agents at offer pad.
Brian: Real estate continues to evolve and change as we've seen at the recent <unk> settlement.
Brian: It's very important to note offer pads founding vision was to create a one stop solutions platform that removes the friction out of the real estate transaction and gives consumers what they want.
Brian: Certainty and control.
Brian: Having a seamless platform where customers trade in their current home and find their next home is exactly why <unk> was founded.
Brian Bair: We strongly believe the ability to own a home and the land it is on will be more valuable than ever. And this is the core of our business. We anticipate that over the coming months and years, homebuyers will become more accustomed to dealing with sellers and listing agents directly, and Offerpad is uniquely positioned for this new environment. We are pleased with our strong start this year. Our teams are laser focused on advancing our three strategic focuses, taking the friction out of real estate, growing our asset light platform services, and expanding our partner ecosystems to support more consumers.
Brian: We strongly believe the ability to own the home and the listing will be more valuable than ever.
Brian: And this is the core of our business.
Brian: We anticipate that over the coming months and years homebuyers will become more accustomed to dealing with sellers of listing agents directly and <unk> is uniquely positioned for this new environment.
We are pleased with our strong start to the year. Our teams are laser focused on advancing our three strategic imperatives, taking the friction out of real estate growing our asset Lite platform services and expanding our partner ecosystem to support more consumers.
Brian Bair: We're patient to achieve positive adjusted EBITDA and remain committed to building long-term shareholder value. I want to thank our world-class Offerpad team members for their hard work and dedication to our mission. We look forward to updating you on our continued progress throughout the year. I'll now turn the call over to James.
Brian: We're pacing to achieve positive adjusted EBITDA and we remain committed to building long term shareholder value.
Brian: I want to thank our world class offer Pat team members for their hard work and dedication to our mission. We look forward to updating you on the continued progress throughout the year.
Brian: I'll now turn the call over to James James.
James Grout: Thank you, Brian. The first quarter was solidly on plan as we continue to see growth among our various businesses. We also continue to drive improved operating leverage, more efficient ad spend, and productivity from our partner channels, all of which are helping us drive down operating expenses. We're on track to deliver more than the $30 million in incremental cost efficiencies in 2024 we highlighted last quarter. This is enabling us to execute towards our goal of positive adjusted EBITDA and, ultimately, free cash flow.
James: Thank you Brian the first quarter was solidly on plan as we continue to see growth among our various businesses.
We also continue to drive improved operating leverage more efficient AD spend and productivity from our partner channels, all of which are helping us drive down operating expenses.
We're on track to deliver more than the $30 million in incremental cost efficiencies in 2024, we highlighted last quarter. This is enabling us to execute towards our goal of positive adjusted EBITDA and ultimately free cash flow.
James Grout: We exited Q1 with our portfolio in a healthy position. We had 900 homes in inventory, of which only 8.5% were owned over 180 days, with roughly half of those under contract to be sold. This is a normal seasonal increase from the end of the year and a significant improvement from the prior year at 32.3%.
James: We exited Q1 with our portfolio in a healthy position.
James: We had 900 homes in inventory of which only eight 5% were owned over 180 days with roughly half of those under contract to be sold.
James: This is a normal seasonal increase from the end of the year and a significant improvement from the prior year at 32, 3%.
James: Homes sold in the quarter had an aggregate TTC of 113 days up quarter over quarter and in line with our seasonal expectations. We.
James Grout: had an aggregate TTC of 113 days, up quarter over quarter and in line with our seasonal expectations. We expect TTC to seasonally come down in the second quarter.
James: Expect TTC to seasonally come down in the second quarter.
James Grout: As we mentioned last quarter, after the slowdown in the market at the end of the year, we saw improved request volume and acquisition pace to start the year. We acquired 806 homes in the quarter, up 19% compared to Q4, and 121% year over year. With the recent rise in mortgage rates, we will continue to maintain a more conservative approach to acquisitions and thus expect acquisitions to be flat to slightly up compared to Q1.
James: As we mentioned last quarter after the slowdown in the market at the end of the year, we saw improved request volume and acquisition pace to start the year.
James: We acquired 806 homes in the quarter up 19% compared to Q4 and 121% year over year with.
James: With the recent rise in mortgage rates, we will continue to maintain a more conservative approach to acquisitions, and thus expect acquisitions to be flat to slightly up compared to Q1.
James Grout: As Brian said, our cash offer is the foundation of our business, and our asset-light services continue to show strong momentum. Diversifying our revenue through these additional services will continue to be a priority. In the first quarter, they provided roughly a third of contribution margin after interest, and we expect this momentum to continue. It's still early in our rollout of APP Max, but we feel confident about our strategic approach to working with partner agents to monetize our out-of-buy box lead.
James: As Brian said, our cash offer is the foundation of our business and our asset light services continued to show strong momentum diversifying our revenue through these additional services will continue to be a priority.
James: In the first quarter, they provided roughly a third of contribution margin after interest and we expect this momentum to continue.
James: It's still early in our rollout of APB, Max, but we feel confident about our strategic approach to working with partner agents to monetize our out of buybacks leads.
James Grout: We're particularly pleased with the progress of Renovate, which is becoming a more strategic offering, allowing us to expand into additional markets in a new way. In the quarter, we began working on renovation projects for existing clients in Minneapolis and Oklahoma City. This introduces an efficient way for us to enter a market and begin building a local presence without upfront capital investment.
James: We're particularly pleased with the progress of renovate which is becoming a more strategic offering, allowing us to expand into additional markets in any way.
James: In the quarter, we began working on renovate projects for existing clients in Minneapolis in Oklahoma City. This introduces an efficient way for us to enter a market and begin building a local presence with our upfront capital investment.
James Grout: In the first quarter, revenue was $285 million, at the top end of our guidance range and up 19% quarter over quarter. We sold 847 homes, also at the top end of our guidance range and up 19% quarter over quarter. The net loss was $17.5 million, a 13% decrease from Q4, and a 71% or $42 million improvement year over year. Fourth quarter adjusted EBITDA was negative 7.1 million, coming in flat as expected quarter over quarter.
James: In the first quarter revenue was $285 million at the top end of our guidance range and up 19% quarter over quarter. We sold 847 homes also at the top end of our guidance and up 19% quarter over quarter.
James: Net loss was $17 5, million% to 13% decrease from Q4, and a 71% or $42 million improvement year over year.
James: Fourth quarter, adjusted EBITDA was negative $7 $1 million coming in flat as expected quarter over quarter.
James Grout: This represents an 84% or $38 million improvement year over year. Gross margin for the first quarter was 7.9%, a 100 basis point improvement from 6.9% last quarter and up significantly from 1.2% in the first quarter of last year. Gross profit was $23 million, an improvement of more than 200% year over year, largely driven by an expanding contribution margin in our cash offer business and the strength of our asset light services at more than 40% of total transactions.
James: This represents an 84% or $38 million improvement year over year.
Gross margin for the first quarter was seven 9%, a 100 basis point improvement from six 9% last quarter and up significantly from one 2% in the first quarter of last year.
James: Gross profit was $23 million, an improvement of more than 200% year over year, largely driven by expanding contribution margin and a cash offer business and the strength of our asset light services at more than 40% of total transactions.
James Grout: Operating expenses, when excluding property-related selling and holding costs and contribution margin, were up $27.8 million in Q1, up from the prior quarter where a one-time $7 million credit positively impacted OPEX. That's down 26% year-over-year driven by our advertising spend efficiencies and cost management activities. We ended the first quarter with $69 million in unrestricted cash, $266 million in inventory, and $255 million of SPV-level asset-backed debt and zero parent-level debt. As a reminder, in Q4, we extended three of our primary credit facilities used to finance our inventory and maintain key terms around advance rates and funding mechanics while adjusting size to align with our expected needs in the coming year.
Operating expenses, when excluding property related selling and holding costs and contribution margin were up $27 8 million in Q1 up from the prior quarter were a onetime $7 million credit positively impacted opex, that's down 26% year over year, driven by our advertising spend efficiencies and cost management.
James: Agent activities.
James: We ended the first quarter was $69 million in unrestricted cash $266 million in inventory and $255 million of SPV level asset backed debt and zero parent level debt.
As a reminder, in Q4, we extended three of our primary credit facilities used to finance, our inventory and maintain key terms around advance rates and funding mechanics, while adjusting size to align with our expected needs in the coming years.
James Grout: Looking forward to the second quarter, we're again expecting sequential improvement and profitability. Sales pace is expected to follow the previous quarter's acquisitions, producing revenue between $250 to $300 million, supported by $750 to $875 million in homes sold. With our focus on operating leverage and expanded contribution margins, we're expecting approximately breakeven adjusted EBITDA. Looking at the balance of the year, we're pleased to be closing in on sustainable positive adjusted EBITDA as we continue to strategically invest in and grow our asset light services. With that, I'll open the call for questions.
Looking forward to the second quarter, we are again expecting sequential improvement in profitability sales pace is expected to follow the previous quarter's acquisitions, producing revenue between $250 million to $300 million supported by $750 to 875 homes sold with our focus on operating leverage and expanded.
James: Sure margins, we're expecting approximately breakeven adjusted EBITDA.
Looking at the balance of the year, we're pleased to be closing in on sustainable positive adjusted EBITDA as we continue to strategically invest and grow our asset light services.
Speaker Change: With that I'll open the call for questions.
Tamiya: 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 at all, you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a quick reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from Nick Jones with JMP Securities. Please proceed.
Speaker Change: 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.
Speaker Change: Any reason at all you would like to move that question. Please press star followed by two again to ask a question. Please press star one as a quick reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly ask questions are registered.
Speaker Change: The first question comes from Nick Jones with JMP Securities You May proceed.
Nicholas Freeman Jones: Renovate Peace I think the contribution profit up your interest is in the low 20% range. Can you remind us how high that contribution profit up your interest can go over time? Um, and I guess given the low, um, kind of supply and transaction volume, is there an opportunity to maybe invest in some advertising and accelerate growth there, given people maybe are opting to renovate as opposed to move?
Nicholas Freeman Jones: The renovated piece.
Nicholas Freeman Jones: My favorite contribution profit after interest looks like kind of low 20% range can you remind us how high can that contribution probably backbenchers go over time.
Nicholas Freeman Jones: And then I guess given the low.
Nicholas Freeman Jones: Kind of supply and transaction volume is there an opportunity to maybe invest in some advertising and accelerate growth there given people maybe they are off thinking renovated as opposed to most.
Unknown Executive: Hey, Nick, we missed the very first part of the question, but I think it was around redefining contribution margins and where that could go. Maybe, Brian, you take the advertising part to begin, and then I'll hop in on the data. Yeah, right.
Speaker Change: Hey, Nick.
Nicholas Freeman Jones: Missed the very first part of your question, but I think it was around renovate.
Nicholas Freeman Jones: Contribution margins and where that can go maybe Brian you can take that advertising parts to begin and then I'll hop in on it yeah right right now we have been focused on the growth of the <unk>.
Brian Bair: Right now, we've been focused on the growth of our B2B line. A lot of the vacant homes have been focused on that. We will eventually evolve into the B2C side, which, because you hit it perfectly, Nick, there's a very big opportunity for homeowners that are trapped as far as their equity right now or mortgage rates are but will be interested in staying in their homes much longer.
Brian: Our <unk> line rather.
Brian: Rather the vacant homes.
Brian: <unk> been focused on that we will eventually evolved into the BDC side, which because you hit it perfectly Nick there's there's a very big opportunity of homeowners that are trapped in with <unk>.
Brian: As far as their equity right now.
Brian: Mortgage rates and but it'll be interested in staying in their homes much longer and so that's definitely something that we are we are exploring.
James Grout: And so that's definitely something that we are exploring, and you'll continue to hear more about. Yeah, and then Nick on the contribution margin. You're right, the renovate business is performing kind of roughly in that 20% range overall. I think the thing is, it's been fairly consistent kind of quarter by quarter since we turned that on.
Brian: And Youll continue to hear more about.
Brian: And then Nick on the in terms of contribution margin Youre right. The renovated business, it's performing kind of roughly in that 20% range overall.
Brian: <unk>.
Nicholas Freeman Jones: Think the thing it's been fairly consistent kind of quarter by quarter. Since we turned that on I think the thing that will allow us to expand that over time is as we start getting into a little bit more customizable type work.
James Grout: I think the thing that will allow us to expand that over time is as we start getting into a little bit more customizable work. And as of right now, we're working primarily with institutions that are doing work at scale. If we start to get into a little bit more customized work, maybe potentially get into working more directly with consumers on Renovate, that's where you could start seeing that expand, and it could be pretty material.
Nicholas Freeman Jones: Right now, we're working primarily with institutions that are doing work at scale.
Nicholas Freeman Jones: If we start to get into a little bit more customized work, maybe potentially get into working more directly with consumers on renovation, that's where you could start seeing that expand and it can be pretty material what that could expand to.
James Grout: But right now, just in terms of efficiency from the platform that we've got and utilizing our teams in an effective way, we'll be focusing on that more institutional level. So the contribution margin should stay pretty flat for them overall from a margin perspective.
Nicholas Freeman Jones: But right now just in terms of efficiency from the platform that we've got and utilizing our teams in an effective way, we will be focusing on that more institutional level. So the contribution margins should stay pretty flat for them overall from a margin perspective.
Unknown Executive: I got it. Helpful.
Got it helpful and then.
Nicholas Freeman Jones: <unk>.
Unknown Executive: And then as kind of focus on getting to kind of sustainable EBITDA profitability, kind of philosophically, how are you balancing investing in growth, which I think there's an increasing eye on when we get what can we see acquisitions and homesteads start to increase more meaningfully versus kind of making sure you can be profitable on current volume. So I guess, how are you thinking about the current cost base? I'm afraid to hire them for longer.
Nicholas Freeman Jones: You kind of focus on getting to kind of sustainable EBITDA profitability kind of philosophically how are you balancing.
Nicholas Freeman Jones: Investing in growth, which I think there is an increasing I am well.
Nicholas Freeman Jones: What can we see acquisitions in wholesale start to increase more meaningfully.
Nicholas Freeman Jones: Versus kind of making sure you can be profitable at current volume. So I guess, how are you thinking about the current cost base.
Unknown Executive: Is there more wood to chop in terms of cost cutting, or is the business in good shape to kind of navigate? I guess where we're increasingly having lattice sites, lower rates, and, I guess, ostensibly, higher volume.
Nicholas Freeman Jones: If rates are higher longer or is there more wood to chop in terms of cost cutting or is the business in good shape to kind of navigate.
Nicholas Freeman Jones: I guess, why we're increasingly having line of sight to lower rates and I guess I'll sensibly higher volume.
Brian Bair: Yeah, we've made a lot of progress in navigating just this entire environment over the last year and a half. I really like where we are right now and where we are positioned, especially with some of the other asset-light product lines that we talked about. As we look at our cash-offer business, we're still being very cautious there as far as turning that on and for extensive growth. Again, we're focused right now on the performance of each home that we buy.
Yes, we've made a lot of progress on navigating this entire environment over the last year and a half I really like where we are right now and positioned especially with some of the other asset light product lines that we talked about as we as we look at the as our cash offer business, we're still being very cautious.
Nicholas Freeman Jones: There as far as the as far as turning that on and for extensive growth again, we're focused right now on the performance of each home that we buy is.
Nicholas Freeman Jones: The sensitivity to affordability is very very high right now so we have started to expand our buy box.
Brian Bair: The sensitivity to affordability is very, very high right now. We have started to expand our buy box. That's buying upfront a little bit more. It's from the $200 to $400 price point to about more the $200 to $600 price point. We'll start seeing that, but we're definitely being more cautious with the cash-offer product right now and making sure that I don't think it's the time to really start jumping in 100% yet on that. We're buying decent volume there and then, in turn, focusing on our other products as well.
Nicholas Freeman Jones: That's buying up funnel, a little bit more of.
Nicholas Freeman Jones: The two to four two by more than 2% to 600 price point. So we will start seeing that but we're definitely been.
Nicholas Freeman Jones: More cautious with the cash offer product right now and making sure that I don't think it's the time to really start jumping into 100% yet on that.
Nicholas Freeman Jones: But where we're buying decent volume there.
Nicholas Freeman Jones: And then.
Nicholas Freeman Jones: <unk> focused on our other products as well.
James Grout: And then, Nick, on the cost side of the equation, I think there's kind of two components to that. The first one being.., our request channel mix and our advertising spin efficiencies and the second one being more on the traditional FX sense and on the the former there on advertising we've done a lot of work over the past years to really dial things in there kind of for this new norm of what this market looks like and rather than kind of trying to find a homeowner right when they're at the point of trying to sell but you know that's why we've been leveraging ramping up our partnership networks and things like that you know overall we've actually driven our tack down year over year in the in the first quarter by over 50 percent so we're we're pretty pleased with the work that we've done there we feel like we're actually in a pretty good spot in terms of the efficient frontier on our on our cost per lead curve and so if we find good opportunities to invest from a marketing standpoint I think there's the efficiency there from that standpoint and then on the the more traditional optics side we've done a lot of work as you know over the the past couple years here to to optimize what our structure looks like and do we have make sure we have the right people that are the most effective in the right areas and I feel like we've done you know the we've made the tough decisions there and we've moved right the folks around to the right areas that we feel pretty good about the setup and the structure that we have right now you know right now it's all about just optimizing that that operating leverage there and increasing volume and where we you know I think a good example is is the expansion of our renovate business, really allowed us to figure out a new way to utilize those renovation teams over time, right. And so just being making sure we remain efficient and, and get every dollar we every hour every dollar we're spending right now.
Nicholas Freeman Jones: And then Nick on the cost side of the equation I think theres kind of two components to that.
Nicholas Freeman Jones: First one being <unk>.
Nicholas Freeman Jones: Our request channel mix, and our advertising spend efficiencies and the second one being more on the traditional opex and.
On the former there on advertising we've done a lot of work over the past years to really dial things and Theyre accounted for this new norm of what this market looks like and rather than kind of trying to find a homeowner right. When they are at the point of trying to sell but lastly, we've been leveraging ramping up their partnership networks and things like that.
Overall, we've actually driven our CAC down year over year in the first quarter by over 50%. So we're we're pretty pleased with the work that we've done there we feel like we're actually in a pretty good spot in terms of the efficient frontier on or on a cost per lead curve and so if we find good opportunities to invest from a marketing standpoint, I think there's the efficiency there from that standpoint.
Nicholas Freeman Jones: <unk>.
Nicholas Freeman Jones: And then on the more traditional Opex side, we've done a lot of work as you know over the past couple of years or to sort of optimize what our structure looks like and do we have to make sure. We have the right people that are the most effective in the right areas.
Nicholas Freeman Jones: And I feel like we've done.
Nicholas Freeman Jones: We made the tough decisions there and move the folks around are the right areas that we feel pretty good about.
Nicholas Freeman Jones: The setup and the structure that we have right now, but right now it's all about just optimizing that that operating leverage there.
Nicholas Freeman Jones: Increasing volume and where we are.
Nicholas Freeman Jones: I think a good examples.
Nicholas Freeman Jones: The expansion of our renovate business.
Nicholas Freeman Jones: Really allowed us to figure out a new way to utilize those renovation teams over time, right and so just being making sure we remain efficient and.
Nicholas Freeman Jones: Get every dollar of every dollar we're spending right now.
Unknown Executive: Great. Really helpful. Thanks, Brian. Thanks, James.
Speaker Change: Got it really helpful. Thanks, Brian makes sense.
Tamiya: Thank you. The next question comes from Ryan Tomasello with Stifel. You may proceed.
Speaker Change: The next question comes from Ryan Tomasello with Stifel. You May proceed.
Speaker Change: Yeah.
Ryan John Tomasello: Hi everyone. Thanks for taking the question. I'm just following up on the contribution from the non-cash offer product. I think in your prepared remarks, you mentioned that those services represented around a third. Contributions and Margins in the Quarter. How should we expect that mix to evolve over the course of the year? Can you say what you're assuming in the 2Q guide from a mixed perspective on the cash offer versus the non-cash offer product?
Ryan John Tomasello: Hi, everyone. Thanks for taking the questions.
Ryan John Tomasello: Just following up on the contribution from the non cash offer of products I think in the prepared remarks, you mentioned those services represented around a third of.
Ryan John Tomasello: Contribution margins in the quarter, how should we expect that mix to evolve over the course of the year can you say, what you're assuming in the <unk> guide.
Ryan John Tomasello: From a mix perspective on the cash offer versus the noncash offer products.
James Grout: Yeah, hey, Ryan. I think right now the overall mix that we've got in terms of the cash offer piece versus the non-cash offer is probably fairly consistent with what it was, and what we should expect the remaining balance for the remainder of the year here. I think with maybe some potential upside on that renovation business with some of the areas of momentum that we're seeing there. I think one thing, though, is as we look at the actual contribution margin dollars that are falling to the bottom line, we've got it to improving bottom line adjusted EBITDA here in Q2.
Speaker Change: Yeah, Hey, Ryan.
Speaker Change: I think the.
Speaker Change: Right now overseeing the overall mix that we've got.
Speaker Change: In terms of the cash offer piece versus the non cash offer is probably fairly consistent with what it was what we should expect the remaining.
Speaker Change: For the remainder of the year here.
Speaker Change: I think with maybe some potential upside on that renovated business with some of the areas of momentum that we're seeing there.
Speaker Change: I think one thing, though is as we look at the actual contribution margin dollars that are flowing to the bottom line, we guided to improving.
James Grout: You know, so that's going to see some expansion overall in the cash, cash offer margin side there as well. So I think it'll be when you look at it purely as a percentage overall, it might fluctuate quarter to quarter here, just as you know, the cash offer business has some variability in it. But overall, the mix, I think from a volume perspective, is pretty well set right now.
Speaker Change: Bottom line adjusted EBITDA here in Q2.
Speaker Change: So thats going to see some expansion overall and the cash cash offer margin side, there as well so.
Speaker Change: It'll be when you look at it purely as a percentage of overall it might fluctuate quarter to quarter here just as you know the cash offer business saw some variability in it.
Speaker Change: But overall the mix I think from a from a volume perspective is pretty well set right now.
Ryan John Tomasello: Okay, that's helpful. And then just to clarify, another comment you made in the prepared remarks, I believe you mentioned $7 million one-time credit that benefits the OPEX line. Pardon me if I heard that wrong, but any more color on what exactly that was and if that was included in the initial guidance you gave heading into the quarter. Um, and if you know what EBITDA would have been excluding that, I assume we would just back out seven million. Credit, which would imply a loss of closer to $14 million, but let me know if I'm thinking about that wrong.
Speaker Change: Okay. That's helpful. And then just to clarify another comment you made in the prepared remarks I believe you mentioned.
Speaker Change: A $7 million onetime credit.
Speaker Change: That benefited the Opex line and forgive me, if I heard that wrong, but any more color on what exactly that was and if if that was included in the initial guide you gave heading into the quarter.
Speaker Change: And if what EBITDA would've been excluding that I assume we would just back out 7 million.
Speaker Change: Credit, which would imply an EBITDA loss of closer to $40 million, but let me know if I'm thinking about that wrong.
James Grout: Yeah, so just to clarify, that was in Q4 of 23. And really, that's just one time compensation related. Adjust for in the quarter. So the opex run rate that you're seeing more so in Q1 is more reflective of go.
Speaker Change: Yes, so just to clarify that was in Q4 of 'twenty three and really that's just one time compensation related.
Speaker Change: Adjusted for in the quarter so.
Speaker Change: The Opex run rate that you're seeing more so in Q1 is more reflective of a go forward.
Ryan John Tomasello: Okay, my mistake; I just heard that wrong. And then just the last one, I'll squeeze in here, just in terms of the balance sheet. Can you just discuss your comfort overall with the current liquidity and capital position in terms of being able to self-fund the growth plans for the business over the intermediate term? I know you've talked about having the right size, the op-ex space, and put in the right plans to be able to do that in terms of self-funding operations, but any update there on that front would be helpful. Yeah, I mean, overall, we feel that way.
Speaker Change: Okay, My mistake I, just heard that wrong.
Speaker Change: And then just the last one ill squeeze in here just in terms of the balance sheet can you just discuss your comfort overall with the current liquidity and capital position in terms of being able to.
Speaker Change: The self funding the growth plans for the business over the intermediate term I know you've talked about having the right size of the opex space and putting the right plans to be able to do that in terms of self funding operations, but any any update there on that front would be helpful.
James Grout: Yeah, I mean, overall, we feel pretty good about the balance sheet, right? We've been obviously actively working towards making sure we're managed around what we have and, you know, ending the quarter with $69 million of cash, and you add in just the liquidity from, or excuse me, the equity from Homes on the balance sheet, that takes it up closer to $90 million. But in our portfolio, you know, we purchased homes at a discount, and we have a service fee that we're capturing there.
Speaker Change: Yeah, I mean overall, we feel pretty good about the balance sheet right.
Speaker Change: Ben.
Speaker Change: Do you see actively working towards making sure we manage around or.
Speaker Change: What we have and ending the quarter with $69 million of cash and you add in just the liquidity from the equity from homes on the balance sheet that takes it up closer to $90 million.
Speaker Change: But our portfolio.
Speaker Change: Purchase homes at a discount and you have a service fee that we're capturing there. So when you actually combined kind.
James Grout: So when you actually combine kind of our anticipated equity out of the homes that we have in the portfolio as well, it's well over $100 million of total liquidity. You know, I think the main thing is that, overall, from a forecast perspective, around, you know, an environment of rates higher for higher for longer, you know, no, no necessarily tell when we're going to get from rate cuts or from an increase in transactions or anything like that. So we're being very prudent around making sure that we're managing with, you know, within our capabilities here.
Speaker Change: Kind of our anticipated equity out of the homes that we have in the portfolio as well, it's well over $100 million of call. It total liquidity.
Speaker Change: I think the main thing is that overall from a forecast perspective.
Speaker Change: Around.
Speaker Change: Environment of rates are higher for higher for longer no no necessarily tailwind, we're going to get from rate cuts or from an increase in transactions or anything like that so we're being very prudent around making sure that we're managing with within our capabilities here.
Speaker Change: Great. Thanks for the color.
Speaker Change: Okay.
Tamiya: Thank you. The following question comes from Day Lee of J.P. Morgan. Please proceed.
Daily: Thank you. The following question comes from Daily with Jpmorgan You May proceed.
Dae K. Lee: Great, thanks for taking the questions. I have two. So the first one on your 2Q revenue outlook, at the midpoint of normal seasonality a little bit, I think you talked about rates. Being a driver, but can you double-click on that a little bit and help us help explain what scenarios are contemplated at each end and how you can get to approximately a break-even if it's not given the wide range of revenue outcomes and have a follow-up.
Daily: Great. Thanks for taking the question two the first one on your <unk> revenue outlook.
Daily: Yes.
Hello, guys normal seasonality, a little bit I think you talked about rates.
Speaker Change: Being a driver.
Jpmorgan: But can you just double click on that a little bit and help us help explain what scenarios there.
Jpmorgan: Yeah.
Jpmorgan: All we can get to approximately breakeven EBITDA.
Jpmorgan: Our range of revenue outcomes and as a follow up.
Unknown Executive: Yeah, so so, you know, I think from a revenue
Speaker Change: Yes so.
Unknown Executive: You know, I think from a revenue standpoint, we're still You know, revenue is obviously still very much influenced by the cash offer side of the business. But as we've been growing these other services, those customers were not expecting as much there. And so from a profitability standpoint, despite, you know, the 125 homes range that we've provided, there is not a ton of variability from an adjusted EBITDA perspective. That's our guide to approximately break-even.
Speaker Change: From a revenue standpoint, we're still.
Speaker Change: Revenue was obviously still very much influenced by the cash offer side of the business, but as we've been growing these other services.
Speaker Change: Those were not unexpected as much.
Speaker Change: Hey, there and so from a profitability standpoint, despite the.
Speaker Change: The 125 homes.
Speaker Change: Our range that we've provided it's not a ton of variability from an adjusted EBITDA perspective, Thus our guide of approximately breakeven.
Unknown Executive: I think the main thing is, you know, we saw mortgage rates rise here at the end of Q1 and the first part of Q2, and the overall pace in the market. I think the main thing is, with this transition here to the kind of new norm in the market, expecting homes to move quickly isn't necessarily, It's not necessarily our expectations, and that isn't a bad thing. That just means that as we're underwriting, we're underwriting, and expecting longer TTCs for the homes overall.
Speaker Change: I think the main thing is we saw mortgage rates rise here at the at the end of Q1 and the first part of Q2.
Speaker Change: And overall pace in the market and I think the main thing is with this transition here in the kind of the new norm of the market expecting homes to move quickly isn't necessarily.
Speaker Change: It's not necessarily our expectations and that isn't a bad thing that just means that as we're underwriting we're underwriting expecting longer TTC is for the homes overall.
Unknown Executive: You know, and if they don't get an offer in the first weekend, it's not a big deal. Eventually, these homes will sell, and they are performing against our expectations. But that just puts a little bit more variability in the, you know, the overall quarterly revenue metric for us.
Speaker Change: And if they don't get an offer in the first week and it's not a big deal eventually soon as well so and they are performing against our expectations, but that just puts a little bit more variability in the overall quarter revenue metric for us.
Dae K. Lee: Got it, and then as a follow-up on the NIR settlement, I know it's still kind of early, but I'd be curious to see any changes in behavior among settlers, buyers, or agent partners that you interact with in the funnel.
Speaker Change: Got it.
Speaker Change: As a follow up.
Speaker Change: Some of the early but just curious if you're seeing any changes in behavior or other suppliers are.
Speaker Change: And partners that you had sort of aqua and the funnel.
Unknown Executive: All right. Hey, it's Brian.
Speaker Change: Alright, Hey days Brian.
Speaker Change: No not yet.
Brian: It's very early still there are some things that need to be sorted out there, but but not.
Brian: Nothing to note.
Brian: We're obviously watching that closely and as I mentioned in the prepared remarks.
Brian Bair: No, not yet. It's, it's, it's very early. Still, there's some things that need to be sorted out there, but not nothing to note. We're obviously watching it closely. And as I mentioned in the prepared remark, I think there's an opportunity for Offerpad through some of our instant access channels and some of the other things that we allow buyers to access our homes instantly. And that's why I think, you know, the world of real estate is definitely changing. And that's something that we've been focused on and talking about for a long time. But nothing from buyers or sellers.
Brian: I think there is an opportunity and for offer pad through similar instant access channels and some of the other things that we allow buyers to access our homes instantly and because of that so I think the.
Brian: The world of real estate is definitely changing in and that's something that we've been within the.
Brian: We're focused on is talking about for a long time, but but nothing from from buyers or sellers yet.
Unknown Executive: I understand. Thank you.
Speaker Change: I understand thank you.
Tamiya: Thank you. The next question comes from John Colantuoni with Jeffries. You may proceed.
Speaker Change: Thank you. The next question comes from China.
With Jefferies you May proceed.
John Robert Colantuoni: Great, thanks for taking my questions. It's been a little over a year since you paused market expansions. Can you talk about the KPIs or measurement criteria that you're using to determine when it's the right time to start expanding into new markets and whether you'd characterize the timeframe for that as near-term or something that is a few years away? And turning to platform services, talk about the sort of capabilities and investments that you need to make in order to sort of unlock growth or start to scale those services in a more meaningful way over time? Thank you.
China: Great. Thanks for taking my questions, it's been a little over a year since you pause market expansions can you talk about the Kpis are measurement criteria that you're using to determine when it's the right time to start expanding into new markets and whether you'd characterize the timeframe timeframe for that as.
China: Near term or something that is a few years away.
China: Turning to the platform services talk about sort of capabilities and the investments that you need to make in order to sort of unlock growth or start to scale those services in a more meaningful way over time. Thanks.
James Grout: Thanks, John. This is James. We all take the market. Pass it over to Brian there.
Yeah. Thanks, John This is Jim I'll take the market passenger.
Jim: Passenger to Brian there.
James Grout: You know, from a market expansion perspective, I think the main thing is that as we're expanding these other services, we're looking at kind of overall market penetration in our existing markets, and prior to the market transition, we had, say, market shares anywhere between one and 4% in any given market, you know, just depending on the current status of that market, the tenure and whatnot. Overall, today, across all of our markets, we're probably closer to about 50 bps of market share.
Jim: <unk>.
Jim: From a market expansion perspective, I think the main thing is that.
Jim: As were expanding these other services, we're looking at kind of overall market penetration in our existing markets.
Jim: And.
James Grout: And so when we look at the opportunity to expand into new markets, mainly from a cash offer perspective, there's still a lot of wood to chop from our trees that we can go and grab and capture. So right now, as we're focused on maximizing utility out of our existing teams and tools, that's really what the focus is, is we're building things out. But I will add, as we mentioned in the prepared remarks, as these new services are expanding and they're starting to catch on, we are getting the ability to expand in new markets in a new way.
Jim: Yeah.
Jim: Prior to the market transition, we had say market share anywhere between one and 4% in any given market.
Jim: Depending on the current status of that market the tenure and whatnot overall.
Jim: Overall today across all of our markets were probably closer to about 50 bps of market share.
Jim: And so when we look at the opportunity to expand into new markets, mainly from a cash offer perspective, there's still a lot of wood to chop from our.
Jim: We can go in and capture in our existing markets and so right now as we're focused on maximizing the utility out of our existing teams and tool that's really where the focus is as where we're building things out.
Jim: But I will add as we mentioned in the prepared remarks.
Jim: As these new services are expanding and they're starting to catch foot, we are getting the ability to expand into new markets in a new way and so it might mean that we're offering part some of our services, but not all of our services in every market and Thats. The case with renovate this past quarter, where we started doing projects in Minneapolis in Oklahoma City, we're not currently advertise.
James Grout: And so it might mean that we're offering part, some of our services, but not all of our services in every market. And that's the case with Renovate this past quarter, where we started doing projects in Minneapolis and Oklahoma. We're not currently advertising there. We're not, you know, driving request volume and planning to purchase homes there in the near future. But it is a nice, efficient way for us to continue to utilize those teams in a very efficient manner and drive, you know, bottom line accretion overall.
James Grout: And so I think you'll start to see that overall market expansion strategy kind of evolve for us over the next, you know, several. Yeah, as far as the platform services, you know, as we've been mentioning, we've spent a lot.
Jim: There were not driving request volume and planning to purchase homes are in the near future.
Jim: But it is a nice efficient way for us to continue to utilize those teams in a very efficient manner and drive.
Jim: Bottom line accretion overall, and so I think youll start to see that overall market expansion strategy kind of evolved for us over the next several quarters, yes.
Brian Bair: Yeah, as far as platform services is concerned, you know, as we've been mentioning, we've spent a lot of time there over the last year and a half. And, you know, as we've seen the cash offer business slow, we've been focused even more on developing the right products for really hyper growth with a lot of either with renovate, like Sam, we've been extremely happy with what we've seen in renovate in just a year. As transaction volumes pick up, you're going to see more and more volume coming from that. And, you know, quote, unquote, the sky, the sky's the limit there.
Jim: And as far as the Platts platform services.
Jim: As we've been mentioning we've spent a lot of time there over the last year and a half and as we as we've seen the cash offer business slow we've been focused even more on developing the right products for really hyper growth with with with renovate and extremely happy what we have seen the renovated in just a year.
Jim: Transaction volumes pick up youre going to see more and more volume coming from that in <unk>.
Jim: Clinical at the Sky the Sky's the limit there. We've we are in the process of developing what we call rental cap internally, which is a which is a really awesome technology to help with our efficiency and our speed to even get better everyday matters on the renovate side on the direct plus side.
Brian Bair: We've, we're in the process of developing what we call rental cap and internally, which is a really awesome technology to help with our efficiency and our speed even get better as everyday matters. And on the renovation side, on the direct plus side, as we look at, you know, more and more partner investors coming to our platform to offer on homes at the same time that we do and close on those homes. So we don't balance sheet those homes.
Jim: As we look at more and more partner investors coming to our platform.
Jim: To offer on homes at the same time that we do and close on those homes. So we don't balance sheet those homes that opportunity as we see the SSR scaleup.
Brian Bair: That opportunity is we see the SFR scale up, fix, and flip other, other investors that want to buy a certain type of home. You know, obviously, our path there is, you know, what we want to focus on conversion there. So wherever we get the customer, the most money for the home, and whatever the customers want to accomplish with their direct plus, you'll see that as the trans transaction volume starts to pick up, and really just the, the, the, world starts to normalize there a little bit.
Jim: Fixed and flip to other other investors that want to buy a certain type of home obviously our path. There is what we want to focus on conversion. There. So whoever can give the customer the most money for the home and whatever the customers wanted to accomplish their direct plus youll see that as trans transaction volume starts to pick up and really just the world starts to normalize.
Jim: A little better.
Brian Bair: And, you know, this is the one thing that I want to make sure that we get across, you know, acquiring more homes, you know, through our cash offer business, we can turn on that machine, you know, from what we're seeing from the request world and, and, and the activity we're seeing, even the sellers right now, it's, it's us that are choosing not to turn on that machine right now, as we're And if you're going to judge what my least concern over the next little bit, it's buying enough and ramping up our cash offer business.
Jim: The one thing that I want to make sure that we get across acquiring more homes through our cash offer business. We can turn on that machine from what we're seeing from the request world and and the activity, we're seeing even the sellers.
Speaker Change: Right now it's acid are choosing not to turn on that machine right now as we're being cautious on what we're buying and what we're going to own with the variability that we're seeing in the mortgage markets.
Speaker Change: And if youre going to judge what's my least concern over the next little bit it's buying enough and ramping up our cash offer business again I feel like that is something that we have from brand awareness and more people are coming first.
Brian Bair: Again, I feel like that is something that we've got from brand awareness and where people are coming first, that business will ramp up as we feel more comfortable with the market and where it's at. And in the meantime, getting these other asset-light services coming along that can, quote unquote, plug into the machine that we've built, and other companies can plug into that, that's going to be an awesome opportunity as we continue to grow those. So, you know, we've made a lot of progress over the last year and a half. I'm really excited about what we've built here.
Speaker Change: That business will ramp up as we feel more comfortable with the market, where it's at and in the meantime, getting these other asset light services come along that can critical plug into the machine that we've built.
Speaker Change: And other other other companies can plug into that that that can be an awesome opportunity as we continue to grow though so.
Speaker Change: Yes, we've made a lot of progress over the last year and that I'm really excited about what we built there.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Operator: The question and answer session has concluded. This concludes the Offerpad first quarter 2024 earnings call. Thank you for your participation. You may now disconnect your line.
Speaker Change: The question and answer session has concluded this concludes to offer pad first quarter 2024 earnings call. Thank you for your participation you may now disconnect your lines.