Q2 2024 Offerpad Solutions Inc Earnings Call

Jayla: Good afternoon. Thank you for attending today's Offerpad second quarter 2024 earnings conference call. My name is Jayla, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call over to our host, Taylor Giles with Investor Relations. Taylor, you may proceed.

Good afternoon. Thank you for attending today's offer Pet's second quarter 2024 earnings Conference call. My name is Jamie and I'll be your moderator for today all lines will be muted during the presentation portion of the call with an opportunity.

Tayler Giles: For questions and answers at the end I would now like to pass the conference over to our host tailored Giles with Investor Relations Taylor you May proceed.

Taylor Giles: Good afternoon, and welcome to Offerpad's second quarter 2024 earnings call. I'm joined today by Offerpad Chairman and Chief Executive Officer, Brian Bair, and Chief Financial Officer, Peter Knog.

Tayler Giles: Good afternoon, and welcome to offer pad second quarter 2024 earnings call I'm joined today by acre pads, Chairman and Chief Executive Officer, Brian Bird.

Tayler Giles: And Chief Financial Officer, Peter Maag.

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 filings with the U.S. 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.

Speaker Change: During the call today management will make forward looking statements as defined in the private Securities Litigation Reform Act of 1095.

Speaker Change: 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 Companys business described in our filings with the U S Securities and Exchange Commission.

Speaker Change: Except as required by applicable law after Pat does not intend to update or alter our forward looking statements, whether as a result of new information future events or otherwise.

Taylor Giles: On today's call, management will refer to certain non-GAAP financial measures. These measures 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 second quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Speaker Change: Today's call management will refer to certain non-GAAP financial measures. These measures exclude certain items discussed in our earnings release under the heading non-GAAP financial measures. The reconciliations of <unk> non-GAAP measures to the comparable GAAP measures are available in the financial tables of the second quarter earnings release on <unk> website.

Speaker Change: With that I'll turn the call over to Brian.

Brian Bair: Thank you, Taylor, and thanks to everyone for joining today. Before we dive into updates, I'm excited to introduce our new CFO, Peter Knob. Peter joined us in June and has already been making significant contributions. Previously, he was EVP and CFO at Turner Broadcasting, the parent company of CNN, TNT, and TBS.

Brian Bird: Thank you Taylor and thanks to everyone for joining today.

Speaker Change: Before we dive into updates.

Speaker Change: Sorry to introduce our new CFO Peter <unk> Peter.

Speaker Change: Peter joined US in June and has already been making significant contributions.

Speaker Change: Previously he was EVP and CFO at Turner Broadcasting the parent company of CNN TNT and TBS.

Brian Bair: With his financial expertise, leadership in business operations, and understanding of complex transactions, we are thrilled to have him and confident in the impact he'll have on our organization. Turning now to the second quarter, we delivered revenue within our guidance and another quarter of incremental improvement in adjusted EBITDA, despite the continuing uncertainty of the macroeconomy and the real estate market, and we continue to make strides in building a long-term profitable business that can weather any economy.

Speaker Change: With this financial expertise leadership and business operations and understanding of complex transactions. We are thrilled to have him and confident in the impact you will have in our organization.

Speaker Change: Turning now to the second quarter, we delivered revenue within our guidance and another quarter of incremental improvement in adjusted EBITDA.

Speaker Change: Right, the continuing uncertainty of the macro economy and real estate market.

Speaker Change: And we continue to make strides in building a long term profitable business that can weather any economy.

Brian Bair: Highlights of the quarter include new renovation clients like Fannie Mae and Freddie Mac. Growth in the Agent Partner Program, enhancements in our technology, and streamlined operations that we expect will lead us to EBITDA profitability by year's end. These initiatives are positioning us for sustained profitability in any market.

Highlights of the quarter include new renovate clients like Fannie Mae and Freddie Mac growth in the agent partner program.

Speaker Change: Enhancements in our technology and streamlined operations that we expect will lead us to EBITDA profitability by year's end.

Speaker Change: These initiatives are positioning us for sustained profitability in any market.

Brian Bair: As for the housing market, we recognize this is a moment in time that must be carefully managed, but we remain focused on our long-term strategy. Over the past year and a half, we have constantly highlighted the volatility of interest rates and home affordability and the impact it has on the market. As a result, we have been very disciplined in our approach to inventory.

Speaker Change: As for the housing market. We recognize this is a moment in time that must be carefully managed but we remain focused on our long term strategy.

Speaker Change: Over the past year and a half we are constantly highlighted the volatility of interest rates and home affordability and the impact it has on the market.

Speaker Change: As a result, we have been very disciplined in our approach to inventory.

Brian Bair: In Q2, the market experienced a surge in volatility again, with mortgage rates surpassing 7% softening buyer demand, which led to increased active inventory in most markets across the country. Our disciplined approach has enabled us to navigate these challenges effectively, leading to an improved gross margin for the third consecutive quarter of 8.7%. Holding homes for the short term provides us with the flexibility to adapt quickly to market shifts. With the anticipation of the potential transition from a seller's market to a buyer's market, we've adjusted our buying criteria, focusing less on volume and more on wider margins per home.

Speaker Change: In Q2, the market experienced a surge in volatility again with mortgage rates, surpassing 7% softening buyer demand, which led to increased active inventory in most markets across the country.

Our disciplined approach has enabled us to navigate these challenges effectively.

Speaker Change: Leading to an improved gross margin for the third consecutive quarter of eight 7%.

Speaker Change: Holding home short term provides us with the flexibility to adapt quickly to market shifts.

Speaker Change: With the anticipation of the potential transition from a sellers market to a buyers market, we've adjusted our buying criteria focusing less on volume and more and wider margins per home.

Brian Bair: For example, on the acquisition side, we are leveraging our renovation strength to buy homes that need more renovations, enabling us to add more value to the home and ultimately boost margin. We've intentionally increased our assumed hold times and additionally focused on homes that have fewer actives in the area. Sellers continue to be very interested in our cash offer, and we've seen a significant increase in the volume of requests from one quarter to the next. Nevertheless, despite this acceleration, we are exercising stringent discipline in our property acquisitions during the market transition.

Speaker Change: For example on the acquisition side, we are leveraging our renovation straight to buy homes that need more renovations, enabling us to add more value to the home and ultimately boost margin.

Speaker Change: We have intentionally increased our assumed hold times and additionally focus on homes that have fewer actives in the area.

Speaker Change: Sellers continue to be very interested in our cash offer and we've seen significant increase in the volume of requests from one quarter to the next.

Speaker Change: Despite this acceleration we are exercising stringent discipline in our property acquisitions during the market transition.

Brian Bair: We take pride in the strong demand for our services, and in turn, we provide the best possible experience for our customers. Our CSAT score of 93% reflects our unwavering commitment to exceptional service and underscores our dedication to exceeding customer expectations, solidifying our reputation as a trusted leader in the real estate market. Returning to the macro economy, absent a significant reduction in mortgage rates, we believe we'll be heading into a buyer's market. As one of the largest homebuyers in America, this positions us well, especially as home sellers face longer marketing times, more competition, and seek quicker access to their liquidity.

Speaker Change: We take pride in a strong demand for our services and in turn we provide the best possible experience for our customers.

Our <unk> score of 93% reflects our unwavering commitment to exceptional service and.

Speaker Change: And underscores our dedication to exceeding customer expectations solidifying our reputation as a trusted leader in the real estate market.

Speaker Change: Returning to the macro economy.

Speaker Change: Absent a significant reduction in mortgage rates, we believe we will be heading to a buyers market as.

Speaker Change: As one of the largest homebuyers in America this positions us well, especially as home seller space longer marketing times more competition and see quicker access to their liquidity.

Brian Bair: With inventory growing, this shift may present significant opportunities for our cash offer business. As buyers continue to struggle with affordability and the cost of living, Offerpad presents a compelling alternative to traditional resale homes. The average resale home on the market is over 30 years old, and many buyers can't afford the unnecessary upgrades or even basic refreshes after closing. Offerpad provides a cost-effective solution by offering newly renovated, move-in ready homes. These homes are typically located in desirable locations, close to established schools, workplaces, restaurants, and amenities, making them a more attractive option compared to new homes. However, new homes often come at a higher price point, longer wait times, and are typically situated farther from established amenities and services.

Speaker Change: With inventory growing this shift may present significant opportunities for our cash offer business.

Speaker Change: As buyers continue to struggle with affordability and cost of living offer Pat presents a compelling alternative to traditional resale homes.

Speaker Change: The average resale home on the market is over 30 years old and many buyers can afford the unnecessary upgrades or even basic refreshes after closing.

Speaker Change: After Pat provides a cost effective solution by offer a newly renovated move in ready homes.

Speaker Change: These homes are typically located in desirable locations close to establish schools workplaces restaurants, and amenities, making them more attractive option compared to new homes.

Speaker Change: New homes, often come at a higher price point longer wait times and are typically situated farther from established amenities and services.

Brian Bair: By choosing to purchase an Offerpad home, buyers can enjoy the benefits of a newly renovated home in a prime location without the higher cost and longer wait times, making Offerpad a strong alternative in today's challenging real estate market. Our disciplined and patient approach within our buy box has proven successful in this evolving market. Our short-term strategy focuses on proactively adapting to changing real estate conditions by purchasing fewer properties and concentrating on higher margin opportunities.

OfferPad: By choosing to purchase an offer Pat home buyers can enjoy the benefits of our newly renovated home in a prime location without the higher cost and longer wait times, making offer pad a strong alternative in today's challenging real estate market.

OfferPad: Our disciplined and patient approach within our buy box has proven successful in this evolving market.

OfferPad: Our short term strategy focuses on proactively adapting to changing real estate conditions by purchasing fewer properties and concentrate on higher margin opportunities.

Brian Bair: This approach positions us well for the anticipated shift to a buyer's market, where we believe our model will excel. Now, let's transition to discussing our other platform services, which have been instrumental in enhancing our margin. Offerpad Renovate leverages our expertise in operations and home renovation, offering timely, cost-efficient, and high-quality renovation services to B2B partners. I'm pleased to share that we've experienced another strong quarter for Offerpad Renovate. With closed renovation projects growing over 300% versus the prior year, generating roughly $5 million in revenue.

OfferPad: This approach positions us well for the anticipated shift to a buyers market, where we believe our model will excel.

OfferPad: Now, let's transition to discussing our other platform services, which have been instrumental in enhancing our margins.

Speaker Change: Offer pad renovate leverages, our expertise in operations and home renovations offering timely cost efficient and high quality renovation services to be to be partners.

Speaker Change: I am pleased to share that we've experienced another strong quarter for renovate with.

Speaker Change: With closed renovation projects growing over 300% versus the prior year generating roughly $5 million in revenue.

Brian Bair: We're focused on building an extensive list of renovation partners. I'm excited to share that we've onboarded and are renovating homes for both Freddie Mac and Fannie Mae, along with a host of other new partners. We've officially launched our rental captain technology platform in multiple markets.

We're focused on building an extensive list of renovate partners I am excited to share that we've on boarded and our renovated homes for both Freddie Mac and Fannie Mae along with a host of other new partners.

Speaker Change: We've officially launched our Reno Captain technology platform in multiple markets, given our <unk> clients real time updates enhanced transparency and project management efficiency.

Brian Bair: Providing our B2B clients with real-time updates, enhanced transparency, and project management efficiency. We anticipate we will fully deploy the technology to all partners by the end of the quarter. While RentalCaptain provides substantial efficiencies to third parties, it also produces significant cost efficiencies for Offerpad. We continue to expand our partnership. In June, we announced an integration with Realtor.com, allowing us to extend our reach and provide cash offers directly through their platform. This enables us to meet sellers where they are in their selling process. Utilizing our proprietary ABM called Citrus Value, we generate an instant estimated offer for the customer. The integration has already produced excellent early results.

Speaker Change: We anticipate we will fully deploy the technology to our partners by the end of the quarter.

Speaker Change: While rental captain provides substantial efficiencies to third parties. It also produces significant cost efficiencies for offer pad.

Speaker Change: We continue to expand our partnership channels in June we announced an integration with <unk> dot com, allowing us to extend our reach and provide cash offers directly through their platform.

Speaker Change: This enables us to meet sellers, where they are in their process.

Speaker Change: Utilizing our proprietary AVM called citrus value, we generate an instant estimated offer for the customer the integration has already produced excellent early results.

Brian Bair: I'd like to now focus on our Agent Partner Program, or APP, that supports the agent community and represented sellers. Since announcing our revamped agent partner program earlier this year, agent offer requests have surged, especially in cities such as Atlanta, Charlotte, Orlando, Phoenix, and Tampa. In quarter two, agent requests represented over 25% of total requests and produced nearly a third of our acquisitions, up from 19% a year ago.

Speaker Change: I'd like to now focus on our agent partner program or ADP that supports the agent community and represented sellers.

Speaker Change: Since announcing our revamped agent partner program earlier this year agent offer request of surged, especially in cities, such as Atlanta, Charlotte, Orlando Phoenix and Tampa.

Speaker Change: In quarter two agent request represented over 25% of total requests and produced nearly a third of our acquisitions up from 19% a year ago.

Brian Bair: This is a key contributor to our ability to improve CAC at nearly 50% year-over-year at our most efficient level since Q2 2022. To drive continuous engagement within our partner program, in Q2, we launched the Powered by Offerpad platform, an online portal for agents and agent teams who are part of our Pro and Max agent programs. Agents can manage their Offerpad listing seamlessly by viewing all listing activities in a centralized location, including viewing cash offers, accessing detailed seller and property information, and managing leads and referrals efficiently.

Speaker Change: This is a key contributor to our ability to improve CAC at nearly 50% year over year at our most efficient level since Q2 2022.

Speaker Change: To drive continuous engagement within our partner program in Q2, we launched the powered by offer pad platform an online portal for agents and agent teams, who are part of our pro and Mac's agent programs age.

Speaker Change: Agents can manage their offer pad listing seamlessly by viewing our listing activities in a centralized location, including viewing cash offers accessing detailed seller in property information and managing leads and referrals efficiently.

Brian Bair: We have invested in technology to make business more efficient. As a result of these investments, we have been able to streamline costs and improve margins, putting the business on a path towards delivering consistent improvements in adjusted EBITDA and cash flow through the end of the year. When transactions return to more normal levels, we expect revenues to grow much more efficiently compared to expenses, given our focused investments in technology. In closing, I'm proud of our team's ability to innovate and navigate short-term challenges while planning for long-term success.

Speaker Change: We have been investing in technology to make business more efficient.

Speaker Change: As a result of these investments we have been able to streamline costs and improve margins, putting the business on the path towards delivering consistent improvements in adjusted EBITDA and cash flow through the end of the year.

Speaker Change: When transactions return to more normal levels, we expect revenues to grow much more efficiently compared to expenses given our focused investments in technology.

Speaker Change: In closing I am proud of our team's ability to innovate and navigate short term challenges while planning for long term success with.

Brian Bair: With an anticipated shortage of homes and an aging supply in the coming years, Offerpad is set to become a leader in delivering refreshed and renovated homes to buyers. Our strategic goals include focus on growth and product development in our asset light service, offering end-to-end solutions for selling, buying, and expanding our partner ecosystem. This progress is driven by our dedicated employees and committed partners. I specifically want to thank the Offerpad technology and product teams for their continuous drive to improve and develop groundbreaking solutions. We will weather this difficult environment with discipline, patience, and preparation while positioning Offerpad for sustained profitability in any market condition. With that, I'll turn the call over to Peter.

Speaker Change: With an anticipated shortage of homes and an agent supply in the coming years offer pad is set to become a leader in delivering refreshed and renovated homes to buyers.

Speaker Change: Our strategic imperatives include focus on growth and product development in our asset light services offer an end to end solutions for selling buying and expanding our partner ecosystem.

Speaker Change: This progress is driven by our dedicated employees and committed partners.

Speaker Change: I, specifically want to thank the author pad technology and product teams for their continuous drive to improve and develop groundbreaking solutions.

Speaker Change: We will weather this difficult environment with discipline patience and preparation while positioning offer pad for sustained profitability in any market condition.

Speaker Change: With that I'll turn the call over to Peter.

Peter Knog: Thank you, Brian. I'm pleased to join you for my first earnings call as CFO and look forward to getting to know our analysts and investors in the coming months, some of whom I've already met. I'm very grateful to James Grout, whose deep knowledge of our operations and financials as interim CFO allowed me to step in seamlessly. I'm thrilled to join Offerpad at such a pivotal time for the industry and the company.

Peter Maag: Thank you Brian I'm pleased to join you for my first earnings call as CFO and look forward to getting to know our analysts and investors in the coming months selling from I've already met.

Peter Maag: I am very grateful to James Grout, who has deep knowledge of our operations and financials, while interim CFO allowed me to step in seamlessly I'm thrilled to join offer pad at such a pivotal time for the industry and the company.

Peter Knog: I was attracted to Offerpad's vision, our strong competitive position, and the opportunity to drive long-term profitable growth at scale. Additionally, I see a significant opportunity to use my operational background and experience managing through tough environments in business model transition. I will put these skills to work as we grow the asset light business and leverage what continues to be a huge opportunity in our core cash offer business. In the coming quarters, I'll be working closely with the team to continue to identify key priorities to support our operational strategies and growth plans.

Peter Maag: Attracted to offer pads division, our strong competitive position and the opportunity to drive long term profitable growth at scale.

Peter Maag: Additionally, I see significant opportunity to use my operational background and experience managing through tough environments and business model transitions.

Speaker Change: Put these skills to work as we grow the asset light business and leverage where continues to be a huge opportunity in our core cash offer business in.

Speaker Change: In the coming quarters I'll be working closely with the teams to continue to identify key priorities to support our operational strategies and growth plans first and foremost is our focus on further progress on operating efficiencies as we position the business to generate positive adjusted EBITDA and cash flow in any real estate environment.

Peter Knog: First and foremost is our focus on further progress on operating efficiencies as we position the business to generate positive adjusted EBITDA and cash flow in any real estate environment. As Brian mentioned, we are operating with discipline and managing our inventory levels with a focus on optimizing ROI versus volume. We're well positioned to do this given the strength of our platform, our technology, our internal processes, and our seasoned real estate team. Turning to Q2 financials, inventory remained in a strong, healthy position during the quarter. We had 989 homes in inventory, of which only 3.4% were owned over 180 days and not under contract for retail.

Speaker Change: As Brian mentioned, we are operating with discipline in managing our inventory levels with a focus on optimizing ROI versus volume.

Brian Bird: We're well positioned to do this given the strength of our platform our technology, our internal processes and our seasoned real estate teams.

Brian Bird: Turning to Q2 financials inventory remained in a strong healthy position during the quarter, we had 989 homes in inventory of which only three 4% for owned over 180 days and not under contract for resale homes sold in the quarter had an average time to cash of 106 days, an improvement of seven days quarter over.

Peter Knog: Homes sold in the quarter had an average time to cash of 106 days, an improvement of seven days quarter over quarter, and in line with seasonal expectations, we expect time to cash to slightly increase in Q3, given current market dynamics and a longer MLS average time on market. We acquired 831 homes in the quarter, up 3% compared to Q1, and roughly flat year for year. Given the persistent challenge of affordability and the current rate lock-in effect, we are taking a more disciplined approach to acquisition.

Per quarter and in line with seasonal expectations, we expect time to cash to slightly increase in Q3, given current market dynamics and longer MLS average time on market.

Brian Bird: We acquired 831 homes in the quarter up 3% compared to Q1 and roughly flat year over year, given the persistent challenge of affordability in the current rate lock in effect, we are taking a more disciplined approach to acquisitions.

Peter Knog: As we mentioned, in the second half of the year, we expect volume to decline compared to Q2 as we focus on wider spread opportunities and lower inventory levels. While our cash offer is central to the business, we're pleased to see ongoing traction with our efforts to diversify our operating model as our asset-light services, including Renovate, Direct Plus, and our agent partnership programs continue to grow. These services represented almost 25% of total contribution profit in Q2, and we expect this momentum to continue.

Brian Bird: As we mentioned in the second half of the year, we expect volume to decline compared to Q2, as we focused on wider spread opportunities and lower inventory levels.

Brian Bird: While our cash offer is central to the business. We're pleased to see ongoing traction with our efforts to diversify our operating model as our asset light services, including renovate direct plus and our agent partnership programs continue to grow.

Speaker Change: These services represented almost 25% of total contribution profit in Q2, and we expect this momentum to continue.

Peter Knog: In light of our focus here, we are now providing a revenue breakout between the cash offer and other services in our quarterly earnings supplement published on our IR site beginning this quarter. In the second quarter, revenue was $251 million, which was within our guidance range, up 9% year over year and down 12% sequentially. We sold 742 homes at 14% year over year and down 12% quarter over quarter. The net loss was 13.8 million, a 21% improvement from Q1 and a 38% or 9 million improvement year over year.

Speaker Change: In light of our focus here, we are now providing a revenue breakout between the cash offer and other services in our quarterly earnings supplement published on our IR site beginning this quarter.

Speaker Change: In the second quarter revenue was $251 million, which was within our guidance range of 9% year over year and down 12% sequentially. We sold 742 homes of 14% year over year and down 12% quarter over quarter net loss was $13 8 million or 20.

Speaker Change: 1% improvement from Q1, and a 38% or $9 million improvement year over year importantly.

Peter Knog: Importantly, gross margin expanded 80 basis points to 8.7% compared to the first quarter. Gross profit was $22 million, roughly flat year over year, and down 3% quarter over quarter. This expansion in gross margin was driven by both the contribution margin in our cash offer business, as well as the strength of our asset light services, which represented more than 34% of total transactions in the quarter. Operating expenses, excluding property-related selling and holding costs of $24.2 million, improved by $3.6 million versus the prior quarter as a result of our prior cost out.

Speaker Change: Importantly, gross margin expanded 80 basis points to eight 7% compared to the first quarter gross profit was $22 million roughly flat year over year and down 3% quarter over quarter.

Speaker Change: This expansion in gross margin was driven by both the contribution margin and our cash off our business as well as the strength of our asset light services, which represented more than 34% of total transactions in the quarter.

Speaker Change: Operating expenses, excluding property related selling and holding costs of $24 2 million improved by $3 $6 million versus the prior quarter as a result of our prior cost out initiatives.

Peter Knog: That's an improvement of 35% or 13.3 million year over year driven by reduced advertising spend, leverage from our agent partnership program, and cost management activities. After lowering annual operating expenses by nearly $70 million in 2023, we continue to make good progress on our cost-out initiatives and now expect to save more than $35 million annually, up another $5 million from the $30 million target we previously shared. You should expect the cost-out improvements to continue.

Speaker Change: That's an improvement of 35% or $13 $3 million year over year, driven by reduced advertising spend leverage from our agent partnership program and cost management activities.

Speaker Change: After lowering annual operating expenses by nearly $70 million in 2023, we continue to make good progress on our cost out initiatives and now expect to save more than $35 million annually up another $5 million from the $30 million target. We previously shared.

Speaker Change: You should expect the cost out improvements to continue we will have more to share on this in the coming quarters.

Peter Knog: We'll have more to share on this in the coming weeks. Our focus on contribution margin and disciplined OPEC spend drove an adjusted EBITDA loss of $4.4 million, an improvement of 74% year-over-year and 38% quarter-over-quarter, through continued revenue diversification and ongoing cost. We expect sequential improvements in adjusted EBITDA and cash flow through the end of the year. Turning to the balance sheet, we ended the second quarter with $57 million in unrestricted cash and total liquidity of over $110 million when incorporating the estimated value of our carried inventory.

Our focus on contribution margin and disciplined opex spend drove adjusted EBITDA loss of $4 4 million, an improvement of 74% year over year and 38% quarter over quarter.

Speaker Change: Through continued revenue diversification and ongoing cost management, we expect sequential improvements in adjusted EBITDA and cash flow through the end of the year.

Speaker Change: Turning to the balance sheet, we ended the second quarter with $57 million in unrestricted cash and total liquidity of over $110 million of incorporating the estimated value of our carried inventory.

Peter Knog: We continue to have a strong roster of supportive lending partners. In the second quarter, we renewed and extended our largest and longest tenured major credit facility into 2026. Additionally, we continue to have zero parent level debt. Moving now to guidance. In light of the lower industry-wide volumes we discussed, we expect third quarter revenue to be in the range of $185 million to $225 million, supported by 550 to 650 homes sold.

Speaker Change: We continued to have a strong roster of supportive lending partners in the second quarter, we renewed and extended our largest and longest tenured measure credit facility into 2026. Additionally, we continue to have zero parent level debt.

Speaker Change: Moving now to guidance in light of the lower industry wide volumes. We discussed we expect third quarter revenue to be in the range of 185 million to $225 million supported by $550 to 650 homes sold.

Unknown Executive: As we mentioned, we are maintaining a sharp focus on operating leverage and contribution margin and expect to achieve sequential improvements in adjusted EBITDA and cash. Looking to the back half of 2024 and beyond, we continue to take actions towards achieving profitability and building a sustainable business that can operate in any real estate environment. We are patient and long-term focused on our technology roadmap and our go-to-market strategy. As we execute against the large untapped market opportunity for Offerpad's platform, we look forward to updating you on the quarterly progress and the progress we are making with our long-term strategic mission of taking the friction out of real estate. Thank you for your attention. We will now take questions. You will now begin our question and answer session. At this time, if you would like,

Speaker Change: As we mentioned we are maintaining a sharp focus on operating leverage and contribution margin and expect to achieve sequential improvements in adjusted EBITDA and cash flow.

Speaker Change: Looking to the back half of 2024 and beyond we continue to take actions towards achieving profitability and building a sustainable business that can operate in any real estate environment.

Speaker Change: We are patient and long term focused in our technology roadmap and our go to market strategy as we execute against the large untapped market opportunity for offer pads platform. We look forward to updating you on our quarterly progress and the progress, we're making with our long term strategic mission of taking the friction out of real estate.

Speaker Change: Thank you for your attention we will now take questions.

Unknown Executive: You will now begin our question and answer session. At this time, 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 star followed by two. Again, to ask a question, it is star one.

Speaker Change: We will now begin our question and answer session.

Speaker Change: At this time, 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 star followed by two again to ask a question. It is star one as a reminder, all.

All participants are limited to one question and one follow up if you will.

Unknown Executive: As a reminder, all participants are limited to one question and one follow-up. If you have any additional questions, you may reapply for a question. Our first question is from Day K. Lee with the company J.P. Morgan. Day, your line is now open. Dave, please ensure you're not on mute. Our next question comes from Nick Jones with the company JMP. Nick, your line is now open.

Speaker Change: Have any additional questions you may re queue.

Speaker Change: So my question. My first question is from Dk Lee with a company J P. Morgan Your line is now open.

Speaker Change: Dave Please ensure you're not on mute.

Speaker Change: Our next question comes from Nick Jones, with the company JMP. Nick Your line is now open.

Unknown Executive: Great. Thanks for taking the questions, guys. I guess, Brian, one for you and, and, and welcome Peter, good to chat again. One for you as well.

Speaker Change: Great. Thanks for taking my questions guys I guess.

Speaker Change: Well for you in.

Speaker Change: Welcome to chat again water for you as well.

Brian Bair: You know, Brian, you have a deep history with real estate agents and in the industry. You're setting up kind of new solutions. You know, the new one announced today, powered by Offerpad, this renovation. How are you kind of envisioning the business evolving, maybe near term? You know, there's kind of a lot of uncertainty still baked in. I think we'll find out in another 12 days or so. As NAR settlement trickles through the ecosystem and we see how buyer agents react and just agents at large, how do you think the business may be evolving in terms of the solutions that it's offering near to medium term, as you know, the residential real estate volume? I remain kind of depressed these days.

Alright, you have a deep history with real estate agents in any industry.

Speaker Change: You're stepping up kind of new solutions.

Speaker Change: The new one announced today.

Speaker Change: Powered by offer pad renovation, how are you kind of envisioning the business evolving maybe near term.

Speaker Change: Kind of a lot of uncertainty still baked in I think we'll find out in another.

Speaker Change: 12 days or so.

Speaker Change: Our settlement trigger through the ecosystem, let me say, a buyer agents react and decisions at large.

Speaker Change: How do you see that business, maybe evolving in terms of their solution set it's offering.

Speaker Change: Medium term as the.

Residential real estate volume.

Speaker Change: Got it.

Speaker Change: The press these days.

Brian Bair: Hey, Dick. Yeah, when we founded Offerpad, we wanted to be a solution center for everyone. And that includes real estate agents as well. And, you know, we want to meet the customer where they are. And, you know, some of them want to be represented by agents, some of them don't.

Speaker Change: Yes.

Speaker Change: We found that offer pad, we wanted to be a solution center for everyone and that includes <unk> that includes real estate agents as well and we want to meet the customer where they are at and someone wanted to be represented by agents some of them don't and so as we build out more technologies and solutions for everyone.

Speaker Change: As we integrated in with our internal platform helix and some of the other things that we do so they can get real time information.

Speaker Change: And the agent can get real time information that's been something we've been focused on.

Brian Bair: And so, as we build out more technologies and solutions for everyone, you know, as we integrate it with our internal platform, Helix, and some of the other things that we do, so they can get real-time information, and the agent can get real-time information. That's, that's been something we've been focused on. And what you're the Powered by Offerpad solution is that that's been key for agents as we've onboarded more and more agents through our partner program.

Speaker Change: The powered by offer pad solution is that's been key.

Speaker Change: For agents as we've on boarded more and more agents through our partner program.

Speaker Change: We continue to expand our technology there as well.

Speaker Change: But yes as you look at it in the next coming months or weeks or if you look at it I mean, because I mentioned in my remarks.

Brian Bair: You know, we continue to expand our technology there as well. But yeah, as you look at it in the next, you know, coming months or weeks, however you look at it, I mean, as I mentioned in my remark, I see the market transitioning from a low inventory sellers market into more inventory and less buyer demand we've seen because of the affordability lately.

Speaker Change: You see the market transitioning from a low inventory sellers market.

Speaker Change: Into more inventory and less buyer demand, we've seen because of the affordability lately.

Brian Bair: And so we're seeing inventory mount up in a lot of our markets. And so what we want to do, again, is we're hyper focused on providing solutions for everyone, again, agents and customers alike. And with our renovate product, people that need renovation services, you know, we're onboarding people almost daily to use our renovation services. All of that has been key to what we do. And we wanted to grow is, like I said, we don't want to be just an iBuyer; we want to be a solution center.

Speaker Change: And so we're seeing.

Inventory Mount up and a lot of our markets and so what we wanted to do again is we're hyper focused on providing.

Speaker Change: <unk> solutions for everyone to get agents and customers alike, and with our with our renovate product.

Speaker Change: The people that need renovation services, we're onboarding people almost daily to use our renovation services all of that has been has been key to.

Speaker Change: To what we do and are willing to grow is like I said, we we don't want to be just in <unk>. We wanted to be a solution center of the eye buyers to platform that allows us to kind of lay the foundation build the operation that you need to buy renovate and sell a home in 100 days, but because we can do that we can let other people plug into that system.

Brian Bair: The iBuyer platform allows us to kind of lay the foundation, build the operation that you need to buy, renovate, and sell a home in 100 days. But because we can do that, we can let other people plug into that system. And, you know, provide a lot of benefits to that as well.

Speaker Change: And provide a lot of benefits to that as well.

Speaker Change: Great.

Brian Bair: That's really helpful. And Peter, maybe, you know, your thoughts, newer to the company, you know, how are you kind of thinking about balancing, you know, cutting costs, trying to

Speaker Change: That's really helpful and care maybe.

Speaker Change: Maybe your thoughts.

Speaker Change: Never to the company.

Speaker Change: How are you kind of thinking about balance cut.

Speaker Change: Cutting costs trying to drive EBITDA profitability, and then making sure the business well positioned to kind of accelerate when things kind of essentially normalize at some point in the near to medium term.

Yes.

Peter Knog: Sure. Look, I think they go hand in hand.

Speaker Change: Sure look I think they go hand in hand.

Speaker Change: We are we are.

Speaker Change: As I mentioned in the prepared remarks, we are focused on taking advantage of the lower volume tougher real estate environment that we're in right now.

Peter Knog: We are, as I mentioned in the prepared remarks, focused on taking advantage of the lower volume, tougher real estate environment that we're in right now. And using that time to position ourselves, we're more focused on the bottom line than the top line. But to position the business in a place where we are successful and have adjusted EBITDA positive, and ultimately cash flow positive, in any environment. So they really do go hand in hand when we get there. We can, and we're always going to do better on the top line, especially with the cash offer, but all the asset light services as well, because they are, at some level, part of the flyover.

Speaker Change: And using that time to position.

Speaker Change: We're very folk were more focused on bottom line than top line.

Speaker Change: But to position the business in a place where we are successful in and adjusted.

Speaker Change: Adjusted EBITDA positive and ultimately cash flow positive.

Speaker Change: In any environment so.

Speaker Change: <unk>.

Speaker Change: So they really do go hand in hand, when we get there.

Speaker Change: And.

Speaker Change: We're always going to do we're always going to do better top line, especially with the cash offer but but all of the asset light services as well because.

Speaker Change: They are.

Speaker Change: At some level part of the flywheel, we're always going to do better when when there is a higher volume market. We're not in we're in a very low volume market. So we are.

Speaker Change: We're taking this time to to positioning ourselves right for any market and that's going to play into.

Speaker Change: Our ability to participate down the road.

Speaker Change: Great. Thank you both.

Speaker Change: Thanks.

Unknown Executive: Our next question comes from Ryan Tomasello with the company Stifel. Ryan, your line is not open.

Speaker Change: Our next question comes from Ryan Tomasello with the company Stifel. Brian Your line is now open.

Speaker Change: Yeah.

Brian Bair: Hi, everyone. Thanks for taking the question. I was hoping, Brian, you could provide some color on the dispersion of performance you're seeing across your footprint. Obviously, pretty volatile period for housing right now. Any markets that stand out? In terms of more, more notable slowing trends, on rising inventory price cuts, etc. And conversely, any markets that are, you know, bucking these trends on the slowdown that you're more active

Ryan Tomasello: Hi, everyone. Thanks for taking the questions.

Ryan Tomasello: I was hoping Brian you can provide some color on the dispersion of performance youre seeing across your footprint.

Ryan Tomasello: Obviously.

Speaker Change: The volatile period for housing right now.

Speaker Change: Any markets that stand out.

Speaker Change: In terms of more normal more notable slowing trends.

Speaker Change: Rising inventory price cuts et cetera, and Conversely, any any markets that are bucking the trends on the slowdown that you are more active in.

Brian Bair: Yes. Hey, Ryan, in the Florida markets, there's a lot going on in Florida right now. Obviously, there's literally a hurricane happening today, but insurance costs are going up their affordability, you know, as it was already stressed, and having any more costs in there with insurance costs is adding some pressure to that market. So we're seeing more supply happening in markets like Tampa, Jacksonville, and Orlando in those markets.

Speaker Change: Yes.

Ryan Tomasello: Hey, Ryan.

Ryan Tomasello: The Florida markets Theres, a lot going on in Florida, right now obviously, there's literally right now there's there's hurricane happening today, but.

Speaker Change: Insurance costs are going up there affordability.

Speaker Change: As it was already stressed and have it any more costs in there with <unk>.

Speaker Change: Insurance costs as adding some pressure to that market. So we're seeing more supply happening in markets like Tampa, Jacksonville, Orlando and those markets.

Brian Bair: You know, we are seeing, and I would say also in Phoenix, you know, everything is, you know, we like what we're seeing on the mortgage side today with some of the mortgage rates coming down because the markets that have been stressed the most with affordability, even a 25 basis or 50 basis point mortgage drop, which allows a buyer that couldn't afford a house maybe to now afford a house. And so I would say the Florida markets and Phoenix have been impacted by affordability, and we're seeing slower buyer demand in those markets overall, and more inventory hitting the market.

Speaker Change: We are seeing.

Speaker Change: And I would say also in Phoenix everything is.

Speaker Change: We like what we're seeing on the mortgage side today with some of the mortgage rates coming down because the markets that had been stressed the most with affordability, even at 25 basis or 50 basis point mortgage drop.

Speaker Change: And allow a buyer that couldn't afford the house maybe to now afford the house and so I would say, the Florida markets and Phoenix had been impacted by by affordability and we're seeing the.

Speaker Change: We're seeing more slower buyer demand in those markets overall with more.

Speaker Change: Inventory hitting the markets.

Speaker Change: I will tell you in some of the Houston, Mark Houston to market that.

Brian Bair: I will tell you in some of the Houston market, you know, Houston's a market that Indy, that's been a really good market, and that market stayed pretty consistent. But again, those are markets that didn't have the big spike that led to more affordability with price points either.

Speaker Change: <unk>.

Speaker Change: That's been a really good mark get them in that market stage.

Speaker Change: Consistent but again those are markets, we didn't have the big spike that led to more affordability with price point either.

Speaker Change: So, but overall I would just tell you you are seeing inventory more more sellers, putting their home on the market more and more sellers testing the market putting their home on the market test it for 30 or 60 days to see if they can get the price that they want.

Brian Bair: But yeah, so, but overall, I would just tell you that you are seeing inventory, more sellers putting their home on the market, more sellers testing the market, putting their home on the market for 30 or 60 days to see if they can get the price that they want and then pulling the home back off the market. And then, in lieu of, and I mentioned this in the remarks, we're seeing more buyers reach out to us first.

Speaker Change: And and then pulling the pulling the whole back off the market and then in in lieu of late and I mentioned this in the remarks, we're seeing more buyers reach out to us first.

Brian Bair: And as markets start to slow or you start seeing buyer demand, of course, we're a buyer. And so they reach out to us. So you're seeing our request activity. You're seeing more of our agent partners reach out to us for offers. And so we're staying very, very disciplined right now in what we're willing to pay for a home and focused on where we're buying and our buy box overall.

Speaker Change: And <unk>.

Speaker Change: As markets start to slow or you start seeing.

Speaker Change: Buyer demand of course, we're a buyer and so they reach out to us at your C&I request activity Youre seeing more of our age and more of the agent partners reach out for us for offers and so.

Speaker Change: But we're staying very very disciplined right now and what we're willing to pay for a home.

Speaker Change: And that and focused on where we're buying in our buy box overall.

Speaker Change: It has.

Speaker Change: And the other part that I just touched on that too Ryan is that.

Brian Bair: And the other part that I just mentioned, Ryan, is that there's talks this morning about recessions and those things, and people still buy and sell homes in transactions and transact real estate in recessions. And so we're watching all of that closely and expecting, similar to what we're seeing now, 4 million units moving through a year.

Speaker Change: Theres talk this morning on recessions and those things and people still buy and sell homes in transactions.

Speaker Change: And transact real estate in recessions and so we are we're watching all of that closely.

Speaker Change: Expecting similar to what we're seeing now 4 million units moving through the year.

Brian Bair: Great, appreciate all that color, Brian. And, you know, you mentioned that asset light services were around a third of total transactions in the quarter. I think it was a bit higher last quarter. If we do, in fact, see the market shift more to a buyer's market in the coming quarters, which inclines you to be a bit more willing to take advantage of the cash offer product, do you see the Acid Light Services mix of transactions kind of peaking out here over the near term in this roughly one-third of transactions?

Speaker Change: Great appreciate all that color Brian you.

You mentioned I think asset light services were around a third of total transactions in the quarter I think it was a bit higher last quarter.

Speaker Change: If we do in fact see the market shifting more to a buyers market in the coming quarters, which incline you to be a bit more.

Willing to take advantage of the cash offer product.

Speaker Change: Do you see the asset light services mix of transactions kind of peaking out here.

Speaker Change: Over the near term in this roughly one third of transactions.

Brian Bair: And as a follow-up to that, any color you can give us on the, you know, sequential trajectory of acquisition volume into the third quarter and fourth quarter relative to the levels that you put up in the second quarter?

Speaker Change: And as a follow up to that any color you can give us on the sequential trajectory of acquisition volumes.

Speaker Change: For the third quarter and fourth quarter relative to the levels that you put up in the second quarter.

Brian Bair: I'll jump into the first and have Peter take the second there. Yeah, I think, you know, as you remember, from transaction levels overall, if you look at some of our long-term partners, the SFRs, they've been impacted by rates and some of the things that, you know, their transaction volume has been down as well. So I think as you start switching to a buyer, you see a buyer's market, and transaction levels pick up or there's more opportunity for other investors. I think you're going to see, in effect, other investors jump into the markets, which really helps our Direct Plus channel. And then, on the other side, the more homes they buy, the more homes they need to renovate.

Speaker Change: I'll I'll jump into the first and happy to take the second there, yes, I think as you.

Speaker Change: Remember from transaction levels overall, if you look at some of our long term partners to the <unk>.

Speaker Change: They've been impacted by rates and some of the things that their transaction volume has been down as well. So I think as you start switching to a biopsy of a buyer's market and transaction levels.

Speaker Change: Pick up or there was more there's more opportunity for other investors in there I think youre going to see an effect other investors jump into the market, which really helps our direct plus channel.

Brian Bair: And one of the things that that, you know, renovate, we're getting really good growth and what we're seeing now, but I believe we're just getting started there. Because as transaction volume picks up there, you're going to continue to grow as well. And so, especially with some of the new partners that we signed up, so I think that will be, I think that will be natural. And that's what's been difficult.

And then secondary to that the more homes, they buy them our homes I need to renovate and one of the things that debt renovate we're getting really good growth and what we're seeing now but I believe we're just getting started there because as transaction volume pick up there you are going.

Speaker Change: It continued to grow as well and so I'm, especially with some of the new partners that we signed up so I think that will be I think that would be natural and thats whats been difficult.

Speaker Change: This time as you look at the different channels in this market.

Peter Knog: And through this time, as you look at the different channels in this market, all of them, I believe, are at some of the lowest levels for scalability that we're going to see as we go. And when you start seeing the market at least doing something that's been a little bit in a freeze over the last year, you're going to start seeing all of those services start to increase, in my opinion, depending on what the market does.

Speaker Change: All of them I believe are at some of the lowest levels for for scalability that we're going to see as we go and when you start seeing the market the lease doing something thats been a little bit the freeze over the last year youre going to start seeing all of those services start to increase in my opinion, depending on what the what the market does so I think theres, an awesome opportunity there, but did you want to have.

Peter Knog: So I think there's an awesome opportunity there. But Pete, do you want to talk a little bit about that? Yeah, yeah, I just add that to get to the acquisition volume place. We are not planning on increased acquisition volume.

Speaker Change: Yes, I'd just add.

Speaker Change: And to get to the acquisition volume question.

Speaker Change: We are not planning on increased acquisition volume in fact.

Peter Knog: In fact, you know, as we've guided for the third quarter, we expect that to go down. But, of course, anything could happen. You know, we're not, nobody can predict the macro environment and the volume. So that could change, as I think you were sort of suggesting, Ryan, that could change if the markets change. But right now, we are, as we identified in the prepared remarks, more focused on our bottom line and our top line.

Speaker Change: As we have guided for third quarter, we expect that to go down.

Speaker Change: Of course anything can happen.

Speaker Change: Nobody can predict the macro environment and the volumes so that could change.

Speaker Change: As I think you're sort of suggesting Ryan that could change if the if the markets change.

Speaker Change: Right now we are yes.

Speaker Change: We identified in the prepared remarks, we are more focused on our bottom line than our top line and that's really the priority against that that we can be prepared to take advantage of top line.

Peter Knog: And that's really the priority, again, so that we can be prepared to take advantage of the top line as that comes. And then, and then as to the question around mix, that's going to move around. We are, we are beginning this quarter beginning to break out revenue between cash offers and our asset light services. So you're going to start to get more visibility on that. And I'm sure, you know, that will lead to more questions in the coming quarters. But the mix is going to those services, which are all relatively new at different stages, but relatively new.

Speaker Change: As that comes in.

Speaker Change: And as to the question around mix, that's going to move around.

Speaker Change: We are we are this this quarter beginning to break out revenue between cash offer and our and our asset light services. So youre going to start to get more visibility on that and I'm sure that will be two more questions in the coming quarters, but the mix is going to those services are all relatively new.

Speaker Change: <unk>.

Speaker Change: At different stages, but relatively new so.

Peter Knog: So, they are all growing quarter to quarter, and sometimes the dynamics are going to be a little bit different. And, then, depending on the volume, our cash offer volume may go up or down. So the mix of this quarter, we were thirty-four percent on transactions for the asset light business. And, and in the next quarter.

Speaker Change: So there's that.

Speaker Change: Are all growing.

Speaker Change: At quarter to quarter, and sometimes the dynamics are going to be a little bit different.

Speaker Change: And then depending on the volume our cash offer.

Speaker Change: Volume may go up or down to the mix of around <unk> and this quarter, we were at 34% on transactions for the asset light business and.

Speaker Change: Hi.

Speaker Change: And your next quarter.

Peter Knog: If I had to guess, it's probably somewhere in the same neighborhood, but the mix is going to shift as we shift between higher volume in the cash offer and growth across the asset. Yeah, and the one other thing I'll just add there: just as we talk about volume, you know, in moments like this, we are super focused on active inventory, it's much more important than pending and sold. And so, you know, we're, we're watching it very closely and where we're buying homes, how many active competing, you know, it's supply and demand.

Speaker Change: If I had to gas, it's probably somewhere in the same neighborhood, but the mix is going to shift.

Speaker Change: As we shift between higher volume and the cash offer in and growth across the asset light services, Yes, one other thing I'll just add there just just as we talk about volume in moments like this we are super focused on active inventory, it's much more important than pending and sold and so.

Peter Knog: If there's too much supply now, buyers or, you know, buyers can't afford that area. So we have been, we've been managing that really well. And, and we'll continue to do so. And so there are definitely pockets that we're more aggressive in that we want to buy more homes in. But then there's other pockets that right now we're just seeing inventory hitting the market at a pretty fast pace, and so we're going to slow down our acquisitions in those areas or sectors.

Speaker Change: We're watching it very closely and where we are buying homes, how many active competing supply and demand.

Speaker Change: If there's too much supply and that the buyers or buyers can afford that area.

Speaker Change: We have been we've been managing that really well and.

Speaker Change: And we will continue to do so and.

Speaker Change: So there's definitely pockets that were that were more aggressive and that we want to buy more homes in.

Speaker Change: But then theres other pockets that that right now, we just see inventory hitting the market.

Speaker Change: Ed Ed at a pretty fast pace and so we're going to we're going to slow down our acquisitions in those areas or pockets.

Unknown Executive: Our next question comes from Michael Ng with the company Goldman Sachs. Michael, your line is now open.

Michael <unk>: Our next question comes from Michael <unk> with the company Goldman Sachs. Michael Your line is now open.

Unknown Executive: Hi, good afternoon. Thank you for the questions. I just have two.

Michael <unk>: Hi, good afternoon, and thank you for the questions I just have two first on buyer commissions are you seeing any pressure on buyer commissions are you paying lower selling costs as a result, and then second.

Brian Bair: First on buyer commissions. Are you seeing any pressure on buyer commissions? Are you paying lower selling costs as a result? And then second, thank you for giving some disclosures on the ancillary services, $6.2 million in the quarter. What's the right way to think about margins on those ancillary services, year to date, but also in the long term? Thank you.

Speaker Change: For giving some disclosures on the ancillary services.

Speaker Change: $6 $2 million in the quarter, what's the right way to think about margins on.

Speaker Change: On those ancillary services.

Speaker Change: Year to date, but also in the long term. Thank you.

Brian Bair: Sure, I'll take the first Peter jump into the second. Yeah, as far as buyer commissions go, we have a little bit. It's, I would say, still too early to tell. You know, there's obviously a lot of noise in the industry. As I mentioned last time, I believe strongly that buyers are going to get used to dealing with the sellers directly. I think there's going to be a lot of change that happens in the industry over the next several months or years.

Speaker Change: Sure I'll take the first half Peter jump into the second yes, as far as buyer commissions, we haven't.

Speaker Change: I would say still too early to tell.

Speaker Change: There's obviously a lot of noise in the industry and as I mentioned last time I believe strongly that.

Speaker Change: Buyers are going to get.

Speaker Change: <unk> used to dealing with the sellers directly I think theres going to be a lot of change that happened in the industry over the next several months or years, but.

Speaker Change: But still too still too early to tell I think agents themselves are feeling things out.

Brian Bair: And, but it's still too early to tell, I think agents themselves are feeling things out. You know, we're launching instant access. Again, I mentioned before that we allow buyers to access our homes directly, and they can choose to submit an offer to us directly or choose to work with an agent. But it's too early to tell with what we're seeing with the commissions on that side of it. There's definitely a lot of noise out there. I think we'll have a lot more understanding probably next quarter of where a lot of these things are getting ready to take place. And so I will probably have a better update next quarter on that.

Speaker Change: Where we're at.

Launching instant access again, I mentioned that before that we allow buyers to access our homes directly.

Speaker Change: And they can choose to to smid and offered to us directly or choose to work with an agent but.

Speaker Change: Too early to tell with what we're seeing with the commissions on that side of it definitely a lot of noise out there.

Speaker Change: I think we'll have a lot more understanding probably next quarter of a there's a lot of these things are getting ready to take place and so probably have.

Speaker Change: Better update next quarter on that.

Peter Knog: Okay, then on margins on the asset light or ancillary services. I know James has gone through that in prior calls.

Speaker Change: Okay and then on.

Speaker Change: On margins on satellite or ancillary services I know James has gone through that in prior calls.

Speaker Change: But just to just to take you through it.

Speaker Change: The <unk>.

James Grout: Three major asset life services, or ancillary services or renovate direct plus and Max.

Peter Knog: But just to take you through it. The three major asset light services, or ancillary services, are Renovate, Direct Plus, and Max. Renovate is pretty straightforward to think about, right? It's our renovation business that we use both for our owned homes as well as for third party B2B business that's acquired to the business and utilizes our existing team. We charge a fee of anywhere from 20 to 30% for those services. Direct Plus is underwriting homes, but then closing with an institutional partner.

Speaker Change: Renovate is pretty straightforward to think about right.

Speaker Change: Our renovation business that we use both for our owned homes as well as for third party business, that's accretive to the business and utilizes our existing team.

Charge, a fee of anywhere from 20% to 30% for those services.

Speaker Change: Direct plus is is.

Speaker Change: Selling is underwriting homes, but then.

Speaker Change: In closing with an institutional partner.

Peter Knog: And so we don't balance our books there, and there's a fee for that service that you should think about as very high, 90 plus percent. And then there is MAX, which is part of our agent partnership program, where we send leads to agents for homes that are either outside of our buy box or not in our region or otherwise aren't going to our cash offer. And that's also a very high margin. It's a combination of subscription as well as a referral fee. And think about that as 90 plus percent.

Speaker Change: And so we don't balance sheet, there and there is a fee for that service that you should think about.

Speaker Change: As you know very high 90 <unk>.

Speaker Change: Percent.

Speaker Change: And then for Max which is part of our Asian partnership.

Speaker Change: Program, where we send leads to agents for homes that are outside of our buy box or not in our region of our other otherwise aren't going to our cash offer.

Speaker Change: And that's also very high margin, it's a combination of subscription as well as that.

Speaker Change: A referral fee.

Speaker Change: Think about that is 90 plus percent.

As well.

Unknown Executive: Great. Thank you, Brian. Thank you, Peter.

Speaker Change: Great. Thank you Brian Thank you Peter.

Speaker Change: Thanks.

Unknown Executive: Our next question is from John Colantuoni, with the company Jefferies. John, your line is now open.

Speaker Change: Our next question. Our next question is from John.

Speaker Change: Colin Tony with the company Jefferies. John Your line is now open.

Unknown Executive: Great, thanks for taking my questions.

Speaker Change: Great. Thanks for taking my questions.

Brian Bair: It looks like home price appreciation is beginning to moderate, and Brian, you also mentioned markets shifting to a buyer's market. You know, given you're holding homes for about 100 days, I'm curious how you plan to adjust to home price appreciation moderating back towards historical averages while interest rates still remain elevated.

Speaker Change: Looks like home price appreciation is beginning to moderate.

Speaker Change: Also mentioned market to a buyers market.

Speaker Change: Given you are holding homes for about 100 days I'm curious, how you plan to adjust to.

Speaker Change: Home price appreciation moderating back towards historical averages while interest rates still remain elevated.

Brian Bair: That's question one. And the second one, regarding Powered by Offerpad, can you describe the key use cases for agents, and what's the ultimate goal for the portal? It seems to offer some similar tools that the MLSs do, so I'm curious if that means you'll be abiding by all the restrictions on cooperative compensation that's outlined in the NAR settlement. Thanks.

That's question, one and the second one.

Speaker Change: About regarding powered by <unk>.

Speaker Change: Can you describe the key use cases for agents.

Speaker Change: Ultimate goal for the portal it seems to offer some similar tools that the MLR is due so I'm curious if that means you'll be abiding by all the restrictions on pocket of compensation that's outlined the NAR settlement.

Brian Bair: Yeah, I'll take the second question first. Yeah, with Powered by Offerpad, you know, the idea is to improve efficiency. And, you know, a lot of the technologies that are out there existing today are not meant for an iBuy or R model; they're meant for more traditional real estate. So for something like Powered by Offerpad, to have a traditional agent being able to integrate in with Offerpad, which we call our Helix system, that gives customers real-time cash offers and, and even some rental data and data in that market, for the agent to be able to communicate on that, and even as for us to understand what the agent is doing in real time, meeting with the customer, and be able to track that.

Speaker Change: Yes.

Speaker Change: I'll take the second question first yes with powered by offer pad the ideas with efficiency in that.

Speaker Change: A lot of the technologies technologies that are out there existing today.

Speaker Change: Not meant for ni by RR model. They are met for more traditional real estate so to for something like powered by offer pad to have a traditional agent being able to.

Speaker Change: To integrate in with off offer pad, which we call our helix system that gives customers the real time cash offers in and.

And even some rental data and data in that market for the agents be able to communicate on that and even as and for us to understand what the agent is doing in real time meeting with the customer.

Speaker Change: And being able to track that so.

Speaker Change: That's something that we.

Brian Bair: So that's something that we've been working on for a while, and the idea is efficiencies and communication and, ultimately, it's to make sure that we're very, very proud of our customer satisfaction. And, and, and when customers use Offerpad, how happy they are with our service, to make sure when we when we put somebody else in there with a real estate agent, we, we hold them to the same expectations and be able to track their, how they're treating the customer, even real-time surveys and some different, different things.

Speaker Change: <unk>.

Speaker Change: We've been working on for a while.

Speaker Change: But the idea is the efficiencies and the communication and an old ultimately it's to make sure. We're very very proud of our customer satisfaction and.

Speaker Change: When customers used offer pads, how happy they are with our service to make sure when we when we put somebody else in there with a real estate agent, we hold them to the same expectations and be able to track there.

Speaker Change: How they are treating the customer even real time surveys and some different different things as we continue to evolve.

Brian Bair: As we continue to evolve, and also watch our disposition data on that as well, so communication efficiency is key and making sure the customer gets the same experience, and they get real-time data.

Speaker Change: And also watching our disposition data on that as well so.

Speaker Change: Communication efficiency is key and making sure the customer gets the same experience.

Speaker Change: And they get they get real time data.

Speaker Change: As far as I'm, sorry, what was remind me again.

Brian Bair: As far as sorry goes, what did that remind me of? Yeah. Oh, yeah. Sorry.

Speaker Change: Oh, yes, sorry on the home price appreciation listen for the last couple of quarters, we have not been underwriting any home price appreciation and there we have been very very.

Brian Bair: On home price appreciation. Listen, for the last couple quarters, we have not been underwriting any home price appreciation in there. We have been very, very, you know, and a lot of underwriting goes into the assumptions you make. It's not just ROI or service fees; it's the assumptions you're going to make about how long you're going to hold that. If there are five, five comparables in the area, are you top of market, mid market, or lower of those comps when you underwrite what you think you can sell that home for.

Speaker Change: A lot of underwriting goes into the assumptions you make it's not just ROI.

Speaker Change: Our service fees Thats, the assumptions youre going to make how long youre going to hold that.

Speaker Change: There's five five comparable in the area are your top of market mid market or lower of those comps. When you underwrite. What you think you can sell that home for so those are all things that we've integrated in the last couple of quarters, and Thats, where youre going to see some of our some of the volume and like you said, we're staying disciplined and what's happening because it's all that and when I say, that's all very very market specific.

Brian Bair: So those are all things that we've integrated in the last couple quarters, and that's where you're going to see some of our volume. And like you said, we're staying disciplined and what's happening because it's all we and when I say that it's all very, very market specific, but I don't believe there's any market that we've been underwriting at any type of home price appreciation. And for the last little bit, even though I know it's up 4% year over year, but we've been saying, especially when we've seen inventory hitting the market, we've stayed very disciplined on making sure when we buy a home, we can buy it renovated and sell it.

Speaker Change: But I don't believe theres any market that we've been underwriting it at any.

Speaker Change: Any type of home price appreciation and for the last little bit, even though I know, it's up 4% year over year, but.

Speaker Change: We have been stained especially when we've seen inventory hitting the market. We stayed very disciplined on making sure when we buy a home we can buy renovate it and sell it also that as inventory starts hitting the market. We wanted to make sure that we're spending a little bit more money on some of the renovations so our home.

Brian Bair: Also, as inventory starts hitting the market, we want to make sure that we're spending a little bit more money on some of the renovations. So our home, So that's really what we're focused on. And but we've, we've really been more conservative with the home price appreciation side for the last couple quarters.

Speaker Change: So that's really what we're focused on.

Speaker Change: But so we've really been more conservative with the home price appreciation side for the last couple of quarters.

Peter Knog: Yeah, I just add wider margins. I mean, there's two things that we're really focused on right now in this period that we're in. It's wider spreads, given the lower volumes and cost efficiencies. And so we're certainly not, as Brian mentioned, relying on appreciation to drive our model in any way. We're pretty far away from that. I'd also point out that our impairment this quarter was $500,000, which is almost a rounding error, which I point to again because I think it reflects the discipline and patience that we're taking with the market and not driving the business just for volume. Yeah, you know, this is the easy part; we want to buy a road, debate it, and sell it at a profit.

Speaker Change: Yeah, I would just add wider spreads.

Speaker Change: Two.

Speaker Change #100: Two things that we're really focused on right now in this period that we're in it's wider spreads.

Speaker Change: Given the lower volumes.

Speaker Change #101: And cost efficiencies and so.

Brian Bird: So we're certainly not as Brian.

Brian Bird: Mentioned, we're certainly not relying on an appreciation to.

Speaker Change #102: To drive our model in any way, we're pretty far away from that I'd also point out that our impairment. This quarter was 500000, which is almost a rounding error, which which again I point to because I think it reflects the discipline.

Speaker Change #102: And patients that we're taking with the market and not and not driving the business jets for volume.

Speaker Change #102: Yes.

Brian Bair: This is the easy part. We want to buy, renovate, and sell them for a profit. So that's what we've been focused on. And, you know, when I mentioned this in the prepared remarks, but one of the sweet spots is really, really good areas. Good areas, established schools, good areas, those close to a lot of amenities where we can buy a home that's a little bit older, renovate that home, add value to that home, and put it on the market again at a better price. That's been a really good sweet spot for us as well.

Speaker Change #103: Is the easy part, we want to buy renovate and sell them at a profit. So that's what we've been that's what we've been focused on and when and I mentioned this in the prepared remarks, but one of the sweet spot is really really good areas.

Speaker Change #103: Good with strong established schools good areas those kind of add.

Speaker Change #103: Close to a lot of amenities that we can buy a home that is a little bit older renovate that home add value to that home it put on the market.

Again at a better product.

Brian Bair: Also, staying away from outlying areas. We're seeing inventory mount up in a lot of the outside areas, any of the commute time areas. In almost every market, you're seeing a lot of inventory add up there. So we're buying more interior right now and staying disciplined in what we're going to pay for and then, obviously, focusing on our other asset light services.

Speaker Change #103: That's been that's been.

Speaker Change #103: A really good sweet spot for us as well also stayed away from outlying areas, we're seeing inventory Mount up and a lot of the outside areas in.

Speaker Change #103: Any of the commute time areas.

Speaker Change #103: Almost every market youre seeing a lot of inventory add up there so.

Speaker Change #103: We're buying more interior right now and it's staying disciplined on what we're what we're going to pay and then obviously focusing on our other asset light services.

Speaker Change #104: Thanks, so much.

Thanks.

Unknown Executive: Our next question comes from Day Lee with the company J.P. Morgan. Day, your line is not open.

David <unk>: Our next question comes from David <unk> with a company J P. Morgan.

Speaker Change #106: Your line is now open.

Unknown Executive: Great. Thanks for taking the question. And apologies; I have some phone issues, so these questions might have been answered already.

David <unk>: Great. Thanks for taking the question I apologize I had some phone issues.

Unknown Executive: But first of all, Peter, could you clarify what you mean by sequential improvement in the sales study design in your 3Q guide? Is that on an absolute basis or on a margin basis? And do you anticipate gross margins improving as well? And then, I guess more broadly, you saw a healthy improvement in net sales proceed percentage. But curious, like how much of that is driven by better targeting of homes that Brian just talked about? And how much of that is driven by maybe renovation contributing more or even more on your spreadsheet?

Speaker Change #107: So that might have been answered already.

Peter Maag: Peter could you clarify what you mean by sequential improvement.

Speaker Change #108: Is that on an absolute basis.

Speaker Change #108: <unk> basis.

Speaker Change #109: We anticipate gross margins in person as well.

Speaker Change #108: I guess more broadly.

Speaker Change #108: Healthy in Brooklyn.

Speaker Change #111: Sales proceeds percentage, but curious how much of that is driven by better targeting on homes that Brian just talked about and how much of that is driven by renovations are getting more or more.

Speaker Change #111: The quarter at this point.

Speaker Change #111: Alright.

Speaker Change #112: I heard the first the second part of the question that net net proceeds improvement can you repeat the first question.

Peter Knog: Sorry, so I heard the first and second part of the question that net net proceeds improvement. Can you repeat the first question?

Speaker Change #113: Yes. The first one is I was hoping if you can clarify what you mean by sequential improvement in adjusted EBITDA in your career.

Speaker Change #114: Absolute basis or on the margin basis, and if that assumes gross margin within broken out as well.

Unknown Executive: Yeah, the first one is, I was hoping you could clarify what you mean by sequential improvement and adjust that in your 3Q guide, on an absolute basis or on a margin basis, and if that assumes gross margins.

Speaker Change #116: Yes sure.

Speaker Change #115: It doesn't necessarily.

Speaker Change #114: Assume.

Speaker Change #114: Yeah.

Speaker Change #116: Gross margin improvement, but but it probably is.

Speaker Change #116: We probably will see gross margin improvement the most important.

Peter Knog: Yeah, sure. It doesn't necessarily assume gross margin improvement, but we probably will see gross margin improvement. The most important focus there is getting first to adjusted EBITDA positive and then second to cash flow positive, contribution profit, and then cash flow positive. So we are doing that.

Speaker Change #116: The focus there is is getting first to EBIT adjusted EBITDA positive and in second.

Speaker Change #116: And then second to cash flow positive contribution profit and then cash flow positive.

Peter Knog: Really, two major levers are driving that. One is expanding margins, but also two, cost efficiency. So it just depends on the mix between those two, but we're going to see expanding margins sequentially, quarter over quarter, and we're going to see continued cost efficiency. So we had $70 million in 2023 that came out of the business. We're seeing a run rate of $35 million coming out of the business already this year, and there's more to come on that. We have more wood to chop on that, and there will be more conversations around that and more information around that as we get into next quarter. [inaudible]

Speaker Change #116: So we are doing that really to average two major levers are driving that one.

Speaker Change #116: Standing margins.

Speaker Change #116: But also to cost efficiencies. So it just depends on the mix between those two but but we're going to see expanding margins sequentially quarter over quarter, and we're going to see continued cost efficiencies. So we we.

Speaker Change #116: We had $70 million in 2023 that came out of the business. We see we're seeing a run rate of $35 million coming out of the business already this year and there's more to come on that we have more wood to chop on that and there's going to be more conversations around that and more information around that.

Speaker Change #116: After.

Speaker Change #116: As we get into next.

Next quarter.

Speaker Change #116: And then in Africa.

Speaker Change #116: <unk>.

Speaker Change #116: I think.

Speaker Change #118: Oh go ahead.

Unknown Executive: No, go ahead. I'll let you finish.

Speaker Change #119: No go ahead I'll, let you finish.

Unknown Executive: Yeah, look, I mean, I think I sort of answered that sales proceeds question where we have [inaudible]

Speaker Change #119: Yes look I mean, I think I think I sort of answered in net sales.

Speaker Change #120: Proceeds question, where we had we have expanding margins across our products.

Speaker Change #120: Both with the asset light services growing and then on top of that with with our with our.

Speaker Change #120: Higher ROI on a cash offer.

Speaker Change #120: We're moving towards higher net proceeds.

Brian Bair: Got it. Thank you. And then, I guess as a follow-up, maybe this one for you, Brian. On Friday, MACA and Fannie Mae seemed like a big win for RenovAID. So just wondering how you're looking to work with them and if that's any different versus your existing partners and how that partnership could wrap over time. Yeah, we're excited about that.

Speaker Change #121: Got it. Thank you and then I guess as a follow up.

Speaker Change #120: Maybe this one for you Brian.

Speaker Change #122: Friday back on Fannie Mae things like a big one for renovation. So just wondering like how you are looking to work with them.

Speaker Change #123: And the difference.

Speaker Change #124: So as your existing partners on like how that partnership Carrabba's overtime.

Brian Bair: Yeah, we're excited about that. You know, obviously, they're both high volume clients, even in this, in this market, and what is great about them is we can expand into new markets without having our express or cash offer business in those markets. And so, as we expand into some different markets, we can actually grow in them. They're a great example. We can actually go into a market led by our renovation business and have our other services follow that. And so, you know, the other things that you know, they're, they're high dollar renovations as well. So they take a little bit more time.

Brian Bird: Yes, we're excited about that you know obviously, there theyre both high volume clients even in this even in this market.

Brian Bird: Things that are where the great about them as we can expand markets without having our express our cash offer business in those markets and so as.

Brian Bird: As we expand into some different markets.

Brian Bird: So we can actually grow in.

Brian Bair: But you know, with our boots on the ground and efficiencies and things, they see a lot of a lot of value in what we're seeing there as well. And especially, you know, with the ground game and the real estate knowledge that we have, and how to repair those homes, it helps as well. So those are two customers we're very, very excited about. You know, we've, like I mentioned a little bit earlier, we're signing up new customers. I want to say almost every day, but I don't want to be overdramatic about it.

Brian Bird: They are a great example, we can actually go into a market led by our renovation business and have other our other services follow into that and so.

Brian Bird: The other things that they're they're at high dollar renovations as well so they take a little bit more time.

Brian Bird: But with our with our boots on the ground in efficiencies and things they see a lot of a lot of value in what we're seeing there as well.

Brian Bird: And this is with the ground game in the real estate knowledge that we have and how to how to repair those homes helps as well. So those are two two customers.

Brian Bair: But but We're signing up a lot of renovation customers. And, you know, we like to say, hey, put us side by side with anybody you're using now, and watch our efficiencies. Because, you know, it's just different when you're doing renovations on your own behalf. On the Offerpad side, like a lot of our teams on the ground, project managers, foremen, those that are the people that are employees of Offerpad, in some cases, they don't know the difference if it's an Offerpad house or one of our partners that we work with.

Brian Bird: Very excited about.

Brian Bird: Like I mentioned, a little bit earlier, we're signing up renovate customers.

I would say almost every day I don't want to be overdramatic with it but we're signing up a lot of renovate customers and now we would like to say hey put a side by side with anybody you're using now.

Brian Bird: Watch our efficiencies because it's just different when you're doing renovations on your own behalf on the offer Pat side makes a lot of our teams on the ground.

Brian Bair: And so they get the same cost and efficiency and value of our ground game. And so we continue to expand that, especially with kind of the side by side challenge that we do with with some of our partners there and continue to take more and more of that lucrative business from them. So we're very excited about that, and as we kind of mentioned before, something that Ryan asked is that, No, we're seeing a little bit of loosening on the SFR side, not a lot, but just a little bit of loosening there.

Brian Bird: Project managers Forman those the people that are employees of offer pad in some cases, they don't know the difference if it's an offer Pat house or or one of our partners that we work with and so they get the same cost and efficiencies and value of our ground game.

Brian Bird: And so we continue to expand that especially with kind of the side by side challenge that we do with with with some of our partners there and continue to take more and more of that that renovate business from them. So we're very excited about that.

Brian Bird: And as we've kind of mentioned before something that Ryan asked is that.

Ryan Tomasello: No, we're seeing a little bit of loosening in the sapphire side, not a bunch, but just a little bit of loosening there.

Brian Bair: And, you know, they're having trouble with yields and different things of trying to buy and, you know, trying to acquire homes in this environment as well as with affordability and some of the other things, but seeing a little bit of loosening there. So Anyway, so we're on the asset light side. I think overall we're going to see some of those things turn on and continue to grow and scale even faster than what we're seeing now.

Ryan Tomasello: And they are having trouble with yields and different things are trying to buy in.

Ryan Tomasello: You know trying to acquire homes in this environment as well with affordability in some of the other things, but seeing a little bit of loosening there. So.

Ryan Tomasello: So anyway, so we're in the asset light side.

Ryan Tomasello: Overall, we're going to see some of those things turn on and.

Speaker Change #125: <unk> continued to grow in scale.

Speaker Change #125: Even faster than what we're seeing now.

Speaker Change #126: Sounds good thank you.

Speaker Change #126: Okay.

Unknown Executive: At this time, that will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.

Speaker Change #127: At this time that will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.