Q4 2024 Offerpad Solutions Inc Earnings Call
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Speaker Change: Good afternoon, and welcome to offer pads fourth quarter 'twenty 'twenty four earnings call I'm joined today by offer pets, Chairman and Chief Executive Officer, Brian There to Chief Financial Officer, Peter cannot.
Speaker Change: During the call today management will make forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements are inherently uncertain and events could differ significantly from management's expectations.
Speaker Change: 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: As required by applicable law offer pad does not intend to update or alter our forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: On today's call management will refer to certain non-GAAP financial measures.
Speaker Change: These metrics exclude certain items discussed in our earnings release under the heading non-GAAP financial measures.
Brian There: The reconciliation of <unk> non-GAAP measures to the comparable GAAP measures are available in the financial tables of the fourth quarter earnings release on <unk> website with that I'll turn the call over to Brian.
Brian There: Thank you Courtney and thank you all for joining today.
Brian There: In the fourth quarter, we exceeded the midpoint of our revenue guidance driven by a well balanced mix of offerings are.
Brian There: Our cash offer program performed well alongside our asset light services, including the BW renovate business, the direct plus higher program and the agent partnership program.
Brian There: This success came despite broader market challenges like historically low residential resale volumes down almost 40% from the pandemic highs affordability constraints and shifting industry Commission structures.
Are these conditions, we remain focused on delivering real estate solutions for consumers and partners, while making meaningful progress towards building a sustainable long term business.
Brian There: Some key highlights from the quarter include continued growth in the asset light services, which are becoming an increasingly important revenue stream.
Brian There: The expansion of our agent partnership program driving agent engagement, and increasing transaction volume, while helping improve CAC by over 45% year over year.
Brian There: And improved operating efficiency, leading to cost savings and supporting contribution margins.
Brian There: These trends are positioning us well to achieve adjusted EBITDA profitability, while ensuring financial sustainability across different market conditions.
Brian There: Our efforts remain centered on expanding high margin revenue streams, optimizing operations and managing resources effectively to support growth.
Brian There: Meanwhile, enhancements in our product and processes have increased efficiency and have us poised to quickly scale the business as the market recovers.
Brian There: Over the past two years and specifically in recent quarters, returning to positive earnings and cash flow has been our key objectives.
Brian There: Given the market's trajectory, we adjusted our approach by one diversifying revenue beyond our core cash offer business.
Brian There: Great stability across all market cycles.
Brian There: Two refinery and acquisition strategies to ensure disciplined inventory management with strong return objectives.
Brian There: And finally by optimizing our cost structure to leverage operational efficiencies and strengthen profitability.
Brian There: These strategic approaches have made offer Pat a more agile and efficient organization.
Brian There: Hi, moderating acquisition volumes, we maintained our high quality inventory portfolio, while expanding our asset light services, which have delivered stable contribution margin beyond our foundational business.
Brian There: As a result, we improved unit economics reduced overhead costs and positioned ourselves to scale profitably even in lower transaction volume environment.
Brian There: Looking ahead, we are strategically expanding our buy box criteria to capture increased market activity focusing on acquiring high potential homes in specific areas. We are ramping towards 1000 acquisitions per quarter, optimizing our portfolio, while improving margins.
Brian There: Further support our growth and maximize opportunities we are actively exploring options to raise additional capital this will enhance our financial flexibility, allowing us to scale acquisitions and other business line transactions as the market strengthens and to position ourselves for long term success.
Brian There: As mentioned in the previous quarter, we've enhanced how we deliver offers and engage with sellers.
Brian There: This advancement is powered by offer pads citrus value pricing technology, which leverages years of real estate data market trends and machine learning to generate offers.
Brian There: By analyzing hundreds of thousands of home price related data points and real time market conditions citrus value enables us to provide customers with an estimated offer range within minutes and the ability to schedule a home inspection immediately.
Brian There: The momentum from our Q4 launch has continued into quarter, one increasing customer engagement and conversion rates.
Brian There: In January alone, we earned nearly 200 living rooms, an increase of almost 40% from a rollout in November.
Supported by more effective advertising, we are seeing steady request volume and maintaining a strong 95% customer satisfaction score.
Brian There: This streamlined approach reduces touch points and gives us greater control over timing and decision making.
Alongside these improvements our agent partnership program continues to exceed expectations.
Brian There: <unk> strengthened our acquisition strategy and lowering CAC.
Brian There: The pro tier, which allows agents to earn up to 4% on a successful acquisition and listings has been a key driver of growth leading to a 46% increase in quarterly requests year over year as a result acquisitions through the programme now account for 45% of our total acquisition reinforcing its positive.
Brian There: On our business.
Brian There: In addition, our <unk> renovate business remains a strong revenue driver benefiting from our experienced teams and refining processes.
Brian There: Despite some renovate partners operating at reduced levels, we delivered another strong quarter, completing 187 projects and generated over $4 million in revenue.
Brian There: For the full year offer pad renovate generated $18 million in revenue up 49% year over year.
Brian There: Notably our average revenue per renovation increased from $11000 over $22000, reflecting our expanded service offerings and new plan Onboarding as we scale, we can do to add partners of all sizes and types from institutional investors to local operators.
Brian There: Overall, we remain focused on our strategic priorities and are optimizing the business by diversifying our revenue mix and improving operational efficiency with that I'll turn the call over to Peter.
Peter Cannot: Thank you Brian.
Peter Cannot: Over the past few months, we have concentrated on business improvements, including cost efficiencies and process enhancements are refined offer process has accelerated response times driving higher customer engagement and inspection volume. These efforts are aligned with our ongoing focus on optimizing margins and cost structures to ensure our financial resilience.
Peter Cannot: In varying market conditions.
Peter Cannot: At the end of the fourth quarter, we had 677 homes in inventory was 22% owned for over 180 days and not under a contract for resell.
Peter Cannot: Our strategy of acquiring fewer homes at higher margins remained in place aligning with seasonal trends and market dynamics.
Peter Cannot: During Q4, we acquired 384 homes, a 9% decline compared to Q3 in line with our approach to inventory management, However, driven by our process improvements on our cash off of our products, we increased acquisition activity towards the quarters and to prepare for anticipated demand in 2025.
Peter Cannot: While the cash off of our business remains a key driver of contribution margin asset light services, including renovate drag plus and our agent partnership program contributed over 33% of total contribution profit after interest in 2024, we anticipate continued momentum in these areas moving into 2025.
Peter Cannot: Fourth quarter revenue totaled 174 million landing in the upper half of our guidance range with 503 homes sold year over year revenue declined 28% in homes sold decreased 29%, primarily due to a strategic reduction in acquisition pace earlier in the year.
Peter Cannot: The loss for the quarter was $17 3 million a decrease of 12% year over year.
Peter Cannot: For the full year revenue was $919 million, reflecting a 30% decrease from 2023.
Net loss totaled $62 million, representing a 47% or $55 million improvement compared to the previous year.
Peter Cannot: These improvements resulted from business performance enhancements and cost management initiatives.
Peter Cannot: Sold in Q4 at an average time to cash of 142 days consistent with expectations following acquisition adjustments in the second half of the year.
Peter Cannot: We anticipated a temporary increase in this metric in Q1 before decreasing in Q2 as acquisition and sales cycles normalize.
Peter Cannot: Gross margin for the quarter was six 1% of gross profit at $10 6 million for the full year gross margin was seven 9% or 47% improvement from the prior year.
Operating expenses, excluding property related costs totaled $18 2 million, reflecting a $1 1 million sequential improvement and a $2 9 million year over year reduction before by improved advertising efficiency Aegean partnership program expansion and cost management efforts.
Peter Cannot: Through our relentless focus on cost efficiencies, we're taking big steps towards profitability.
Peter Cannot: After lowering annual operating expenses by nearly $70 million in 2023, we continue to make excellent progress in 2020 for removing $44 million of additional cost.
Peter Cannot: You should expect the cost improvements to continue into 2025, as we maintain focus on cost and process efficiencies.
Peter Cannot: Adjusted EBITDA loss for Q4 was $11 5 billion decreasing $5 3 million sequentially.
Peter Cannot: Full year adjusted EBITDA loss was $29 2 million, a $53 million or 65% improvement over 2023.
Peter Cannot: As of the quarters and unrestricted cash totaled $43 million with total liquidity exceeding $85 million by incorporating the net value of our carried inventory.
The acquisition volumes rise, we expect to increase leverage using our asset back facilities, while maintaining a strong financial position.
Peter Cannot: Additionally, the potentially enhance our capital position and market opportunities, we have begun to engage in capital market discussions beyond our core asset back facilities partnerships.
Peter Cannot: Looking ahead, we expect first quarter revenue to be in the range of $150 million to $170 million with 450 to 500 homes sold.
We also anticipate achieving slightly better adjusted EBITDA as we continue focusing on operating leverage.
Peter Cannot: As we enter 2025, we remain focused on increasing acquisition activity, maintaining cost discipline and positioning offer bad for long term stability and growth.
Peter Cannot: Thank you we will now open the call for questions.
Peter Cannot: At this time, if you'd like to ask a question. It is star followed by one on your telephone keypad. If for any reason you would like to remove that question. It is star followed by two again to ask a question. It is star one.
Peter Cannot: Reminder, if youre using a speakerphone please pick up your handset before asking your question I'll pause briefly here those questions are registered.
Peter Cannot: Our first question comes from John <unk> with the company Jefferies. John Your line is now open.
Peter Cannot: Thanks, so much for taking my questions maybe.
Peter Cannot: Maybe starting with expanding the buyback by box can you provide more detail on how youre adjusting the buybacks and the systems and talk a little bit to the systems and processes that you've instituted that help give you confidence that you can grow faster while also contributing.
Peter Cannot: Continuing to build on improved unit economics.
Peter Cannot: And second you spoke to simplifying certain elements of the offer process to make it more seamless for consumers to receive offers and scheduled inspections. Maybe you can just provide a little bit more context into what exactly youre going to be doing there. Thanks.
Peter Cannot: Sure Awesome, So I'll start with the first question Hey, John.
Peter Cannot: <unk>.
Peter Cannot: As far as expanding the buy box what we're doing is basically moving up in price and price point price range, obviously very market specific.
Peter Cannot: Think about this market and the dynamics when we first really started the transition happen.
Peter Cannot: We are in the median home price or lower really focused on that what's interesting is it's really difficult for first time homebuyers right now to get into a home and because of the affordability and so what we've done as we move to buy box off and really expanded at where we were really focused around the two to maybe 500 price point now we're really into the.
Peter Cannot: The $2 50 to maybe six to 700 price point on the market.
Peter Cannot: <unk> that allows us to find buyers that are coming out of another sale.
Peter Cannot: And moving their equity from warehouse to another so that's been that's been really important.
Peter Cannot: And the other the other question you asked actually really ties into the first one and so what we what we've done is really enhanced the cash offer process. So with the new process now when customers.
Peter Cannot: Ill get into our onto our website they tell us about their home they'll get a price range within minutes and then they can schedule their inspection instantly and so what that also does is as they schedule their inspection will get out to their house within just a few days, but also gives us more visibility to exactly what we were buying.
Peter Cannot: It allows us to even go up more.
Peter Cannot: To a higher price point, which really helps as well, but also it allows us face to face in the living room to talk to the customer about our other products and so if a cash offer.
Peter Cannot: Offered doesn't work for them for whatever reason, we can give them options to list their home as well and so customer engagements. So far has been really strong really finding the seller where where they are in the process.
Peter Cannot: Thanks, so much.
Speaker Change: Our next question comes from Nick Jones with accompanying JMP. Nick Your line is now open.
Yeah.
Speaker Change: Hi, This is Luke on for Nick Thanks for taking our questions I guess, just with the 1000 per month acquisition target how should we think about that ramp throughout the year from a quarter to quarter standpoint, particularly given industry conditions are still tough that we're experiencing thank you.
Speaker Change: Yes. Thank you.
Speaker Change: So as we've discussed one 1000 continues to be our north star but.
Speaker Change: Hi.
Speaker Change: I'd highlight that our other products and platform form services.
Speaker Change: Our really important too and it's the mix across all those products with different types of margins that.
Speaker Change: It is important as we move through the year and as we head towards adjusted EBITDA positive and then after that I think the cash flow positive.
Speaker Change: So it really does depend on that mix, a little bit, but but but 1000 homes.
Speaker Change: We named our North Star as we as we identified last year.
Speaker Change: We expect to we've given guidance for first quarter, we're not going to be at a 1000 homes first quarter and we won't deeper for a second quarter, either but we're going to be moving sequentially towards that level as we get into the as we get into the year end.
And there's really two drivers.
Speaker Change: That from an operational perspective once the process improvements that we have.
Speaker Change: And the changes that we've done and the cash offer that are going to allow us to buy more homes can stay at wider margins and then it's also the other products in the platform services gauging partnership products direct plus.
Speaker Change: And Brian a date so we.
Speaker Change: We're focused on executing to that we're not ready to give guidance to exactly when we hit a 1000 homes, but.
Speaker Change: But we expect to be in that neighborhood as we exit the year.
Speaker Change: So expect to be.
Speaker Change: On a run rate basis, adjusted EBITDA breakeven.
Speaker Change: Alongside that also as we exit the year.
Speaker Change: I appreciate it thank you.
Speaker Change: Our next question comes from Ryan Tomasello with a company can't VW Ryan Your line is now open.
Ryan Tomasello: Hi, everyone. Thanks for taking the questions just a follow up on the.
Speaker Change: Purchase volume target of 1000 a quarter.
Ryan Tomasello: Much of that would you say is dependent on this.
Ryan Tomasello: Pending capital raised that you're talking about.
Ryan Tomasello: And then regarding the capital raise I mean, obviously I'm limited in what you can say about it.
Ryan Tomasello: Our best.
Ryan Tomasello: At this point just to consider something similar to what.
Speaker Change: You guys did last time, you raised capital or anything else you can say around just the size and structure of what you are looking to do there. Thanks.
Speaker Change: Yeah, so from a capital from a capital perspective.
Speaker Change: First of all we have a path either way.
Speaker Change: Looking at our capital markets opportunities, but.
Speaker Change: But we're in conversations and we Havent finalized something there. It's important of course that we get the right cost of capital with the right structure.
Speaker Change: And it's still TBD, we probably will have more information on that next quarter, but we have I want to I want to highlight first and foremost that we have a path either way regardless of whether we do something different on the balance sheet now.
Speaker Change: Or are we stay the same course with our asset backed partners.
Speaker Change: As we've highlighted before we have very strong relationships with those banks.
Speaker Change: And with those partners.
Speaker Change: I would also say that I'd also highlight that we have.
Speaker Change: Just going back across the last couple of quarters, we ended third quarter with.
With about $90 million in liquidity between our cash.
Speaker Change: And our net equity in our inventory and then that did moderate but but.
Speaker Change: But only a small percentage so that moderated down to 85 at the end of the year. Some of that's the net equity in their homes and the rest of it.
Speaker Change: What we ended with 43 $43 million in capital. So we so we're not in are we.
Speaker Change: Looking at capital markets alternatives, but we're looking at looking at it from a strategic perspective as we move through.
Speaker Change: Theres three strategic pillars that we're focused on one cost outs, which is which is critical in enabling us to operate at lower volumes and still be profitable.
Speaker Change: The second is process improvements, which which Brian talked to in his prepared remarks.
Speaker Change: And then the last question.
Speaker Change: And then finally, the third pillar is really everything else investing in that business and deeper penetration into markets and products and developing out our agent partnership.
Speaker Change: Products and our platform services so.
Speaker Change: So we are looking at capital markets.
Speaker Change: Options and.
Speaker Change: And we think it's important to highlight that.
Speaker Change: But it's but it's photos operational purposes, the other thing that.
Speaker Change: I want I want to focus on is.
Speaker Change: Is enhancing our unrestricted cash and our liquidity of course it gives flexibility.
Speaker Change: We're looking at it for that reason, but we're also looking at our cost of capital. So theres a couple of different reasons.
Speaker Change: That we're that we're looking at some options.
Speaker Change: Yes, we wanted to try to.
Speaker Change: To get the best cost of capital as well alongside our cost out initiatives.
Speaker Change: Great. Thanks for all that Peter and then just another follow up for Brian I guess.
Speaker Change: You mentioned in your prepared remarks briefly just still digesting all of the.
Speaker Change: Changes to organize real estate World and commission structures.
Speaker Change: Now that we have another quarter of that under our belt just any update you can provide Brian on what youre seeing in the market in terms of.
The impact Youre seeing the commissions, how offer pod may or may not be evolving to take advantage of that.
Brian There: Yes, I think I think overall it has settled a bit.
Speaker Change: Still feel like we're seeing a little bit of confusion out there.
Speaker Change: On the on the commission structures the benefit from I think Thats why youre seeing some of the growth in our EMR age of partnership program, we have more and more agents that are starting with us first.
Speaker Change: <unk> submitted an offer to us before they put the home on the market to see what we can pay for it so that continues to grow.
Speaker Change: As we talked about a lot we want to be a solution center for everyone not just sellers and buyers, but we wanted to be a solution center for for agents and brokerages and builders and.
Speaker Change: Forms and we feel we have an opportunity to do that so I think it's settled a little bit there is definitely.
Speaker Change: A significant I think pause when took place, but I think things are getting settled in a little bit.
Speaker Change: But commission still still sits I think top of everyone's mind right now and I think that's helping us on the under age of partnership program.
Speaker Change: The next question comes from JK Lee with the company J P. Morgan Your line is now open.
JK Lee: Great. Thanks for taking my questions I have two.
Speaker Change: Among the first loan.
Speaker Change: What was the biggest factor that drove how you guys are thinking about like home acquisition heading into first quarter, but to say you guys have revised down I guess your target acquisition pace. So just curious like what's.
Speaker Change: Driving that on like what needs to happen for you to for you guys to be more confident in acquiring more homes.
Speaker Change: Secondly, could you clarify what.
Adjusted EBITDA for <unk>.
Speaker Change: Slightly better as the quarter over quarter or is that year over year.
Speaker Change: And then does that assume contribution margin for your core cash business.
Speaker Change: Still kind of at the lower end of your normal target range. Thank you.
Speaker Change: Let me jump in just operationally on the first part as far as home acquisitions, we have been.
Speaker Change: Going into 2025.
Speaker Change: We were expecting transaction volumes to increase.
Speaker Change: Year over year.
Speaker Change: Right now it's early in the spring selling season, but were were anticipated to be more more flat, maybe a little bit of an increase but more flat getting through the election.
Speaker Change: Obviously, the fed came out with with reducing theyre not going to be as aggressive as reducing rates and some of those and so.
Speaker Change: We're constantly optimistic about seeing maybe a slight increase from from from the year, but that's where with expanding our buy box putting more services in place, but also I think it's key in just a few of the questions that I'm hearing is that getting more and more opportunities are buying homes, who really wanted to buy it.
Speaker Change: <unk>.
Speaker Change: Bye bye.
Speaker Change: Buying homes that we feel that we can buy renovate and sell in the shortest period of time and as buyer demand stays stays weaker than normal we wanted to make sure we're buying the right the right inventory and so we've been focused on pockets in different area or different areas of the different markets, where we want to buy.
Speaker Change: And Theres a lot of different different things I can point to on that but high HOA is is one thing we are staying away from right now just because of the affordability.
Speaker Change: Townhomes is another one normally they have they have high hoa's large homes on small lots they need all of those different things is as there is a little bit more to choose from out there for buyers we want our homes to sell first and we can do that by buying the right type of homes, but like I said their processes, we're able to see more of the homes and knowing <unk>.
Speaker Change: What we're going to buy before before making an offer.
Speaker Change: Which has been which has been great. The agent partnership program are getting more opportunities has been it's been really good there as well.
Speaker Change: That's where we think as far as the volume of what we can buy we can buy the right homes.
With the right margins, but also gives us getting the right opportunity.
Speaker Change: Okay.
Speaker Change: Dan I'll jump in on adjusted EBITDA. So so adjusted EBITDA will.
Speaker Change: <unk> improved sequentially across the year, that's what we're expecting and that's going to be in line with what.
Speaker Change: With what we're doing from a cash outflow perspective, and again, what we're also doing across the other products and platform services.
Speaker Change: We've given we've given guidance for for Q1 right. So you have you have that.
Speaker Change: Given the timing of the 10-K in the call.
Speaker Change: Deeper into the quarter right. So we have a lot of visibility into in the second quarter already from a funnel perspective.
Speaker Change: And adjusted EBITDA will improve across second quarter.
Speaker Change: Second quarter, along with us.
Long with cash offer volume and then we will do that.
Speaker Change: Using our.
Speaker Change: Anchored in our in our around our new process.
Speaker Change: We're going to execute across that.
Speaker Change: Back half of the year.
Speaker Change: I would stress again.
Speaker Change: The expense reductions that as part of reaching adjusted EBITDA.
Speaker Change: Breakeven and then positive.
Speaker Change: As you are as I think you are aware, we took out $70 million.
Speaker Change: From our from our effectively fixed cost.
In 2023, we did another roughly $45 million in 2024, and we're not ready to guide to it.
Speaker Change: But there will be some additional cost outs.
Speaker Change: That will probably get to.
Speaker Change: On the next earnings call and so all of that together.
And the confidence we are seeing from a top line and our and our proven ability to reduce.
Speaker Change: Operating expense.
Speaker Change: Is what's going to take us there.
And I'll just say one other thing is we as we sit there.
Speaker Change: The leverage capital and the opportunities here. He was really four ways that we're looking at it.
Speaker Change: Leveraging technology, that's one of the things with.
Speaker Change: With the enhancements on our cash offer we're doing is giving the range offer within minutes.
Speaker Change: There's a lot of head count savings there on that end of it and it's actually a much better.
Speaker Change: The seller experience.
Speaker Change: Where we're at.
Speaker Change: Leveraging our global talent integrating some global talent, either near or offshore on that end of it.
Speaker Change: Resource optimization is obviously that we're that we're looking at and then performance based compensation. So those four things are going to.
Speaker Change: Are things that we're looking at we put it into our categories. We look at really every every section of operations to get more operation efficiency.
Speaker Change: Understood. Thank you.
Speaker Change: Our next question comes from Michael <unk> with the company Goldman Sachs. Michael Your line is now open.
Hey, good afternoon. Thank you I just have one for Brian.
Speaker Change: Brian.
Speaker Change: As a participant in an observer of the industry I was just wondering if you could provide.
Speaker Change: Provide your perspective on any potential changes to clear cooperation and.
Speaker Change: How offer pad may respond to any of those changes whether that's to have more exclusive off market inventory or anything like that thank you.
Speaker Change: Okay right now.
Speaker Change: <unk>, obviously seen a lot of changes and happened, especially over the last year I think we'll continue to see changes.
Speaker Change: We are definitely so theres a couple of different ways. You can look at it blended to the commission that we pay especially on the back and that's our that's our highest pass through costs that we do and so.
Speaker Change: There's two ways, we can do it we can either.
Speaker Change: We have opportunities to leverage.
Speaker Change: To leverage more of that and make and make more on that on the compensation side, you're basically not pay as much compensation or to leverage agents to help us drive and sell our homes.
Speaker Change: So two different ways, we look at it right now.
Speaker Change: We are definitely leveraging the agent community to sell homes finding the buyers.
Speaker Change: Fewer and far between them between out there. So we're definitely average agent agent Canadian Our commission side so.
Speaker Change: We'll take a look at this all the time as we continue to grow and expand and as this thing settles in a little bit more.
Speaker Change: But I do think things are settling in a little bit you are seeing.
Co broke commissions and things anywhere from the 2% to 3% range agents getting more comfortable reaching out and asking what the commission is where we wanted to be in this environment, we want to lead in knowing agents. They don't have to negotiate the commissions.
Speaker Change: When they when they reach out to offer for I don't know what our commissions are.
Speaker Change: As we continue to extend we will we'll take a look at that at all times, depending on market conditions, but as of right now having agents both on the front end and back end as are definitely we're leveraging that and that's helping.
Brian There: Great. Thank you Brian.
That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.