Offerpad Solutions Inc (OPAD) 2024 Q4 法說會逐字稿

Good afternoon. Thank you for attending today's Offerpad fourth-quarter 2024 earnings conference call. My name is [Jaylen]. I'll be a moderator for today. (Operator Instructions) I'd like to turn the conference over to our host, Courtney Reed. Courtney, you may proceed.

Good afternoon, and welcome to Offerpad's fourth-quarter 2024 earnings call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Chief Financial Officer, Peter Knag.

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 US Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements, whether as a result of new information, future events or otherwise.

On today's call, management will have certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading non-GAAP financial measures. The reconciliation of Offerpad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the fourth quarter earnings release on Offerpad's website.

With that, I'll turn the call over to Brian.

Thank you, Cortney, and thank you all for joining today. In the fourth quarter, we exceeded the midpoint of our revenue guidance, driven by a well-balanced mix of offerings. Our Cash Offer Program performed well alongside our asset-light services including the B2B RENOVATE business, the Direct Plus Buyer Program, and the Agent Partnership Program.

This success came despite broader market challenges by historically low residential resell volumes down almost 40% from the pandemic highs, affordability constraints and shifting industry commission structures.

Through these conditions, we remain focused on delivering real estate solutions for consumers and partners while making many progress towards building a sustainable long-term business. Some key highlights from the quarter include: continued growth in the asset-light services, which are becoming an increasingly important revenue stream.

The expansion of our Agent Partnership Program, driving agent engagement and increased transaction volume, while helping improve CAC by over 45% year over year and improved operating efficiency, leading to cost savings and supporting contribution margins. These trends are positioned well to achieve adjusted EBITDA profitability while ensuring financial sustainability across different market conditions.

Our efforts remain centered on expanding high-margin revenue streams, optimizing operations and managing resources effectively to support growth. Meanwhile, enhancements in our product and processes have increased efficiency and have us poised to quickly scale the business as the market recovers.

Over the last two years and specifically in recent quarters, returning to positive earnings and cash flow has been our key objective. Given the market's trajectory, we adjusted our approach by: one, diversifying revenue beyond our core Cash Offer business, it creates stability across all market cycles; two, refining acquisition strategy to ensure disciplined inventory management with strong return objectives; and finally, by optimizing our cost structure to leverage operational efficiencies and strengthen profitability.

These strategic approaches have made Offerpad more agile and efficient organization. By moderating acquisition volumes, we maintained high quality inventory portfolio while exciting our asset-light services which had delivered stable contribution margins beyond our foundational business.

As a result, we improved unit economics, reduced overhead costs and positioned ourselves to scale profitably even in lower transaction volume environment. With that 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 1,000 acquisitions per quarter, optimizing our portfolio while improving margins.

To further support our growth and maximize opportunities, we are actively exploring options to raise additional capital. This will enhance our financial flexibility, allow it to scale acquisitions and other business line transactions as the market strengthens and to present ourselves for long-term success.

As mentioned in the previous quarter, we've enhanced how we deliver offers and engage with sellers. This advancement is powered by Offerpad Citrus Value pricing technology. which leverages years of real estate data, market trends and machine learning to generate offers.

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. The momentum from our Q4 launch has continued into quarter 1, increasing customer engagement and conversion rates.

In January alone, we are in nearly 1,200 living rooms, an increase of almost 40% from rollout in November, supported by more effective advertising, we are seeing steady request volume and maintaining a strong 95% customer satisfaction score.

This streamlined approach reduces touch points and give sellers greater control over timing and decision-making. Alongside these improvements, our Agent Partnership Program continues to exceed expectations further strengthening our acquisition strategy and lowering CAC.

The Pro tier, which allows agents to earn up to 4% on a successful acquisition in 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 program now account for 45% of our total acquisitions, reinforced its positive impact on our business.

In addition, our B2B RENOVATE business remains a strong revenue driver benefiting from our experienced teams and refining processes. Despite some RENOVATE partners operating at reduced levels, we delivered another strong quarter, completing 187 projects and generating over $4 million in revenue. For the full year, Offerpad RENOVATE generated $18 million in revenue, up 49% year over year.

Notably, our average revenue per renovation increased from $11,000 to over $22,000, reflecting our expanded service offerings and new plan onboarding. As we scale, we continue to add partners of all sizes and types from institutional investors to local operators.

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.

Thank you, Brian. Over the past few months, we have concentrated on business improvements, including cost efficiencies and process enhancements. Our refined offer process has accelerated response times driving higher customer engagement and inspection volume. These efforts align with our ongoing focus on optimized margins and cost structures to ensure financial resilience and varying market conditions.

At the end of the fourth quarter, we had 677 homes in inventory with 22% owned for over 180 days and not under contract for resale. Our strategy of acquiring fewer homes at higher margins remained in place aligning with seasonal trends and market dynamics. 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 Offer product, we increased acquisition activity towards the quarter end to prepare for anticipated demand in 2025. While the Cash Offer business remains a key driver of contribution margin, asset services, including RENOVATE, Direct Plus, and our Agent Partnership Program contributed to over 33% of total contribution profit after interest in 2024. We anticipate continued momentum in these areas moving into 2025.

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% and homes sold decreased 29%, primarily due to a strategic reduction in acquisition base earlier in the year.

Net loss for the quarter was $17.3 million, a decrease of 12% year-over-year. 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.

These improvements resulted from business performance enhancements and cost management initiatives. Homes sold in Q4 had an average time to cash of 142 days, consistent with expectations following acquisition adjustments in the second half of the year. We anticipated a temporary increase in this metric in Q1 before decreasing in Q2 as acquisition and sales cycles normalize.

Gross margin for the quarter was 6.1%, but gross profit at $10.6 million. For the full year, gross margin was 7.9%, a 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 supported by improved advertising efficiencies, Agent Partnership Program expansion and cost management efforts.

Through our relentless focus on cost efficiencies, we're taking big steps towards profitability. After lowering annual operating expenses by nearly $70 million in 2023, we continue to make excellent progress in 2024, removing $44 million of additional cost. You should expect the cost improvement to continue into 2025 as we maintain focus on cost and process efficiencies. Adjusted EBITDA loss for Q4 was $11.5 million decreasing $5.3 million sequentially. For the full year, adjusted EBITDA loss was $29.2 million to $53 million or 65% improvement over 2023.

As of the quarter's end, unrestricted cash totaled $43 million, with total liquidity exceeding $85 million when incorporating the net value of our carried inventory. As acquisition volumes rise, we expect to increase leverage using our asset-backed facilities while maintaining a strong financial position.

Additionally, to potentially enhance our capital position and market opportunities we've begun to engage in capital market discussions beyond our core asset-backed facilities partnerships.

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.

As we enter 2025, we remain focused on increasing acquisition activity, maintaining cost discipline and positioning Offerpad for long-term stability and growth. Thank you.

We will now open the call for questions.

(Operator Instructions) John Kaloumi, Jefferies.

Thanks so much for taking my questions. Maybe starting with expanding the buyback -- buy box. Can you provide more detail on how you're adjusting the buy box and the systems and talk a little bit to the systems and processes that you've instituted that helped give you confidence that you can grow faster while also contributing continuing to build on improved unit economics?

And second, you spoke to simplifying certain elements of the offer process to make it more seamless for consumers to receive offers and schedule inspections. Maybe you can just provide a little bit more context into what exactly you're going to be doing there? Thanks.

Sure, awesome. So I'll start with the first question. Hey John, 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. What's interesting about this market and the dynamics when we first when we saw that the transition happen, we were in the median home price or lower really focused on that.

What's interesting is it's really difficult for first time home buyers right now to get into a home and because of the affordability. And so what we've done is we moved the buy box up and really expanded it where we were really focused around the 20 to maybe 500 price point. Now we're really into the 250 to maybe 60 to 700 price point on the market. Basically that that allows us to find buyers that are coming out of another sale.

And moving their equity from one house to another, so that that's been really important. 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 get into our on 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, we'll get out to their house within just a few days. It also gives us more visibility to exactly what we were buying, which allows us to even go up more, to a higher price point, which really helps.

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 the cash offer offer doesn't work for them for whatever reason, we can give them options to list their home as well. And so customer engagement so far has been really strong, really finding the seller where they are in the process.

Thanks so much.

Nick Jones, JMP.

Hi, this is Luke on for Nick. Thanks for taking our questions. I guess just with the 1,000 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.

Yeah, thank you. So as we discussed, 11,000 continues to be our North Star, but I'd highlight that our other products and platform services are really important too, and it's a mix across all those products with different types of margins that is important as we move through the year and as we head towards adjusted positive and then after that the cash flow positive. So it really does depend on that mix a little bit, but we, but 1,000 homes remains our North Star as we identified last year.

We expect to, we've given guidance for first quarter. We're not going to be at 1,000 homes first quarter, and we won't be for for 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 and and it's really two drivers around that from an operational perspective.

One, it's the process improvements that we've done and the changes that we've done to the cash offer that are going to allow us to buy more homes. And stay at wider margins and then it's also the other products in the platform services, the Agent Partnership products direct plus.

And renovate. So we we're focused on executing to that. We're not ready to give guidance to exactly when we hit 1,000 homes, but we expect to be in that neighborhood as we exit the year, and we also expect to be on a run rate basis adjusted even break even alongside that also as we exit the year.

Appreciate it. Thank you.

Ryan Tomasello, KBW.

Hi. Thanks for taking the questions. Just a follow-up on the purchase volume target of 1,000 a quarter. How much of that would you say is dependent on this pending capital raise that you're talking about? And then regarding the capital raise, I mean, obviously, limited what you can say, but is our best option at this point just to consider something similar to what you guys did last time you raised capital or anything else you can say around just the size and structure of what you're looking to do there? Thanks.

Yeah. So from a capital perspective, we -- first of all, we have a path either way. We are looking at capital markets opportunities, but we're in conversations, and we haven't finalized something there, it's important, of course, that we get the right cost of capital is the right structure. And it's still a TBD. We probably will have more information on that next quarter.

But we have -- 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 or we stay the same course with our asset-backed partners as we've highlighted before, we have very strong relationships with those banks and with those partners.

I'd also say that -- I'd also highlight that we have -- just going back across the last couple of quarters, we ended third quarter with about $90 million in liquidity between our cash and the net equity in our inventory and then that did moderate, 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 the homes, and the rest of it, we ended the 43 million in capital. So we -- so we're not in a -- we are looking at capital markets alternatives, but we're looking at it from a strategic perspective as we move through there's three strategic pillars that we're focused on: one, cost outs, which is critical and enabling us to operate at lower volumes and still be profitable; the second is process improvements, which Brian talked to in his prepared remarks.

And then the last question. And then finally, the pillar is really everything else investing in the business and deeper titration into markets and products and developing out our agent partnership products in our platform services. So we are looking at capital markets options, and we think it's important to highlight that but it's for those operational purposes.

The other thing that I want to focus on is enhancing our unrestricted cash and our liquidity, of course, it gives flexibility is something that we're looking at it for that reason. But we're also looking at our cost of capital. So there's a couple of different reasons that we're looking at some options. And we want to try to get the best cost of capital as well alongside our cost-out initiatives.

Great. Thanks for all that, Peter. And then just another follow-up for Brian. I guess you mentioned in your prepared remarks briefly, just still digesting all the changes to organized real estate world and commission structures. Now that we have another quarter of that under our belt, just any update you can provide, Brian, on what you're seeing in the market in terms of the impact you're seeing the commissions, how Offerpad may or may not be evolving to take advantage of that? Thanks.

Yeah. I think overall, it's settled a bit. I still feel like the -- we're seeing a little bit of confusion out there on the commission structures. The benefit from -- I think that's where you're seeing some of the growth in our Agent Partnership Program. We have more and more agents that are starting with us first that's to submit 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.

As we talk about a lot, we want to be a solution center for everyone, not just sellers and buyers, but we want to be a solution center for agents and brokerages and builders and platforms, and we feel we have an opportunity to do that. So I think it's settled a little bit.

There's definitely a significant, I think, pause when it all took place. But I think things are getting settled in a little bit but commission still sits, I think, top of everyone's mind right now, and I think that's helping us on our Agent Partnership Program.

Dae Lee, Morgan.

Great. Thanks for taking my question. I have to I I'm on the first one. What was the biggest factor that drove how you guys are thinking about like home acquisition heading into first quarter like you said, you guys have have everybody down I guess your target acquisition pace, so I was curious like what's driving that and like what needs to happen for you guys to be more confident in acquiring more homes.

And then secondly, could you clarify what I just bizarre guy for what two means by slightly better is that quarter over quarter or is that year over year and then does that assume contribution margin for your core cash business is still at the lower end of your normal target range? Thank you.

Let me jump in just operationally on the first part as far as Home acquisitions. We have been -- going into 2025, we were expecting transaction volumes to increase year over year. Right now, it's early in the spring selling season, but we're anticipating it to be more flat, maybe a little bit of an increase, but more flat getting through the election.

Obviously, the Fed came out with reducing -- they're not going to be as aggressive at reducing rates and some of those. And so we're cautiously optimistic about seeing maybe a slight increase from the year. But that's where with expanding our buy box, putting more services in place.

But also, I think it's key and just a few of the questions that I've heard here is that getting more and more opportunities of buying homes we really want to buy and be buying the homes that we feel that we can buy or renovate and sell in a shortest period of time. And as buyer demand stays weaker than normal, we want to make sure we're buying the right inventory.

And so we've been focused on pockets in different areas or different areas of different markets where we want to buy. And there's a lot of different things I can point to on that. But high HOAs is one thing we're staying away from right now just because of the affordability.

Town homes is another one where they have high HOAs, large homes on small lots. I mean all those different things as there's 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. And like I said, their process is we're able to see more of the homes and knowing exactly what we're going to buy before making an offer which has been great.

The Agent Partnership Program are giving more opportunities has been really good there as well. And 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 getting the right opportunity.

Okay, And Dae, I'll jump in on adjusted EBITDA. So adjusted EBITDA will improved sequentially across the year. That's what we're expecting, and that's going to be in line with what we're doing from a Cash Offer perspective. And again, what we're also doing across the other products and platform services.

We've given guidance for Q1, right? So you have that. We're -- given the timing of the 10-K in the call, it's deeper into the quarter, right? So we have a lot of visibility into the second quarter already from a funnel perspective. And adjusted EBITDA will improve across second quarter or for second quarter along with Cash Offer volume, and then we'll do that using our anchored around our new process. We're going to execute across that through the back half of the year.

I'd stress again expense reductions that is part of reaching adjusted EBITDA breakeven and then positive. As I think you're aware, we took out $70 million from our effectively fixed cost in 2023. We did another roughly $45 million in 2024. And we're not ready to guide to it, but there will be some additional cost outs that we'll probably get to on the next earnings call. And so all of that together and the confidence we're seeing from the top line in our proven ability to reduce operating expense is what's going to take us there.

I'll just say one other thing as we sit there and we -- the leverage capital and the opportunities here, there's really four ways that we're looking at it, leveraging technology, that's one of the things with the enhancements on our Cash Offer we're doing is giving the range offer within minutes. There's a lot of headcount savings there on that end of it. It's actually a much better seller experience. We're leveraging global talent, integrating some global talent either near or offshore on that end of it. Resource optimizations, obviously, that we're looking at and then performance-based compensation.

So those 4 things are going to -- are things that we're looking at. We put it into a category as we look at really every section of operations to get more operational efficiency.

Sounds good. Thank you.

Michael Ng, Goldman Sachs.

Hey. Good afternoon. Thank you. I just have one for Brian. Brian, as a participant and an observer of the industry, I was just wondering if you could provide your perspective on any potential changes to clear cooperation and 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.

Right now, we're obviously seeing a lot of changes in happened especially over the last year. I think we'll continue to see changes. We are definitely -- so there's a couple of different ways you can look at it. One the commission that we pay, especially on the back end, that's our highest pass-through cost that we do. And so we -- there's two ways we can do it.

We can either obviously have opportunities to lever more of that and make more on the compensation side to basically not pay as much compensation or to leverage agents to help us drive and sell our homes.

And so two different ways we look at it. Right now, we are definitely leveraging the agent community homes, finding the buyers are fewer and far between out there. So we definitely leverage the agent community on our commission side. So 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, but I do think things are selling in a little bit.

You're seeing core commissions and things anywhere from the 2% to 3% range. Agents getting more comfortable of reaching out and asking what the commission is.

Where we want to be in this environment, we want to lead and knowing agents, they don't have to negotiate their commissions. When they reach out to Offerpad, they'll know what our commissions are as we continue said, we'll take a look at that at all times, depending on market conditions. But as of right now, having agents, both on back end are definitely we're leveraging that, and it's helping.

Great. Thank you, Brian.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.