Offerpad Solutions Inc (OPAD) 2022 Q1 法說會逐字稿

Good afternoon. Thank you for attending today's Offerpad first quarter of 2022 on this call. My name is Bethanie and I will be your moderator for today's call. (Operator Instructions)

I'll now turn the call over to Stefanie Layton, Senior Director of Investor Relations at Offerpad. Stefanie.

Thank you, and good afternoon, everyone. Welcome to Offerpad solution's first-quarter 2022 earnings call. Our Chairman and Chief Executive Officer, Brian Bair; and Chief Financial Officer, Mike Burnett, are here with me today. 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 risk 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 as a result of new information, future events, or otherwise.

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

I'll now turn the call over to Brian.

Thank you, Stefanie. I'm excited you could all join us today. This is our third earnings call since going public, and we keep building upon our track record of delivering exceptional results. Today, I will share details about our progress in 2022, future plans, and market trends. Mike will covers our first quarter 2022 financial results and second quarter 2022 expectations. I'll start with a few highlights before we dive into details.

I'm proud to share that Q1 was our best quarter in Offerpad history. We set a new company record with $41 million of net income in Q1. Our top-line revenue increase $1.1 billion year over year, and we reported positive adjusted EBITDA for the sixth consecutive quarter. Demand continues to grow for our products with a 115% increase in request volume year over year. In the first quarter of this year, companies face labor challenges, supply constraints, rising interest rates, and inflation. The housing industry saw mortgage rates increase, and with all of this, we navigated effectively and achieved exceptional results. We continue to prove we can grow at a robust pace profitably.

These accomplishments are possible because we built Offerpad to address the toughest pain point in real estate, the transaction. Finding an agent isn't hard, the transaction is. At Offerpad, instead of providing customers with a list of options for different companies, they can use to complete each part of their transaction, agents, renovation companies, mortgage companies, moving companies, hiring companies, et cetera, we take care of all these things. Providing a list of options has been the norm. Completing the transaction for the customer on their time line is what we do best.

To facilitate the transaction with the most control uncertainty, allowing for the best customer experience. We own the asset, the core of the transaction. We own the home. Not only does this provide a seamless service for customers, but it also limits Offerpad's exposure to underwriting risk by supporting a highly efficient logistics business. When we can control the majority of the transaction components, we can better control the timing and financial outcome. The power of owning the home also allows us to build a larger suite of high-margin, low-risk services that logically attach and simplify the homeownership experience for the consumer even more.

These qualities of controlling the transaction and building out additional services directly support our ability to meet our long-term goals. We have a clear mission, discipline strategy, vast expertise, and an abundant drive to reimagine the real estate landscape. We are proud to lead this transformation by offering customers a simpler solution. To drill down into details for the first quarter, in Q1, may meaningful progress in all 3 of our focus areas, market penetration, market expansion, and ancillary services. We added 600 new zip codes increasing our service territory by nearly 15%. This includes 75 new zip codes in Austin, Texas, expanding that territory by 50% and all 3 of our new California markets are up and running.

Importantly, with each new market, we complete a post-launch review of cultural values and continuous improvement mentality that encourages our team to keep learning, innovating, and building upon our existing strengths. We look for ways to enhance our internal processes, reduce risks, and optimize our core business tasks. We then incorporate our learnings into future launches. For example, when we entered California, we added a soft launch 2 weeks before our official opening date as a process improvement identified from prior experience. We employ experts with decades of experience who still push to learn and improve every day. That mentality fuels our ability to succeed.

Looking forward, we plan to expand our services to 5 additional markets this year. We expect our next market launch in Fort Myers, Florida will be up and running during the second quarter. Our plans for the remainder of the year include expanding to Cincinnati, Ohio, Fort Wayne, Indiana, Fort Collins, Colorado, and Colorado Springs, Colorado. Our growth is also visible in the expansion of our ancillary services.

We are now licensed to provide Offerpad home loans in South Carolina and Ohio, bringing the service to a total of 9 states. This growth in the service can also be measured by the increase in our loan volume. In the first quarter of 2022, our loan volume increased 29% compared to the fourth quarter of 2021. A key driver supporting our real estate logistics and growth, is the innovative proprietary technology we utilize. In fact, technology is captured as one of our 3 strategic priorities. These priorities include maintaining best-in-class operational execution, growing in a disciplined and responsible manner, and utilizing innovative technology to build upon our foundation of real estate expertise. Ultimately, these priorities help us create the best products to serve the most customers.

On our last earnings call, we highlighted our 2022 focus on buyer engagement. As you know we have a Flex listing offering available to customers in addition to our express cash offer service. Through Flex, we have in-house real estate agents that can list a customer's home on the open market while allowing the customer to keep our cash offer with a backup. Our Flex agents also help customers looking to buy a home.

In the first quarter of 2022, we improve our home buyer services by adding a new buyer expert role on our team. These agents focus solely on engaging with perspective home buyers. Training was revamped in Offerpad University and provided our agents with enhanced knowledge around our growing suite of solutions, and the ever-changing landscape of the real estate industry. We also enhanced the home buying page on our website, adding new search capabilities and tour scheduling. We have seen a significant increase in customers using our Flex product. Our Flex team completed 20% more transactions in Q1 over last quarter, and more than double the number of transactions year over year. This includes a 100% increase in home buyer closings compared to the first quarter of 2021.

I believe our ability to meet the customers at the beginning of their real estate journey, will help increase our total transaction volume, reduce costs for the company and the customer, and provide a better one-stop experience for customers. I'm excited about our Flex products growth, and we are just getting started. To further support our focus on providing the best solutions for home buyers, we plan to initiate a soft launch of our buyer boost program in the second quarter of 2022. Through this program, buyers will have the advantage of making an Offerpad cashback offer, increasing their ability to compete in an intense seller's market.

Turning now to the broader real estate market trends, we are still seeing significant strengths in our markets. We continue to see high demand and low supply. As the real estate market changes, different opportunities will present themselves. We can adapt by leveraging the variety of services we provide and lean into the advantage of being both a home buyer and seller. Currently, consumers have easy access to liquidity by selling their homes quickly in a strong seller's market. As the market adjusts, consumers ability to access the liquidity in their home on their time line will become more challenging. Our ability to solve this challenge will offer even more value to our customers.

Remember too, that iBuying is less than 2% of our total market, meaning Offerpad can continue to grow even if the broader market is slowing. Offerpad saw an increase in market share from Q3 to Q4 last year following Zillow's exit from iBuying. Additionally 7 markets reached 8% or higher iBuying penetration in the fourth quarter of last year, highlighting the increase in consumer awareness and adoption.

Our top-of-funnel request increased as well. In the first quarter, we hit a record high request volume company-wide. According to Similarweb's analysis of US real estate websites with over 100,000 visitors, Offerpad websites ranked in the top 10 for the largest year-over-year growth in total website visitors from 2020 to 2021. This strength in website traffic mirrors the increase in request volume we saw. Importantly, even with our significant growth, we are proud that the quality of our service remains a strength with a 94% customer satisfaction rating in Q1.

I don't think anyone can argue that consumers are unsatisfied with the old way of real estate, with the lack of certainty in control in selling their home. We are solving that every day at Offerpad. We had a fantastic first quarter. Believing in our values proved once again to deliver results exceeding expectations. Importantly, the success of our company allows us to serve more customers and communities.

To learn about ways Offerpad is engaging with the communities we serve, please visit our newly published ESG page on our investor relations website. There are so many great things we are already doing and so much more we aspire to do in the future. On that note, I'll turn the call over to Mike.

Thanks, Brian. Today I will cover our first quarter 2022 financial results. Discuss the impacts from current market conditions. Review some of our risk mitigation strategies, and also provide our outlook for the second quarter. As Brian mentioned, our first quarter this year was the strongest quarter in our company's history, and we again exceeded the high end of our Q1 guidance ranges. Revenue increased by over $1 billion or 384% year over year, and also increased 58% sequentially.

Our revenue in the first quarter of 2022, at $1.37 billion exceeded the revenue reported in the first 3 quarters of the last year combined, through the powerful combination of higher average sales prices and increases in volume from both organic growth and existing markets and new market expansions. Importantly, our robust top-line growth was not just growth for growth's sake, it was profitable growth. Q1 gross profit increased 294% from the prior year and we reported positive adjusted EBITDA for the sixth consecutive quarter. Adjusted EBITDA was $50.4 million, the highest in company history.

After reporting positive net income for the full year 2021, we continued that trend as we set a new company record with a gap net income of $41 million for the quarter. Excluding a $5.7 million credit to mark-to-market the value of our warrant liability, adjusted net income was $35.3 million. Gross profit this quarter was $132.1 million at a gross margin of 9.6% compared to 8.1% in the fourth quarter of 2021. This represents the seventh consecutive quarter gross profit has increased.

The first quarter has historically been a strong sales quarter with later acquisitions, reflecting the seasonality of the real estate market. In 4 out of the last 5 years, sales have exceeded acquisitions in the first quarter. The outsized revenue growth this quarter was driven by a record 3,602 homes sold. Though we expected to show strong volume increases in the first quarter, we exceeded the top end of our guidance range by nearly 15%.

This was the result of a couple of factors. First, the previously discussed longer renovation times that we experienced in late 2021 due to supply chain issues began to improve. and by Q1, this extra inventory was ready to list. Second, market conditions for residential home sales were extremely favorable in Q1, recovering from a slowdown at the end of the year, partially due to the Omicron variant. Lastly, we also saw some favorable impact in the quarter from a full forward of sales from the second quarter of 2022, as buyers were looking to lock mortgage rates on their new home ahead of the impending rate increases.

On the acquisition side, we acquired over 2,850 homes in the first quarter. Again, Q1 is traditionally the lowest quarter for acquisitions due to seasonality, and we are seeing the normal increase month over a month within the quarters with March of this year, setting a record for the most homes we have ever bought in a single month. We are expecting our acquisition momentum from March and April to continue in Q2 and to drive sequential revenue increases in Q3 and Q4 this year. Our results this quarter, once again, proved our ability to achieve both strong top-line growth, and enhanced bottom-line profitability.

Our operational execution focused on efficiency we're key drivers in continuing to effectively leverage our cost structure, as our total operating cost improved to 6.4% of revenue compared to 7.7% in the fourth quarter of 2021 and 11.3% in the first quarter of 2021. Our strong revenue growth is allowing us to continue to invest in the business while still reducing our overhead costs as a percentage of revenue.

After completing a remarkable year in 2021, we started 2022 on an even stronger footing. As interest rates have increased and are expected to rise further, we have made the proper adjustments to our applicable and input variables in our underwriting and do not anticipate changes in our cost of capital to have a material impact on our business. While increasing mortgage rates will have an impact on the real estate market. We continue to see the limited supply and outsize demand for housing as the primary drivers for the current market conditions.

Housing supply remained at historic lows with the national supply of housing in March at 2 months, and the average supply and offer house markets at 0.6 months. We saw this supply and demand at balance once again, supporting increasing home prices with our average sales price reaching $381,000 in Q1 compared to $357,000 in the fourth quarter of last year. The majority of our growth, however, is driven by our increasing market penetration and market expansion.

For perspective in the first quarter, approximately $720 million or 2-thirds of the $1.1 billion increase in revenue was driven by the increase in market penetration within our existing markets and new market expansion. The remaining $370 million increase in revenue is attributable to the increase in average sales price. Similar to our model adjustments, accounting for increasing interest and mortgage rates, we regularly review and adjust our risk management strategies to account for other anticipated changes in the real estate market conditions.

4 mitigating factors reduce our exposure when market changes occur. These factors include the limited time in which we own a home. A contribution margin after interest that can comfortably allow for decreasing home prices over our average holding period. Geographic diversification, and product diversification. We have a strong track record of owning our inventory for less than a hundred days from purchase to sale. Of that time period, the home is typically under contract to sell for roughly 30 days. Thus our average exposure to fluctuations in the real estate market are typically limited to a short window of approximately 70 days or less.

Even during the most aggressive historical declines during 2008 through 2012, national US home prices declined on average, less than 1% per month. This is an important factor to note, as we turn over our inventory every 3 to 4 months and replace it with newly underwritten homes with updated assumptions and data points, reflecting current and anticipated market conditions. We therefore mitigate our overall exposure to the effects of a severe or prolonged downturn.

Second, our contribution margin after interest over the past 5 quarters from 5 to 10%, exceeding the exposure from decreasing home prices. Our model is built to sustain periods of market fluctuations, even in a more normalized market with contribution margins after interest of 3% to 6%. Third, it is unusual for the real estate market in all cities and states to move in tandem. This is why we have methodically expanded our geographic footprint across the US to 24 markets, spanning 16 states, and serving over 1,700 cities and towns.

While we did experience a more consistent movement of markets over the past 2 years, historically markets across the country have operated at different points in the real estate cycle. This geographic diversification provides us another source of risk mitigation. Lastly, we have 2 different foundational offerings with our Express cash offer and our Flex listing service. The 2 services each have different strengths, but also work particularly well when offered together.

For example, a customer can list their home with our Flex listing service and keep their Express cash back up offer for 60 days. Because these 2 products appeal to different customers and have advantages in different market conditions, they offer another element of diversification to our business. We can increase or decrease our focus on each offering depending upon demand. A great example of this was the increase in demand we saw for our Express cash offering through COVID as a result of social distancing and increased use of technology during that period.

From an operational perspective, our ability to complete the right renovations efficiently and our ability to minimize aged inventory also reduces our inventory holding exposure. Our renovation efficiency improved in the first quarter of 2022, compared to the fourth quarter, reflecting in part our ability to effectively navigate around supply chain constraints. The average duration in the renovation was 23 days in the first quarter compared to 24 days in Q4. In addition, our inventory owned over 180 days as of March 31st was below 5%, which is significantly lower than our target of less than 10%.

Turning to our outlook for the second quarter, our expectations for a strong start to 2022 materialized, and we anticipate continuing that momentum into the second quarter, specifically in Q2, we expect to sell between 2,900 and 3,100 homes, generating revenue of $1.1 billion to $1.15 billion, or nearly a 200% increase over Q2 of 2021 at the midpoint. We also expect to extend our track record to 7 consecutive quarters of positive adjusted EBITDA estimated to be between $27 million and $37 million. In short, we expect to produce another strong quarter of profitable growth.

In conclusion, we are executing our strategy and our model is thriving. Our model has proven adaptable in a dynamic environment. Our strategy of balancing robust growth with sustainable profitability has proved to be a successful combination, as we once again, demonstrated our ability to generate positive net income, supporting the long-term health and value proposition of our company. We will continue to execute our ground game paired with our innovative technology and expect to deliver on our commitments to our customers and our shareholders. I'll now turn a call over to the operator to begin the question and answer session.

(Operator Instructions) Our first question, come to the line of Mike Ng with Goldman Sachs.

I just have 2. Just first on purchases, I was wondering if you could give a little bit more color about how we should think about purchases for Q2. You know, is that going to be similar to 1Q levels, and how are you balancing increasing purchases with being price disciplined? And then on the second question, I was just wondering if you could talk a little bit more about renovations, you know, is that beginning to contribute to gross margins in the form of home price appreciation.

Great. Thanks Mike, for your question. For the first one, in terms of acquisitions for Q2, as we talked about, Q1 is traditionally a seasonally low quarter for acquisitions and so our expectations of Q2, you know, will show that seasonal ramp up, and so our acquisitions are generally strongest in Q2 and Q3. So we would expect that pattern to play out, and I don't anything different on the landscape that would drive you know, variations there. Our request volume still continue to be strong and support that view. So I think we're in good shape there.

In terms of the renovations we've also, you know, we've made really good progress on that. We spent some time in prior calls last year, in the last couple quarters with, you know, some supply chain issues that slowed us down a little bit. That really, you know, that bottleneck unleashed really in the first quarter of year, and you know the guys did a fantastic job of getting back on track. I would say we're in a much more normalized, you know, position and on that front to the point where, yes, you know, it does come back to be, you know, a part of the equation for the margins, you know, as we go forward.

We're still seeing inflation, we're still seeing price increases, you know, labor is tight, so you know, it hasn't gotten easier and we think that's going to continue for the second half, but you know, we do have the process in pretty good shape as we're going forward.

Yes. The one thing I would add on renovation is that as you know, renovation is going to become more important you know. What we've seen over the last couple of years with supply and demand of the product that we put on there, we still want to have a really nice Offerpad product that we're proud of, that we put out there. But because of the demand we've been able to, you know, we don't have to put all the bells and whistles on every home that we own. As the market changes, and we start seeing more supply, this is when we can really flex our renovation muscle. And we actually-- As you're competing against more homes for a buyer to buy, having nice renovation in those homes becomes more important, and so that's something that we're focused on as well.

Our next question comes from the line of Dae Lee with JPMorgan.

Great. Just looking at your 1Q growth, it looks very strong, so curious if there's any particular market that drove that growth. I think your [prepared] remarks you talked about prior to years, seeing more of a cohesive growth across all markets. I'm wondering if you're seeing any changes to that, and if markets are behaving differently going forward. And then looking at your Q2 guys, it feels like there's a change in the top line velocity. Just curious if you can double click on that a little bit more and explain how much of that is due to pull forward into 1Q and if there's been any change to your strategy.

Yes, thanks for the question. I'll jump in just real quick on the markets. The one thing that I'm very proud of is our consistency. The consistency we have had in most of our markets, if not all of our markets with a lot of the challenging times it's been over the last year or so. But we've got a really good playbook when executing new markets, when rolling out a new market. And one there's some things we're getting them (inaudible) just as we open a new market. More and more people understand our model and what we're doing is, you know, more of real estate as a service and so we're executing well, and just from consumer brand awareness, when we get into new markets.

The second part of that is just, you know, the team knowing what we're looking for and the teams to put in there, and, you know, our ground game in those markets from a renovation director, acquisition director, and general manager, just across the board. Knowing what teams thrive in those markets has been really important too. So we've been very consistent in our markets, and so I wouldn't say that one market is really carrying this. I think we're pretty consistent around all markets, but...

No, I totally agree with that, and you know, some of the comments about (inaudible) diversification as we've built out our market footprint. The other piece that benefits us in there, is that there's less concentration in the individual market. So you know, years ago, as we were starting the company, we were much more heavily concentrated in Phoenix. Now that's still our number one market, but we don't have really a single market that's, you know, 20% or more the entire business. So you know, the concentration in each of these markets is nicely dispersed as well. We've got, you know, good, strong markets that we've been in for a while. The Charlottes, the Atlantas, the Phoenixes, even Tampa, you know, very strong, you know, recently as well.

Then as the new markets we brought on, you know, our upcoming, they're getting up to speed, we're getting them up and functioning and individually profitable on a faster pace than we ever have, so good results there. Your second question on the velocity, you know, I don't see it really slowing down. The business isn't linear, so if you take a look at, you know, Q4 was a little bit slower due to some macro conditions in terms of sales. So while it was strong sequentially and year over year, it was slowed down a little bit by some of the supply chain issues and really with, you know, omicron at that point in time was a little bit of an issue too.

So I would say Q4, might have been a little bit lighter than it would be under normal conditions, and then we were able to make that up you know, very strongly in the first quarter year. We did have some pull forward, but I wouldn't say that's a real big piece of the puzzle. So really, as we begin to, you know, accelerate again on the acquisitions, we had a really good acquisition month in March that's continued into April. So we'll get the out seasonal pick up again, and kind of rebuild the inventory stock. Then I see as I said earlier, you know, in the [prepared] remarks that, you know, we would expect sequential growth revenue-wise in Q3 and Q4 as we round up the year.

Our next question comes from the line of Andrew Boone with JMP Securities.

Apologies. Sorry. I was on mute. As we look at the 2Q EBITDA guide, there's a slight decline in margins as we go from 1Q to 2Q. Can you just help parse that out, right? It seems like there are a lot of good things going on in terms of bundling, mortgage being more broadly available. Is that just HPA slowing down? And can you help us think about the impact of that as we get to that half of the year.

So how do we think about HPA in terms of kind of 3Q and 4Q?

And then secondly, great to hear a 115% increase in terms of request volume in the quarter, that's really impressive. Can you just step back and more strategically talk about bringing greater awareness to the platform, to Offerpad overall? And where do you think consumers are just being aware of high buying overall as an option? Thanks so much.

Let me take the second question then I'll let Mike jump into the first one. Yes, the one thing that, you know, I'm extremely, especially, you know, in the markets we've been in for a while, I think we're very, very-- Our brand awareness, the average home seller and buyer are very familiar with our model. You know, you take Phoenix and Atlanta and Tampa and Orlando, the markets we've been, and now, you know, the Texas markets, have been very happy with our brand awareness. I think people really understand what we do.

What I'm very excited about, we talked about this in the last DLS earning's call was, you know, one of the things in the education that we have to do, is having people not look at us only as an iBuyer, where they can come and we'll buy their home on their timeframe. But also as a solution center, where they'll start looking at us for other products, and that's whether they want to, you know, partner with us in listing their home, or having us help them find their next home, whether it's on Offerpad or not.

So we start to make some headway on that with our brand, and just as a reminder to everybody, you know, if you go into a market, you're going to see us on television, you're going to see us, you know, direct mail, all the digital media channels you would expect. So you know, we attack a market from that approach, and then obviously we'll get more strategic as we move along. But our brand awareness in markets is good and we're starting the transition of people looking at us as more of a one-stop solution center. Of course, we have a lot of work to do there to be clear, but we're starting to kind of break that threshold a little bit, which is great too.

Sure, and back on the EBITDA question on the outlook, it's about 50 basis points to the top end of the guidance below where we were this quarter. And Andrew I wouldn't really read a whole lot into that. There's nothing structurally I think that really changes quarter to quarter, you know. The business is solid and there weren't really any, you know, one-timers that moved that one way or the other. So I think we still expect to continue that. It's also very sensitive. I mean, if you move $5 million on the EBITDA line, you're back up to the same percentage. So there is some sensitivity involved there. So you know, nothing that, you know, that we're necessarily signaling one way or the other on that.

HPA, as far as that's, you know, concerned, you know, we have, you know, said now for the past, you know, 3-plus quarters that, yes, you know, these were, you know, extremely strong times and we would expect, you know, a pattern to kind of normalize through that time, you know. We've had good success through the fourth quarter and the first part of this year, and are pleased with, you know, our track record, you know, and the market conditions, you know, underlying that. So I do expect that to, you know, to reign in a little bit in the second half of the year. I can't really put a number specifically, you know, to it, but I think directionally, you know, our expectations that we do see, you know, HPA being, you know, less of a contributory factor in the second half.

Our next question comes from the line of Ryan Tomasello with KBW.

You know, I think, you know, in this space of housing market, innovators like Offerpad and peers, seems like investors are really at this point trying to understand the durability of these Mason models through, you know, a very volatile period of potentially decelerating or declining housing fundamentals.

So you know, I realize you touched on this in your prepared remarks. But I think it would be helpful to give you the opportunity to put a finer point around the checks and balances you have in place to identify and respond to changing market conditions. And maybe even past examples that you could point to in your operating history if any, that might help explain, you know, the business's ability to navigate less favorable market conditions.

Yes. You know, and I would tell you it's a great question. Thanks for the question. I would tell you that Offerpad is built for this. I mean, this is what, you know, we have with our real estate DNA. You know, the market conditions are always doing something. Obviously, with what we're seeing out there right now, a lot of it is highlighted and under the spotlight right now, but, you know, in a normal market, you know, down to a subdivision level, street-by-street level of how we're assessing our risk of every product and every home that we buy and how we're assessing that risk.

So everything that we do, it's about the risk assessment of buying and renovating, and selling a home in 100 days, and so we assess that risk. And as we build into that risk, obviously, is to protect ourselves. The best thing about our model, we own that home for a very short period of time, but we have to be right during that period of time. And so that comes, you know, down, you know, and we say a lot about logistics and execution, that's really important. But as we underwrite homes, one of the biggest monitors that we look for is active supply.

You know, it's just 101 supply and demand, and it's no different in housing. Is that, you know, you'll assess a home much different if there's 12 of the same model in the same subdivision than you would if that's the only home that's there in a one-mile radius. So we're watching. It's a really unique time in housing, you know, and in most of our markets, you have just a few weeks supply of homes. We are watching that closely.

We meet on that weekly with checks and balances in (inaudible), down to, "Hey, there's a 2-stories in Charlotte over $500,000 price points. You know, is this something in the market that we're seeing?" I mean, we'll get down through data analytics, through technology, through our ground game, which is obviously really helpful with market dynamics. So there are ears in the ground of what the market conditions are. All of that is assessed working with our acquisition teams, our renovation teams, our disposition teams, and that's where the logistics come into it.

But the one point that I will say is, you know, as we look at declining markets, remember in real estate, there's opportunity on both ends of markets. Right now there you look at our model, you could argue this is the worst time to be in iBuyers, because someone in the open market can sell their home easier than they've been able to do the last 20 years. And so, you know, acquiring the amount of homes, I've been really pleased with the volume of homes we've been able to buy, and then once we own it, we can sell it, you know, on the other end, which we discussed.

But on a downturn, on the market where there's more supply, you know, that's something that we can really flex on because, you know, as homeowners have more trouble selling their home, and it goes back to a normalized, let's say, you know, 3 to 4 to 5-month selling period. You know, coming to Offerpad where they can close in their schedule, it's going to be that much more valuable, wo there's opportunity there. We can assess, and we can build the risk into that as well. And that why I was commenting before on renovation and some of those different things so our property sells first.

And so, these are all things that, you know, we've been through and, you know, that we're prepared to do. And listen, right now with the market dynamics, you know, we're watching it closely and no one has a crystal ball, but you know, and each market will be doing something a little bit differently over time. So we're watching that closely.

I appreciate all that candor, Brian. And I guess, you know, follow up on the same topic of, you know, general investor concerns that we're hearing, you know, regarding your contribution margin targets of 3% to 6%. I think, you know, absent the potential, you know, the impact on mortgage rates in terms of the fundamentals of the housing market, it seems like there are concerns around how, you know, Offerpad's financing structure is built. The stomach, the rate outlook that we're staring at over the next few months with, you know, aggressive rate hikes.

So maybe you can just discuss what levers you pull to date around mitigating that impact, what you could still do, and really what kind of the max level is that you can stomach before you might need to evaluate changes to your funding sources. And as a quick follow on to that, if I could squeeze one in. Would just be Mike, you know, how do you feel about the current cash position and overall liquidity position? Thanks.

Sure. Thanks, Ryan. So on the contribution margin, I mean, we have ranged anywhere, as I said, from 5% to 10% over the last 4 quarters. We were at a 6.4% contribution margin after interest here. You know, interest is a component of that, but it's not the primary component. So as Brian talked about some of the different levers, you know, that we can use in the underwriting, one of the factors that goes into that is our cost of capital. And so, you know, we're cognizant of that. You know, it's part of the equation that we use to be able to, you know, give a good offer, a strong offer in the process.

And to date it has not, you know, impeded us at all. So we're not seeing that really as a gating item. We've got in our debt capital structure about 20% is fixed. And so it's something that, you know, we keep an eye on, obviously, you know, with the news today and, you know, the expectation of rate increases through the year. You know, we're incorporating that into every home, you know that we put an offer on. So I don't see that as an issue from a capacity standpoint, you know. We've had great success in utilizing some very effective credit facilities.

We've got great lenders that, you know, have been very supportive to the company and we've only continued to expand those and add that to the portfolio. So I like where we're at, you know, from a debt capital structure standpoint. And then, you know, lastly, on the cash position, you know, we ended the first quarter, you know, at nearly $200 million of cash, you know. We've been cash-flow positive, you know. I'm comfortable with where we're at and our ability to execute against our business plan. As always, we'll be opportunistic. We'll watch the capital markets, if there's opportunities to access markets, you know, in a reasonable, you know, value accretive manner, and we'll certainly do that.

Because, you know, this is a capital-intensive business and we recognize that. And we've got, you know, very good growth aspirations. So you know, all those pieces go together and we're constantly monitoring that situation, but I'm quite comfortable where we're at today.

Let me just throw one other in on there as well, just another point to that. So that's the one thing that is really nice having 2 main products that we have. We have our Express, which is our cash offer, and then we have our Flex. What you never want to do is buy homes when you're uncertain what the market conditions are. And you know, obviously, we pride ourselves in with our real estate end of knowing what those conditions are, but also having another product. So when there's uncertainty or when we have to build more risk into the cash offer side of it. We can help that customer by putting them into a Flex product that's a, you know, very high margin, low-risk business for us as well.

And so having those different solutions on there and other products that they can use, it really helps us you know, navigate any uncertainty in the markets. And of course, then once we get comfortable with what the market conditions are, you know, then there's opportunity in those market conditions that I mentioned before. So just I wanted to point out that, you know, having those 2 products and those 2 leverages is really helpful.

And the last question comes from the line of Ben Sherlund with Cantor.

I'm looking at the guidance for the home price in a quarter, and I'm seeing that the midpoint $375,000. When I go on the website and look at the inventory, the average home is listed for about $409,000. You know, is there anything to read into that, you know, about your expectations for the rest of the quarter, or could this just be a function of, you know, the mix of lower-priced home selling quicker versus the higher-priced homes? Any color will be appreciated?

Yes, I don't think there's really anything to read into that. You know, we have seen a lot of price appreciation, you know, quarter to quarter here. There is an expectation that, that slows down a little bit. There's some mix that goes into that as well. A fair amount of the more recent new markets that we've opened have been Midwest markets. Those have been lower price point communities, you know, that we're operating into. So you do get, you know, a little bit of mix involved with that.

And a lot of those, you know, since we're new into the markets, we've just gone through an acquisition cycle and more of those are coming on the market for us too. So I think it's really just, you know, a matter of, you know, we don't expect, you know, the ASP to, you know, continue to rise at the same rate that it has, but, you know, I think we're in a good position with, you know, $375,000 ASP.

Okay, great. And then maybe a follow-up on kind of the new markets. In old presentation, I believe it was from 1Q '21, you know, you showed us this kind of spread of the contribution margin after interest of, you know, older cohorts or older markets versus newer markets. You know, in a competitive environment like today, you know, do those newer market openings, you know, kind of ramp up profitability quicker than they might have in 2020?

They do. And I think that's actually more of a function of, you know, the refinement at the model and how we're going at these. I mean, one of the benefits that we've seen organizationally as we've grown is our ability to, you know, retain really good, you know, regional general managers and general managers. We've got a good pipeline in building our structure. And so we've been able to take, you know, our model as we've gone into a new market.

You know, learn from the things that have not gone, right, you know, capitalize on the things that we know work in each market, and really get better each time we're going in there. So I would tell you, we are seeing, you know, the ramp to profitability quicker in newer markets than we did, you know, years ago and it's been quite successful.

Yes, and I just highlighted it, and I agree with that. Again, this all comes down to, and I know there's a lot of noise out there, but this all comes down to, I don't think we've said anything different, you know, for the last 6 years, this comes down to execution. This comes down by paying the right price on the front end for the home, to renovating it in the right timeframe and putting it on the market, and selling it in a hundred days.

And you know, if you can get that execution logistic down, it's a very, very good model and customers and consumers love it. And so that's what it comes down to is execution. And our is getting better and better in the markets that we're in overall, and we're getting just more consistent, you know, across the board.

Thank you. The question and answer session has concluded. I will now turn a call over to Brian Bair, Chairman and CEO for closing remarks.

Thanks everyone. I'm very proud that our revenue this quarter was over $1 billion higher than quarter one last year. The phenomenal growth and execution resulted in another profitable quarter with a record $41 million of net income. I want to give a massive shout out to our amazing employees, they live by our main core value, results rule. I would also like to thank each one of our investors for believing in our vision to make real estate better. Thanks a lot everyone. Enjoy your day. Thank you for joining us.

That concludes the Offerpad, first-quarter 2022 earning call. I hope you all enjoy the rest of your day. You may now disconnect your lines.