Offerpad Solutions Inc. Q3 FY2024 earnings call

• Q3 revenue was at the top of guidance, driven by a healthy mix of products like cash offer, B2B Renovate, Direct Plus, and Agent Partnership Program. - Faced significant macro and market headwinds such as low residential resale transaction volumes, affordability issues, and industry commission practice changes. - Customer engagement remained strong with a 91% customer satisfaction score and steady monthly request volume. - Introduced an improvement to the customer journey with an estimated offer range within minutes and instant inspection scheduling. - The Agent Partnership Program's Pro tier saw quarterly requests and acquisitions grow to 26% and 33% of total respectively, and the Max tier was refining pricing and operating models. - Offerpad Renovate had 227 completed projects generating over $4 million in revenue in Q3, with average revenue per renovation increasing from ~$11,000 to ~$18,000 over the past year.

In the third quarter, Offerpad delivered revenue at the top of its guidance. The cash offer business drives the majority of contribution margin. Asset-light services including the B2B Renovate business, Direct Plus institutional buyer program, and Agent Partnership Program combined represented over 30% of total contribution profit after interest in Q3. Inventory ended the quarter with 796 homes, with only 10.9% owned over 180 days and not under contract for resale. Acquisitions in the quarter were 422 homes, down 49% compared to Q2. Gross margin was 8.2%, slightly down from the second quarter, with gross profit at $17.1 million, down 29% year-over-year and 22% quarter-over-quarter. Operating expenses excluding property-related selling and holding costs improved by $4.9 million versus the prior quarter, and adjusted EBITDA loss was $6.2 million, an improvement of 53% year-over-year but a slight decrease quarter-over-quarter.

• Q4 revenue is expected to be in the range of $160 million to $185 million, supported by 480 to 540 homes sold. - Projecting a 15% to 20% increase in resale market transaction volume in 2025, reaching an estimated 4.3 million to 4.5 million transactions. - Targeting a return to a run rate of approximately 1,000 acquisitions per quarter by Q1.

• Impact of hurricanes Helene and Milton on East Coast markets, causing a temporary market slowdown with minimal property damage. - Continued low industry-wide residential resale transaction volumes and persistent affordability issues. - Significant change in industry commission practices leading to uncertainty for consumers and agents. - Volatility in mortgage rates and elevated inventory holding costs and renovation costs.

Q: What assumptions are contemplated in the outlook for 2025, including mortgage rate environment?

A: We're seeing pent-up demand increasing. Interest rates are expected to be volatile through 2024 but settle in 2025. The market pause from the NAR settlement is expected to mitigate, and we anticipate a resale market transaction volume increase to the range of 4.2 million to 4.4 million.

Q: Is Offerpad expected to be adjusted EBITDA profitable for the full year 2025?

A: We're laser-focused on cost-outs. We've retooled our cost base and are targeting to relaunch to over 1,000 homes. When we put the volume at over 1,000 homes back on our lower cost structure, that will bring us to adjusted EBITDA positive and then free cash flow positive.

Q: Where are the $45 million annual cost saves driven from? And what acquisition volume is necessary for cash flow breakeven?

A: Cost-outs come from people costs, process improvements, procurement of largest spending areas, and marketing attribution focus. We're targeting 1,000 homes. Putting the volume over 1,000 homes on our lower cost structure will bring us to the desired financial position.

Q: What impacts have been observed from the NAR commission settlement?

A: There was a shock to the industry with buyers having to sign buyer agreements guaranteeing commission. We're seeing an impact of commissions, maybe 50 basis points coming down on the buy side.

Q: Are there any markets seeing more resiliency?

A: Texas markets, Atlanta, the Carolinas, and Midwest markets are more resilient.

Q: How to adjust to home price appreciation moderating while holding and renovation costs elevated? And perspective on raising capital?

A: We remain focused on the margin on the home. We're careful about what we're buying. Cash on hand is at $49 million, which is comfortable. We look at capital markets opportunities in the intermediate term, but we're currently laser-focused on cost-outs and growth initiatives.