Good afternoon. Thank you for attending today's Offerpad First Quarter 2022 Earnings Call. My name is Bethany, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [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 Solutions First Quarter 2022 Earnings Call. Our Chairman and Chief Executive Officer, Brian Bair, and Chief Financial Officer, Michael 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 risks, uncertainties, and other factors relating to the company's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading non-GAAP financial measures. The reconciliations of Offerpad's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad website. I'll now turn the call over to Brian.

Thank you. 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 cover our first quarter 2022 financial results, and second quarter 2022 expectations. I will start with a few highlights before we dive into details. I'm proud to share that Q1 was our best quarter in Offerpad's history. We set a new company record with $41 million of net income in Q1. Our top-line revenue increased $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 115% increase in request volume year-over-year. In the first quarter this year, companies faced labor challenges, supply constraints, rising interest rates and inflation, the housing industry saw Mortgage rate 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, [Indiscernible] companies, etc. We take care of all these things. Providing a list of options has been the norm. Completing the transaction for the customer on their timeline is what we do best. To facilitate the transaction with the most control and certainty allowing for the best customer experience, we own the assets at the core of the transaction. We own the home.…

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 three quarters of last year combined through the powerful combination of higher average sales prices, and increases in volume from both organic growths in existing markets, and new market expansions. Importantly, our robust top-line growth was not just growth for growth 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. And after reporting positive net income for the full year 2021, we continue that trend as we set a new company record with GAAP 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 four out of the last five years, sales had exceeded acquisitions in the first quarter. The outsized revenue growth this quarter was driven by…

Thank you. If you would like to ask your questions, [Operator Instructions]. If for any reason, you would like to remove that question, [Operator Instructions]. Again, to ask a question, [Operator Instructions]. As a reminder, if you're using a speakerphone please remember to pick up your handset before asking your questions. We will pause here briefly as questions are registered. Our first question comes from the line of Mike Ng with Goldman Sachs. Please go ahead.

Hey, good afternoon and thank you very much for the question. Just first on purchases, I was wondering if you could give a little bit more color about how we should think about purchases for 2Q. Is that going to be similar to 1Q levels and how are you balancing increasing purchases with being priced discipline? And then on the second question, I was just wondering if you could talk a little bit more about renovations. Is that beginning to contribute to gross margins in the form of home price appreciation? Thank you very much.

Great. Thanks Mike for your question. From 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 at Q2 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 see anything different on the landscape that would drive variations that our request volumes 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 -- we've made really good progress on that. We spent some time in prior calls last year and the last couple of quarters with some supply chain issues that slowed us down a little bit. That really -- that bottleneck unleashed really in the first quarter here, and the guys did a fantastic job of getting back on track, and I would say we're in a much more normalized position on that front to the point where, yes, it does come back to be a part of the equation for the margins as we go forward. We're still seeing inflation, we're still seeing price increases, labor is tight, so it hasn't gotten easier, and we think that's going to continue for the second half, but we do have the process in pretty good shape as we're going forward.

The one thing I would add on renovation is that renovation is going to become more important. What we've seen over the last couple of years with supply and demand of the product 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 -- we don't have to put all the bells and whistles in every home that we own. As the market changes and we start seeing more supply, this is where 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 are focused on as well.

Great. Thank you very much for the thoughts, Brian, and Mike.

Thank you.

Thank you. Our next question comes from the line of Dae Lee with JPMorgan. Please go ahead.

Thanks for taking the question back to -- just looking at your 1Q grow. Those are strong, so curious if there's any particular market that having drilled back growth. And I think you talked about prior two years, seeing more of [Indiscernible] growth across all markets. So I'm wondering if you're seeing any changes to that and markets are behaving differently going forward, and then looking at your 2Q value feels like there's a change in the top line [Indiscernible] Just curious, if you can double quick on that a little bit more and explain how much about is to pull forward into 1Q. And if there's been in the change to your strategy.

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. We -- consistently we've had in most of our markets, if not all of our markets, with a lot of the challenging times has been over the last year. But as -- we got a really good playbook when executing new markets and rolling out a new market. And one, there's -- there are some things we're getting them out. Just as we open a new market, more and more people understand our model and what we're doing. It's more a real estate-as-a-service. And so we're executing well just from consumer brand awareness, when we get into new markets. And then second -- and the second part of that is just the team knowing what we're looking for in the teams put in there and our ground game in those markets from a renovation director, acquisition director, and general manager just across the board. Knowing what teams drive in those markets has been really important to us. 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.

I totally agree with that. And some of the comments about the geographic diversification as we built out our market footprint. The other piece, the benefits as in there is that there's less concentration in the individual market. So years ago, as we're starting to company, we are much more heavily concentrated in Phoenix, that now that's still our Number 1 market. But we don't have really a single market that's 20% or more of the entire business. So the concentration in each of these markets is nicely dispersed as well. We've got good strong markets that we've been in for a while. The Charlotte's, the Atlanta is the Phoenix. Even Tampa, very strong recently as well. And then as the new markets we brought on, are coming, they're are getting up to speed, we're getting them up and functioning and individually profitable on a faster pace than than we ever have. So good results there. Your second question on the velocity, it -- I don't see it really slowing down. The businesses isn't linear. If you take a look at, Q4 was a little bit slower due to some macro conditions in terms of sales. 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 looking at 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 very strongly in the first-quarter here. 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 accelerate again on the acquisitions, we had a really good acquisition month in March that's continued into April. So we'll get that seasonal pickup again and rebuild the inventory stock. And then I see, as I said earlier, in the prepared remarks that we would expect sequential growth, our revenue lies in Q3 and Q4 as we round out the year.

Thank you.

Thank you. Our next question comes from the line of Andrew Boone with JMP Securities. Please go ahead. Andrew, your line is open.

Apologies. Sorry, I was on mute. Thanks for taking the questions and sorry for the delay there. 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, and 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 the back half of the year. So how do we think about HPA in terms of 3Q and 4Q? And then secondly, great to hear 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 in just being aware of iBuying overall as an option? Thanks so much.

I'll -- let me take a second question and I'll let Mike jump into the first one. Yes. The one thing that I'm extremely especially in our markets, we've been in for a while. I think we're very -- are brand awareness. The average tone seller and buyer are very familiar with our model. You take Phoenix and Atlanta and that Tampa and Orlando, the market we've in. Now our Texas market. Been very happy with our brand awareness. I think people really understand what we're going to do. What I'm very excited about. We talked about this in the last -- the last earnings call was, one of the things in the education that we have to do was having people not looking us only as an iBuyer where they can come and will buy their home on their timeframe, but also as a solution center. Where they'll start looking at us through other products and that's whether they want to weak partner with us in listing their home or having us find help and find their next home, whether it's on Offerpad or not. And so we're starting to make some headway on that with our brand. And just as a reminder to everybody either where is going to a market, you're going to see us on television, you're going to see us direct mail, all the digital media channels you would expect. And so 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 start the transition of people looking at is more of a one-stop solution center, unless if we have a lot of work to do there. And clarify that we're starting -- that we're starting to kind of break that threshold little bit, which is great too.

Great.

Sure.

Is that 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 Boone really read a whole lot into that. There's nothing structurally. I think that really changes quarter-to-quarter. The business is solid and there weren't really any 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 backup to the same percentage. So there is some sensitivity involved there. So nothing that we're necessarily signaling one way or the other on that HPA as far as that's concerned, we have said now for the past three plus quarters that these were extremely strong times and we would expect a pattern to kind of normalize through that time. We've had good success through the fourth quarter in the first part of this year, and are pleased with our track record, and the market conditions underlying that. So I do expect that to rein in a little bit in the second half of the year. Can't really put a number specifically to it, but I think directionally our expectations that we do see HPA being less of a contributory factor in the second half.

Thanks. Apologies for the delay.

No problem.

Thank you. Our next question comes from the line of Ryan Tomasello with KBW. Please go ahead.

Good evening, everyone. Thanks for taking the question. I think 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 a very volatile period of potentially decelerating or declining housing [Indiscernible]. So 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 response in changing market conditions. And maybe even past examples that you could point to in your operating history if any, that might help explain the businesses ability to navigate by favorable market conditions.

Sure. And I would tell you it's a great question. Thanks for question. I would tell you that Offerpad is built for this. I mean, this is what we'd -- we have with our real estate DNA. 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 down to -- in a normal market, down to a subdivision level street-by-street level of how we're expecting 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, renovating, and selling the home with a 100 days. And so we assess that risk. And as we build into that risk, obviously protect yourself. The best thing about our model we own that home for very short period of time. And so we have to be right during that period of time. And so it comes down, you normally say a lot about logistics and executions, but that's really important. But as we underwrite homes, one of the biggest monitors that we look for is active supply. It's just one-on-one supply and demand and they're still different in housing. Is that you'll assess a home much different if there's 12 with the same model in the same subdivision than you would. That's the only home that's there in a one mile radius. And so that's where -- we're watching -- It's really unique time in housing. In most of our markets, you have just a few weeks supply of homes. We're watching that closely. We meet on that weekly, with checks and balances and restudy, down to, there's a two store -- two stories in Charlotte's,…

Appreciate all that color Brian. And I guess follow-up on the same topic of general investor concerns that we're hearing, regarding your contribution margin targets of 3% to 6%. I think absent the potential -- the impact on mortgage grades in terms of the fundamentals and how the market it seems like. There are concerns around how Offerpad's financing structure is built to stomach the rate outlook that we're staring at over the next few months with aggressive rate hike. So maybe you can just discuss what levers you pull to date around mitigating that impact when you could still do. And really, what kind of 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. How do you feel about, the current cash position and overall liquidity position? Thanks.

Sure. Thanks, Ryan. On the contribution margin, we have ranged anywhere, as I said, from 5% to 10% over the last four quarters. We were at 6.4% contribution margin after interest here. Interest is a component of that, but it's not the primary component. As Brian talked about some of the different levers that we can use in the underwriting, one of the factors that goes into that is our cost of capital. And so we're cognizant of that. It is -- it's part of the equation that we use to be able to give a good offer, a strong offer in the process. And to date, it has not impeded us and also, we're not seeing that really as a gating item. We've got a debt capital structure about 20%, and it's fixed. And so it's something that we keep an eye on. Obviously, with the news today, the expectation of rate increases through the year, we're incorporating that into every home that we put an offer on. So I don't see that as an issue from a capacity standpoint. We've had great success in utilizing some very effective credit facilities. We've got great lenders that 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 from a debt capital structure standpoint. And then lastly on the cash position, we ended the quarter in the first quarter at nearly $200 million of cash. We've been cash-flow positive. I'm comfortable with where we're at and our ability to execute against our business plan. As always, will be opportunistic. We watch the capital markets. There's opportunities to access markets in a reasonable value accretive manner, and we'll certainly do that because this is a capital intensive business, we recognize that. And we've got very good growth aspirations. So 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, just another point to that. The one thing that it's really nice having two major -- main products that we have. We have our Express, which is our cash offer then we have our FLEX. What you never want to do is by homes when you are uncertain what the market conditions are. And obviously we pride ourselves in with our real estate and of knowing what those conditions are. But also have that other products. So when there's uncertainty or where we have to build more risk into the cash offers side of it. We could help back in -- we can help that customer by putting into a flat -- a FLEX product that's a 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 navigate any uncertainty in the markets. And then of course, then once we get comfortable with what the market conditions are then there's opportunity in those market conditions that I mentioned before. So just I wanted to point out that having those two products is, in those to leverage is really helpful.

Thank you. And the last question comes from the line of Ben Sherlund with Cantor. Please go ahead.

Hi, guys. Thanks for taking my question. I'm looking at the guidance for the home price in the quarter and I'm seeing at the midpoint, 375,000. I want to do on the website and look at the inventory on the average, home is what's the -- for about $409,000. Is there anything to read into that or about your expectations for the rest of the quarter or could this just be a function of the mix of lower-priced on selling quicker versus the higher-priced onset? Any color there would be appreciated.

Yes, I don't think there's really anything to read into that. We have seen a lot of price appreciation, quarter-to-quarter year. 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 that we're operating in to. See do get a little bit of mix involved with that. And a lot of those since we are new into the markets, we've just had gone through an acquisition cycle and more of those are coming on the market for us too. So I think it's really just a matter of, we don't expect the ASP to continue to rise at the same rate that it has. But I think we're in a good position with $307,000 ASP.

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

They do. And I think that's actually more of a function of the refinement model and how we're going with this. One of the benefits that we've seen organizationally as we've grown is our ability to retain really good regional general managers and general managers. We've got a good pipeline in building our structure. And so we've been able to take our model as we've gone into a new market, learn from the things that have not gone right, 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 the ramp of profitability quicker in newer markets than we did years ago and it's been quite successful.

Yeah. I just have -- I'd give them. 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 from -- for the last six 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 timeframe and put it on the market, and selling it in a 100 days. And if you can get that execution logistics down, it's a very, very good model and customers and consumers love it. And so that's when it comes down to it's execution, and our execution is getting a better and better in the markets that we're in overall, we're getting just more consistent across the Board.

Okay. Great. Thanks, guys. Congrats on a great quarter.

Thank you very much.

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

Thanks, everyone. I'm very proud that 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 take 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 Earnings Call. [Indiscernible] Enjoy the rest of your day. You may now disconnect your lines.