Good afternoon. Thank you for attending today's Offerpad First Quarter 2023 Earnings Call. My name is Bethany, and I will be the moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host Stefanie Layton, Senior Vice President of Investor Relations and ESG at Offerpad. Stefanie?

Thank you, and good afternoon, everyone. Welcome to Offerpad Solutions' first quarter 2023 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 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 reconciliation of Offerpad's non-GAAP measures to the comparable GAAP measures are available on the financial tables of the first quarter earnings release on Offerpad's website. I'll now turn the call over to Brian.

Thanks, Stephanie. Hi, everyone. Appreciate you joining us today. I'll cover our priorities, a Q1 summary, market trends and operational updates. Mike will share our first quarter 2023 financial results and our second quarter outlook. The extraordinary increase in interest rates last year and the resulting impact on home values and sales volume required us to adjust our plans, revise near-term objectives and execute decisively. In the fourth quarter 2022 and the first quarter 2023, we focused on the following top priorities. First, renovating and selling homes acquired prior to September of last year. As of last week, 99% of those homes have sold are under contract to sell. This allows us to focus entirely on our go-forward plans. Second, acquiring new homes at a cautious pace to test markets and improve our ability to achieve positive returns on new acquisitions in this uncertain market. In fact, we have largely achieved or exceeded our normalized return targets on homes acquired after September 1, even as many markets have been under stress. Third, reducing costs to adjust to today's market dynamics. Cumulative headcount and other cost reductions are expected to increase our annual operating costs by $40 million in 2023 compared to last year. Fourth, raising equity capital to strengthen our balance sheet. Now in the second quarter of 2023 and looking forward to the third quarter, we are executing a plan that we expect to produce positive adjusted EBITDA by year-end. Importantly, we believe that our ability to execute and achieve profitability is not dependent on home price appreciation. We are prepared to perform through this period of depressed residential resale transaction volumes. There is plenty of upside if this broader market accelerates. However, our plan is not dependent on market acceleration. Our plan targets the following top three priorities.…

Thanks, Brian. We had an encouraging start to the year with macro conditions, beginning to stabilize and quarter-over-quarter improvement in our bottom line financial results. Importantly, we accomplished our stated goal, to sell or have under contract substantially all our homes purchased prior to the market shift. This was critical to support continued improvement in our financial performance this year, and we accomplished this on schedule, and in line with our financial expectations. During the first quarter, we generated $610 million of revenue exceeding the top end of our Q1 guidance range by 13%. Our revenue was supported by the sale of 1,609 homes which also exceeded the top end of our guidance range at an average selling price of $379,000. The $59.4 million net loss in the first quarter reflects a, 51% improvement over Q4 of 2022. Our adjusted EBITDA for the quarter was negative $44.8 million compared to negative $103.7 million in the fourth quarter last year. This reflects a 57% improvement in adjusted EBITDA quarter-over-quarter. The sequential quarterly improvement was supported by a $52 million increase in gross profit due to a significant decline in the inventory valuation adjustment as well as improved margins on more recently acquired homes. Our gross margin improved to 780 basis points from the fourth quarter loss to 1.2% in Q1. This is consistent with the disposition of inventory acquired prior to the market shift, partially offset by the positive performance of homes underwritten after September of 2022. Of the 1,600 homes sold in the first quarter, nearly two-thirds of the homes were acquired before September. Early results for the homes underwritten, during fourth quarter last year and first quarter of this year, continue to show returns at or above our target range, and we expect gross margins and contribution margins, to…

[Operator Instructions] Our first question comes from the line of Nick Jones with JMP. Please go ahead.

Great. Thanks guys for taking the questions. I guess just, maybe a finer point on some of the outlook that was provided here. As you kind of progressed through the year and increased acquisition sequentially. I mean, can this kind of accelerate throughout the year? Is it going to be more linear? And I guess how does this kind of tie to your 4Q comments around higher velocity markets, should we really be expecting to kind of hit this 500 a month cadence kind of just like November, December? Or is there room to kind of hit that early? Just any additional color there would be great. And then a quick follow-up.

Sure. Hi, Nick, it's Mike. Thanks for the question. We've already seen good progress as we've gone month-by-month through the current year. And so I think it's reasonable for us to be able to get to that from an acquisition standpoint that 500 pace ahead of year-end, I wouldn't put a completely fine point on it to give a month at this point. But we've made good progress there. We're seeing good request volume. We're getting good offer levels out there in the market currently. So I think we'll hit that earlier and that will then, in turn, help enable the expectation of achieving positive adjusted EBITDA at year-end.

Yes. And one thing I'll just say - hi Nick, it's Brian. But one thing I would just add there is last year, we saw a lot of volatility in the market, and that makes it really hard to underwrite -- and we've seen definitely that volatility change in most every one of our markets. And so we can underwrite and buy homes under any market conditions where the markets are going up or going down or even staying steady. The volatility is what it's really hard. And so we're seeing that. And so we have a much clearer picture when they're underwriting homes in these markets. And so we're able to start acquiring homes again at decent volumes.

Great. And then maybe a follow-up on just kind of the EBITDA profitability by the end of the year. Should we take that as kind of full quarter EBITDA profitability? Or maybe it shows up in November, December and 4Q maybe as a whole isn't positive.

Yes, it will be tough to tell. I mean I think if we execute against our plan that we've got out there for us, we could see reported EBITDA for the quarter positive. It's a little bit of a fine point on that. I certainly think we'll be at that run rate. But the way that we've got things positioned here, again, you asked a little bit from focusing on the market standpoint, too. We've got 25 markets that we're active in out there right now. So it's getting up to 500 with our current footprint. I don't think is a huge lift. Obviously, there's -- there are a number of headwinds out there that we deal with, but that's what we do day in and day out. So our goal is to be able to get to the fourth quarter and report positive EBITDA.

And we want to take a very realistic approach to this year because of the macro environment that's out there, why we again took significant cost reductions as a company and put realistic as far as the end of the year, what we can do from a volume standpoint. And to Mike's point, we're in 25 markets. And so what that means in some of even our core markets that we've been in a long time that we -- in different times, we're used to buying hundreds of homes a month in those markets. We're down to buying 40 to 50 homes a month in those markets. And so very realistic with expectations in this market. And listen, if the market accelerates or changes, we can definitely take advantage of that. But for right now, it's -- the focus is getting EBITDA profitable by end of year and by cutting cost and hitting the numbers by the end of the year.

Great. Thanks, Brian. Thanks Mike.

Appreciate it.

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

Hi guys, thanks for taking the questions. Just was hoping for you to walk through how the unit economics differ between the EXPRESS and Direct Plus products. Does the mix at all matter in terms of your EBITDA breakeven at 500 homes per month between those two products? And how much more volume do you think you need to be at in order to be cash flow breakeven inclusive of financing costs from the EXPRESS product that's still capital intensive?

Sure. Hi Ryan, it's Mike. First, on the unit economics, they contribute similar amounts of gross margin. They come through, obviously, one, on a gross basis, which is more of our EXPRESS model. So the full sales price of the home comes through revenue, but then you've got the full acquisition cost offsetting that. On the Direct Plus model, it's more of a fee-based service. And so there it's really just coming through on a net basis. So your revenue is going to look different there, but by the time you get to your gross margin line, those economics are pretty similar between the two. So from that standpoint, it doesn't make a huge amount of difference there. And then to your second question on becoming profitable, we don't have a lot of cash items between net income and adjusted EBITDA. It really comes down to our financing costs or interest there. So what you've seen in the past when we were -- had got the profitability and achieved profitability, it was shortly thereafter from us getting moreover breakeven from an adjusted EBITDA standpoint. So those two are pretty tightly correlated. And so the expectation would be similar to what we've achieved in the past that shortly thereafter, I think we should be in that position.

Got it. And then in terms of the financing capacity, does the $600 million of committed funding reflect what you think is true capacity here relative to where the company's equity base is today and where it will probably go by year-end. I guess just trying to judge, Mike, the risk that the capacity could come down a bit as your facilities come up for renewal or if you feel like the relationship with your lending partners is such that this capacity here is intact?

Yes. Ryan, I feel really good about where we are from a financing capacity. Over the last four years, we've really built up a strong partnership, if you will, with our lenders. We have three of the largest, most reliable lenders out there from a banking standpoint. We've got strong partners in other lenders that we utilize within the facility. And candidly, it was -- the last six-plus months have been challenging on that front. But we've worked together. They've been supportive of the company. And I think on our side, we've taken a very realistic approach of recognizing where their risks are and working with them through this. And obviously, nobody was out of dime, one way or another. And so the 600 committed, we feel very good about. And even from a historical perspective, the way that we've got the facility set up, split between committed and uncommitted, we've got a good track record there of going back to the institutions and moving the uncommitted into a committed position on a pretty timely basis. So a fair amount of time working with both the teams and the credit teams over there. But we've got a solid relationship there, and I feel good about where we're at.

Yes. And the one thing I'll just push down on there, too, Ryan, is that getting through 99% of this inventory the way we have and the way we did it and the communication with our lenders has been key. And again, they have been great partners, and we're excited to look forward with them now. Now we can focus on the future and going to do what we're going to need to do this year in a very realistic way and do that. So it's -- we've done, I think, a great job with the lenders they've been great partners.

Great. Thanks for the color.

Thanks Ryan.

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.

I'm really proud of our team's focus, determination and execution in managing our way through some really challenging times. Going forward, we have a realistic and achievable plan to hit our operational and financial goals. I'm confident in our team's ability to perform, and I'm excited about our opportunity to change the way real estate transacts. Thank you all for joining us today.

That concludes today's conference call. I hope you all have a great rest of your day. You may now disconnect your lines.