Good afternoon. Thank you for attending the Offerpad Fourth Quarter 2023 Earnings Call. My name is Matt, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Taylor Giles with Offerpad. Taylor, please go ahead.

Good afternoon, and welcome to Offerpad's fourth quarter and fiscal 2023 earnings call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Interim Principal Financial Officer and Senior Vice President of Finance, James Grout. 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 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, Taylor, and thank you all for joining our fourth quarter 2023 call. The past year represented a pivotal moment for the company in terms of our operational advancement and execution capabilities, despite enduring a volatile and challenging macroeconomic landscape. Even with the market difficulties, we cleared through virtually all of our legacy inventory obtained prior to the market transition by the end of the second quarter last year and have seen meaningful improvements in contribution margin in the second half of the year. Our focus is strong in our commitment to our core vision and strengths, which start with the foundation of our cash offer. Our renovate product line, alongside our ability to involve agents to be part of our solutions, is prospering and our ability to manage our expenses has never been better. By doubling down on the things we can control, we delivered a solid fourth quarter. Our revenue of $240 million, adjusted EBITDA of negative $7 million as well as our 712 homes sold were all within guidance. So we are back to our desired growth trajectory, 2023 brought its share of wins. We demonstrated a clear path towards sustained profitability, with adjusted EBITDA up over 1,200 basis points year-over-year. We grew our partnership in ecosystem networks, especially within our agent partnership programs greatly expanding our coverage. And we continue to grow our asset-light revenue streams, which accounted for more than 35% of our contribution margin, after interest, in the second half of 2023. I will discuss these accomplishments, then review our three strategic imperatives before transitioning the call to James for an in-depth discussion of the numbers and guidance. During 2023, we improved adjusted EBITDA in each consecutive quarter, while also delivering revenue growth in the last three quarters of the year. We plan…

Thank you, Brian. From a financial perspective, our three imperatives are producing the results needed to drive business excellence as we expect to achieve sustainable positive adjusted EBITDA this year. In the fourth quarter, we continued to scale back our cost structure and narrow our operating loss. In 2023, our operating expenses, when excluding property-related selling and holding costs and contribution margin, decreased by $69 million, compared to 2022. Through continued operating leverage, more efficient advertising spending and expanded partnership channels, we plan to capture an additional $30 million in cost efficiencies in 2024. We remain diligent about how we allocate our spend to ensure the entire organization is streamlined, while we strategically invest to capture our share of the market. We exited the year with a property portfolio in a strong position. We had 940 homes in inventory, of which only 4.4% were owned over 180 days, with nearly half of those under contract to be sold. This is down from 35% at the end of 2022, as we slowed our acquisition pace and focused on risk management of our legacy portfolio. The homes sold in the quarter had an aggregate time to cash, or TTC, of 97 days, in line with our seasonal expectations. Q1 should see a slight growth in TTC before again reducing seasonally in the summer quarters of 2024. We acquired 678 homes, which was partially impacted after the quick rise in mortgage rates to above 8% early in the quarter, ultimately resulting in fewer transactions across the market. With rates decreasing through the end of the quarter, in January, we saw a better than normal historical increase in request volume, up nearly 60% over December. As a result, acquisition pace has improved to start the year, and we anticipate sequential quarterly growth in the…

[Operator Instructions] First question is from the line of Nick Jones with JMP. Your line is now open.

Great. Thanks for taking the questions. Two, if I could. First on -- how should we think about the path to acquiring 500 homes per month? I think it's a little lighter than maybe what the target initially was. Is that a goal that's achievable in 2024? And then a follow-up.

Yes. Nick, it's Brian. The -- on the 500, that's obviously the goal we're looking at. We are very focused on, obviously, the macro world out there and the dynamics of controlling what we can control. And so as we're watching interest rates and what's happening out there, we're focused on buying the type of homes we want in our buy box. And so if the opportunity is there, we're going to do it. We're more focused on property performance right now than, I would say, volume of the homes we're buying. And so that's our focus.

Great. And then in the prepared remarks, you talked about $5,000 of incremental contribution margin from kind of other services. How high can that go? Could that -- if you think about path to profitability, is that a key driver to getting there? And can you kind of contextualize how much more wood to chop there is in adding more dollars to incremental contribution margin?

Yes. I'll jump in and then I'll have James comment on the breakdown there. But the one thing true to the adversity that we felt in the real estate over the last 1.5 years, overall, I'd tell you, the win that we've had is we've had a lot of time to focus on these asset-light products. And if you remember, I've said I wanted to be a solution center for everyone for a long time. And we are really getting some headway with a lot of this. And what we've been really focused on is cutting costs and focus on what we can do really well. And one of those is a lot like specifically on the renovate side, the direct plus side that we'll talk a little bit more about and then allowing others to plug in to Offerpad some of our services. And so I think and maybe I'll say that the sky is the limit of what we can do on the asset-light stuff there. But I think we are just getting started, again, in this environment. As we'll start buying more homes as the market starts to normalize, you'll see those light asset lines start to grow even more and more on, I think, across the board, but I'll let James talk a little bit more about that.

Nick. So I think one thing that's really exciting about what we're seeing in our other lines of business is they're growing at the same time that the EXPRESS -- the cash offer business is growing. And so $5,000 of incremental contribution margin per home sold for 2023, that was $7,000 per home just in the second half of the year. I think, long term, we still have, overall, our 6% to 9% target for the contribution margin after interest. And ultimately, I think where we can get is our goal is to get to 50% of that being driven by the cash offer business and 50% of that coming from the other lines of businesses overall. So still some more room to chop there. I think we've got a lot of good momentum in some of those businesses, especially like a renovate business right now. So we'll just have a key focus on continuing to diversify that.

And one thing I'll add there, just with the Direct Plus business is that the cash offer business, it's really in -- you almost have to segment out into two worlds. It's -- one of them is the cash offer business of the homes that we buy. So the customer gets a cash offer and Offerpad is going to balance sheet that home. And then the other section is the Direct Plus business, which the customer gets a cash offer, they get the Offerpad experience up until closing, Offerpad doesn't close that home. One of our Direct Plus partners will close that home. And so two significant paths to that. And like I said, I feel we can make it headway in both and as they continue to grow.

Thanks guys.

Thanks.

Thank you for your question. Next question is from the line of Dae Lee with JPMorgan. Your line is now open.

Great. Thanks for taking my questions too The first one, on your expectations to reach adjusted EBITDA profit for the year. Just to clarify, are you expecting to get adjusted EBITDA for the full year or that was the year adjusted EBITDA profitable and what macro conditions are you assuming for now? And then I have a follow-up.

Yes. So right now, our expectations are for the full year to be adjusted EBITDA profitable. Currently, right now, I think, overall, from a macro perspective, I'll let Brian go in a little bit more about what he's seeing there, but from a planning standpoint, we're planning around flat prices, flat transaction costs, flat interest rates. So not really trying to bake in any sort of tailwinds from decreasing rates or anything like that. But overall, kind of expectations throughout the year is following the first quarter a period of investing in inventory growth there, then we should see some sequential increases there and improvements to ultimately produce full year adjusted EBITDA profitability.

Okay. Great. I guess, and I have a follow-up. It sounds like you guys are underwriting with more of a risk-off buyers in the homes that you're acquiring. So with that, if that's true, like what do you guys need to see to, I guess, operate the business with volume in mind as well?

Sorry, the last part, Dae -- the last part cut off, what we have to see on the what side? Sorry, I couldn't hear the last.

I guess, what you guys need to see to drive or operate the business for volume growth as well. It sounds like you guys are operating more for a process focus in mind right now. So what do we need to see for you guys to go after more volume?

Yes. So a lot of -- everything we do is assumption-based, right, of what the market is doing, each -- very market-specific product line specific just in general. And I've mentioned before in different calls, that's -- to ramp up, that's -- to ramp up volume is one of the easiest metrics we can ramp up. I would think more than anything else is the volatility in the mortgage rates. I mean, for example, in the fourth quarter, we saw rates hit almost -- well, they hit over eight and then we saw they've been down to like the high 6s in November and December. And so more consistency in the mortgage rates would definitely -- what's interesting is, just when we talk about the macro world, you have sellers that they're obviously locked into their current mortgage and equity of the lock-in there. The lock-in effect. But then you have buyers on the affordability side. And so both of them desperately want something to happen. You can just see it. And as interest rates drop down below 7, you can see sellers willing to sell and then -- and you can see buyers that now want to buy. And so that right now is so sensitive. So we're watching that really closely. Just affordability overall will tie into that. So everything is very interest rate-driven right now and just getting more consistency there. And again, it doesn't need to go back down to where they were by any means. But it's just more consistency, so you can see the affordability and sellers willing to sell there, too.

Thank you.

Thank you for your question. The next question is from the line of Ryan Tomasello with Stifel. Your line is now open.

Hi, everyone. Thanks for taking the questions. It would be helpful if you can just give us a quick overview of the revenue model, maybe a reminder, a refresher of the revenue model behind some of the more meaningful asset-light service offerings and the economics from a gross margin perspective. I would assume things like renovation, that seemed to be a more material driver. And then in addition to that, these various agent partnership programs, just the volume and expense efficiencies, how you measure those relative to funneling volume for more traditional sources? Any added perks around that? It looks like there's a membership fee involved, if that can be meaningful. Just in general, trying to understand the economics and revenue model behind the noncash offer products.

Yes. Sure. I'll go high level and let James get into some of the details there. But yes, from a high level, one thing that we want to accomplish is get our products and services out to more people as fast as -- the faster we can and to scale it as fast, and especially some of the asset-light services. So we've always been focused on giving the customer or the consumer a choice. They come to us to get a cash offer or they could potentially list their home and -- whatever works best for them at that moment. And so be able to scale using agents to help us scale those programs, as we mentioned in the prepared remarks, that's been scaling fairly quickly. And as we see even in this market and the landscape that even scale even faster is giving agents the ability to plug into a lot of our services. And that includes our renovation services, so they can basically use our renovation teams to upgrade or upscale a home that they need, but also some of the others are sold in our 60 program that the ability to have the cash offer, been able to list a house on the open market with knowing that they have the insurance of the cash offer in the backdrop. So the agents are, like I said, we're scaling that fairly quickly. And from when we launched it, we're getting really good feedback, and it's scaling very, very fast in some of the zones, the things that we're doing. But again, we want to find a solution for everybody, and that consumes the -- no matter -- we want to meet the customer where they're at, whether they want to use an agent directly, we want to be there for them. But I'll let James talk a little bit about the economics side.

Sure. Ryan, So I guess just to kind of walk through each of them really quickly one by one. On the renovate side, like you mentioned, we are seeing some really good progress there and good momentum kind of across the board and in various markets. The way the renovation revenue model works is effectively think about an average renovation cost right now were in the $15,000 range from an average reno cost to these customers. And then we're capturing a service fee on top of that. It can be anywhere from 20% to 30% or so of a service fee. So this comes through at, call it, a 20% gross margin, plus or minus. Overall, from an overhead perspective, that's a shared resource from -- with our EXPRESS business, with folks in the markets and all that. So it's a nice kind of value-accretive overall business line to tack on to our existing operations. On the Direct Plus side, like Brian mentioned, from a customer perspective, it's very similar experience, overall, where the request comes in, we're underwriting the home, and we're managing that request all the way up until the time of closing. Effectively, what's happening at closing is we're transitioning or we're assigning over that contract whoever the ultimate buyer of that home is. And so we're capturing our service fees as the revenue on that, for that project -- or for that home. So really, that comes through at a very high gross margin. I think 95%-plus type gross margins there since it's effectively just a service fee coming through. And then on the listing side, this is where the kind of interesting thing that Brian just talked through. Again, this is also a service piece. This comes through at a very high overall gross margin there. For leads that we're referring out, the referral fee that's coming through -- back through is just going to be a percent of the overall sales price that ultimately that agent closed on, so that should come through again at a 90%-plus type gross margin there. And again, the subscription fee is -- it's our mechanism for being able to engage with those types of very highly motivated and engaged agents within a market that are willing to invest capital upfront in order to get access to leads and listings and all the other great products and services that Offerpad can offer them there. So again, as a subscription-based type fee coming through, that's another kind of 90% type gross margin ultimately.

Great. Really appreciate all that color. Very helpful. And just a follow-up here. You mentioned another $30 million, I think, of cost efficiencies you expect to realize in 2024. Is that mainly driven by the annualization of the expense efficiencies you drove last year? Or is any of that incremental? And if so, any color on where those savings are coming from? Thanks.

Yes, great question. It is a little bit of both. So we did kind of continue to optimize the cost structure through the end of the year. So part of that is going to be coming through from that standpoint. The other part is going to be a lot of our focus and attention invested in our partnership program. And then, overall, what that means from a CAC perspective and what we need to invest into kind of direct marketing in order to generate the amount of leads necessary for the business. So I view the annualization part really tied to what the kind of expense management we're doing at the end of the year, but then also we'll carry forward some more marketing efficiencies throughout the year as well.

Okay. Thanks for taking the questions.

Thank you for your question. Next question is from the line of Michael Ng with Goldman Sachs. Your line is now open.

Hi, good afternoon. Thank you for the question. It was encouraging to hear about the renewal and extension of the three credit facilities. I was just wondering if you could talk a little bit more about some of the changes in the terms of those facilities. I think you said there was an adjustment on target size. Like how should we think about how that translates into your home purchase and selling prices on a go-forward basis. And could you just remind us what the current capacity is today and what percentage of the capacity was renewed? Thank you.

Yes. Good question. So right now, where we ended the year from an overall capacity standpoint, and don't expect imminent changes right now with the new renewals coming up for a bit of time here, is we had about $560 million of committed capacity and another $490-ish millions of uncommitted capacity for a little bit over $1 billion total. Historically, we've had the ability to flex in and out of our uncommitted capacity, overall. But right now, with -- we ended the year with about $260 million of total outstanding debt. We felt that the changes that we made in overall committed capacity were pretty prudent, just given our expectations and what we're seeing from a volume perspective of the -- kind of the balance sheet side of the business there. So again, we feel very good about those renewals that we put in place. Importantly, we maintain those key terms around advance rates and funding mechanics that really allow us to be really efficient with our capital and purchase the amount of homes that we do.

Okay, great. Thank you very much.

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

All right. Just really proud of the team and getting the scale and getting these asset-light services the way up and going into 2024. But I appreciate everyone and all their hard work, and thank you for everyone for joining the call.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.