Good afternoon. Thank you for attending today's Offerpad First Quarter 2024 Earnings Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, [ Taylor Giles ]. You may proceed.

Good afternoon, and welcome to Offerpad's First Quarter 2024 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. The reconciliations of Offerpad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Thanks, Taylor, and thanks to those who joined the call. The first quarter of 2024 continued the positive trajectory I discussed in our last earnings call. With $285 million in revenue, we met the high end of our revenue guidance, reflecting a 19% increase versus Q4 of 2023 and marking our third consecutive quarter of top line growth. We also met the high end of our guidance for homes sold coming in at 847, up 19% quarter-over-quarter. Adjusted EBITDA was also in line with expectations. Importantly, we remain confident in our ability to reach sustainable positive adjusted EBITDA in 2024. Both gross margin and contribution margins improved in the quarter as our asset-light platform services grew and time to cash, or TTC, was in line with expectations. Despite the ongoing macro challenges of affordability and locked-in sellers, our focus remains on the factors within our control. Our team's strong execution is driving the expansion of our platform scalability, encompassing 4 distinct platform services. As a reminder, those 4 services include RENOVATE, which allows B2B partners the opportunity to tap into our renovation technology; cost management; logistics; and ground game within the Offerpad platform. Similar to RENOVATE, Direct Plus enables B2B partners to integrate with our top-of-funnel strategies, conversion efficiencies and in-house closing teams. This program allows us to help more homeowners and reach more customers while also providing them with the benefit of receiving an optimized offer for their home. Our Agent Partnership Program served as our listing and referral platform with the goal to discover the best solution for every customer. And finally, our cash offer stands at the foundation of our services. RENOVATE continues to thrive, demonstrating strong operating and financial performance. We consistently receive extremely positive feedback from our customers who value our timely, cost-efficient and high-quality…

Thank you, Brian. The first quarter was solidly on plan as we continue to see growth among our various businesses. We also continue to drive improved operating leverage, more efficient ad spend and productivity from our partner channels, all of which are helping us drive down operating expenses. We're on track to deliver more than the $30 million in incremental cost efficiencies in 2024 we highlighted last quarter. This is enabling us to execute towards our goal of positive adjusted EBITDA and ultimately, free cash flow. We exited Q1 with our portfolio in a healthy position. We had 900 homes in inventory, of which only 8.5% were owned over 180 days with roughly half of those on our contract to be sold. This is a normal seasonal increase from the end of the year and a significant improvement from the prior year at 32.3%. Homes sold in the quarter had an aggregate TTC of 113 days, up quarter-over-quarter and in line with our seasonal expectations. We expect TTC to seasonally come down in the second quarter. As we mentioned last quarter, after the slowdown in the market at the end of the year, we saw improved request volume and acquisition pace to start the year. We acquired 806 homes in the quarter, up 19% compared to Q4 and 121% year-over-year. With the recent rise in mortgage rates, we will continue to maintain a more conservative approach to acquisitions and thus expect acquisitions to be flat to slightly up compared to Q1. As Brian said, our cash offer is the foundation of our business and our asset-light services continue to show strong momentum. Diversifying our revenue through these additional services will continue to be a priority. In the first quarter, they provided roughly 1/3 of contribution margin after interest, and we…

[Operator Instructions] The first question comes from Nick Jones with JMP Securities.

The RENOVATE piece, I think the contribution profit after interest is like kind of low 20% range. Can you remind us, how high can that contribution profit after interest go over time? And I guess, given the low kind of supply and transaction volume, is there an opportunity to maybe invest in some advertising and accelerate growth there given people maybe are opting to renovate as opposed to move?

Nick, we missed the very first part of your question, but I think it was around RENOVATE contribution margins and where that can go. Maybe, Brian, you take the advertising part to begin, and then I'll hop in on RENOVATE.

Yes. Right now, we've been focused on the growth of the -- our B2B line, a lot of the vacant homes, been focused on that. We will eventually evolve into the B2C side, which -- because you hit it perfectly, Nick, there is a very big opportunity of homeowners that are trapped in with -- as far as their equity right now or mortgage rates. And -- but will be interested in staying in their homes much longer. And so that's definitely something that we are exploring and what you'll continue more about.

Yes. And then, Nick, on the -- in terms of contribution margin. You're right, the RENOVATE business is performing kind of roughly in that 20% range overall. I think the thing -- it's been fairly consistent kind of quarter-by-quarter since we've turned that on. I think the thing that will allow us to expand that over time is as we start getting into a little bit more customizable type work. Right now, we're working primarily with institutions that are in doing work at scale. If we start to get into a little bit more customized work, maybe potentially getting to working more directly with consumers on RENOVATE, that's where you could start seeing that expand. And it could be pretty material what that could expand to. But right now, just in terms of efficiency from the platform that we've got and utilizing our teams in an effective way, we'll be focusing on that more institutional level, so the contribution margin should stay pretty flat for them overall from a margin perspective.

Got it. Helpful. And then as you kind of focus on getting to kind of sustainable EBITDA profitability. Kind of philosophically, how are you balancing investing in growth, which I think there's an increasing eye on, when can we see acquisitions and home sales start to increase more meaningfully versus kind of making sure you can be profitable at current volumes? So I guess, how are you thinking about the current cost base? If rates are higher or longer, is there more wood to chop in terms of cost cutting? Or is the business in good shape to kind of navigate, I guess, where we're increasingly having a line of sight to lower rates than, I guess, expensively higher volume?

Yes. We've made a lot of progress on navigating just this entire environment over the last 1.5 years. I really like where we are right now and positioned especially with some of the other asset-light product lines that we talked about. As we look at the -- as our cash offer business, we're still being very cautious there as far as turning that on and for extensive growth again. We're focused right now on the performance of each home that we buy as the sensitivity to affordability is very, very high right now. So we have started to expand our buy box that's buying up funnel a little bit more of the 2 to 4 to more of the 200 to 600 price points. So we'll start seeing that. But we're definitely being more cautious with the cash offer product right now and making sure that -- I don't think it's the time to really start jumping in 100% yet on that. But we're buying decent volume there and then in turn, focused on our other products as well. And then, Nick, on the cost side of the equation, I think there's kind of 2 components to that. The first 1 being our request, channel mix and our advertising spend efficiencies and the second 1 being more on the traditional OpEx sense. And the former there, on advertising, we've done a lot of work over the past years to really dial things in there kind of for this new norm of what this market looks like. And rather than kind of trying to find a homeowner right when they're at their point of trying to sell, but that's where we've been leveraging ramping up our partnership networks and things like that. Overall, we've actually driven our CAC down year-over-year in…

The next question comes from Ryan Tomasello with Stifel.

Just following up on the contribution from the noncash offer products. I think in the prepared remarks, you mentioned it was -- those services represented around 1/3 of contribution margins in the quarter. How should we expect that mix to evolve over the course of the year? Can you say what you're assuming in the 2Q guide from a mix perspective on the cash offer versus the noncash offer products?

Yes. Ryan, I think the -- right now, what we're seeing is the overall mix that we've got in terms of the cash offer piece versus the noncash offer is probably fairly consistent with what it was -- what we should expect for the remainder of the year here, I think with maybe some potential upside on that RENOVATE business with some of the areas of momentum that we're seeing there. I think one thing, though, is as we look at the actual contribution margin dollars that have fallen to the bottom line, we guided to improving bottom line adjusted EBITDA here in Q2. So that's going to see some expansion overall in the cash offer margin side there as well. So I think it will be -- when you look at it purely as a percentage overall, it might fluctuate quarter-to-quarter here just as the cash offer business has some variability in it. But overall, the mix, I think, from a volume perspective is pretty well set right now.

Okay. That's helpful. And then just to clarify another comment you made in the prepared remarks. I believe you mentioned a $7 million onetime credit that benefited the OpEx line. Forgive me if I heard that wrong, but any more color on what exactly that was? And if that was included in the initial guide you gave heading into the quarter? And if -- what EBITDA would have been excluding that? I assume we would just back out $7 million credit, which would imply an EBITDA loss of closer to $14 million, but let me know if I'm thinking about that wrong.

Yes. So just to clarify, that was in Q4 of '23. And really, that's just onetime compensation related adjusted for in the quarter. So the OpEx run rate that you're seeing more so in Q1 is more reflective of go forward.

Okay. My mistake. I just heard that wrong. And then just a last one I'll squeeze in here. Just in terms of the balance sheet. Can you just discuss your comfort overall with the current liquidity and capital position in terms of being able to self-fund the growth plans for the business over the intermediate term? I know you talked about having a right side of the OpEx space and putting the right plans to be able to do that in terms of self-funding operations, but any update there on that front would be helpful.

Yes. I mean, overall, we feel pretty good about the balance sheet, right? We've been obviously actively working towards making sure we're managing around our -- what we have and ending the quarter with $69 million of cash. When you add in just the liquidity from -- or the equity from homes on the balance sheet that takes it up closer to $90 million. But our portfolio, we purchased homes at a discount and we have a service fee that we're capturing there. So when you actually combine kind of our anticipated equity out of the homes that we have in the portfolio as well, it's well over $100 million of, call it, total liquidity. I think the main thing is that overall, from a forecast perspective around environment of rates are higher for longer, no necessary tailwinds we're going to get from rate cuts or from an increase in transactions or anything like that. So we're being very prudent around making sure that we're managing within our capabilities here.

The following question comes from Dae Lee with JPMorgan.

Great. I have 2. So the first one on your 2Q revenue outlook, at the midpoint does go against normal seasonality a little bit. I think you talked about rates being a driver. But can you just double click on that a little bit and help explain what scenarios are contemplated at each end? And how you can get to approximately a breakeven EBITDA given the wide range of revenue outcomes? And I have a follow-up.

Yes. So I think from a revenue standpoint, we're still -- revenue is obviously still very much influenced by the cash offer side of the business. But as we've been growing these other services, those, we're not expecting as much there. And so from a profitability standpoint, despite the 125 homes range that we've provided, it's not a ton of variability from an adjusted EBITDA perspective. That's our guide of approximately breakeven. I think the main thing is we saw mortgage rates rise here at the end of Q1 and the first part of Q2 and overall pace in the market. I think the main thing is with this transition here in the kind of the new norm of the market, expecting homes to move quickly isn't necessarily -- is honestly our expectations, and that isn't a bad thing. That just means that as we're underwriting, we're writing expecting longer TTCs for the homes overall. And if they don't get an offer in the first week, it's not a big deal. Eventually homes will sell and they are performing against our expectations. But that just puts a little bit more variability in the overall quarter revenue metric for us.

Got it. And then as a follow-up, on the NAR settlement, I know it's still kind of early, but just curious if you see any changes to behaviors of sellers, buyers or immediate partners that you interact with in the funnel.

Dae, it's Brian. No, not yet. It's very early still. There are some things that need to be sorted out there but nothing to note. There's -- we're obviously watching it closely. And as I mentioned in the prepared remarks, I think there's an opportunity in for Offerpad through some of our instant access channels and some of the other things that we allow buyers to access our homes instantly and that's why I think the world of real estate is definitely changing, and that's something that we've been focused on and talking about for a long time. But nothing from buyers or sellers yet.

The next question comes from John Colantuoni with Jefferies.

Great. It's been a little over a year since you paused market expansions. Can you talk about the KPIs or measurement criteria that you're using to determine when it's the right time to start expanding into new markets and whether you'd characterize the time frame for that as near term or something that is a few years away? And turning to the platform services. Talk about sort of capabilities and investments that you need to make in order to sort of unlock growth or start to scale those services in a more meaningful way over time.

Thanks, John. This is James. I'll take the market. and pass it over to Brian there. From a market expansion perspective, I think the main thing is that as we're expanding these other services, we're looking at kind of overall market penetration in our existing markets. And kind of prior to the market transition, we had, say, market share anywhere between 1% and 4% in any given market, just depending on the current status of that market, the tenure and whatnot. Overall, today across all of our markets, we're probably closer to about 50 bps of market share. And so when we look at the opportunity to expand into new markets, mainly from a cash offer perspective, there's still a lot of wood to chop from our -- that we can go and capture in our existing markets. And so right now, as we're focused on maximizing the utility out of our existing teams and tools, that's really where the focus is as we're building things out. But I will add, as we mentioned in the prepared remarks, as these new services are expanding and they're starting to catch foot, we are getting the ability to expand into new markets in a new way. And so it might mean that we're offering part -- some of our services, but not all of our services in every market. And that's the case with RENOVATE this past quarter where we started doing projects in Minneapolis and Oklahoma City. We're not currently advertising there. We're not driving request volume and planning to purchase homes there in the near future. But it is a nice efficient way for us to continue to utilize those teams in a very efficient manner and drive bottom line accretion overall. And so I think you'll start to see that overall market expansion strategy kind of evolve for us over the next several quarters.

Yes. And as far as the platform services. As we've been mentioning, we've spent a lot of time there over the last 1.5 years. And as we've seen the cash offer business slow, we've been focused even more on developing the right products for really hyper growth with a lot of -- with RENOVATE. Like we've been extremely happy what we've seen in RENOVATE in just a year. As transaction volumes pick up, you're going to see more and more volume come from that and "the sky is the limit there." We're in the process of developing what we call rental captain internally, which is a really awesome technology to help with our efficiency and our speed to even get better as every day matters on the RENOVATE side. On the Direct Plus side. As we look at more and more partner investors coming to our platform to offer on homes at the same time that we do and close on those homes so we don't balance sheet those homes, that opportunity, as we see the SFR scale up, fixed and flipped, other investors that want to buy a certain type of home obviously, our path there is we want to focus on conversion there. So whoever can give the customer the most money for the home and whatever the customers want to accomplish there, Direct Plus, you'll see that as transaction volume starts to pick up and really just the world starts to normalize there a little bit. And as -- the one thing that I want to make sure that we get across. Acquiring more homes through our cash offer business, we can turn on that machine. From what we're seeing from the request world and the activity we're seeing even the sellers, right now, it's us that are choosing not to turn on that machine right now is we're being cautious on what we're buying, what we're going to own with the variability that we're seeing in the mortgage markets. But -- and if you're going to judge what's my least concern over the next little bit, it's buying enough and ramping up our cash offer business. Again, I feel like that is something that we've -- from brand awareness and where people are coming first, that business will ramp up as we feel more comfortable with the market and where it's at. And in the meantime, getting these other asset-light services come along can "plug" into the machine that we've built. And other companies can plug into that. That's going to be an awesome opportunity as we continue to grow those. So we've made a lot of progress over the 1.5 years. I'm really excited about what we've built there.

The question-and-answer session has concluded. This concludes the Offerpad First Quarter 2024 Earnings Call. Thank you for your participation. You may now disconnect your lines.