Offerpad Solutions Inc. Q4 FY2021 Earnings Call

Good evening. Thank you for attending today’s Offerpad Fourth Quarter and Full Year 2021 Earnings Conference 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. I would now like to pass the conference over to our host, Stefanie Layton, Senior Director of Investor Relations at Offerpad. Stefanie, please go ahead.

Thank you, and good afternoon, everyone. Welcome to Offerpad Solutions’ fourth quarter and full year 2021 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, including contribution profit and margin, contribution profit and margin after interest, adjusted net income as well as adjusted EBITDA. 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 fourth quarter and full year 2021 earnings release on Offerpad’s website. I’ll now turn the call over to Brian.

Thank you, Stefanie. It’s great speaking with you all today. 2021 was our most successful year yet. I’m excited to provide details about our growth and accomplishments last year. I will also share more about our focus in 2022 and speak to some of the market dynamics we are seeing in the industry. Mike will cover our fourth quarter and full year 2021 financial results and first quarter 2022 expectations. In 2021, we delivered on our financial and operational goals and exceeded expectations. We nearly doubled our reach by expanding services to include a total of approximately 1,500 cities and towns, and we introduced Offerpad to customers across the Midwest. Our operations team led the way, acquiring 156% more homes in 2021 compared to the prior year. And our renovations team set a new record completing over 8,000 improvement projects, a 137% increase over 2020. Since Offerpad was founded, we have completed home renovations totaling nearly $300 million. This means new homeowners benefit from things like upgraded finishes, energy-efficient appliances and other improvements that extend the life of the home. Neighborhoods benefit from repairs and upgrades in their community. We are doing more than just buying and selling homes. We are revitalizing homes, increasing their longevity and creating welcoming environments for homeowners. The key to our continued success over the past year was growing in a responsible manner while maintaining high-quality, customizable and valuable service offerings for our customers. In 2021, we earned an outstanding customer satisfaction rating of 93%. Offerpad has seen market demand increase as more customers seek the convenience, certainty and control our offerings provide. We repeatedly hear from customers how our services and team members have improved their homeownership experience. With so many aspects of our daily life simplified, there is no question consumers want a more convenient homeownership experience. The increase in overall iBuying penetration is clear evidence. Transactional data show that in the third quarter of 2021, iBuying market share reached 1.9% of all U.S. home sales, nearly doubling the previous high of 1% set in the second quarter of 2021. In three markets, Greensboro, Phoenix and Tucson, iBuying reached 10% market share, highlighting the potential growth of this industry. As a lean iBuyer in the country, Offerpad is successfully well-positioned to capitalize on this potential. While our strategy and discipline are key elements to our success, I can’t underestimate the importance of our incredible team. Despite the tight labor market in 2021, our culture and commitment to our people allowed us to double our team from 499 employees to more than 1,000 by year-end. Our ability to attract and retain top talent will be an important strength through 2022 as we expect the labor market will remain tight. In 2022, we plan to continue executing on our three-pronged growth strategy focused on market expansion, increased market penetration and additional ancillary services. In terms of market expansion, we plan to add eight new markets this year for a total of 29 markets by year-end. As previously announced, we are entering three new markets in California this year, with San Bernardino and Riverside opening this month. Sacramento was on target to open later in the first quarter of 2022. In our existing markets, we plan to increase penetration by serving new ZIP codes in and around our existing service areas and to incorporate higher price point homes into our buy box. Our ability to expand our buy box into higher price point homes with the potential for extensive remodeling is possible because of our highly skilled and efficient renovation teams. Enhancing our buyer engagement will be crucial. We frequently talk about our Express and Flex offerings in simplifying the sell side of the transaction, but we also serve customers looking to buy a home. In 2022, we will introduce our enhanced instant access program, making it easier for potential homeowners to directly access Offerpad properties. We currently pay a co-broker commission on approximately 86% of the Offerpad homes we sell. By enhancing customers’ ability to reach us directly with buying a home, we can reduce our costs, expand our margins and provide customers more opportunities to save through our Bundle Rewards program. Turning to the broader real estate industry. We expect the market to remain strong in 2022. With the current supply and demand imbalance expected to remain, buyers will likely continue to experience an ongoing sellers market. Our expectations assume that many of the fundamentals driving the 2021 market will remain. This includes tighter supply levels, historically low mortgage rates and wage growth acceleration. At Offerpad, we believe in doing the right thing for our people, our customers, our shareholders and our communities. We succeeded through the historic uncertainty and economic shutdown of 2020, then navigated one of the most aggressive growth markets in 2021. These achievements give me confidence that our agility and flexibility of our strategy will allow us to successfully navigate future market changes. I’ll now turn the call over to Mike.

Thanks, Brian. Today, I will cover our fourth quarter and full year 2021 financial and operating results, discuss our recent financing activities, and also provide our outlook for the first quarter of 2022. We ended the year with a strong fourth quarter, continuing the trend we established at the beginning of 2021. Our fourth quarter revenue set a new record at $868 million, a 289% increase over the fourth quarter of 2020. Q4 gross profit increased 178% from the prior year and we reported positive adjusted EBITDA for the fifth consecutive quarter. Our net income this quarter was $12.8 million and includes a $15.6 million credit to mark-to-market the value of the warrant liability. Excluding this credit, our Q4 adjusted net loss was $2.8 million. In the fourth quarter, we acquired 3,049 homes, nearly a threefold increase from Q4 of 2020 and an 11% sequential increase from Q3. This growth pattern demonstrates our ability to quickly and smartly rebuild our inventory levels from the pandemic lows. Our home sales in the fourth quarter of 2,423 units nearly tripled our Q4 2020 sales and increased 45% sequentially from Q3 with an average selling price of $357,000 per home, which marks an increase. Our growth plans not only show the operational benefits of adding scale, but also our ability to leverage overhead. In the fourth quarter, total operating costs were 7.7% of revenue, a 340 basis point improvement from Q4 of the prior year and a nearly 150 basis point sequential improvement from Q3. We will continue to demonstrate strong cost discipline in 2022 while making prudent investments to continue to support our growth initiatives. Turning to our full year financial results. 2021 was a landmark year for Offerpad as we exceeded the high end of our guidance ranges. We sold a record 6,373 homes, resulting in revenue of more than $2 billion, a 95% increase compared to the full year 2020. Gross profit for the year was $208 million, a 137% increase over the prior year and GAAP net income was $6.5 million, marking our first full year of positive net income. Our strong full year results were also supported by our unit economics. Our contribution profit after interest per home sold increased 154% year-over-year to $22,900. This represents a 7% contribution margin after interest for the full year, up from 3.6% in 2020. However, we will continue to optimize to keep the growth in check. We expect expenses to fluctuate in the real estate market to be continually dynamic. On the cash side of things, we ended up with about $170 million of cash on the balance sheet. We think that positions us well to execute against our plan in 2022. As we begin 2022, we expect the health of the overall housing market to remain strong and execution of our growth strategy to continue fueling our financial results. Specifically, in Q1 2022, we expect to sell between 3,000 and 3,150 homes, resulting in revenue of $1.1 billion to $1.15 billion. We also expect adjusted EBITDA to be between $20 million and $26 million. We will continue to target a more normalized contribution margin after interest of 3% to 6% over the near-term and 6% to 9% long-term.

Good afternoon. Thanks for taking the question. First one for Brian. I’m just curious to hear your thoughts on the low inventory levels that we’re seeing in real estate right now, and if you’re seeing anything or expecting any impact to your ability to acquire homes. And then secondly, for Mike, revenue per home continues to increase, and you're guiding for further growth. So curious to hear how you think about that line as we move through 2022?

Sure. I’ll jump in first. Thanks, Dae. Yes. The inventory is still very, very low. It’s still heavily on the seller side of it, market-wise. One of the things I’ve been – might even mentioned this last call, very excited about as the traditional way of selling your home is easier than it’s really ever been. Just as far as risk tolerance as well, you’re not going to have the marketing time you normally have. And still, we’re seeing more and more people coming to Offerpad every month. I think the consumer is getting smarter as well of understanding it’s not just putting the house under contract, but it’s also the closing process. So I think our model has been great for that to benefit the consumer on that end. But yes, inventory is still very low. It picked up a little bit at the end of last year, but we’re still seeing supply issues out there.

And then Dae, on your second question on the average revenue per home. Yes, we have increased significantly over the past year. Q4, our average selling price was about $262,000, that’s risen to $357,000. And really, it’s a direct reflection of the home price appreciation that we’ve been talking about over the past 12 months. I do see that leveling out. I would not expect that to continue to rise certainly at that pace. However, we will see fluctuations as we expand into new markets.

Hi, guys. Thanks for taking the questions. I’d like to begin with expanding the buy box. Can you just talk about the implications as you address more home purchases within a market? And then secondly, how do more markets become like Greensboro and Phoenix that have reached up to 10% iBuying market share? Where do you think brand awareness is today?

I think brand awareness is definitely market-specific. Our brand awareness is pretty strong in our more legacy markets. In some of our newer markets, it's not what it needs to be. There's still work to do on that as we educate the consumer. As we expand our buy box, as our logistics operations get stronger, we can target and convert more customers. It allows us to attack a broader market and be more competitive.

Good evening, everyone. Thanks for taking the questions and congrats on the strong finish to the year. Realizing you haven’t provided a full-year outlook, but can you provide some commentary around the trajectory of home sales margins and EBITDA through the year?

Yes. Ryan, you’re right. I’m not giving full year guidance, but we expect solid support from the current conditions. We think there will be a normalization over the next 12 months. We believe our model is built to operate in these conditions. We’re excited about 2022.

Hi guys, this is David Lustberg on for John Colantuoni. Could you provide additional color on your expectations for the housing market with mortgage rates on the rise?

We monitor the market closely. The lack of supply is significant, and we have way too many buyers compared to homes on the market. Rising interest rates will impact the market to some extent, but the supply issue is the bigger concern.

Flex has been contributing about 1% of our revenue, but it's gaining momentum. This year will be a focus for us as we grow our core business along with Flex offerings.

Could you discuss what investments on your side are really going to help to increase the mix shift of Flex as a percentage of revenue?

What’s important about Flex is operating our Express model efficiently. We have a major opportunity for consumers to have control of the transaction process. We aim to educate the public about our solution center and the additional products we offer to drive traffic and conversions.

We are in the process of bringing mortgage solutions into a more centralized model. This will allow us to capture better economics and will pair well with our Flex initiatives.

Thanks, everyone. We are incredibly excited about the future. We grew nearly 100% year-over-year with a positive adjusted EBITDA of $30 million. Customer awareness is growing and the benefits over the traditional way to buy and sell a home are tangible and meaningful. iBuying ramped in 2021, and we believe this momentum will continue.

That concludes the Offerpad fourth quarter and full year 2021 earnings conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.