Offerpad Solutions Inc. Q2 FY2022 Earnings Call

Good afternoon and welcome to the Offerpad Second Quarter 2022 Earnings Call. My name is Sam and I will be your moderator today. All lines will be muted during the presentation portion of the call, but there will be an opportunity for questions and answers at the end. I will now turn the call over to Stefanie Layton, Vice President of Investor Relations and ESG at Offerpad. Stefanie?

Thank you. And good afternoon, everyone. Welcome to Offerpad Solutions Second 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’s website. I'll now turn the call over to Brian.

Thanks, Stefanie. Hey everyone. I appreciate you joining us today. I'll cover some company highlights, market trends, and our focus for the remainder of the year. Michael will share our second quarter 2022 financial results and our third quarter 2022 expectations. Highlights for the first half of the year include we generated nearly $2.5 billion in revenue and $52 million of net income. We filled more homes in the first half of 2022 than we did during all of 2021. We completed more than 6,500 renovation projects with an average timeline of 21 days. We maintained an average timeline from home acquisition to sale below 100 days across new markets. We also continue to see increasing customer interest in our solutions. More people visited our website during the second quarter than ever before. Requests for an Express cash offer also hit an all-time high. The interest validates the increasing level of awareness around our services and the value we provide to customers. For our FLEX listing service, transactions increased 47% quarter-over-quarter and 123% year-over-year. In the first half of the year alone, we started more listing agreements than we did during all of 2021. We made great progress for FLEX and we expect it will be an increasingly important solution as the real-estate market adjusts. The choice between our Express cash offer and our FLEX listing service not only provides customers with a more innovative experience based on their preferences but also provides the company diversified revenue streams with different advantages in either a buyer's or seller's market. Our ancillary service offerings also grew in the second quarter. Our home loans reached more customers in more states with loan volume increasing 37% over quarter one. In addition, Offerpad's Home Loans have a new mobile app and consumer portal making it easier to shop this solution. The new app will deliver a completely digital mortgage experience from start to finish. Utilizing powerful communication and self-service tools, the app unites borrowers, loan officers, and Offerpad growth experts to provide a streamlined home buying experience. Enhancing our Offerpad Home Loans product is another step toward becoming a one-stop solution for homeowners. Our 94% customer satisfaction in the second quarter remains a key indicator that our services continue to resonate with customers. A great example comes from Rachel Austin in Arizona. Rachel bundled buying a new home, sold her existing home, and used our Offerpad Home Loans mortgage service. She posted, 'I highly suggest their bundling packages. I received discounts for using their Realtor and Lender. I was so nervous buying my first pre-existing home, I learned so much. I will definitely use Offerpad again.' This is why we do what we do: to make buying and selling a home easier. Turning to the broader real estate market, the softening we have been expecting is here. Over the last 18 years in real estate, I have learned when markets adjust, especially this quickly, it's very important to be decisive and proactive with owned inventory. You want to sell your current inventory quickly and replace it with new inventory underwritten for today's climate. Keep in mind, most homes we own currently and those just closing today were underwritten back in March and April under completely different market conditions. For example, the home we underwrote then potentially had no other homes on the market within a mile. Now, today when that home hits the market, it has 7 to 10 comparable homes. I'm going to talk through several dynamics we're seeing nationally and then walk through how we are proactively adjusting to the unique market conditions. Housing supply increased rapidly from a low of 1.6 months in January to more than 2.5 months supply. However, that increased as interest rates quickly rose, and mortgage rates increased from historic lows to over 6% at a high point. In June alone, mortgage rates increased 75 basis points in just four business days. The pace of change in rates combined with the home price depreciation has added to consumer affordability challenges and caused some buyers to wait on the sidelines for things to settle. In general, the markets most affected are seeing the greatest rates and price depreciation. For example, the Midwest and Southeast, including markets in Georgia, North Carolina, and Florida, are currently showing active buyer demand. The Southwest is moving faster with visible softening in our Phoenix, Denver, Austin, and Las Vegas markets. This is a good example of how our geographic diversity mitigates risk during the transition between market cycles. The diversification we have today has been positively and intentionally established over the last six years, making our business more resilient. Our team's extensive real estate experience is another strength that allows us to execute through different market cycles. Our regional general managers have an average of 22 years of real estate experience, and our local general managers have an average of 17 years. So how do we put this expertise to use? We have a sophisticated underwriting model with various levers we can pull in different market conditions. Because the market has been so hot for so long, we built in some cushion for each home as the market slowed. We saw this happen, but this cushion has allowed us to price our inventory to sell after a swift deceleration of home price depreciation without having to take a larger interim loss than we typically would. To adjust, we revised our overall buybacks by putting a cap on our purchase price in several markets conducting real-time market-by-market reviews of our inventory. We are prioritizing acquisitions closely to each market's median price point and offering our FLEX listing service to customers with higher-priced homes. We reduced the length of time available for customers to select their closing date, reducing from the 90-day closing time they had in the past. Our acquisition teams have adjusted their underwriting assumptions to account for additional risks by incorporating wider spreads, adjusting for increased active inventory on the market, and increasing our estimated holding times, service fees, and interest expenses, among other items. One other important adjustment we have made is with our renovations. Our team has increased the amount of upgrades on certain properties to ensure homes have the inviting look and feel that buyers want. When inventory increases and multiple contingent homes are available to choose from, we want our homes to sell first. This helps limit our exposure to extended home lead times. Managing our exposure to extended holding times will be increasingly important during the second half of the year. The efficiency and effectiveness of our renovations can mitigate this risk by reducing extended time to cash and aging inventory. In the second quarter, our team completed over 3,500 renovation projects, with an average investment of $17,000 per home. The average duration of renovations improved to 20 days in the second quarter compared to 23 days in the first quarter. The sophistication of our renovations operation is unique, and it will be an important near-term strength. As always, we are closely watching and managing inventory over 180 days. Because of similar proactive measures I mentioned above, as of June 30, owned inventory over 180 days was less than 2%, well below our target of less than 10%. We know the real estate market is fluid and short-term results can fluctuate, but we believe this flushing is temporary. As one of the country's largest home buyers, we believe Offerpad will have great opportunities as the market stabilizes into what we expect will be a stronger buyer's market. When it takes sellers weeks or months to sell their home in a traditional way with no certainties and no control, we believe more and more consumers will come to Offerpad. Looking forward, I have complete confidence that we are well-equipped to deliver on our long-term goals while providing value to our customers and delivering sustainable shareholder value. On that note, I'll turn the call over to Mike.

Thanks, Brian. Today, I will cover our second quarter 2022 financial results, review a few key points, and provide an outlook for the third quarter. As Brian mentioned, our Q2 results capped off a strong first half performance. Revenue in the second quarter increased 185% year-over-year to $1.1 billion, with approximately 70% of the growth driven by higher volumes from increased market penetration within our existing markets and new market expansions, and approximately 30% attributed to the increase in average sales price. We sold 2,888 homes in the second quarter, a 129% increase year-over-year, with an average sales price of $372,000 compared to $298,000 in Q2 of the prior year. Our acquisition of 3,792 homes in the second quarter was consistent with a typical seasonal increase. As of June 30, we owned 3,561 homes across 27 active markets. We reported a second quarter gross profit of $93 million or 8.6% gross margin, net income of $11.6 million, adjusted net loss of $1 million, and adjusted EBITDA of $13.7 million. Each of these amounts includes a $21.2 million inventory impairment charge, which I will discuss in more detail momentarily. Without this charge, each of these metrics would have been $21 million higher, including adjusted EBITDA, which would have come in at $34.9 million. Fully diluted earnings per share on a GAAP basis was $0.04 per share and includes a $0.04 benefit from marking to market the warrant value and an $0.08 charge from the inventory impairment. Returning to the discussion of the inventory valuation adjustment or impairment, at the end of every period, we evaluate each home in our inventory to determine the carrying values recoverable based on our expected sales proceeds. To the extent that proceeds do not cover the carrying value, we record a charge for that expected loss in the current period. Quarterly charges have ranged from $63,000 to $1.8 million over the last three years but are generally well below 1% of the total inventory. At the end of June, when we performed this assessment, some markets, such as Denver, Austin, and Phoenix, have experienced a slowdown in demand for residential housing as a result of the combination of the rapid rise in mortgage rates and significant home price depreciation in those markets. While we are making adjustments in the quarter to underwrite new acquisitions to incorporate wider spreads and lower sales price assumptions, the homes already in inventory were underwritten under very different market conditions. As such, we calculated the value given our current assessment with the best available information and then recorded a charge of $21 million in the quarter. Over the next couple of quarters, as the reseller inventory that was acquired under previous market conditions is replaced with homes that we acquire in the current environment, we expect to return to more normalized levels of returns. Contribution margin after interest for the quarter came in at $28,500 per home or 70.6% of revenue and has been between 5% and 10% over the past eight quarters. In periods of price depreciation like we have experienced over the past few years, we have been able to absorb the increased input cost of acquiring homes at higher rates without having to reduce sales prices on the back end. In more of a buyer's market, our attributes of convenience, certainty, and control are even more highly valued by prospective sellers. Therefore, we don’t need to rely on home price depreciation to increase returns. By adjusting the variables in our underwriting process through the combination of our asset valuation models and in-market real estate teams, we remain consistent with our expectation of generating an annual contribution margin after interest of 3% to 6% and increasing that margin over the longer term. From an operating cost perspective, we continue to demonstrate the ability to leverage top-line growth and increased efficiency to scale across the organization. For the quarter, sales, marketing, and operating costs improved 230 basis points year-over-year to 6% of revenue. Our technology and development costs improved by 40 basis points year-over-year. G&A had a slight increase of 14 basis points year-over-year to 1.5% of revenue. The prior year period cost for G&A do not include the public company costs which began in our Q3 2020 public company combination. In addition to the financial metrics I just addressed, there are several other key data points we monitor closely to assess our performance. Our goal is to keep our average time to cash flow at 100 days. In stronger markets, that metric has dropped down into the mid-60s, and with current conditions, we expect to be at or slightly above that mark. In the second quarter, our time to cash was 83 days, which improved from a seasonally higher 96 days that we saw in Q1. This marks our eighth consecutive quarter with time to cash below 100 days. Another important metric is our inventory aged over 180 days. As Brian mentioned, as of June 30, we were at less than 2% aged, well below our target of being under 10%. This is a strong inventory position as we enter this period of changing market conditions. With the softening of the market, we do expect our aged inventories to increase from the exceptionally low current levels. Inventory turnover will continue to be a key focus of the company in the second half of the year. From a capital structure perspective, we continue to make positive strides. In June, we added $200 million of financing capacity under one of our credit facilities and extended the maturity date to June 2024. In July, we increased borrowing capacity with one of our mezzanine debt facilities by over $30 million and also extended the maturity to June of 2024. We now have access to $1.9 billion of inventory financing capacity across eight different facilities. Lastly, our cash balance at June 30 was $155 million. We are proactively adjusting our operations to reflect the changing needs of our customers and our company as the real estate market shifts. Over the next couple of quarters, as we work through the process of selling inventory homes that we expect to produce lower margins due to the change in market conditions, we expect to rebuild that inventory with homes acquired at values more reflective of the current environment. With strong request volume and an established track record in our markets, we believe we are well-positioned. Specifically, for the third quarter, we expect to sell between 1,700 and 2,200 homes, generating revenue of between $600 million and $800 million. We also expect adjusted EBITDA will reflect the variability in market conditions and will trend down in the short term between negative $20 million and negative $40 million. Our guidance ranges are a bit lighter than our norm this quarter given the current market conditions. As we built the technology scale and expertise at Offerpad in the past seven years, we enter this term from a solid position. The geographic diversification of our inventory, low level of aged inventory, differentiation of our renovations model, minimal supply chain constraints, and an improved balance sheet all support our ability to manage through the transition period. Fundamentally, our investment thesis remains the same: we have a large addressable market, a focused business model, competitive differentiation, and an attractive growth profile. We are confident in our ability to adjust in the short term and to deliver long-term value to our customers and our shareholders. I'll now turn the call back to Brian for some concluding remarks.

Thanks, Mike. Providing guidance at a turning point in the real estate cycle is a difficult task. Over the first half of the year, mortgage rates have increased nearly 3% from roughly 3% to 6%. For a $430,000 home with a 20% down payment, that moves the mortgage payment from just under $1,500 to just over $2,000, representing more than a 40% increase. Moves like that over a short period of time are rare and obviously create issues for buyers from an affordability point of view. Given that, we expect buyers will likely pause to reassess what they can afford. While there is still a medium-term structural shortage in housing supply, in the short term, we believe markets that have experienced the most home price depreciation may see the most significant home price declines. The extent of the decline will likely be market-dependent. Lowering home price expectations is prudent, particularly in light of our impairment charge in Q2 and our Q3 guidance. We expect price adjustments to impact our earnings in the near term. However, as the market shifts from a seller's to a buyer's market, we anticipate our margins will improve. At Offerpad, we believe there is an opportunity in both seller and buyer markets. We saw great success over the past year in the heavy seller's market, and now, when it takes sellers weeks or months to sell their home in a traditional way with no certainties and no control, homeowners are looking for more certainty and control over their transaction by coming to Offerpad. As the market stabilizes, we expect our guidance proposition and strategy will produce improving margins in Q4, with volume likely returning to normal levels in Q1 starting in 2023. I'll now turn the call over to the operator to begin the questions and answers session.

Thank you. We will now take our first question from Dae Lee with J.P. Morgan. Dae, your line is open.

Okay. Thanks for taking the questions. I'll ask two. So the first one, you guys have talked about sustaining short-term volatility, and I think Brian just mentioned that Q4 sounds good starting for the first quarter and then preferred it from that. So what gives you the confidence that this is more short-term? And are you seeing any signs of stability right now?

Yes. So, hi Dae. And it's really market-specific. Right now we're seeing some markets much more impacted than others. So, the short-term spans into the buyer demand and the affordability issues. More buyers have been hesitant due to how quickly the market is changing. We're starting to see, for example, some of our price points adjusting, as I just mentioned. We're beginning to see buyer demand pick up a little. Mortgage rates have been fluctuating a bit, which is helpful. One other thing that we're doing is building in wider spreads right now as it's a little less certain. So, we're monitoring this very closely and adjusting based on specific market conditions.

Okay, got it. And then, the second one maybe this one is for you, Mike. I think you guys talked about there being around 3,500 homes in inventory right now. How should we think about—or is there any way to think about the relative mix of homes that you bought in the earlier environment back in March and April versus the current environment that you guys talked about in the call?

Yes. Thanks, Dae. On the inventory, you're right—we have just over 3,500 homes at the end of June. Recall that Q1 is typically a lower acquisition period for us, so we were building inventory throughout Q2. So, there is a decent normalized stratification there. When we were assessing during the impairment process, we reviewed the entire portfolio, and about 1,000 homes were impacted. Most of those were earlier acquisitions under the previous market conditions. So, something you will see us work through over the next couple of quarters as we sell through those. Meanwhile, we are changing the underwriting criteria as we adapt, and we've done that month by month. But the demand slowed considerably at the end of June as we moved forward. So that's our current outlook.

Thank you, Dae. The next question comes from the line of Ryan Tomasello with KBW. Ryan, your line is open.

Hi, everyone. Thanks for taking the questions. Can you provide some color on how gross margins trended through the quarter and perhaps Q3 to date if you have data to share, particularly within some of your larger markets—for example, I take Phoenix in particular that has seen HPA decelerate by over 10% from recent peaks? Also, looking back at your inventory management going into the slowdown, what lessons are you taking from that performance heading into what's likely to be an even more volatile period in the second half?

Yes. I'll take the first part of that, Ryan, just on the gross margins. As you would expect, they started to trend down throughout the quarter. We've seen very good returns in the home price appreciation environment, which frankly has gone on longer than we expected. We have been preparing for a normalization. We've started to see those margins come down, which really varies by market. Our Midwest operations that we’ve opened up within the past year have shown a good sign of stability. The Southeast has also held up well. But as you mentioned, Phoenix is experiencing some dramatic movement, as is Austin and Denver. Entering Q3, you've got the impairment charge that we are taking this quarter. We expect those margins to come down, then bottom out, and as we can put more accretive margin homes to work in the third and fourth quarters, we anticipate bringing that back up again.

And obviously, Phoenix has always been a strong market for us. You’re correct that the home price appreciation has faced challenges quickly due to excess inventory entering the market and issues around affordability. So, what are we learning? We're underwriting that market much differently, slowing acquisitions temporarily and focusing on markets that will help us. We still see decent buyer demand in areas like the Midwest and some Florida markets.

Thanks for that. And are you expecting additional margin impairments for Q3? Is that reasonable to model? And regarding the guidance, can you elaborate on the contribution margins? How do we think about the cadence of bottoming and improving margins as we move toward the end of the year?

Yes, in terms of our expectation for impairments in Q3, we're not currently expecting to see that magnitude again. You can observe from the impairment charge of $21 million this quarter, and our guidance for Q3 reflects that. Those will, of course, be selling through some of those homes at breakeven margins. There'll be other homes in the portfolios on which we've reduced prices but will still generate a profit. We'll not provide specific forward-looking gross margin contribution margin guidance. For now, we’ll stick with the EBITDA ranges that we have for Q3 and will continue to monitor through Q4.

Hey, Ryan. One thing I’ll add is that the majority of the impairments came from Phoenix, Denver, and Austin. We’re being very conscious of how we approach managing that inventory. We want to set pricing that allows us to move that inventory quickly and avoid issues in the future.

To clarify, the impairment in the quarter related to about 1,000 homes, and you're expecting about breakeven gross margins on those homes when they sell in Q3 and Q4?

That's correct, yes.

Thank you, Ryan. The next question comes from the line of Jason Weaver with Compass Point LLC. Jason, your line is open.

Hi, good evening. Thanks for taking my questions. Given your comments about transitioning into a buyers' market and the record number of monthly average users, can you provide any context around the growth in Express offer requests and/or conversion rates within your existing markets compared to where we were last year?

We have seen, which is not surprising, as the market transitioned, and in a lot of these markets, we could buy as many homes as we wanted. Now, there's uncertainty about pricing. So as the market slows and sellers face more challenges selling their homes the traditional way, more people are coming to Offerpad. In the second quarter, our conversion was strong, especially towards the end of the quarter when the market shifted rapidly. We continue to see that trend today as more individuals start their home-selling journey with Offerpad.

Thank you. And just a follow-up, can you elaborate on the Q3 guidance regarding homes sold? How much of that is due to the overall macro environment versus the changes you're making to your buybacks or acquisition criteria?

I would say it’s largely driven by the macro environment. The main challenge has been the speed at which we have seen buyer demand decrease, primarily due to affordability issues driven by rising mortgage rates. We have strong homes on the market with good positioning, but buyers are currently hesitant, monitoring the direction of mortgage rates and home prices before making decisions.

If you track mortgage rates recently, they've been very volatile. Yesterday, they were below 5% for the first time in a long time, and then they increased significantly within 24 hours. Normal buyers aren't tracking mortgage rates every day. Those fluctuations can affect market sentiment. Therefore, we're adjusting acquisitions, particularly in the hardest-hit markets, and looking for opportunities as the landscape settles.

Thank you.

Thanks.

Thank you, Jason. The next question comes from the line of Nick Jones with JMP Securities. Nick?

Thanks for taking the questions. Two if I can. I guess, one, you talked about varying dynamics by market. Are there other markets that you're not in that you see as potentially more resilient or ones you can enter more aggressively? Is there a change in how you're considering market expansion as the dynamics unfold?

It's a great question. We're definitely observing affordability in various markets. If you look at the Midwest markets, they haven’t faced the same price decreases as other regions, so their affordability is much stronger. When we consider expansion, we are increasingly prioritizing affordable areas. Markets on the West Coast and Southwest have seen affordability challenges, so we remain aware of where current housing prices and mortgage rates are heading together.

Additionally, our footprint expansion this year has been intentional. We moved into California early in the year to establish that presence. We've since been experiencing solid results there. Our focus has also included Midwest and satellite areas, which has proved beneficial in light of the current market dynamics.

Got it. And then, regarding acquiring homes, with large capacity, is the Q3 guidance reflective of a longer-term outlook? Or could you use this capacity to adjust your acquisition strategy to navigate the current pressures? Many economists are expecting rates to ease by 2024, so can you push to buy through this period and make up for any potential impairments?

Yes, that's a great question. Absolutely, the answer is yes. When opportunities appear, we aim to buy and leverage our capacity to make up for potential market adjustments. It’s crucial to understand that a downturn doesn’t scare us. There are opportunities to position ourselves as buyers in weaker markets, but the shift from a sellers' to a buyers' market can be murky. Right now, we are closely monitoring market conditions and will adjust our acquisitions to ensure smart, strategic decisions. Notably, we’ve observed that sellers have become less patient, compared to previous markets where they could sit for months, waiting for their homes to sell. Now, when sellers sit on their homes for only a month or two, they show high levels of impatience, which indicates a demand for liquidity. That’s why I mention we see a great opportunity in letting sellers evaluate Offerpad as their immediate solution for selling their homes effectively.

Thank you, Nick. The next question comes from the line of Justin Ages with Berenberg Capital Markets. Justin?

Hi, thanks for taking the question. The first one, given the highlight you gave around the new product, is there any information you can provide on attach rates and kind of the ancillary services and how we should think about those products going forward?

We're not sharing specifics on attach rates at this moment. However, what we've observed is that having our FLEX product has been invaluable as we've widened our criteria. We're currently a bit more conservative regarding what we're acquiring, but having the FLEX product allows sellers to list their homes without requiring immediate purchases. We are indeed seeing increased volume in that area, especially over the past 60 to 90 days.

No, we’re not discussing specific conversion rates yet. However, it's worth noting that we have seen consistent growth quarter-over-quarter from our FLEX product, and this will further enable ancillary product opportunities, such as mortgages.

The positive transition is that we are increasingly being recognized not just as a home buyer, but as a one-stop solution center. The demand for our bundling services, including mortgages and using our solution experts to facilitate clients’ next house hunting, has gained traction. Especially lately, we’ve been witnessing an uptick in volume in these service areas.

That's helpful. Thanks. And switching gears to the renovation side, your comments mentioned adjusting the strategy to make homes more appealing given the rising competition. Is that going to be reflected in maybe higher average costs of renovations or increased duration of projects?

Yes, renovations are key for us right now. As inventory increases, you want your homes to stand out. We have significant knowledge of market demand for upgrades. Previously, we didn't need to add all the bells and whistles due to supply shortages. Now that buyers can make choices, it’s vital to include more enticing upgrades. We do expect an increase in costs due to these enhancements, but we don’t foresee these changes heavily impacting project duration. Maybe a few extra days, but our renovation teams have been superb at adapting to previous supply challenges, which gives us confidence in our current strategy.

I appreciate the color. Thanks for taking the questions.

Thanks.

Thank you.

Thank you, Justin. The next question is from Mike Ng with Goldman Sachs. Mike, your line is open.

Hey, good afternoon. Thank you for the question. I just have two. First, could you talk about how you're thinking about inventory balances and purchases into the third quarter? I know, Brian, you mentioned that you're slowing acquisitions in certain markets. I was just wondering how we should think about that line exiting Q3? And then second, I was just wondering if Mike, you could talk a little bit more about funding. Has the volatility in the real estate market changed anything as it relates to the terms of your funding facilities? Have the advance rates come down? Is there more cash you have to commit to support any of those facilities or anything like that? Thank you very much.

Right, thanks, Mike. Those are good questions. In terms of Q3 acquisitions versus our expectations on sales, I would say acquisitions and sales will likely be comparable. We are taking a cautious approach and monitoring market dynamics closely before we re-engage. Thus, I would expect inventory levels to remain fairly steady as we exit Q3. As for the funding backdrop, we haven’t observed any significant detrimental effects. We have strong relationships with our existing lender base, and we remain in constant communication. Interestingly, the shorter duration of our facilities means we’re often back in touch with lenders regularly. During recent renewal processes, we have managed to maintain or improve terms and borrowing requirements.

To add to that, our lenders remain confident in us as we make sound decisions, even when those decisions are tough. They've expressed trust in our strategy and operational direction.

That's excellent to hear. Thanks for your thoughts, Brian and Mike.

Thank you.

Thanks.

Thank you, Mike. Our last question comes from the line of Jay McCanless with Wedbush. Jay, your line is open.

Hey guys, thanks for taking my questions. The first one I had is when you think about the inventory that you're seeing in your market, is the inventory at or below the median price? What are people showing you right now? If you could frame that in the context of your current buy box?

We're observing a variety of inventory levels across the board. Currently, the data suggests more inventory is available, especially from sellers who have a significant equity buffer. This equity allows sellers to adjust prices without fears of incurring substantial losses. Our pricing now focuses on the low to mid-range of the active inventory so we can attract timely buyers rather than waiting for them to come to us.

And then I assume, regarding the EBITDA guidance for Q3, you might be pushing a little harder to accept lower margins per transaction, is that the reason you're projecting negative EBITDA for the quarter?

Yes, that's accurate. We have been reducing some of our list prices by about 8% to 10% in markets to find our buyer demographic. The adjustments are proving effective, as we see increased activity near those adjusted price points. We aim to ensure effective, real estate-focused decisions and sell properties within 21 days based on the data we have right now. We've been making the aforementioned adjustments, and we are noting positive results.

That's great. Thank you.

Thank you.

Thank you, Jay. We have no further questions waiting at this time, so that concludes the Offerpad second quarter 2022 earnings call. Thank you all for your participation. You may now disconnect your lines.