Good afternoon. Thank you for joining the Offerpad Third Quarter 2023 Earnings Conference Call. My name is Hanna, and I will be moderating today's call. I will now hand it over to our host, Taylor Giles from Investor Relations. Please proceed.

Good afternoon, and welcome to Offerpad’s third quarter 2023 earnings call. I’m joined today by Offerpad’s Chairman and Chief Executive Officer, Brian Bair; Chief Financial Officer, Jawad Ahsan; and Senior Vice President, Finance, James Grout, who 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 non-GAAP measures to the comparable GAAP measures are available in the financial tables of the third quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Good afternoon and thank you for joining today's call. We are pleased to deliver both top and bottom line results within our expectations. Despite the difficult macro environment, we are exceptionally proud of our expanding contribution margin as we expect to move towards sustainable, positive adjusted EBITDA in 2024. I am truly grateful to our employees, strategic partners, and Offerpad customers who enabled us to meet our guidance and nimbly respond to these historic market conditions. During moments like this, our vast real estate experience is more important than ever. Before Jawad shares numbers and his insights, I will update you on our perspective on the real estate market and our strategic imperatives. At a high level, buyer affordability, rising mortgage rates, and sellers with existing low mortgage rate loans continue to stress real estate markets on all fronts. However, although inventory levels are down over 20% in most markets, we are focused on the 80% of the buyers and sellers that are transacting. In today's environment, providing multiple solutions for customers is more important than ever, and as you'll hear from us today, we're leveraging our robust end-to-end platform to bring value-added services, solutions, and tools to customers. Most recently, to further support and incentivize buyers of Offerpad homes, we introduced a 4.99% mortgage rate buydown program on eligible Offerpad-owned homes. This is a powerful tool that allows us to greatly increase the affordability of our homes and motivate buyers. This allows more buyers to afford their dream home while saving thousands in mortgage costs. Initial uptake has been strong, and we expect to see continued traction. Now, I'll turn to the three strategic imperatives that guide our roadmap and discuss how we're executing against our objectives. Our first imperative is also our guiding mission, removing the friction from the real estate process. We founded Offerpad eight years ago because we foresaw that digitalization of real estate was inevitable. We understood where the pain points in real estate transactions existed, and we built our platform to solve these problems. With combined decades of real estate expertise, we had a unique insight. Consumers wanted the ease of a digital transaction, but they didn't want to forego the human touch entirely. We set out to build a robust real estate technology foundation combined with local expertise in a seamless end-to-end platform. We created the Offerpad platform, focused on what buyers and sellers needed through each step of their unique real estate transaction. Our aim has always been to go above and beyond to deliver a superior experience. In 2023, our customer satisfaction score stands at 91%, and our NPS is 63, which is a remarkable achievement in the real estate world, where the average NPS is only 30. We are in the early days of this massive digital transformation and have a lot of exciting work ahead of us. Our pricing engine and underwriting tools, such as Offercomp and Limelight, continue to be more robust. They sit on top of eight years of our proprietary data and machine learning insights. Limelight in particular is propelled by data insights that dissect essential pricing elements such as neighborhood housing data, numerous macroeconomic factors, and local insights from our team of real estate experts in each of our markets. The powerful analytics behind these tools are enhancing unit economics, enabling us to determine the value of each individual property. Limelight serves as an excellent illustration of how we harness our extensive data insights and analytic tools to enhance our intelligence with each home we purchase and sell. We've also been working diligently behind the scenes to introduce innovative methods for engaging with customers in real time at the moment they need us. For example, we know that 60% of our customers favor text-based communication, and through the use of AI, we are developing a solution to facilitate 24/7 support while decreasing our operating costs. This advancement will empower us to provide customers with real-time answers to their questions at nearly every stage of their transaction, from pricing to inspections and more. Our second imperative is to continue to make great progress on our asset-light product lines, offering end-to-end services that encompass the entire process of selling, buying, and homeownership. A prime example of this, and one of our most rapidly growing offerings, is our renovations business. Today, we are one of the largest renovation companies in the United States, having successfully completed over 30,000 renovations on our own behalf. We are leveraging this expertise to extend our reach and recently expanded our offerings to enable third-party businesses to leverage our renovation expertise and efficiency. We gained momentum right out of the gate, and in just a few months, we already have nearly 50 B2B renovation clients in our active markets. In fact, we saw a 127% increase in closed projects in Q3 compared to Q2, and October saw our highest ever pipeline of projects. These B2B customers are plugging into Offerpad renovations to benefit from our competitive pricing, swift turnaround times, high-quality work, and streamlined renovation management. We renovate their homes just as if it was an Offerpad-owned property where every day and every dollar matters. Against the backdrop of a strong and growing renovations enterprise, I am pleased to announce that starting next year, we will also offer renovation services directly to homeowners. Customers will have the opportunity to not only utilize Offerpad's platform for buying and selling their homes but also to leverage our renovation services for home improvement. With the prevalence of homeowners who are locked into low mortgage rates and less inclined to make a move, our ability to refresh, upgrade, or perform complete renovations on their homes becomes increasingly essential both now and in the years ahead. Enabling direct-to-consumer renovations is yet another instance of harnessing our platform to deliver asset-light services and expanding our market presence through a broader array of customer solutions. In lockstep with the growth of our renovations business, we are remaining focused on expanding our supporting technology. This will enable us to provide significant internal efficiencies and deliver insight to onsite crews, B2B customers, and in the future, homeowners who use our renovation offering. In the early part of next year, we are poised to introduce Rental Captain, a revolutionary internal workflow designed to provide all users of Offerpad renovations, including field teams, vendors, and customers, with real-time insights into the progress of the home's renovation. Looking ahead, we anticipate that renovations will become a substantial portion of business driven by our robust client pipeline, strategic growth plan, and internal proprietary technology, and underpinned by the strength of our end-to-end platform. Another important component of our asset-light business model is Direct Plus. This product connects homes that align with the purchasing criteria of both long-term and short-term investors. We grant access to our pre-qualified and screened investor partners, providing them with the opportunity to purchase our top-of-funnel homes. Equally valued by our investor partners, Offerpad guides the customer throughout the selling process, ensuring a seamless and successful closing for everyone involved. This comes with excellent profit margins for Offerpad with no capital investment from us. Our teams are focused on driving continued growth across all three of our asset-light businesses Direct Plus, Renovate, and Flex Listing Service, which have gained great momentum as they've accounted for 50% of our unit transactions in the past two quarters. Our platform was designed to enable strategic partners to harness our capabilities, and this brings me to our third crucial imperative, expanding our partner ecosystem to enhance Offerpad's reach in terms of both scope and scale. We have longstanding relationships with local, regional, and national partners, including 15 of the top 20 home builders in the U.S., national real estate companies, and third-party real estate agents through our Agent Partnership Program. As of the third quarter, our Agent Partnership Program has generated over 130,000 cash offer requests. We take pride in the fact that more than 65% of those agents continue to request offers on behalf of their clients. On top of those existing partnerships, we recently announced a national program in collaboration with Anywhere Real Estate, formerly known as Realogy, the parent company of renowned real estate brokerage brands and service businesses, including Century 21, Coldwell Banker, and Sotheby's. This program extends Offerpad's reach, allowing seller requests from areas outside of Offerpad's coverage to be served by certified affiliated agents with the Anywhere Leads Network. We are thrilled that we can support sellers who are previously beyond our reach and ensure they receive excellent service. Three quarters into the year, we are pleased to be delivering against our operating and financial goals. We are grateful to our teams for their proactive mindset and adaptability in responding to this historic macro environment, reinforcing our belief that our robust end-to-end platform represents the future of real estate. We are confident that our roadmap and strategic initiatives are positioning the company for profitable, durable growth and remain committed to creating value for our shareholders. With that, I'll turn the call over to Jawad.

Thanks, Brian. As mentioned, the third quarter marked my first full quarter with Offerpad. I'm very impressed with the team here and pleased with our progress. In his remarks, Brian opened with our intent to drive towards sustainable profitability. Using that as our North Star, we established three key priorities for the business that formed the basis for our 2024 financial plan. These three priorities are: one, ensure that the business is on a path to be profitable and self-sustaining; two, future-proof to help mitigate against another downturn in housing or rate shock; and three, better align our marketing strategy with our customer behavior. Let's break these priorities down one by one. The first priority is to ensure that our business is on a path to be profitable and self-sustaining. We must and we will control our own destiny. We've assumed conservatively that we will not have any access to outside capital for two years or through the end of 2025. We felt it prudent to plan to fund our operations assuming a scenario where the capital markets remain tight. We then set out to plan for 2024 using two guardrails. The first guardrail was the assumed lack of access to capital over the next two years. The second guardrail assumed that the current market conditions will persist also for the next two years, and that real estate transaction volumes will not recover from 2023 levels. Again, this is not our expectation, but rather a conservative assumption that we are using to ensure that we can control our own destiny against a difficult macro backdrop. With these guardrails, we determined that we needed to reduce our cash burn rate by over $20 million heading into 2024. And that's exactly what we did with our recent actions to scale back our cost structure. Our guiding principle was to reorganize to optimize. This optimization reduced our workforce by 18%. Our goal was to reduce our employee base to team members who can not only execute in this challenging environment but also set the stage for growth when transaction volumes rebound. As you might imagine, this was incredibly difficult to do, as we've been operating in a challenging environment for some time now. We know how hard this action was on our colleagues who were impacted, some of whom have been with Offerpad for many years, and we are doing what we can to help with their transition. Ultimately, we did what needed to be done to ensure that Offerpad will successfully navigate this downturn and will thrive in a recovery. We've been working hard throughout 2023 to narrow our operating loss, and we are still pacing to exit this year profitable from an adjusted EBITDA standpoint, our cost optimization is intended to allow us to continue to operate at or slightly above adjusted EBITDA breakeven for the full year of 2024. Our second priority is to future-proof to help mitigate the business against another downturn in housing or rate shock. You heard Brian talk about the progress we're making towards becoming more asset light. We have exciting momentum building in our standalone Renovations business, our platform for institutional investors, and our listing services. I want to reiterate a point Brian made earlier, which is that these three offerings together have accounted for half of our unit transactions so far this year. As these business lines continue to grow, we will become less reliant on the cash offer product as a source of revenue and get closer to the vision Brian had when founding the company of a true real estate solutions platform. Our third priority is to better align our marketing strategy with our customer behavior. I won't spend much time talking about this today, but we're excited to build the Offerpad brand in a more meaningful and thoughtful way in 2024. The essence of our strategy here is to shift from an almost exclusively promotions-focused marketing strategy to a mix of brand building and promotions. The key thing for you to note at this time is that this shift is expected to be completely P&L neutral. We intend to reallocate our marketing spend from promotions to brand building rather than spending new money. We feel that this is the right strategic shift in our marketing spend, as brand awareness is the more important factor in a homeowner's decision to sell their home. To recap, we're executing against these priorities to control our own destiny. Our long-term vision is to build a true software-enabled platform that will fulfill any real estate need that a customer may have. We're motivated to deliver value through this vision to our customers and excited about the value we'll deliver to shareholders. The actions we outlined today continue our path to being a sustainably profitable, cash-generating business with a diversified product portfolio. Looking back on the third quarter, we delivered strong execution amidst a tough macro environment, enabling us to deliver on both our top and bottom line guidance. I'm particularly excited by the continued progress we made towards profitability. Net loss in the quarter was $20 million, an 11% improvement from Q2. Third quarter adjusted EBITDA improved to negative $13.3 million. This reflects a 23% improvement from Q2 and a 79% improvement as compared to Q3 of last year. Adjusted EBITDA was driven by improved gross profit and contribution margin as well as reduced operating expenses. Gross margin improved for the third consecutive quarter to 10.2% compared to 9.7% in the second quarter and was up nearly 1000 basis points year-over-year. This improvement was due to the quality of our inventory and a greater percent of revenue from higher margin asset light services such as renovation. In fact, a third of our contribution margin after interest in the quarter was from product offerings other than the cash offer, the highest in the company's history. Looking forward to the fourth quarter, we expect to continue to show improving profitability, while seasonal trends will normalize the portfolio. Q4 will reflect a severance charge of roughly $1 million associated with the cost reduction actions we discussed. We expect to see continued sequential improvement in the fourth quarter in revenue and net loss. And to reiterate, we will exit the year adjusted EBITDA profitable. Specifically, in the fourth quarter of 2023, we expect to sell between 700 and 800 homes, generating revenue of between $230 million and $270 million. We also expect adjusted EBITDA to be between negative $10 million and breakeven in the quarter, which represents another significant sequential improvement on our path to returning to sustainable profitability. As we wrap up 2023, the entire Offerpad team is laser focused on our strategic imperatives and the enormous opportunity before us. We have the right structure and roadmap in place to return the company to growth. Our team is incredibly talented, the best in the world at what they do and is executing crisply and with precision. I'm excited to share our journey during this watershed time as we disrupt the way real estate works. And with that, I'll open the call for questions.

Our first question is from Nick Jones with JMP. Please go ahead.

Hi, this is Luke on for Nick. Thanks for taking the question. Could you discuss what, if any, are the implications of Burnett versus NAR on the iBuying business? If commissions do come down broadly, does that change the value proposition at all? Thank you.

Yes, and thanks for the question. A couple of things that obviously caused significant shockwaves yesterday for the traditional brokerages. We've been following it closely like everybody has, but obviously, that's early in what's happening there. The short answer from an Offerpad perspective, we underwrite that a co-broke commission in, and so it's really a pass-through fee for everything that we do, so we don't see a lot of implications for that. But in saying that, I think this is just maybe one of the first steps of what's going to happen on the traditional side, which is one of the reasons I started Offerpad originally was trying to remove the friction and create more transparency for sellers and buyers. And so I think you're going to see a lot more changes on the traditional side. And overall, we're going to still be very customer-centric in everything that we do, but overall, from a commission standpoint in the early days, and that's a pass-through fee for us. So whether it's zero or 3%, it's a pass-through.

Great. I appreciate it. Thank you.

Thank you, Mr. Jones. Our next question is from the line of Ryan Tomasello with Stifel. You may proceed.

Hi, everyone. Thanks for taking the questions. I guess just digging a bit deeper into the change in the marketing strategy, shifting to a branding focus versus the promotional focus. Given that you're going to be investing, reallocating those dollars from one to the other, do you anticipate that to have any impact on purchase volumes as it takes time to invest and build that brand and the promotional spend is declining?

Yes, this is Jawad. I'll take this, Ryan, great question. So we looked very deeply into this and throughout the year, we monitored our effectiveness on our marketing spend through various metrics, CAC, cost per lead. What we saw is that we're not getting necessarily the efficacy we thought we'd be getting focused purely on promotional. So today our marketing spend is 100% geared towards promotional. And if you think about the buying decision, or sorry, the decision a seller makes when they're selling their home, that's something that they come to over a period of time. It's not like a point-in-time transaction, but in many cases, we were trying to almost perfectly time that transaction when in reality, what you really want is more general brand awareness. So we think that we're going to be able to shift from purely promotional to a mix of promotional and brand. It's not going to be a hard shift. We're thinking from 100% where it is today, in 2024, we're anticipating it to be roughly 70/30 promotional versus brand. We do think that it is important that, look, we want both meta brand awareness as well as elevating our brand within a market. Ultimately, real estate is local, so we want to get more granular in the markets, and we're still going to spend money on that. But as our brand expands, it's really important that not only the local market knows who we are, but we're in really the national dialogue and national awareness when it comes time to selling your home. We want people to think about Offerpad first.

Yes, I think you summed it up well. The thing I was just going to add, but you hit on is that real estate is definitely local and brand awareness. You have a transaction once every seven to ten years. So we want to be top of mind when people make a lot of those micro decisions and they're ready to make that decision. The great thing that we have discovered because of our strong product with the cash offer, that's the foundation of what we do is that in a lot of markets, 70% of the time, people start the process with us. But they come to us first. But then they make a lot of micro decisions, and when they are ready, we want to be there for them, and so that's where you see some of the shift on the brand side as well, which we're excited about.

And then as a follow-up, the focus on shifting away from more of the capital-intensive cash offer business is something you've discussed in the past. It sounds like that's going to be even more at the forefront next year as you're prudently planning around perhaps a tough environment to navigate in terms of that backdrop. I guess, Brian, it'd just be helpful to unpack the different non-capital intensive businesses, the asset-light businesses. If you can remind us the value proposition of those and how much runway there is for growth and importantly, the economics that show up in those products and how that might impact the P&L next year as we just think about modeling out performance.

Yes, great question, Ryan. So I'll go through the four product lines. So we call Express, which is our cash offer, that's the foundation. And then we have the Direct Plus, which is where we allow other investors, both short-term and long-term investors to offer on homes top of funnel with us. And then also they get the efficiency of our straight-to-consumer call center and closing teams and transaction teams through that. The renovation side, obviously like I mentioned in the remarks, is that we have a lot of efficiency. We definitely FLEX with our renovation skill set. Allowing people to plug into our Renovations, they get our cost, our timing, the efficiency, and our quality by plugging in. We already have teams there on the ground that they can plug into. So using that as a service is something we've been focused on, and right now there's a great opportunity to do that. Just as a side note, those two, as we allow select investors to bid top of funnel with us and give the seller wins because they're going to get the top offer they can for the home. But no matter who gets the home, let's say that a Direct Plus partner gets the house, there's a high likelihood they're going to have us renovate that home as well. So we provide the top of funnel, we provide the efficiency to close the home, but then we also provide renovations for them. So the two issues that they normally struggle with are sourcing and renovation, and those are two things that we can solve for. And then the other product line is our FLEX. So it's really important to us that we give people an option or a choice. We give them a cash offer. If the cash offer, for whatever reason, doesn't work for them, they have the ability to list their home with us as well. If they want to list their home with us, they can also use our renovation teams to help get their house in list-ready condition. We can advance renovation costs on that as well. And so we're varying on those four product lines. And as we mentioned, we're continuing to see really good growth, especially on the renovation side in this environment. The one thing that I'll point out is on the cash offer, the cash offer, the one thing that we know and can't be disputed is customers love the cash offer. And the cash offer when I say is the foundation, that doesn't necessarily mean and what I mean by that is the cash offer is always going to be there, but that doesn't necessarily mean that we have to take the balance sheet on that. With Direct Plus, the customer will get the same experience, but one of our partners will close that house as well. So on the asset light, it will always be the foundation of what we do.

Yes. And then just to add on to that, Ryan, what Brian mentioned, those are the four pillars, and you heard us talk about in our prepared remarks how half of our transaction volume came from none. For year-to-date 2023, half of our transaction volume has come from non-cash offer, non-iBuying. So we think we've got the right foundation heading into next year to have those be legitimate business lines. They're still fairly small portions of our revenue, but the baseline is there. The foundation is there for us to build on the momentum that we've got, and specifically, FLEX, as Brian mentioned, are really coming on strong. Look, we're really excited about how we are going to be diversifying the business because we've never seen ourselves as an iBuyer. We've seen ourselves as really a real estate solutions platform, and the transaction volume is bearing that out and you're going to see that translate into revenue in the next one to two years.

Great. Thanks for the call.

Yes. Those were great questions you've asked us. Two of the questions we were looking forward to the most today.

Thank you. That concludes the question-and-answer session as well as today's call. Thank you for your participation. You may now disconnect your lines.