Good afternoon. Thank you for joining the Offerpad Fourth Quarter 2023 Earnings Call. My name is Matt, and I will be your moderator for today. I would now like to hand the conference over to our host, Taylor Giles with Offerpad. Taylor, please proceed.

Good afternoon, and welcome to Offerpad's fourth quarter and fiscal 2023 earnings call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Interim Principal Financial Officer and Senior Vice President of Finance, James Grout. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors relating to the company's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements, whether as a result of new information, future events or otherwise. On today's call, management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading Non-GAAP Financial Measures. The reconciliation of Offerpad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the fourth quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Thank you, Taylor, and thank you all for joining our fourth quarter 2023 call. The past year represented a pivotal moment for the company in terms of our operational advancement and execution capabilities, despite enduring a volatile and challenging macroeconomic landscape. Even with the market difficulties, we cleared through virtually all of our legacy inventory obtained prior to the market transition by the end of the second quarter last year and have seen meaningful improvements in contribution margin in the second half of the year. Our focus is strong in our commitment to our core vision and strengths, which start with the foundation of our cash offer. Our renovate product line, alongside our ability to involve agents to be part of our solutions, is prospering and our ability to manage our expenses has never been better. By doubling down on the things we can control, we delivered a solid fourth quarter. Our revenue of $240 million, adjusted EBITDA of negative $7 million as well as our 712 homes sold were all within guidance. So we are back to our desired growth trajectory; 2023 brought its share of wins. We demonstrated a clear path towards sustained profitability, with adjusted EBITDA up over 1,200 basis points year-over-year. We grew our partnership in ecosystem networks, especially within our agent partnership programs, greatly expanding our coverage. And we continue to grow our asset-light revenue streams, which accounted for more than 35% of our contribution margin after interest in the second half of 2023. I will discuss these accomplishments, then review our three strategic imperatives before transitioning the call to James for an in-depth discussion of the numbers and guidance. During 2023, we improved adjusted EBITDA in each consecutive quarter while also delivering revenue growth in the last three quarters of the year. We plan to continue these trends and exit 2024 with sustainable adjusted EBITDA profitability and a direct line of sight to positive free cash flow. To do this, we have better defined the scope and deliverables of roles across Offerpad's workforce, continue to enhance our tech stack, expand our partnership programs, and we are improving our customer acquisition cost and marketing reach through more efficient spend and partner engagement. For instance, we are focusing activities and capital in markets yielding the highest returns within our buy box while optimizing our product lines in our other markets. Offerpad's mission to take the friction out of real estate has always included serving our customers with buying and selling solutions and through additional services that include our asset-light revenue streams from listings to Direct Plus to Offerpad-Renovate. Combined, these accounted for 43% of our unit transactions in 2023 versus 24% in 2022. In fact, we grew revenue in our renovation business by nearly 70% and saw a 148% increase in closed renovation projects compared to the previous quarter. All together, these other services delivered an exceptional incremental contribution margin of nearly $5,000 per home sold in 2023, a significant leap from previous years at less than $1,000 per home. Our momentum with our B2B clients continues to grow as they rely on our capacity to efficiently deliver top-notch renovations, thereby enhancing their own profitability and customer satisfaction. We're now working with national, regional and local clients across the country, including single-family and multifamily operators. By allowing our renovation clients to plug into our operations, they gain access to Offerpad's extensive experience, cost savings and commitment to delivering high-quality work. As a case point, one of our larger renovate clients in 2023 came to Offerpad because they were dissatisfied with the quality and turnaround time of their home renovations. We executed a pilot program of 30 homes to show them the quality and value we could help them create. Over 300 homes later, we are their preferred renovation partner. It's this dedication to quality and efficiency that enabled us to generate over $12 million in renovate revenue during our first year operating in this product line. Our partner network is a key lever in our growth strategy. It encompasses our homebuilder services, our agent partnership program and our agent referral network. By incentivizing partners to leverage Offerpad for property buying, selling and renovations, we expand our reach and serve customers in markets beyond our direct service area. Since 2019, our agent partnership program has provided an industry-leading referral fee to agents who sell or select our cash offer. With more than 130,000 cash offer requests, the agent partnership program has grown from generating 5% of our overall requests to more than 20% last quarter. This program is tailored to meet consumers at their exact point of need, enabling them to utilize Offerpad in a way that best suits their home-selling situation while also serving as a valuable resource for real estate agents. In late January, we announced major enhancements to the program. The Offerpad Pro tier allows agents to continue to request a cash offer on behalf of their clients and, for the first time, have the ability to list an acquired home and ready for resale. Offerpad Max is our top tier, invite-only subscription fee-based program designed for highly motivated agents with significant marketing region influence. Max agents will receive the same benefits as Pro agents with several added advantages. Importantly, they will gain access to highly qualified sellers in defined zones and that they'll have the potential to list other Offerpad-owned homes in their zones. Initial available subscriptions have sold quicker than anticipated. Meanwhile, we are swiftly expanding our available zones for Offerpad Max with plans to expand to additional markets in the near future. All of this supports our three strategic imperatives. First and foremost is our mission to take the friction out of real estate, starting with the cash offer. Our second imperative is to continue to make great progress on our asset-light product line, offering end-to-end services that encompass the entire process of selling, buying and homeownership. Offerpad's third imperative is expanding our partner ecosystem to enhance our reach to meet customers where they are. We are delivering on all three of these imperatives. Reflecting on 2023 and the many challenges and tough decisions we faced, I'm so proud of the Offerpad team, grateful to our customers and partners and optimistic that we are moving toward a return to sustained profitability and growth. We have a robust strategic roadmap, a solid operational foundation and a huge market opportunity ahead of us. I'll now turn the call over to James. With as many years in senior finance leadership at Offerpad, he has taken over the reins as Interim Principal Financial Officer seamlessly. Thank you.

Thank you, Brian. From a financial perspective, our three imperatives are producing the results needed to drive business excellence as we expect to achieve sustainable positive adjusted EBITDA this year. In the fourth quarter, we continued to scale back our cost structure and narrow our operating loss. In 2023, our operating expenses, when excluding property-related selling and holding costs and contribution margin, decreased by $69 million, compared to 2022. Through continued operating leverage, more efficient advertising spending and expanded partnership channels, we plan to capture an additional $30 million in cost efficiencies in 2024. We remain diligent about how we allocate our spend to ensure the entire organization is streamlined while we strategically invest to capture our share of the market. We exited the year with a property portfolio in a strong position. We had 940 homes in inventory, of which only 4.4% were owned over 180 days, with nearly half of those under contract to be sold. This is down from 35% at the end of 2022, as we slowed our acquisition pace and focused on risk management of our legacy portfolio. The homes sold in the quarter had an aggregate time to cash, or TTC, of 97 days, in line with our seasonal expectations. Q1 should see a slight growth in TTC before again reducing seasonally in the summer quarters of 2024. We acquired 678 homes, which was partially impacted after the quick rise in mortgage rates to above 8% early in the quarter, ultimately resulting in fewer transactions across the market. With rates decreasing through the end of the quarter, in January, we saw a better than normal historical increase in request volume, up nearly 60% over December. As a result, acquisition pace has improved to start the year, and we anticipate sequential quarterly growth in the first quarter. To continue to support our cash offer business, we successfully renewed and extended three of our primary credit facilities used to finance our inventory. As part of these renewals, we maintained key terms around advanced rates and funding mechanics while we adjusted size to align with our expected needs over the coming years. Our lenders remain strong supporters of the business and continue to be great working partners. Although our cash offer continues to be the foundation of our operations and results, I'm excited about the momentum of our asset-light product lines and how they can transform Offerpad over time. In the second half of 2023, our asset-light product lines accounted for nearly half of our closed transactions, producing 2% of contribution margin. Additionally, the evolution of our agent partnership program opens up several interesting opportunities for us in 2024. By enhancing the Offerpad Pro program to provide even more value to the agent, we anticipate increased agent partnership program-driven request volume. Also, the introduction of the Offerpad Max offering should allow us to better monetize the requests we generate that fall outside of our buy box, further diversifying our revenue. Turning to the numbers, revenue in the quarter was $240 million, which landed within our guidance range. Our revenue was supported by the sale of 712 homes, also in line with our expectations. Roughly $10 million of revenue moved from Q4 into Q1 due to the temporary unexpected interruption of one of our title partners at the end of the year. The team did a great job working through the challenge, limiting overall impact to our customers' timeline. Net loss in the quarter was $15 million, a 23% improvement from Q3 and an 87% improvement year-over-year. We've now realized four consecutive quarters of improvement in net income. Fourth quarter adjusted EBITDA improved to negative $7 million, a 47% improvement from Q3 and a 93% or $97 million improvement as compared to Q4 of the prior year. This improvement was significant as we continue to optimize our operating expenses despite a slight decrease in contribution margins in the fourth quarter. Gross margin for the fourth quarter was 6.9%, compared to 10.2% last quarter and was an improvement from negative 6.6% compared to the fourth quarter of last year. This was in large part driven by pricing decisions made to move homes with velocity as mortgage rates quickly rose from 7% to over 8% early in the fourth quarter. Total operating expenses decreased 36% from $44 million in Q3 to $28 million in Q4, driven by our advertising spend efficiency and cost management activities. Revenue for the full year 2023 was $1.3 billion, supported by the sale of 3,674 homes. Net loss for the full year was $117 million, a 21% improvement from 2022. 2023 adjusted EBITDA was negative $82 million, also reflecting a 21% improvement from last year. Gross margin for the year was 5.3%, up from 4.6% in 2022. We ended the year with $76 million in unrestricted cash, $277 million in inventory and asset-backed debt of $257 million. Looking forward to the first quarter of 2024, we're expecting sequential improvements in most major metrics compared to the prior quarter. Sales pace is expected to seasonally improve, producing revenue between $245 million and $285 million, supported by 750 to 850 homes sold. As we invest in growing acquisitions in the first quarter, adjusted EBITDA is expected to be between negative $10 million and negative $2.5 million, up almost 90% year-over-year at the midpoint. Reflecting on 2023, I'm particularly proud of the team's ability to adapt and manage through a challenging and unpredictable macro environment. This gives me confidence in our ability to execute on our strategic imperatives in 2024 while adapting to the new challenges and opportunities this year may bring. We've made the tough decisions to create a lean organization that's ready to meet our 2024 objectives on our march to return the company to profitability. With that, I'll open the call for questions.

First question is from Nick Jones with JMP. Your line is now open.

Thank you for taking my questions. I have two. First, how should we view the path to acquiring 500 homes per month? It seems a bit less than the initial target. Is this goal achievable in 2024? And then I have a follow-up.

Yes, Nick, it's Brian. The goal of acquiring 500 homes per month is something we are actively pursuing. We are closely monitoring the broader economic environment and focusing on what we can control. As we keep an eye on interest rates and market conditions, our priority is to purchase the types of homes that fit our criteria. If the right opportunities arise, we will seize them. Right now, we are more concentrated on the performance of the properties rather than the sheer number of homes we buy. That is our primary focus.

Great. You mentioned an additional $5,000 in contribution margin from other services. How much higher can that figure rise? Considering the journey towards profitability, is that a significant factor in achieving it? Can you provide some insight into the potential for increasing the contribution margin further?

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

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

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

Thanks, guys.

Thanks.

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

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

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

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

Yes. A lot of what we do is based on assumptions about market conditions, which vary by market and product line. I've mentioned in previous calls that increasing volume is one of the metrics we can easily improve. The main concern right now is the volatility in mortgage rates. For instance, in the fourth quarter, rates exceeded eight percent but then dropped to the high sixes in November and December. More consistency in mortgage rates would certainly help. Regarding the broader market, sellers are often locked into their current mortgage and the equity that comes with it, which creates a lock-in effect. However, buyers are struggling with affordability. Both groups are eager for change, which is evident. As interest rates decrease below seven percent, sellers start to sell, and buyers express a desire to purchase. This situation is very sensitive, and we are monitoring it closely. Overall affordability is linked to this scenario. Everything is heavily influenced by interest rates, and we need more stability in that area. It doesn't have to return to the previous lows, but consistency is essential for ensuring affordability and encouraging sellers to enter the market.

Thank you.

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

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

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

Sure. Ryan, I'll quickly go through each area. On the renovation side, as you mentioned, we are seeing strong progress and momentum across various markets. Currently, the average renovation cost is around $15,000. We add a service fee on top of that, typically between 20% to 30%, resulting in about a 20% gross margin. Our overhead is supported by shared resources from our EXPRESS business in those markets, adding value to our operations. On the Direct Plus side, as Brian highlighted, the customer experience is quite similar. We receive renovation requests, assess the home, and manage the entire process until closing. At closing, we assign the contract to the final buyer, successfully capturing our service fees as revenue for that project. This leads to a very high gross margin of over 95%, as it primarily consists of the service fee. Regarding the listing side, Brian mentioned another interesting aspect. This is also service-oriented and yields a high gross margin. For leads referred out, the referral fee is a percentage of the final sales price closed by the agent, resulting in a gross margin above 90%. Our subscription fee facilitates engagement with motivated agents in the market who are willing to invest upfront for access to leads, listings, and other beneficial products and services that Offerpad provides. This subscription-based fee also achieves a gross margin around 90%.

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

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

Okay. Thanks for taking the questions.

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

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

Yes. That's a good question. Currently, we concluded the year with around $560 million in committed capacity and approximately $490 million in uncommitted capacity, totaling just over $1 billion. Historically, we've been able to adjust our uncommitted capacity as needed. However, we ended the year with about $260 million in total outstanding debt. We believe the adjustments made to our overall committed capacity were wise, considering our expectations and what we observe from a volume standpoint regarding our balance sheet. Overall, we're optimistic about the renewals we implemented. It’s important to note that we preserved essential terms related to advance rates and funding mechanics, which enable us to use our capital efficiently and maintain our home purchasing capabilities.

Okay, great. Thank you very much.

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

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

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