Offerpad Solutions Inc. Q1 FY2025 Earnings Call

Good afternoon, and thank you for joining today's Offerpad First Quarter 2025 Earnings Conference Call. My name is Jayla, and I will be your moderator. I would now like to hand the conference over to your host, Courtney Reed. Courtney, you may proceed.

Good afternoon, and welcome to Offerpad's First Quarter 2025 Earnings Call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Chief Financial Officer, Peter Knag. 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 on the financial tables of the first-quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Thank you, Courtney. Let's start with a quick look at Q1 results, then I'll share how our continued efforts are laying the foundation. So we're built for today's environment and ready to accelerate as volume returns to more typical levels. In Q1, we met the midpoint of our revenue guidance, driven by a balanced mix of offerings. Our cash offer program performed as expected, while our asset-light services, including the B2B renovate business, Direct Plus buyer program, and agent partnership program contributed significantly to the top and bottom line. Highlighting the strength of our Renovate business, we delivered a record quarter, generating $5.3 million in revenue, representing an annualized run rate of approximately $20 million. This marks the highest quarterly total since the launch of the product and further solidifies Renovate as a key driver of growth going forward. And today, we're excited to announce a new partnership with auction.com. Offerpad Renovate will become a preferred provider of renovation services for buyers on their platform from local community developers to large institutions. It's a meaningful step forward as we help buyers transform properties into move-in-ready homes, expand our renovation business, and deliver greater value to buyers, sellers, and communities across the country. As we continue Renovate and strengthen our core offerings, we're also prioritizing diversification through high-margin revenue streams, streamlining operations, and managing resources with discipline. Together, these efforts are positioning us well to reach positive adjusted EBITDA and drive sustainable long-term growth. The housing market continues to be shaped by sustained macroeconomic pressures that have been building for some time. Elevated mortgage rates and persistent affordability challenges have kept transaction volumes near historic lows, and new tariff developments are adding fresh uncertainty and anxiety for consumers weighing major financial decisions. These headwinds are not new. They've been unfolding over an extended period, but their impact is becoming even more visible across the housing sector. Higher borrowing costs, limited affordable inventory, and broader economic uncertainty are all contributing to greater caution among buyers and sellers. Although the environment is directly impacting overall transaction flow, we've maintained a strong focus on managing our top of funnel, and demand for the cash offer continues to grow. Offer requests rose 33% quarter-over-quarter, and website traffic steadily increased month-over-month, showing that homeowners are actively seeking out the certainty and control we provide. The rise in organic consumer activity also helped lower our cost per lead, reinforcing the strength of our model and brand. Our commitment to providing the best way to buy and sell a home has never wavered, regardless of market conditions. Since 2015, we've built our business around the strength of our foundational cash offer while continually introducing new solutions that give customers more control, clarity, and confidence. That mission continues today, driving a series of purposeful updates aimed at enhancing the customer experience and expanding the value we deliver alongside our Agent Partners. It starts with how we send our offers. Powered by proprietary data, machine learning, and real-time market trends, our pricing value technology generates offer ranges in minutes and allows sellers to schedule inspections on their terms, reducing friction and creating a smoother experience. We've also made the inspection process faster and more efficient. And once the contract is signed, price lock kicks in, our commitment that the offer won't change, giving sellers added confidence. After rolling out these improvements in Q4, we saw immediate traction. That momentum continued into Q1 with thousands of living room appointments, a strong sign our approach is working. While this process has been deployed through direct channels, it's laying the groundwork to extend the same experience to our agent partners, building a framework for better performance, stronger conversion, and product expansion. This is just the beginning, and we're energized by what's ahead. As we enhance our solutions, we're unlocking new ways for customers to take control of their journey and creating even more opportunities for agent partners to thrive alongside us. Before I turn the call over to Peter to cover the financials, I want to take a moment to highlight a recent announcement we're excited about. We welcome Donna Corley to Offerpad's Board of Directors. Donna brings nearly 30 years of housing finance experience, most recently serving as Executive Vice President and Head of the single-family business at Freddie Mac. She will serve as the Chair of the Audit Committee and as a member of the Nominating and Governance Committee. Her strategic insight and deep financial expertise will be instrumental as we continue to strengthen our foundation and execute on our long-term vision. In summary, we're executing with focus and intention by strengthening our cash offer customer journey, expanding high-margin services, and laying a strong foundation. So we're not only operating for today's market but positioned to accelerate as transaction volumes normalize. With a disciplined approach to operations and a growing set of flexible customer-first solutions built around our cash offer, we're positioning Offerpad to capture future demand, deliver stronger performance, and drive sustainable long-term growth. With that, I'll turn it over to Peter.

Thank you, Brian. Over the past several months, we've remained focused on strengthening the business through thoughtful cost efficiencies, operational improvements, and targeted process enhancements. In April, we implemented significant changes expected to drive further operating expense reductions throughout the remainder of 2025. Our refined customer experience process is also accelerating response times, resulting in higher customer engagement and inspection volume. These initiatives support our broader strategy of growing revenue on a more efficient foundation, ensuring financial resilience across a range of market conditions. At the end of the first quarter, we held 671 homes in inventory, with only 13% aged over 180 days and not under contract, an improvement from 22% at year-end. This progress is expected to support higher margins in Q2. In addition, we have been selectively ramping up acquisition volumes by focusing on targeted buy boxes and stronger market segments, setting us up for increased home sales and better alignment with seasonal trends and market dynamics. During the first quarter, we acquired 454 homes, an 18% increase from the fourth quarter consistent with our disciplined approach to inventory management. While our cash offer business remains a key driver of revenue, our asset-light services, including Renovate, Direct Plus, and the agent partnership program have become an increasingly meaningful contributor to margin. Over the past year, more than 40% of our contribution profit after interest has come from asset-light services, a trend that continued in the first quarter. First quarter revenue totaled $161 million, in line with guidance, with 460 homes sold. Revenue declined 8% quarter-over-quarter and homes sold decreased 9%, primarily reflecting the strategic reduction in acquisition pace during the middle and latter part of last year. Net loss for the quarter was $15.1 million, a 14% improvement compared to the same period in 2024. Homes sold in the first quarter had an average time to cash of 165 days, consistent with our expectations following acquisition adjustments in the second half of 2024. With the trough of the inventory transition behind us, we anticipate sequential improvements in time to cash throughout the second quarter and into the back half of the year. Gross margin for the quarter was 6.5%, generating $10.5 million in gross profit. Operating expenses, excluding property-related costs, totaled $16.4 million, a $1.7 million sequential improvement and an $11.4 million year-over-year reduction driven by improved advertising effectiveness, expansion of the agent partnership program, and ongoing cost management efforts. With a relentless focus on cost efficiency, we've taken significant steps towards profitability. Over the past 24 months, we have reduced annual operating expenses by approximately $115 million, and we continue to make strong progress in 2025 by identifying and removing additional costs. You should anticipate further improvements based on the actions we executed in April and those still underway as we maintain our disciplined focus on cost and process efficiencies. We will provide additional updates on these efforts next quarter. Adjusted EBITDA loss for the first quarter was $7.8 million, a sequential improvement of 32% or $3.7 million. As of the quarter end, unrestricted cash totaled $31 million with total liquidity exceeding $60 million when including the net value of our carried inventory. I also want to highlight that we are making continued progress on capital market opportunities beyond our core asset-backed facilities. With active discussions underway across multiple groups, we remain cautiously optimistic that these conversations will continue to advance. Additionally, to be prepared for the possibility that we do not bring in new capital, we are developing plans for restructuring alternatives and options. We expect these to include more significant cost reductions, product and operational changes focused on reductions in working capital requirements, and other actions to enhance the preservation of cash. Looking ahead, we expect second quarter revenue to be in the range of $160 million to $190 million with 500 to 550 homes sold. We also anticipate sequential improvements in adjusted EBITDA as we continue to drive operational leverage. As we move further into 2025, we remain focused on increasing acquisition activity, continued growth of our asset-light lines of business, maintaining disciplined cost management, and positioning Offerpad for long-term stability and growth. Thank you. We will now open the call for questions.

Great. I had two questions. First, regarding the pace of home acquisitions and considering the seasonality of the industry, should we expect that most of the acquisitions will occur early in the second quarter, slow down in the third quarter, and then increase again in the fourth quarter, following the typical seasonal pattern? I also have a follow-up about private listings.

Sure, there are really two dynamics at play. We do expect seasonality to have some impact on volumes. Additionally, as we've mentioned in previous discussions, we purposely reduced acquisition volumes in the third and fourth quarters. While we implemented various operational changes, we have started acquiring at higher volumes in the first quarter. As indicated in the guidance, some homes from those cohorts will convert into sold homes in the second quarter, and we anticipate that trend will continue. Our goal is to maintain an acquisition rate of 1,000 homes per quarter, along with ongoing cost reductions and growth in our asset-light services, all of which will help us achieve EBITDA profitability in the coming quarters. To address your original question, we do expect to see increased volumes as we progress through the year.

From a market and real estate perspective, we are still selectively buying at this time. We continue to see concerns about affordability, as we have discussed, but overall buyer demand remains present. We are focusing on homes in the interior that still have areas with good transaction volume. In some outlying regions, transaction volume and buyer demand are very low. Therefore, we are being selective, as certain markets perform better than others. In each market, we are identifying areas where there is decent activity.

Great. I have two questions as well. First, regarding your comments about selectively accelerating acquisitions in certain markets, it seems that unpredictability in the market has been your biggest challenge so far. Does your comment about acceleration indicate that you believe the current environment is stable and that you expect this to continue throughout 2025? Secondly, I apologize if I missed this due to a dropped call, but could you elaborate on the changes you implemented in April and how we should assess the financial impact of those changes compared to the magnitude of the changes made previously?

Sure. I'll begin with the actions taken in April. I don't have much more to add to that comment in the prepared remarks. We anticipate that in the next quarter, we will have additional insights on cost reductions. However, I can say that the cost reductions have continued in a similar way to last year, but we're not ready to discuss the extent yet.

Yes, I think from the perspective of ramping up acquisitions, as we talk through this, there's a combination of different factors. There's still a lot of volatility in the market, but we are seeing more and more opportunity to buy homes at the risk metrics that we feel are appropriate for this market. Not just from our direct channels, but we're seeing a pretty good increase in traffic coming to us wanting to buy their home. Our agents are also bringing us their homes before they hit the market for us to look at acquiring. So we're seeing more opportunities. We're staying disciplined, and I think it’s a combination of that. From a consumer standpoint, as homes sit on the market longer and sellers are seeing more signs come up in their neighborhoods, they're turning to us with more adversity in the market. So we're also being smarter about what we're buying in the pockets. I think our volume is based on more opportunities that we're seeing as we continue to stay disciplined, but also really getting comfortable with the pockets in some of these markets that we're buying. I'm feeling good about what we're buying in those areas.

Okay. Just a quick follow-up on that. When you mention your contribution margin targets, where do you expect to land as you increase your acquisition volume? Is it still going to be in the 3% to 6% range, or do you anticipate being higher in that range given the current volatility and your risk appetite?

Yes. We're seeing improvement and have strong visibility for the next 3 to 4 months based on our product cycles. After experiencing a downturn in the first quarter, we anticipate an increase in contribution margin as we enter the second quarter. We also have a larger proportion of recently purchased homes in our cohorts, which is boosting our contribution margin. While I can't provide specific guidance on contribution margin percentages, I can share that we expect them to return to the levels we experienced in the first and second quarters of last year.

First one for Brian. Just high level with spring selling season in full swing. I was hoping you can just provide some context on just what you're seeing generally in terms of supply and demand across your key markets, if you're noticing any imbalances beginning to materialize just from the rising inventory we're seeing in certain parts of the country. And as it relates to Offerpad, just how you're thinking about managing risk here, just given the potential for maybe a choppy selling season and outsized seasonality into the slower part of the back half of the year.

Yes, we are seeing an increase in active inventory in nearly every market we operate in. For instance, markets like Phoenix currently have over 25,000 or 26,000 active listings. There are plenty of homes available, but not enough buyers due to affordability issues. As I mentioned earlier, we are being very selective in locations that are near jobs and schools, where we are observing transactions taking place. It's important to know where these activities are happening and where people prefer to live. Buyers have many options in the market right now. We are increasingly leveraging our renovation efforts, given the larger inventory available, which leads to more competition. We need to ensure our homes are upgraded and more appealing than others, which is essential in today's market environment. From a risk management perspective, being selective and disciplined about our expected return on investment in various markets is crucial. Additionally, tariffs have introduced some uncertainty into the buying process.

I appreciate that. And then just a follow-up for Peter. I guess as we think about the 1,000 homes per quarter North Star that you're talking about, is that a level that you believe is enough to support cash flow breakeven? And as you think about the pace of acquisitions ramping over the course of the year, do you feel like 1,000 homes is something you could potentially hit this year? Big picture, just trying to understand what is a reasonable timeline for cash flow breakeven with your acquisitions.

Yes, definitely. We are aiming for cash flow breakeven, which is supported by low overhead and a larger share of our higher-margin asset-light services. We believe that reaching 1,000 homes per quarter, along with other factors, will help us achieve EBITDA and cash flow breakeven and become positive. While we are not providing guidance for the end of the year, we do anticipate that volumes will increase as the year progresses. We are not yet in a position to confirm if we will reach 1,000 homes by year-end.

No. And I think obviously, there have been a lot of challenges in real estate with affordability and what we've seen with mortgage rates in the last few years. But I’ll tell you the positive is in the time and effort that we've had to focus on our asset-light channels. What we've always aimed for is for people not only to view us as an iBuyer who pays cash for homes, but as a solution center. The cash offers the foundation, but we're allowing others to plug into that foundation. Sellers come to us every day wanting us to buy their home. If our cash offer doesn't fit, they can list with our agent partners, or we can connect them with other investors. Right now, everyone's experiencing a downturn in transaction volumes. But as things start to normalize, the work we've done and the familiarity that customers have with our platform will pay off. More of our business is going to come from our asset-light channels, which is really exciting.

Great. Just as a follow-up to that, Brian, the company had mentioned that 40% of contribution margin after their interest this quarter came from asset-light services. I was just wondering if you could talk about the biggest contributors there. Is that 40% more of a function of the fact that those dollars were just small in the quarter? Or is 40% like a good framework to think about where you want to be long term as it relates to those asset-light services? And then as a follow-up about the product changes that may potentially occur to reduce working capital requirements in the instance that there isn't more capital brought in. Could you just give us a sense of which areas of the portfolio that you would deemphasize?

You want to take that...

I will take the first. Yes. I'll start by saying that, as mentioned in the prepared remarks, we are working on a plan that will include significant cost reductions and a change in our operational approach, particularly regarding our products. The aim is to reduce working capital and ultimately conserve cash. We are in the process of formulating this plan, so we are not ready to provide further details, but we are committed to being prepared to execute it.

Yes. And I think from the other side, there's no question with the market right now, the amount of homes that we're buying, our asset-light services are a good chunk of that revenue. But I will tell you, we want more of what we're doing to be on the asset-light side. I'd love to get to a point where it's a 50-50 split in terms of our services, and that should lead to a focus on what the right products are for our B2B and B2C customers. We're making great strides with our Renovate side, and I am excited about our new partnership with auction.com. They bring a strong user base that will benefit from our renovation services. Our goal has always been to position ourselves for long-term growth, and we've built Offerpad to adapt in times like this. We're providing listing opportunities, connecting sellers with potential buyers, and enhancing our asset-light services.

This is Vincent Kardos for John at Jefferies. Two for us, please. You mentioned making the inspection process faster and more efficient. Just curious to hear a little bit more about how you're doing that and the steps you're taking, and how the steps you're taking should be expected to hit the P&L. And then following up on some of your earlier comments about Renovate, maybe just talk a bit about the margin progression for that business as it grows. Any impact you're seeing on margins there from tariffs so far? And whether growing that business at the same pace going forward would be realistic if we were to see a major uptick in the cost of building materials from these tariffs.

Yes. And I'll take the second one. As far as Renovate, we’re not seeing any significant margins affected by tariffs yet. Our partners are able to use our renovation operations just as we do when we buy homes. As it stands, we haven't noticed a lot of tariff impact, but it’s too early to say definitively. On the efficiency side, with regard to our inspection process, we now allow sellers to receive their offer range within minutes. If it aligns with their needs, they can schedule an inspection on their own terms. We're providing them multiple timing options for inspections now, leveraging both internal and external resources to meet their schedules, which has positively impacted engagement and conversion rates.

No, no. I mean I think, look, it's 20% to 30% margins as we've said before. Importantly, as the business is growing, we're maintaining those margins. It's a really good support business for our cash offer and also a stand-alone business.

Yes. And I think to your first question, this has been really interesting because when people are coming to us, they’re not just looking for the best price for their home like they might in normal times. Timing is critical for sellers today. Therefore, we must meet their needs where they are. So, we've streamlined our inspection process significantly; sellers can now quickly access their offer and choose inspection times that work for them. This has resulted in improved customer engagement, and we’re seeing conversion rates rise as a result.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.