Offerpad Solutions Inc. Q3 FY2025 Earnings Call

Good afternoon. Thank you for joining Offerpad's Third Quarter 2025 Earnings Call. My name is Cameron, and I will be your moderator today. I would now like to hand the conference over to your host, Cortney Read with Offerpad. You may proceed.

Good afternoon, and welcome to Offerpad's Third 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 reconciliation of Offerpad non-GAAP measures to the comparable GAAP measures are available in 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, Cortney, and thanks to everyone joining us today. The housing market remains in a period of transition. Affordability challenges and limited mobility have defined the past two years, but signs of stability are beginning to appear. Mortgage rates are easing, buyer confidence is improving, and sales activity is picking up in key markets. For Offerpad, that shift represents opportunity. We built this company to adapt, not depend on market conditions. That flexibility has carried us through the toughest housing cycle in a generation and positioned us to lead as the industry transforms around efficiency, technology, and customer experience. Now we're channeling the strength into growth. We're playing offense with control, intentionally keeping inventory lean and turning it faster while scaling asset-light services that meet sellers where they are, whether that's speed, certainty, or a listing-led path. Over the past year, we have taken deliberate steps to strengthen every part of our operation. We refined our buy boxes using proprietary data to sharpen acquisition criteria and improve decision-making. We have also made meaningful progress in deploying artificial intelligence across our operations to drive efficiency and scalability. We're integrating AI-driven picture recognition and smart scoping technology into our workflow. By the end of the year, we plan to launch the first phase of that capability. It will enable our system to analyze property photos, automatically identify condition issues, estimate renovation needs, and feed that data directly into our pricing model. Combined with our continuously improving AI pricing engine, which has become more accurate even in today's uneven environment, these tools help us price homes more precisely, reduce manual inspection time and human variability, and increase margin confidence before we deploy capital. In parallel, we are creating new process flows to scale our Direct+ business, which enables us to sell homes directly to strategic and institutional buyers. As part of this effort, we are evaluating a new segment of properties with characteristics distinct from our current Direct+ portfolio, broadening our opportunity set and positioning us for future growth. Automation and data power our operations. This allows us to scale efficiently, reduce cost per transaction, and deliver more consistent results across every solution we offer. At the same time, we continue to refine our pricing models to optimize margins and support disciplined, profitable growth in any market. Although we are encouraged by early signs of stabilization, we're also realistic that recovery will unfold in phases. Before expanding acquisition volume meaningfully, we are taking the time to ensure we buy the right homes in the right markets under the right conditions. This approach is very intentional. Our outlook is steady today and positioned for tomorrow. We expect heightened seasonality as we move through the winter months. And even with more acquisition and overall transaction opportunities, it takes time for those homes to progress through our inspection, renovation, and disposition process. Our disciplined approach keeps us well-positioned to benefit as transaction volumes increase and our recent acquisitions convert to closings. We expect that momentum to bring us back towards our near-term goal of 1,000 transactions per quarter. To help drive that next phase of growth and execution, we strengthened our leadership team with the addition of a proven operator. I'm very pleased to share that effective today, Chris Carpenter has joined Offerpad as our Chief Operating Officer. Chris brings more than 20 years of experience leading transformation, operations, and strategy across Fortune 500 companies and private equity-backed ventures. He previously served as lead transformation executive at WarnerMedia, where he oversaw large-scale integrations and business strategy initiatives. Chris is known for driving efficiency and execution at scale. His leadership experience and operational mindset will help us strengthen the connection between technology, operations, and customer experience, enabling us to scale efficiently and deliver even greater impact for our customers and overall conversion. Everything we have built from our data-driven processes to our diversified solutions comes together into four strategic pillars that create value, strengthen resilience, and position Offerpad to lead the next phase of real estate innovation. These pillars define how we operate today and how we will continue to grow. Cash offer remains the foundation of our model, providing sellers with speed, certainty, and control. We're deploying capital deliberately, prioritizing contribution profit and velocity over volume. That's how we protect returns and optionality in a rate-sensitive environment. HomePro extends that foundation through an agent-led approach that gives sellers in-person guidance and flexibility without requiring incremental capital. Renovate continues to grow rapidly, achieving our third consecutive record as we help partners transform inventory into move-in-ready homes at scale with repeatable workflows and predictable margins. Direct+, our cash offer marketplace, deepens institutional relationships and funnels more transactions through an asset-light channel, lifting margins per unit. Together, these pillars create an integrated ecosystem that adapts to a range of market conditions. With that, I will turn it over to Peter to walk through our financial performance.

Thank you, Brian. In the third quarter, we reported revenue of $133 million and sold 367 homes. Gross margin was 7%, resulting in $9.3 million of gross profit. Operating expenses, excluding property costs, totaled approximately $12 million, a reduction of 37% year-over-year. That improvement reflects the work we have done across every function to drive lasting efficiency from marketing and vendor management to automation and organizational structure. Our teams continue to execute with precision. Every dollar we spend today is focused on performance, margin, and scalability. We are not only operating leaner but smarter, making decisions guided by data, automation, and technology that give us greater control over both cost and outcomes. Adjusted EBITDA improved sequentially by 4% to a loss of $4.6 million. This progress demonstrates how our disciplined approach and operational improvements are steadily flowing through to results. We have seen higher marketing efficiencies, stronger vendor terms, and meaningful savings, all of which position us for continued EBITDA improvement in the quarters ahead. We ended the quarter with an inventory of 498 homes and acquired 203 homes in selective markets that met our margin thresholds. Our balance sheet remains strong with $31 million in unrestricted cash and total liquidity exceeding $75 million at quarter-end. We have also expanded our lending relationships to reduce the cost of capital and increase flexibility as we scale our asset-light businesses. Looking ahead to the fourth quarter, we expect revenue between $100 million and $125 million and homes sold in a range of 300 to 350. Adjusted EBITDA is expected to remain roughly in line with third-quarter levels. We're guiding with discipline, grounded in what we see across our business today and where we have clear visibility to execute effectively. Our intermediate-term goal remains at approximately 1,000 real estate transactions per quarter across cash offers, traditional listings, and investor services. That level of activity supported by our ongoing efficiency initiatives sets the foundation for our next milestone, a return back to profitability. Even as acquisition opportunities expand, we are managing volume carefully until demand becomes more sustained. This approach gives us control today and flexibility to capture upside when the market accelerates. A larger share of revenue and margin will continue to come from asset-light services, HomePro, Renovate, and Direct+, as we advance towards a more diversified and capital-efficient model. These businesses demonstrate the strength of our platform and the value of disciplined execution. Finally, I want to echo Brian's enthusiasm about Chris Carpenter joining Offerpad as Chief Operating Officer. His experience in large-scale transformation and operational excellence perfectly complements our focus on financial discipline and scalable growth. I am excited to partner with him as we continue driving efficiency and performance across the business. With that, I will turn it back to Brian.

As Peter highlighted, our disciplined execution and operational strength have created a foundation that allows us to move forward with confidence and control. The past few years have tested this industry, but they have also proven the strength of our model. Our platform is more diverse, our operations are more efficient, and our technology is driving measurable results. The market is still tight on mobility, but it's showing early signs of recovery as rates ease and inventory inches higher. In that context, our strategy is simple: Keep inventory tight, turn it fast, and scale the asset-light platform. As conditions improve, Cash Offer, HomePro, Renovate, and Direct+ give us multiple ways to win with more capital efficiency, better unit economics, and greater resilience than a single path model. We are energized by what is ahead and confident in our future, a company where every part of the business works together to drive growth, efficiency, and exceptional customer outcomes. Thank you for your time and continued support. We are now ready for your questions.

The first question is from Dae Lee with JPMorgan.

I have two. So the first one is for Brian. You talked about strengthening the foundation of your business and expanding the reach through asset-light services. So looking ahead, what are your top priorities to ramp HomePro, Renovate, and Direct+ from here? And as you look out to 2026, where do you see the biggest upside across those three asset-light services?

Yes. Dae, each one of them has its own story about where we're seeing opportunity. And what we're highly focused on with all of them, just in general, is conversion. On the HomePro side, we're seeing some really positive signs. Obviously, it's early there, but some very positive signs of meeting the sellers where they're at and the ability to talk to sellers about different products that potentially, if the cash offer doesn't work, having them have another cash buyer's opportunity to bid on their home as well and then the listing opportunity as well. And so we're really seeing that with sellers. So I think the opportunity there is just really to maximize conversion. And there are obviously a lot of learnings as we're building out this program and getting better and meeting sellers faster and some different things that we're learning along the way. But I think that has tremendous opportunity. I think as you start seeing the market pick up and different things happen, I think that's going to expand our Direct+ as we start to buy more homes or as the market starts to loosen up a little bit, you're going to see a lot of our other cash offer partners start to buy as well, which leads to two things, more of our Direct+ business, but the second part is really helping our renovation business as well. And as you saw with some of the numbers, Renovate continues to grow even in these market conditions. And what I like about that is we have a lot of really diverse customers in that, in the Renovate and the Direct+. And so they're going to be there and they're more diverse than any other market opportunity. They will be able to use our services. That's either Renovate or the Direct+ services. So a lot of opportunity that we're seeing. And I will tell you, just to finalize that with the Cash Offer, which is kind of the base of what we do in this environment, we're seeing more and more people that are in moments that really value the Cash Offer. And so obviously, we're working on our efficiency, our timing, and making our Cash Offer better every day, but making sure that we're also buying the right type of homes that we want in this environment. So really liking what we're seeing for setting up for 2026.

Got it. And then the second one could be either for you, Brian, or Peter. As you work towards that 1,000 transaction target that returns you to breakeven, how should we think about the mix between asset-light services and traditional cash offer deals? Is there like an optimal blend for margin and growth? And just as a quick follow-up to that, is there like an equivalent number that you guys can provide for 3Q or in your 4Q guide that's equivalent to that 1,000 transaction because understanding that's different from homes selling now going forward?

Sure. So the 1,000 transactions, right now, the mix is roughly whether you look at it based on a gross profit perspective or based on a volume perspective, the mix is directionally around one-third, two-thirds with the larger piece coming from our Cash Offer, and this is excluding Renovate services, just focused on our real estate transactions. The most important thing on this topic is conversion. So as we move from where we were two years ago with really primarily one product to today where we have four or five, if you include Renovate, conversion goes up significantly. And as we bring those new products to the market, it becomes the approach and the execution around getting to 1,000 transactions is easier and more straightforward. We expect the mix to, as we move across next year, to move up and get to, at some point next year, over 50% from the asset-light products. And we are going to, as I mentioned last quarter, we are working towards providing better detail. We do break out other services and Cash Offer in a separate segment in the Q, but we are going to provide more detail on each of the products and the volume on the IR website and the trending schedules as we get into next year. So that will help you from just from the perspective of guidance. And finally, what I'd say is we have guided on homes sold for next quarter like we have historically. We are not guiding towards or disclosing the exact number of real estate transactions. But I'd say at a high level, if you look at the 1,000 transactions that we're working towards this quarter and next quarter, we're about halfway there if you include both the cash offer and the asset-light transaction.

One other thing I'll just add there, Dae, is that as we look at it, I continue to think the cash offer is the best product in real estate. It solves the most friction from the customer, the speed, the certainty. And so that is always going to be the foundation. But I also like what we're setting up is it lets them choose their own path, what's best for them. And so if they want to try to explore the open market, we can help them with that as well to see if anyone else is willing or able to pay more money than they can or we can. But also, we're shopping their home through other, with our Direct+, through other cash offers to see if we can get them a higher offer than even ours. And so I really like what we're doing with the seller to put them in control. And it leads and starts with the cash offer. But overall, we want the seller to eventually choose what's best for them. But I think the Cash Offer is always going to be a really powerful tool in there.

The next question comes from the line of Ryan Tomasello with Keefe, Bruyette, & Woods.

Regarding HomePro, can you just discuss the hiring needs that you envision are needed to support the growth in that channel, just given that it's obviously more high touch with human involvement from these agents? And then I think you alluded to this on your prepared remarks, Brian, but any color just on early stats on impacts to conversion rates that you're seeing? And also, if you have the data, what the mix is on that conversion on Cash Offer versus a traditional listing?

Sure. I'll provide a high-level overview of HomePro and then dive into more specifics. Regarding headcount, what I appreciate about HomePro is that the entire division is mainly operated from our HomePro team along with the agents in the field. This allows us to manage a lot of our operations through data. For instance, when customers approach Offerpad, they can set up their inspections, all of which is automated through various vendors associated with HomePro. This means we can accomplish a great deal with a smaller internal team, particularly as I mentioned earlier, we are leveraging technology to identify smarter ways to grow and scale the company as we enter the next market, especially with the advancements we are observing in AI. Concerning headcount, it will largely rely on the HomePros, and we'll make use of data and technology in that area. As for conversion rates, while it’s still early, we are currently noticing an increase in the number of people opting for the Cash Offer. We find that more individuals are in situations where they lack the time or patience to wait and attempt to maximize their options on the listing side. Therefore, we are definitely observing a greater interest in Cash Offers at this time. We expect this to evolve over time, considering the broader macroeconomic context surrounding these products. We aim to have a solution prepared for any shifts in the macro environment. This is what we've gathered from the initial days of HomePro. Peter, do you have anything you would like to add?

I would like to add two points. We recognize that we need to provide more details on the mix, Ryan. Since we are just three months in, it's still early to present meaningful numbers, but trends are developing. We aim to shift from a one-third, two-thirds model to a balanced 50-50 split between asset-light and Cash Offer, with HomePro being part of the asset-light category, as well as the Direct+ segment. Additionally, regarding HomePro opportunities, we receive revenue or a fee from the broker when they visit the home for leads. Therefore, whether we complete a transaction on the home or not, we achieve a gross profit that is approximately equivalent to the gross profit from a Cash Offer for those traditional HomePro listings that we do not transact on. For those transactions that we do complete, we still receive some revenue, although it's smaller, for each home visit and conversation.

One other thing to emphasize, Ryan, as I mentioned in the prepared remarks, is that one of our major manual processes involves inspecting thousands of homes to ensure we are purchasing the right type of product. Over the years, we have invested a lot in technology for the inspection process, but we are now focusing on advancements in picture recognition and insights from machine learning and AI. We anticipate having a solution ready by the beginning of the year that will significantly accelerate this process. This improvement brings two benefits: it reduces the need for additional headcount and utilizes AI that learns from the vast number of homes we've inspected over time. Additionally, it enables us to provide sellers with their final price much quicker, which is crucial. These are some of the various tech initiatives we are implementing to enhance efficiency without increasing headcount.

And I guess what's the logic for excluding Renovate services from this math? Just as a quick follow-up to that discussion. And then a separate topic, in terms of institutional homebuyer activity, obviously, that's more impactful to your B2B products like Direct+ and Renovate. Any update on what you're seeing there in terms of demand trends and transaction activity would be helpful.

I'll address the second question. You can tackle the first one, Peter. Regarding Renovate, our perspective is that we are concentrating on 1,000 real estate transactions, which involve both the purchasing and selling of homes. The economic aspects of these transactions are quite consistent, regardless of whether we are handling them through a Cash Offer that goes on our balance sheet, a traditional listing that involves a broker and fees, underwriting where a home is acquired by a single-family rental or investor, or when a partner’s cash offer business buys the home and pays a fee. The overall gross profit remains similar across these scenarios. We view all of these as real estate transactions. Renovate is a business that is connected to our Cash Offer operations but operates separately and is not directly tied to home transactions. That’s our way of thinking on the matter, though it certainly contributes positively to our profits and overall business. Yes. Regarding the second point, we maintain strong partnerships with the major players that purchase a significant amount of our platform. Currently, they are buying, but not at the volume that we or they typically expect. With Direct+, we continue to attract different types of buyers to that division. For instance, many homes come to us that we cannot accommodate, usually because they are in as-is condition or have been heavily used. However, through Direct+, we can enable buyers to purchase these types of homes, providing sellers with offers. This involves a slightly different process, but we are successfully integrating more and more buyers into this segment. Among the long-term holders, we are seeing considerable success, including newer funds that have emerged. The mid-tier fund is actively purchasing in specific segments of homes across the nation, often focusing on one or two markets where they have an interest. We are continuously expanding the variety of buyers in Direct+ to facilitate home purchases.

The next question comes from the line of Michael Ng with Goldman Sachs.

I was wondering if you could talk a little bit about what you need from a transactions or Cash Offer versus kind of value-added services mix to get to breakeven? What does the environment look like for breakeven? Is that something that you think you might be able to achieve next year?

Yes, as we mentioned in our prepared remarks, we are focused on reaching 1,000 transactions. We expect the mix to shift towards a 50-50 ratio in the next steps as we progress through 2026. While we can't specify the quarter yet, we believe this will occur regardless of the real estate environment as part of our strategy to diversify our product offerings. We are aiming to transact across a larger range of products, five in total, which can operate independently of market conditions while achieving the conversion rates necessary for 1,000 transactions. Additionally, we have significantly reduced our fixed expenses, cutting about $150 million annually from our operations. In a sequential comparison, our operating expenses decreased from $16 million to $12 million, and we will continue to implement cost reductions to lower this figure further. As we reach the target of 1,000 transactions alongside decreasing operational expenses, we expect to see profitability.

And just on that, too, Michael, just one of the things I will just say on that as well is, we're definitely seeing some buying a little bit. And hopefully, it's not a glitch. But over the last little bit, we are definitely seeing more sellers that are jumping into the market wanting to sell. And from our perspective, but also from just the overall macro perspective, starting to see more of that. And I think what's also key is being a little bit more patient as well. We saw sellers come on but also pull their houses off the market. So we're seeing sellers that are more willing to engage. And on the buying side of it, we're seeing early signs of purchase loan applications going up. We're seeing more, some of the showing activity. We're definitely seeing, in segments in some of our markets, where sellers are selling and buyers are wanting to trade and they're together there in certain segments. And so obviously, a lot of work to still do in this market, but we're definitely seeing some things that are encouraging on that end. And a lot of this is just driven by the interest rates that are in the lower 6s now. And so anyway, so we're seeing some of that and obviously, in effect, it makes us more willing, more able to buy homes that we're more comfortable with and then get more aggressive on that end. And also that's going to build the other products as well up over time. Right now, we're staying very disciplined, but we're liking what we're seeing in the market early, early signs.

I want to clarify one last point based on these questions in our prepared remarks. We are projecting that in the fourth quarter, our volume will be similar to or slightly lower than the third quarter due to factors like the seasonal impacts of the holiday season. More importantly, we are seeing positive trends in sign activity and an increase in transactions from a purchase perspective. The key guidance for this quarter is focused on next year, where we expect to ramp back up to 1,000 transactions.

I wanted to follow up and ask about Chris's appointment as the leader of transformation. Your main competitor is also experiencing some leadership changes. Can you discuss what the key areas are that require transformation in this sector? Is it a recognition that we may be facing a prolonged period of lower performance? Or is there a need for structural changes to the current business model?

Yes, that's a great question. I'm very excited about Chris joining us. He will focus on key areas, particularly conversion and preparing us for scaling as we grow. Our short-term goal is to achieve profitability at a rate of 1,000 per quarter. However, our long-term vision for the company is much broader. We aim to grow and scale effectively. We want to be more disciplined and smarter in our approach, and bringing in top talent is essential for us to achieve this in a smarter way with diverse skill sets and perspectives. I believe Chris can deliver on these objectives. Additionally, our four product lines are interconnected, and I want to enhance the efficiency of how they work together. For instance, Direct+ enhances conversion for Renovate since smaller Direct+ partners often turn to us for renovation services. This is just one example, but it's crucial for us to improve our logistics and efficiency as we scale again, and having new perspectives will be very beneficial.

There are currently no questions registered. There are no further questions waiting at this time. That will conclude today's call. Thank you for your participation, and enjoy the rest of your day.