Offerpad Solutions Inc

Thank you for attending today's OfferPad first quarter 2023 earnings call. My name is Bethany, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Stephanie Layton, Senior Vice President of Investor Relations and ESG at Offerpad. Stephanie?

Thank you and good afternoon, everyone. Welcome to Offerpad Solutions' first quarter 2023 earnings call. Our Chairman and Chief Executive Officer, Brian Baer, and Chief Financial Officer, Mike Burnett, are here with me today. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations. Please refer to the risks, uncertainties, and other factors relating to the company's business described in our filings with the US Securities and Exchange Commission. Except it's required by applicable law, Overpad 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's non-GAAP measures to the comparable GAAP measures are available in the financial table of the first quarter earnings release on OfferPad's website. I'll now turn the call over to Brian.

Thanks, Stephanie. Hey, everyone. Appreciate you joining us today. I'll cover our priorities, a Q1 summary, market trends, and operational updates. Mike will share our first quarter 2023 financial results and our second quarter outlook. The extraordinary increase in interest rates last year and the resulting impact on home values and sales volume required us to adjust our plans, revise near-term objectives, and execute decisively. In the fourth quarter 2022 and the first quarter 2023, we focused on the following top priorities. First, renovating and selling homes acquired prior to September of last year. As of last week, 99% of those homes have sold or are under contract to sell. This allows us to focus entirely on our go-forward plans. Second, acquire new homes at a cautious pace to test markets and prove our ability to achieve positive returns on new acquisitions in this uncertain market. In fact, we have largely achieved or exceeded our normalized return targets on homes acquired after September 1st, even as many markets have been under stress. Third, reducing costs to adjust to today's market dynamics. Cumulative headcount and other cost reductions are expected to decrease our annual operating costs by $40 million in 2023 compared to last year. Fourth, raising equity capital to strengthen our balance sheet. Now in the second quarter of 2023 and looking forward to the third quarter, we are executing a plan that we expect to produce positive adjusted EBITDA by year end. Importantly, we believe that our ability to execute and achieve profitability is not dependent on home price appreciation. We are prepared to perform through this period of depressed residential resale transaction volumes. There is plenty of upside if this broader market accelerates. However, our plan is not dependent on market acceleration. Our plan targets the following top three priorities. First, optimizing our market footprint with targeted cost reductions while doubling down on higher performing markets. Second, increasing acquisitions to approximately 500 per month with a targeted time from acquisition to close of 100 days or less. Third, leveraging our deep market knowledge and operational capabilities to precisely execute our core cash offer business while also innovating and expanding our fee-based service offerings to increase the number of ways that we can serve customers and partners. We are an agile organization. We know what we need to do, and we remain focused on continuing to execute and innovate with enthusiasm. Turning to our first quarter results, we exceeded our top line goals and met our bottom line expectations. On our fourth quarter call, we anticipated that Q4 2022 would represent the low point of our reported net income, and Q1 would reflect quarter-over-quarter bottom line improvement. In Q1, our adjusted EBITDA loss was half of the prior quarter. Reduced costs and positive margins on the sale of new inventory helped us offset losses associated with the sale of legacy inventory, which was still two-thirds of our Q1 sales. With affordability challenges and many consumers choosing to stay in their current home with lower mortgage rates, general expectations are that transaction volumes in the broader real estate market will remain substantially lower this year compared to 2022. Accordingly, we initiated additional cost reductions this month to right-size the business for current and anticipated market volumes. This reduction includes recalibrating our internal resources and marketing spend to support our higher performing and more affordable markets. These changes support our plan to achieve positive adjusted EBITDA at approximately 500 acquisitions per month through a combination of express cash offers and direct plus sales by year end. Our progress in Q1 was supported by improving conditions and sentiment across many of our markets. In most markets, we are no longer seeing significant price cuts on listed homes, particularly more affordable homes. And multiple offers are reappearing in certain areas. As price volatility has normalized to more historic ranges, it has allowed us to price more competitively on targeted homes. Our pricing model does not require home price appreciation to succeed. Rather, it is rapid changes in home prices in either direction that cause the most challenges. We believe that more competitive pricing will help us accelerate the trend of increasing acquisition volume. In addition, we continue to utilize our in-house renovation expertise to create value, reduce risk, and position our inventory to sell. Our strong established brand and core express cash offer business create a powerful and efficient top of funnel source of leads. Add this to our deep operational capabilities, and we have a lot of opportunity to further help customers and generate additional revenue outside of our core business. Turning to operations, I will update you on the following three products and services that are in addition to our core Express Cash Offer business. Renovate, Direct Plus, which is acquiring homes for our investor partners, and our Flex Listing service. Last quarter, we shared our plans to expand our fee-based business-to-business services with our new Renovate and Direct Plus offerings. We believe these offerings provide a great value proposition for single family rental companies, but our plan does not rely on significant volumes this year, as many of these investors are on the sidelines for now. Nonetheless, we believe these services can be an important part of our business over time. Through Renovate, we are providing renovation services on non-Offerpad single and multifamily homes. During the first quarter, multiple new businesses started using our renovation services, and we completed approximately 225 projects under this business model. Our Direct Plus program that connects investors with sellers is taking shape. In the first quarter, we onboarded several new investor partners with diverse buy boxes and target markets. In addition, we expanded this offering from two to eight offer pad markets. Importantly, many of the current and potential Direct Plus partners, such as single-family and short-term rental companies, can also benefit from utilizing our renovate services. Growing our flex listing service and agent referral network also supports our goal to provide a solution for every customer. With a team of more than 100 agents, our local experts provide an alternative to those looking for a cash offer. For customers in markets we don't currently serve, We have an agent referral network where we connect customers with an agent in that market. OfferPad receives a percentage of the commission for any transaction that closes through our referral program. Customers we otherwise could not be able to assist are connected with a solution by working with a local real estate professional. This is another way we are meeting the needs of more individuals and capitalizing on our top of funnel request volume. To manage our expanding services and partners, our data and analytics team enhanced OfferPad's technology to automatically match each customer with the solution that best fits their needs. A cash offer on behalf of OfferPad for our Direct Plus partners, flex listing our agent partner services. Our goal is to deliver each person who contacts OfferPad with the best solution for their needs. This software and analytics update helps maintain one of our primary value propositions. a simpler, less stressful real estate experience. As we navigated through the abrupt market shift last year, we used this time and experience to build an even better, more diverse business. We thrived in the hot buyers market during 2021, we adapted during the market shift in 2022, and we are demonstrating our ability to perform under the current market conditions with improving operational and financial results. For our core express cash offer business, it is more important than ever to leverage our deep data, technology, and local market expertise to be laser focused on buying the right homes in the right submarkets at the right price and applying our expert operational capabilities to target, underwrite, renovate, and sell homes while maintaining a great customer experience. In closing, I remain excited about our opportunity to change the way real estate transacts. We believe we have the right cost structure, right financing, and right products to succeed in any environment by offering our customers their best way to buy and sell a home, period. I'll now turn the call over to Mike. Thanks, Brian.