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Operator
and I will be your 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 your host, Taylor Giles.
Taylor Giles
You may proceed.
spk06
Good afternoon, and welcome to OfferPad's first quarter 2024 earnings conference. I'm joined today by OfferPad's Chairman and Chief Executive Officer, Brian Baer, 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 risk 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 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.
Brian
Thanks, Taylor, and thanks to those who joined the call. The first quarter of 2024 continued the positive trajectory I discussed in our last earnings call. With $285 million in revenue, we met the high end of our revenue guidance, reflecting a 19% increase versus Q4 of 2023 and marking our third consecutive quarter of top line growth. We also met the high end of our guidance for homes sold coming in at 847, up 19% quarter over quarter. Adjusted EBITDA was also in line with expectations. Importantly, we remain confident in our ability to reach sustainable, positive adjusted EBITDA in 2024. Both gross margin and contribution margins improved in the quarter as our asset-light platform services grew and time to cash, or TTC, was in line with expectations. Despite the ongoing macro challenges of affordability and locked-in sellers, our focus remains on the factors within our control. Our team's strong execution is driving the expansion of our platform scalability, encompassing four distinct platform services. As a reminder, those four services include Renovate, which allows B2B partners the opportunity to tap into our renovation technology, cost management, logistics, and ground game within the OfferPad platform. Similar to Renovate, Direct Plus enables B2B partners to integrate with our top of funnel strategies, conversion efficiencies, and in-house closing teams. This program allows us to help more homeowners and reach more customers. while also providing them with the benefit of receiving an optimized offer for their home. Our agent partnership program serves as our listing and referral platform with the goal to discover the best solution for every customer. And finally, our cash offer stands as the foundation of our services. Renovate continues to thrive, demonstrating strong operating and financial performance. We consistently receive extremely positive feedback from our customers who value our timely, cost-efficient, and high-quality renovations. In quarter one, renovate projects grew 78% year-over-year and represented 11% of our overall contribution profit after interest. We successfully completed nearly 400 projects, yielding more than $5 million in revenue, and setting us on an annual run rate significantly above the $12 million we achieved in 2023. Alongside the success of Renovate, our other asset-light platform services continued to scale. Together, these three services represented 43% of total transactions in the quarter, reshaping our product mix and yielding higher contribution margins. These services were instrumental in expanding our reach into markets where our cash offer solution is not currently available. We are pleased with the continued growth and great potential of these asset-light businesses. in conjunction with the performance we are seeing in our core cash offering. In the previous quarter, I emphasized the significance of our partner programs, including Home Builder Services, Agent Referral Network, and the recently enhanced Agent Partnership Program, or APP. As a reminder, APP offers industry-leading referral fees to agents whose sellers opt for our cash offer. This program has been a key contributor to our growth. In quarter one, APP requests represented over 20% of total requests, with acquisitions from those requests rising by 50% quarter over quarter. APP allows customers to use OfferPad in the way that works best for them, their agents, and OfferPad.
Referral Network
Real estate continues to evolve.
Brian
It's very important to note OfferPad's founding vision was to create a one-stop solutions platform that removes the friction out of the real estate transaction and gives consumers what they want, certainty and control. Having a seamless platform where customers trade in their current home and find their next home is exactly why OfferPad was founded. We strongly believe the ability to own the home and the listing will be more valuable than ever. And this is the core of our business. We anticipate that over the coming months and years, homebuyers will become more accustomed to dealing with sellers and listing agents directly. And Offerpad is uniquely positioned for this new environment. We are pleased with our strong start of the year. Our teams are laser focused on advancing our three strategic imperatives, taking the friction out of real estate, growing our asset light platform services, and expanding our partner ecosystems to support more consumers. We're pacing to achieve positive adjusted EBITDA and remain committed to building long-term shareholder value. I want to thank our world-class OfferPad team members for their hard work and dedication to our mission. We look forward to updating you on the continued progress throughout the year. I'll now turn the call over to James. James?
James
Thank you, Brian. The first quarter was solidly on plan as we continue to see growth among our various businesses. We also continue to drive improved operating leverage, more efficient ad spend, and productivity from our partner channels, all of which are helping us drive down operating expenses. We're on track to deliver more than the $30 million in incremental cost efficiencies in 2024 we highlighted last quarter. This is enabling us to execute towards our goal of positive adjusted EBITDA and ultimately free cash flow. We exited Q1 with our portfolio in a healthy position. We had 900 homes in inventory of which only 8.5% were owned over 180 days with roughly half of those under contract to be sold. This is a normal seasonal increase from the end of the year and a significant improvement from the prior year at 32.3%. Homes sold in the quarter had an aggregate TTC of 113 days up quarter over quarter and in line with our seasonal expectations. We expect TTC to seasonally come down in the second quarter. As we mentioned last quarter, after the slowdown in the market at the end of the year, we saw improved request volume and acquisition pace to start the year. We acquired 806 homes in the quarter, up 19% compared to Q4, and 121% year over year. With the recent rise in mortgage rates, we will continue to maintain a more conservative approach to acquisitions and thus expect acquisitions to be up compared to Q1. As Brian said, our cash offer is the foundation of our business, and our asset light services continue to show strong momentum. Diversifying our revenue through these additional services will continue to be a priority. In the first quarter, they provided roughly a third of contribution margin after interest, and we expect this momentum to continue. It's still early in our rollout of APP Max, but we feel confident about our strategic approach to working with partner agents to monetize our out-of-buy box leads. We're particularly pleased with the progress of Renovate, which is becoming a more strategic offering, allowing us to expand into additional markets in a new way. In the quarter, we began working on Renovate projects for existing clients in Minneapolis and Oklahoma City. This introduces an efficient way for us to enter a market and begin building a local presence without upfront capital investment. In the first quarter, revenue was $285 million at the top end of our guidance range and up 19% quarter over quarter. We sold 847 homes also at the top end of our guidance and up 19% quarter over quarter. Net loss was $17.5 million a 13% decrease from Q4 and a 71% or $42 million improvement year over year. Fourth quarter adjusted EBITDA was negative 7.1 million coming in flat as expected, quarter over quarter. This represents an 84% or $38 million improvement year over year. Gross margin for the first quarter was 7.9%, 100 basis point improvement from 6.9%, last quarter and up significantly from 1.2% in the first quarter of last year. Gross profit was $23 million, an improvement of more than 200% year over year, largely driven by expanding contribution margin in our cash offer business and the strength of our asset light services at more than 40% of total transactions. Operating expenses when excluding property related selling and holding costs and contribution margin were up 27.8 million and Q1, up from the prior quarter where a one-time $7 million credit positively impacted OpEx. That's down 26% year-over-year, driven by our advertising spend efficiencies and cost management activities. We ended the first quarter with $69 million in unrestricted cash, $266 million in inventory, and $255 million of SPV-level asset-backed debt and zero parent-level debt. As a reminder, in Q4, we extended three of our primary credit facilities used to finance our inventory and maintain key terms around advance rates and funding mechanics while adjusting size to align with our expected needs in the coming years. Looking forward to the second quarter, we're again expecting sequential improvement in profitability. Sales paid orders acquisitions producing revenue between $250 to $300 million, supported by $750 to $875 homes sold. With our focus on operating leverage and expanded contribution margins, we're expecting approximately break even adjusted EBITDA. Looking at the balance of the year, we're pleased to be closing in on sustainable positive adjusted EBITDA as we continue to strategically invest in and grow our asset light services. With that, I'll open the call for questions.
Taylor Giles
We will now begin the question and answer session.
Operator
You would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a quick reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from Nick Jones with JMP Securities.
Taylor Giles
You may proceed.
Nick
Renovate piece, I think the contribution profit after interest is like kind of low 20% range. Can you remind us how high can that contribution profit after interest go over time? And I guess given the low kind of supply and transaction volume, is there an opportunity to maybe invest in some advertising and accelerate growth there given people maybe are opting to renovate as opposed to move?
James
Hey, Nick, we missed the very first part of your question, but I think it was around renovate contribution margins and where that can go. Maybe, Brian, you take the advertising part to begin, and then I'll hop in on the date.
Brian
Yeah, right now we've been focused on the growth of our B2B line. A lot of the vacant homes have been focused on that. We will eventually evolve into the B2C side, because you hit it perfectly, Nick. There's a very big opportunity of homeowners. that are trapped in as far as their equity right now or mortgage rates, but will be interested in staying in their homes much longer. And so that's definitely something that we are exploring and you'll continue to hear more about.
James
Yeah. And then, Nick, in terms of contribution margin, you're right. The renovated business is performing kind of roughly in that 20% range overall. I think the thing, it's been fairly consistent kind of quarter by quarter since we've turned that on. I think the thing that will allow us to expand that over time is as we start getting into a little bit more customizable type work. As of right now, we're working primarily with institutions that are doing work at scale. If we start to get into a little bit more customized work, maybe potentially get into working more directly with consumers on Renovate, that's where you could start seeing that expand. And it could be pretty material what that could expand to. But right now, just in terms of efficiency from the platform that we've got and utilizing our teams in an effective way, we'll be focusing on that more institutional level. So the contribution margin should stay pretty flat for them overall from a margin perspective.
Nick
Got it. Helpful. And then as you kind of focus on getting to kind of sustainable EBITDA profitability, kind of philosophically, how are you balancing You know, investing in growth, which I think there's an increasing eye on, when can we see acquisitions and home sales start to increase more meaningfully versus kind of making sure you can be profitable at current volumes? So I guess, how are you thinking about the current cost base? If rates are higher or longer, is there more wood to chop in terms of cost cutting, or is the business in good shape to kind of navigate, I guess, where we're increasingly having a lot of sites lower rates and, I guess, ostensibly higher volumes?
Brian
Yeah, we've made a lot of progress on navigating just this entire environment over the last year and a half. I really like where we are right now and positioned, especially with some of the other asset-light product lines that we talked about. As we look at our cash-off for business, we're still being very cautious there as far as turning that on and for extensive growth again. We're focused right now on the performance of each home that we buy is as you know the the sensitivity to affordability is is is is very very high right now so we we have started to expand our buy box um that's buying up funnel a little bit more of you know it's from the two to four to about more than two to six hundred price points so we'll start seeing that but we're definitely being um uh more cautious with the cash offer product right now and making sure that I don't think it's the time to, to really start jumping in a hundred percent yet on that. Um, but we're, you know, we're buying decent volume there. Um, and then, you know, in turn focused on our other products as well.
James
And then Nick on the cost side of the equation, I think there's kind of two components to that. Um, the first one being our request channel mix and our advertising spend efficiencies. And the second one being more on the traditional OpEx sense and, On the former there on advertising, we've done a lot of work over the past years to really dial things in there kind of for this new norm of what this market looks like. And rather than kind of trying to find a homeowner right when they're at the point of trying to sell, but that's why we've been leveraging, ramping up our partnership networks and things like that. Overall, we've actually driven our CAC down year over year in the first quarter by over 50%. So we're pretty pleased with the work that we've done there. We feel like we're actually in a pretty good spot in terms of the efficient frontier on our cost per lead curve. And so if we find good opportunities to invest from a marketing standpoint, I think there's the efficiency there from that standpoint. And then on the more traditional OpEx side, we've done a lot of work, as you know, over the past couple of years to optimize what our structure looks like and to make sure we have the right people that are the most effective in the right areas. And I feel like we've done you know, we've made the tough decisions there and we've moved the folks around to the right areas that we feel pretty good about the setup and the structure that we have right now. You know, right now it's all about just optimizing that operating leverage there and increasing volume and where we, you know, I think a good example is the expansion of our Renovate business really allowed us to figure out a new way to utilize those renovation teams over time, right? And so just making sure we remain efficient and and get every ROI out of every dollar we're spending right now.
Nick
Great. Really helpful. Thanks, Brian. Thanks, James.
Taylor Giles
Thank you. The next question comes from Ryan Tomasello with Stifel.
Operator
You may proceed.
Ryan
Hi, everyone. Thanks for taking the questions. Just following up on the contribution from the non-cash offer products, I think in the prepared remarks you mentioned it was those services represented around a third of contributions margins in the quarter. How should we expect that mix to evolve over the course of the year? Can you say what you're assuming in the 2Q guide from a mixed perspective on the cash offer versus the non-cash offer products?
James
Yeah, hey, Ryan. I think right now what we're seeing is the overall mix that we've got in terms of the cash offer piece versus the non-cash offer is probably fairly consistent with what we should expect for the remainder of the year here. I think with maybe some potential upside on that renovate business with some of the areas of momentum that we're seeing there. I think one thing, though, is As we look at the actual contribution margin dollars that are falling to the bottom line, we got it to improving bottom line adjusted EBITDA here in Q2. So that's going to see some expansion overall in the cash offer margin side there as well. So I think it'll be when you look at it purely as a percentage overall, it might fluctuate quarter to quarter here just as the cash offer business has some variability in it. But overall, the mix I think from a volume perspective is pretty well set right now.
Ryan
Okay, that's helpful. And then just to clarify another comment you made in the prepared remarks, I believe you mentioned a $7 million one-time credit that benefited the OPEX line. Forgive me if I heard that wrong, but any more color on what exactly that was? And if that was included in the initial guide you gave heading into the quarter, And if, you know, what EBITDA would have been excluding that, I assume we would just back out 7 million credit, which would imply an EBITDA loss of closer to 14 million. But let me know if I'm thinking about that wrong.
James
Yeah. So just to clarify, that was in Q4 of 23. And really, that's just one-time compensation related just for in the quarter. So the OPEX run rate that you're seeing more so in Q1 is more reflective of go forward.
Ryan
Okay, my mistake. I just heard that wrong. And then just the last one I'll squeeze in here just in terms of the balance sheet. Can you just discuss your comfort overall with the current liquidity and capital position in terms of being able to self fund the growth plans for the business over the intermediate term? I know you've talked about having a right side of the OPEC space and put in the right plans to be able to do that in terms of self funding operations, but any any update there on that front would be helpful.
James
Yeah. I mean, overall we feel pretty good about the balance sheet, right? Um, we've been obviously actively working towards making sure we're managed around our, um, what we have and, you know, ending the quarter with $69 million of cash and you add in just the liquidity from our, excuse me, the, um, the equity from homes on the balance sheet that takes it up closer to 90 million. But our portfolio, you know, we, we, we purchased homes at a discount and you have a service fee that we're capturing there. So when you actually combined, kind of our anticipated equity out of the homes that we have in the portfolio as well. It's well over $100 million of call it total liquidity. You know, I think the main thing is that overall from a forecast perspective around, you know, an environment of rates are higher for longer, you know, no necessarily tailwinds we're going to get from rate cuts or from an increase in transactions or anything like that. So we're being very prudent around making sure that we're managing with, you know, within our capabilities here.
Ryan
Great, thanks for the call.
Operator
Thank you. The following question comes from with J.P. Morgan. You may proceed.
Dave
Great, thanks for taking the questions I have too. So the first one on your 2Q revenue outlook, that's a missed point. So against normal seasonality a little bit, and I think you talked about rates. being a driver, but can you double-click on that a little bit and help explain what scenarios are contemplated at each end and how you can get to approximately a break-even if given the wide range of revenue outcomes? Can I have a follow-up?
James
Yeah. So, you know, I think from a revenue standpoint, you know, we're still You know, revenue is obviously still very much influenced by the cash offer side of the business. But as we've been growing these other services, those were not expecting as much there. And so from a profitability standpoint, despite, you know, the 125 homes range that we've provided, it's not a ton of variability from an adjusted EBITDA perspective. That's our guide of approximately breakeven. I think the main thing is, you know, we saw mortgage rates rise here at the end of Q1 and the first part of Q2, you know, and overall pace in the market. And I think the main thing is with this transition here in the kind of the new norm of the market, expecting homes to move quickly isn't necessarily, you know, it's not necessarily our expectations. And that isn't a bad thing. That just means that as we're underwriting, we're underwriting expecting longer TTCs for the homes overall. And if they don't get an offer in the first weekend, it's not a big deal. Eventually, these homes will sell, and they are performing against us.
Referral Network
Got it.
Dave
And then, as a follow-up, on the NAR settlement, I know it's still kind of early, but just curious to see any changes to behaviors of sellers, buyers, or agent partners that you interact with in the funnel.
Brian
All right. Hey, Dave, Brian. No, not yet. It's very early still. There's some things that need to be sorted out there, but nothing to note. We're obviously watching it closely. And as I mentioned in the prepared remarks, I think there's an opportunity in for offer pads. through some of our instant access channels and some of the other things that we allow buyers to access our homes instantly. So I think the world of real estate is definitely changing, and that's something that we've been focused on and talking about for a long time. But nothing from buyers or sellers yet.
Dave
I understand. Thank you.
Operator
Thank you. The next question comes from John with Jefferies. You may proceed.
John
Great. Thanks for taking my questions. It's been a little over a year since you paused market expansions. Can you talk about the KPIs or measurement criteria that you're using to determine when it's the right time to start expanding into new markets and whether you'd characterize the timeframe for that as near term or something that is a few years away? And turning to the platform services, talk about sort of capabilities and investments that you need to make in order to sort of unlock growth or start to scale those services in a more meaningful way over time. Thanks.
James
Thanks, John. This is James. We all take the market. Pass it over to Brian there. You know, from a market expansion perspective, I think the main thing is that As we're expanding these other services, we're looking at overall market penetration in our existing markets. And prior to the market transition, we had, say, market share anywhere between 1% and 4% in any given market, just depending on the current status of that market, the tenure, and whatnot. Overall, today, across all of our markets, we're probably closer to about 50 bps of market share. And so when we look at the opportunity to expand into new markets, mainly from a cash offer perspective, there's still a lot of wood to chop that we can go and capture in our existing markets. And so right now, as we're focused on maximizing utility out of our existing teams and tools, that's really where the focus is, is we're building things out. But I will add, as we mentioned in the prepared remarks, as these new services are expanding and they're starting to catch foot, we are getting the ability to expand into new markets in a new way. And so it might mean that we're offering some of our services, but not all of our services in every market. And that's the case with Renovate this past quarter, where we started doing projects in Minneapolis and Oklahoma City. We're not currently advertising there. We're not driving request volume and planning to purchase homes there in the near future. But it is a nice, efficient way for us to continue to utilize those teams in a very efficient manner and drive you know, bottom line accretion overall. And so I think you'll start to see that overall market expansion strategy kind of evolve for us over the next, you know, several quarters.
Brian
Yeah, and as far as the platform services, you know, as we've been mentioning, we've spent a lot of time there over the last year and a half. And, you know, as we've seen the cash offer business slow, we've been focused even more on developing the right products for really hyper growth.
Referral Network
a year.
Brian
As transaction volumes pick up, you're going to see more and more volume coming from that. And, you know, quote, unquote, the sky's the limit there. We're in the process of developing what we call rental cap and internally, which is a really awesome technology to help with our efficiency and our speed to even get better as everyday matters on the renovate side. On the Direct Plus side, as we look at more and more partner investors coming to our platform to offer on homes at the same time that we do and close on those homes so we don't balance sheet those homes, that opportunity as we see the SFR scale up, fix and flip, other investors that Obviously, our path there is what we want to focus on conversion there. So whoever can get the customer the most money for the home and whatever the customers want to accomplish there, direct plus, you'll see that as transaction volume starts to pick up and really just the world starts to normalize there a little bit. The one thing that I want to make sure that we get across, acquiring more homes through our cash offer business, we can turn on that machine from what we're seeing from the request world and the activity we're seeing, even the sellers. Right now, it's us that are choosing not to turn on that machine right now as we're being cautious on what we're buying, what we're going to own with the variability that we're seeing in the mortgage markets. But And if you're going to judge what's my least concern over the next little bit, it's buying enough and ramping up our, our cash offer business. Again, I feel like that is something that we've from brand awareness and where people are coming first, that, that, that business will ramp up as we feel more comfortable with the market and where it's at. And in the meantime, getting these other asset light services come along that can quote-unquote plug into the machine that we've built and other companies can plug into that. That's going to be an awesome opportunity as we continue to grow those. So, you know, we've made a lot of progress over the last year and a half. I'm really excited about what we've built there.
Referral Network
Thanks so much.
Taylor Giles
Thank you.
Operator
The question and answer session has concluded. This concludes the OfferPad first quarter 2024 earnings call. Thank you for your participation. You may now disconnect your line.
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