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spk05: Good afternoon. Thank you for attending today's OfferPad second quarter 2024 earnings conference call. My name is Jayla and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Taylor Giles with Investor Relations. Taylor, you may proceed.
spk09: Good afternoon and welcome to OfferPad second quarter 2024 earnings call. I'm joined today by OfferPad's Chairman and Chief Executive Officer Brian Baer 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 measures 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 second quarter earnings release on OfferPad's website. With that, I'll turn the call over to Brian.
spk02: Thank you, Taylor, and thanks to everyone for joining today. Before we dive into updates, I'm excited to introduce our new CFO, Peter Knogg. Peter joined us in June and has already been making significant contributions. Previously, he was EVP and CFO at Turner Broadcasting, the parent company of CNN, TNT, and TBS. With his financial expertise, leadership in business operations, and understanding of complex transactions, we are thrilled to have him and confident in the impact he'll have on our organization. Turning out of the second quarter, we delivered revenue within our guidance, and another quarter of incremental improvement in adjusted EBITDA, despite the continuing uncertainty of the macro economy and real estate market. And we continue to make strides in building a long-term profitable business that can weather any economy. Highlights of the quarter include new renovate clients like Fannie Mae and Freddie Mac, growth in the agent partner program, enhancements in our technology, and streamlined operations that we expect will lead us to EBITDA profitability by year's end. These initiatives are positioning us for sustained profitability in any market. As for the housing market, we recognize this is a moment in time that must be carefully managed, but we remain focused on our long-term strategy. Over the past year and a half, we have constantly highlighted the volatility of interest rates and home affordability and the impact it has on the market. As a result, we have been very disciplined in our approach to inventory. In Q2, The market experienced a surge in volatility again, with mortgage rates surpassing 7%, softening buyer demand, which led to increased active inventory in most markets across the country. Our disciplined approach has enabled us to navigate these challenges effectively, leading to an improved gross margin for the third consecutive quarter of 8.7%. Holding home short-term provides us with the flexibility to adapt quickly to market shifts. With the anticipation of the potential transition from a seller's market to a buyer's market, we've adjusted our buying criteria, focusing less on volume and more on wider margins per home. For example, on the acquisition side, we are leveraging our renovation strength to buy homes that need more renovations, enabling us to add more value to the home and ultimately boost margin. We've intentionally increased our assumed hold times and additionally focus on homes that have fewer actives in the area. Sellers continue to be very interested in our cash offer and we've seen significant increase in the volume of requests from one quarter to the next. Despite this acceleration, we are exercising stringent discipline in our property acquisitions during the market transition. We take pride in the strong demand for our services and in turn, we provide the best possible experience for our customers. Our C-STAT score of 93% reflects our unwavering commitment to exceptional service and underscores our dedication to exceeding customer expectations, solidifying our reputation as a trusted leader in the real estate market. Returning to the macro economy, absent a significant reduction in mortgage rates, we believe we'll be heading into a buyer's market. As one of the largest home buyers in America, this positions us well. especially as home sellers face longer marketing times, more competition, and seek quicker access to their liquidity. With inventory growing, this shift may present significant opportunities for our cash offer business. As buyers continue to struggle with affordability and cost of living, Offerpad presents a compelling alternative to traditional resale homes. The average resale home on the market is over 30 years old. and many buyers can't afford the unnecessary upgrades or even basic refreshes after closing. Offerpad provides a cost-effective solution by offering newly renovated move-in ready homes. These homes are typically located in desirable locations, close to established schools, workplaces, restaurants, and amenities, making them more attractive option compared to new homes. New homes often come at a higher price point, longer wait times, and are typically situated farther from established amenities and services. By choosing to purchase an OfferPad home, buyers can enjoy the benefits of a newly renovated home in a prime location without the higher cost and longer wait times, making OfferPad a strong alternative in today's challenging real estate market. Our disciplined and patient approach within our buy box has proven successful in this evolving market. Our short-term strategy focuses on proactively adapting to changing real estate conditions by purchasing fewer properties and concentrate on higher margin opportunities. This approach positions us well for the anticipated shift to a buyer's market, where we believe our model will excel. Now let's transition to discussing our other platform services, which have been instrumental in enhancing our margins. Offerpad Renovate leverages our expertise in operations and home renovations, offering timely, cost-efficient, and high-quality renovation services to B2B partners. I'm pleased to share that we've experienced another strong quarter for Renovate, with closed renovation projects growing over 300% versus the prior year, generating roughly $5 million in revenue. We're focused on building an extensive list of Renovate partners. I'm excited to share that we've onboarded and are renovating homes for both Freddie Mac and Fannie Mae, along with a host of other new partners. We've officially launched our RenoCaptain technology platform in multiple markets. giving our B2B clients real-time updates, enhanced transparency, and project management efficiency. We anticipate we will fully deploy the technology to all partners by the end of the quarter. While Rental Captain provides substantial efficiencies to third parties, it also produces significant cost efficiencies for OfferPad. We continue to expand our partnership channels. In June, we announced an integration with Realtor.com, allowing us to extend our reach and provide cash offers directly through their platform. This enables us to meet sellers where they are in their process. Utilizing our proprietary AVM called Citrus Value, we generate an instant estimated offer for the customer. The integration has already produced excellent early results. I'd like to now focus on our Agent Partner Program, or APP, that supports the agent community and represented sellers. Since announcing our revamped agent partner program earlier this year, agent offer requests have surged, especially in cities such as Atlanta, Charlotte, Orlando, Phoenix, and Tampa. In quarter two, agent requests represented over 25% of total requests and produced nearly a third of our acquisitions, up from 19% a year ago. This is a key contributor to our ability to improve CAC at nearly 50% year over year at our most efficient level since Q2 2022. To drive continuous engagement within our partner program, in Q2 we launched the Powered by OfferPad platform, an online portal for agents and agent teams who are part of our pro and max agent programs. Agents can manage their OfferPad listings seamlessly by viewing all listing activities in a centralized location, including viewing cash offers, accessing detailed seller and property information, and managing leads and referrals efficiently. We have been invested in technology to make business more efficient. As a result of these investments, we have been able to streamline costs and improve margins, putting the business on a path towards delivering consistent improvements in adjusted EBITDA and cash flow through the end of the year. When transactions return to more normal levels, we expect revenues to grow much more efficiently compared to expenses, given our focused investments in technology. In closing, I'm proud of our team's ability to innovate and navigate short-term challenges while planning for long-term success. With an anticipated shortage of homes and an aging supply in the coming years, OfferPad is set to become a leader in delivering refreshed and renovated homes to buyers. Our strategic imperatives include focus on growth and product development in our asset light services, offering end-to-end solutions for selling, buying, and expanding our partner ecosystem. This progress is driven by our dedicated employees and committed partners. I specifically want to thank the OfferPad technology and product teams for their continuous drive to improve and develop groundbreaking solutions. We will weather this difficult environment with discipline, patience, and preparation while positioning OfferPad for sustained profitability in any market condition. With that, I'll turn the call over to Peter.
spk07: Thank you, Brian. I'm pleased to join you for my first earnings call as CFO and look forward to getting to know our analysts and investors in the coming months, some of whom I've already met. I'm very grateful to James Grout, whose deep knowledge of our operations and financials while interim CFO allowed me to step in seamlessly. I'm thrilled to join Offerpad at such a pivotal time for the industry and the company. I was attracted to Offerpad's vision, our strong competitive position, and the opportunity to drive long-term profitable growth at scale. Additionally, I see significant opportunities to use my operational background and experience managing through tough environments and business model transitions. I will put these skills to work as we grow the asset light business and leverage what continues to be a huge opportunity in our core cash offer business. In the coming quarters, I'll be working closely with the teams to continue to identify key priorities to support our operational strategies and growth plans. First and foremost is our focus on further progress on operating efficiencies as we position the business to generate positive adjusted EBITDA and cash flow in any real estate environment. As Brian mentioned, we are operating with discipline in managing our inventory levels with a focus on optimizing ROI versus volume. We're well positioned to do this given the strength of our platform, our technology, our internal processes, and our seasoned real estate teams. Turning to Q2 financials, inventory remained in a strong, healthy position during the quarter. We had 989 homes in inventory, of which only 3.4% were owned over 180 days and not under contract for resale. Homes sold in the quarter had an average time to cash of 106 days, an improvement of seven days quarter over quarter, and in line with seasonal expectations. We expect time to cash to slightly increase in Q3 given current market dynamics and longer MLS average time on market. We acquired 831 homes in the quarter, up 3% compared to Q1, and roughly flat year-over-year. Given the persistent challenge of affordability and the current rate lock-in effect, we are taking a more disciplined approach to acquisitions. As we mentioned, in the second half of the year, we expect volume to decline compared to Q2 as we focus on wider spread opportunities and lower inventory levels. While our cash offer is central to the business, we're pleased to see ongoing traction with our efforts to diversify our operating model as our asset-light services, including Renovate, Direct Plus, and our agent partnership programs continue to grow. These services represented almost 25% of total contribution profit in Q2, and we expect this momentum to continue. In light of our focus here, we are now providing a revenue breakout between the cash offer and other services in our quarterly earnings supplement, published on our IR site beginning this quarter. In the second quarter, revenue was 251 million, which was within our guidance range, up 9% year-over-year and down 12% sequentially. We sold 742 homes, up 14% year-over-year and down 12% quarter-over-quarter. Net loss was 13.8 million, a 21% improvement from Q1 and a 38% or 9 million improvement year-over-year. Importantly, gross margin expanded 80 basis points to 8.7% compared to the first quarter. Gross profit was 22 million, roughly flat year over year, and down 3% quarter over quarter. This expansion in gross margin was driven by both the contribution margin in our cash off our business, as well as the strength of our asset light services, which represented more than 34% of total transactions in the quarter. Operating expenses, excluding property-related selling and holding costs of $24.2 million, improved by $3.6 million versus the prior quarter as a result of our prior cost-out initiatives. That's an improvement of 35% or $13.3 million year-over-year, driven by reduced advertising spend, leverage from our agent partnership program, and cost management activities. After lowering annual operating expenses by nearly $70 million in 2023, we continue to make good progress on our cost out initiatives and now expect to save more than $35 million annually, up another $5 million from the $30 million target we previously shared. You should expect the cost out improvements to continue. We'll have more to share on this in the coming quarters. Our focus on contribution margin and disciplined OPEC spend drove adjusted EBITDA loss of $4.4 million, an improvement of 74% year-over-year and 38% quarter-over-quarter. Through continued revenue diversification and ongoing cost management, we expect sequential improvements in adjusted EBITDA and cash flow through the end of the year. Turning to the balance sheet, we ended the second quarter with $57 million in unrestricted cash and total liquidity of over $110 million when incorporating the estimated value of our carried inventory. We continue to have a strong roster of supportive lending partners. In the second quarter, we renewed and extended our largest and longest tenured major credit facility into 2026. Additionally, we continue to have zero parent level debt. Moving now to guidance, in light of the lower industry-wide volumes we discussed, we expect third quarter revenue to be in the range of $185 million to $225 million, supported by 550 to 650 homes sold. As we mentioned, we are maintaining a sharp focus on operating leverage and contribution margin and expect to achieve sequential improvements in adjusted EBITDA and cash flow. Looking to the back half of 2024 and beyond, We continue to take actions towards achieving profitability and building a sustainable business that can operate in any real estate environment. We are patient and long-term focused in our technology roadmap and our go-to-market strategy. As we execute against the large untapped market opportunity for Offerpad's platform, we look forward to updating you on the quarterly progress and the progress we are making with our long-term strategic mission of taking the friction out of real estate. Thank you for your attention. We will now take questions.
spk05: We will now begin our question and answer session. At this time, if you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, it is star one. As a reminder, all participants are limited to one question and one follow-up. If you have any additional questions, you may recoup for a question. Our first question is from Day K Lee with the company J.P. Morgan. Day, your line is now open.
spk03: Day, please ensure you're not on mute.
spk04: Our next question comes from Nick Jones with the company JMP. Nick, your line is now open.
spk08: Great. Thanks for taking the questions. Uh, guys, I guess, uh, Brian, one for you and, and, and, uh, um, welcome Peter. Good to chat again. One for you as well. Um, you know, Brian, you have a deep history with real estate agents and in the industry, you know, you're, you're setting up kind of new solutions, um, You know, the new one announced today, powered by OfferPad, there's renovation. How are you kind of envisioning the business evolving maybe near term? You know, there's kind of a lot of uncertainty still baked in. I think we'll find out in another 12 days or so as the NAR settlement trickles through the ecosystem and we see how buyer agents react and just agents at large. How do you see the business maybe evolving in terms of the solutions that it's offering? near to medium term as, you know, the residential real estate volume remains kind of depressed these days.
spk02: Hey, Nick, yeah, the, you know, we, when we founded OfferPad, we wanted to be a solution center for everyone. And that includes real estate agents as well. And, you know, we want to meet the customer where they're at. And, you know, some of them want to be represented by agents, some of them don't. And so as, As we build out more technologies and solutions for everyone, as we integrated in with our internal platform, Helix, and some of the other things that we do so they can get real-time information and the agent can get real-time information, that's been something we've been focused on. And the Powered by OfferPad solution, that's been key for agents. As we've onboarded more and more agents through our partner program, we continue to expand our technology there as well. But yeah, as you look at it in the next coming months or weeks, however you look at it, I mean, as I mentioned in my remarks, I see the market transitioning from a low inventory seller's market into more inventory and less buyer demand we've seen because of the affordability lately. And so we're seeing inventory mount up in a lot of our markets. And so what we want to do, again, is we're hyper-focused. on providing, uh, solutions for, for everyone to get agents and customers alike. And with our, with our renovate product, um, to people that need renovation services, you know, we're, we're onboarding people almost daily, um, to, to use our renovation services. All of that has been, has been key, um, to what we do. And we wanted to grow is like I said, we, we don't want to be just an eye buyer. We want to be a solution center. The eye buyer is the platform that allows us to kind of lay the foundation. build the operation that you need to buy, renovate and sell a home in a hundred days. But because we can do that, we can let other people plug into that system and, and, you know, provide a lot of benefits to that as well.
spk03: Great.
spk08: And that's really helpful. And Peter, maybe, you know, your thoughts newer to the company, you know, how are you kind of thinking about balancing, you know, cutting costs, trying to drive you to top profitability? And then making sure the business is still positioned to kind of accelerate when things kind of essentially normalize it at some point in the near to medium term.
spk07: Yeah, sure. Look, I think they go hand in hand. We are, as I mentioned in the prepared remarks, we are focused on taking advantage of the lower volume, tougher real estate environment that we're in right now. uh and using that time to position the we're very focused we're more focused on bottom line than top line uh but to position the business uh in a place where where we are successful and and uh adjusted evita positive and and ultimately cash flow positive uh in any environment so um uh so they really do go hand in hand when we get there you know we can We're always going to do better top line, especially with the cash offer, but all the asset light services as well, because they are at some level part of the flywheel. We're always going to do better when there's a higher volume market. We're in a very low volume market, so we're taking this time to position ourselves right for any market, and that's going to play our ability to participate down the road.
spk03: Great. Thank you both. Thanks.
spk05: Our next question comes from Ryan Tomasello with the company Stifel. Ryan, your line is not open.
spk06: Hi, everyone. Thanks for taking the questions. I was hoping, Brian, you can provide some just color on the dispersion of performance you're seeing across your footprint, obviously pretty volatile period for housing right now. Um, any markets that stand out in terms of more, more notable slowing trends on rising inventory, price cuts, et cetera. And conversely, any, any markets that are, you know, bucking these trends on, on the slowdown that you're more active in.
spk02: Yeah. Um, Hey Ryan, the, uh, The Florida markets, there's a lot going on in Florida right now. Obviously there's, I mean, literally right now, there's hurricane happening today, but insurance costs are going up there. Affordability, you know, as it was already stressed and having any more costs in there with insurance costs is adding some pressure to that market. So we're seeing more supply happening in markets like Tampa, Jacksonville, Orlando, in those markets. You know, we are seeing... And I would say also in Phoenix, you know, everything is, you know, we like what we're seeing on the mortgage side today with some of the mortgage rates coming down because the markets that have been stressed the most with affordability, even a 25 basis or 50 basis point mortgage drop can allow a buyer that couldn't afford the house maybe to now afford the house. And so I would say the Florida markets and Phoenix have been impacted by affordability and we're seeing the Um, we're seeing more, uh, slower buyer demand in those markets overall and more, more, uh, inventory hitting the markets. Um, I will tell you in some of the, the, the Houston mark, you know, Houston's a market that, that, that, and Indy, um, that's a, that's been a really good market. I mean, that market state. Pretty consistent. Um, but again, those are markets that didn't have the big spike, um, that, that led to more affordability with price point either. Um, but yeah, so, but, but overall, I would just tell you, you are seeing inventory. more, more sellers putting their home on the market, more, more sellers testing the market, putting their home on the market, testing it for 30 or 60 days to see if they can get the price that they want. And, and then pulling the, pulling the, the home back off the market. And then in, in lieu of, you know, I mentioned this in the remarks, we're seeing more buyers reach out to us first and to, As markets start to slow or you start seeing buyer demand, of course, we're a buyer. And so they reach out to us. So you're seeing our request activity. You're seeing more of the agent partners reach out for us for offers. And so we're staying very, very disciplined right now in what we're willing to pay for a home and focused on where we're buying in our buy box overall. And the other part that I just mentioned on that too, Ryan, is that You know there's there's talks this morning on recessions and in those things, and you know people still buy and sell homes and transaction, or you know and transact real estate in recessions, and so we are we're watching all of that closely. And you know, expecting you know that similar to what we're seeing now 4 million units didn't moving through a year.
spk06: Great appreciate all that color Brian and. You know, you mentioned, I think asset light services were around a third of total transactions in the quarter. I think it was a bit higher last quarter. If we do in fact see the market shift more to a buyer's market in the coming quarters, which inclines you to be a bit more willing to take advantage of the cash offer product, do you see the asset light services mix of transactions kind of peaking out here over the near term in this roughly one third of transactions? And as a follow-up to that, any color you can give us on the sequential trajectory of acquisition volume into the third quarter and fourth quarter relative to the levels that you put up in the second quarter?
spk02: I'll jump into the first and have Peter take the second there. Yeah, I think, as you remember from transaction levels overall, if you look at some of our long-term partners, the SFRs, They've been impacted by rates and some of the things that their transaction volume has been down as well. So I think as you start switching to a buyer, you see a buyer's market and transaction levels pick up or there's more opportunity for other investors in there. I think you're going to see, in effect, other investors jump into the market, which really helps our direct plus channel. And then the secondary to that, the more homes they buy, the more homes they need to renovate. And one of the things that, you know, renovate, we're getting really good growth in what we're seeing now. But I believe we're just getting started there because as transaction volume pick up there, you're going to continue to grow as well. And so especially with some of the new partners that we signed up. So I think that will be natural. And that's what's been difficult through this time as you look at the different channels in this market. All of them, I believe, are at some of the lowest levels for scalability that we're going to see as we go. And when you start seeing the market at least doing something, it's been a little bit in the freeze over the last year, you're going to start seeing all of those services start to increase, in my opinion, depending on what the market does. So I think there's an awesome opportunity there. But Pete, do you want to talk a little bit about that?
spk07: Yeah, I'd just add, and to get to the acquisition volume question, we are not – planning on increased acquisition volume. In fact, as we've guided for third quarter, we expect that to go down. Of course, anything could happen. Nobody can predict the macro environment and the volume, so that could change, as I think you were sort of suggesting, Ryan, that could change if the markets change. But right now, we are Yeah, as we identified in the prepared remarks, we are more focused on our bottom line and our top line. And that's really the priority, again, so that we can be prepared to take advantage of top line as that comes. And then and then as to the question around mix, that's going to move around. We are we are this this quarter beginning to break out revenue between cash offer and our and our asset light services. So you're going to start to get more visibility on that. And I'm sure that will lead to more questions in the coming quarters. But the mix is going to, those services are all relatively new at different stages, but relatively new. So they are all growing quarter to quarter. Sometimes the dynamics are going to be a little bit different. And then depending on the volume, our cash offer volume may go up or down. So the mix of around this quarter, we were 34% on transactions for the asset light business. And and in the next quarter, if I had to guess, it's probably somewhere in the same neighborhood. But the mix is going to shift as as we shift between higher volume in the cash offer and and growth across the asset light services.
spk02: Yeah, and one other thing I'll just add there, just as we talk about volume, you know, in moments like this, we are super focused on active inventory. You know, it's much more important than pending and solds. And so You know, we're, we're, we're watching it very closely and where we're buying homes, how many active competing, you know, it's supply and demand. If there's too much supply, not enough buyers or, you know, buyers can't afford that area. So we have been, we've been managing that really well and, and, and we'll continue to do so. And so there's definitely pockets that we're, that we're more aggressive in that we want to buy more homes in. But then there's other pockets that, that right now we just see inventory hitting the market at a,
spk01: a pretty fast pace and so we're going to we're going to slow down our acquisitions in those areas or pockets our next question comes from michael ng with the company goldman sachs michael your line is not open hi good afternoon thank you for the questions i just have to um first on buyer commissions Are you seeing any pressure on buyer commissions? Are you paying lower selling costs as a result? And then second, thank you for giving some disclosures on the ancillary services, you know, $6.2 million in the quarter. What's the right way to think about margins on those ancillary services, you know, year to date, but also in the long term? Thank you.
spk02: Sure. I'll take the first, Peter, jump into the second. Yeah, as far as buyer commissions, I would say still too early to tell. There's obviously a lot of noise in the industry. As I mentioned last time, I believe strongly that buyers are going to get used to dealing with the sellers directly. I think there's going to be a lot of change that happens in the industry over the next several months or years, but still too early to tell. I think Agents themselves are filling things out. We're launching instant access. Again, I mentioned that before, that we allow buyers to access our homes directly, and they can choose to submit an offer to us directly or choose to work with an agent. too early to tell with what we're seeing with the commissions on that side of it. Definitely a lot of noise out there. I think we'll have a lot more understanding probably next quarter of there's a lot of these things that are getting ready to take place. And so probably have a better update next quarter on that.
spk07: Okay. Then on margins on the asset ladder ancillary services, I know James has gone through that in prior calls, but just to just to take you through it, The three major asset light services or ancillary services are Renovate, Direct Plus and Max. Renovate is pretty straightforward to think about, right? It's our renovation business that we use both for our owned homes as well as for third party B2B business that's accretive to the business and utilizes our existing team. We charge a fee of anywhere from 20 to 30% for those services. Direct Plus is underwriting homes, but then closing with an institutional partner. And so we don't balance sheet there, and there's a fee for that service that you should think about as very high, 90 plus percent. And then for MAX, which is part of our agent partnership program, where we send leads to agents for homes that are either outside of our buy box or not in our region or otherwise aren't going to our cash offer. And that's also very high margin. It's a combination of subscription as well as a referral fee. And, you know, think about that as 90 plus percent as well.
spk03: Great. Thank you, Brian. Thank you, Peter. Thanks.
spk05: Our next question is from John Colantoni with the company Jefferies. John, your line is now open.
spk10: Great. Thanks for taking my questions. Looks like home price appreciation is beginning to moderate. And Brian, you also mentioned markets shifting to a buyer's market. Given you're holding homes for about 100 days, I'm curious how you plan to adjust to home price appreciation moderating back towards historical averages while interest rates still remain elevated. That's question one. And the second one about regarding powered by OfferPad, can you describe the key use cases for agents and what's the ultimate goal for the portal? It seems to offer some similar tools. that the MLS is due. So I'm curious if that means you'll be abiding by all the restrictions on cooperative compensation that's outlined in the NAR settlement. Thanks.
spk02: Yeah. I'll take the second question first. Yeah, with Powered by OfferPad, you know, the idea is with efficiency and, you know, a lot of the technologies that are out there existing today are not meant for an iBuyer model. They're meant for more traditional real estate. For something like Powered by OfferPad, to have a traditional agent being able to integrate in with OfferPad, which we call our Helix system that gives customers the real-time cash offers and even some rental data and data in that market, for the agent to be able to communicate on that and for us to understand what the agent is doing in real-time, meeting with the customer, um, and, uh, and, and be able to track that. So, um, that's something that we, uh, uh, we we've been working on for a while. Um, and the, but, but the idea is the efficiencies and the communication and, and ultimately it's to make sure, you know, we're very, very proud of our customer satisfaction and, and, and, uh, when customers used offer pad, how, how happy they are with our service to make sure when we, when we put somebody else in there with, with a real estate agent, we, We hold them to the same expectations and be able to track how they're treating the customer, even real-time surveys and some different things as we continue to evolve, and also watching our disposition data on that as well. So communication efficiency is key in making sure the customer gets the same experience and they get real-time data. As far as, sorry, remind me again. Oh, yeah, sorry, on the home price appreciation, Listen, for the last couple quarters, we have not been underwriting any home price appreciation in there. We have been very, very, you know, and a lot of underwriting goes into the assumptions you make. It's not just ROI or service fees. It's the assumptions you're going to make. How long are you going to hold that? If there's five comparables in the area, are you top of market, mid-market, or lower of those comps when you underwrite what you think you can sell that home for? So those are all things that we've integrated in the last couple quarters, and that's where you're going to see some of the volume. And like you said, we're staying disciplined in what's happening because it's always – and when I say that, it's all very, very market-specific. But I don't believe there's any market that we've been underwriting at any – uh, any type of home price appreciation. And for the last little bit, um, even though I know it's up 4% year over year, but, um, we have been staying, especially when we've seen inventory hitting the market, we've, we've stayed very disciplined on, um, making sure when we buy a home, we can buy a renovated and sell it also that, you know, as inventory starts hitting the market, we want to make sure that we're, we're, we're spending a little bit more money on some of the renovations. So our home. So that's really what we're focused on. Um, And but so we've really been more conservative with the home price appreciation side for the last couple quarters.
spk07: Yeah, I just add wider spreads. I mean, there's two things that we're really focused on right now in this period that we're in. It's wider spreads, you know, given the lower volumes and cost efficiencies. And so, you know, so we're certainly not, as Brian mentioned, we're certainly not relying on appreciation to drive our model in any way. We're pretty far away from that. I'd also point out that our impairment this quarter was $500,000, which is almost a rounding error, which, again, I point to because I think it reflects the discipline and patience that we're taking with the market and not driving the business just for volume.
spk02: The easy part, we want to buy, renovate, and sell them at a profit. So that's what we've been focused on. And I mentioned this in the prepared remarks, but one of the sweet spots is really, really good areas with strong established schools, good areas, those kind of close to a lot of amenities that we can buy a home that's a little bit older, renovate that home, add value to that home, and put on the market, again, at a better product. That's been a really good sweet spot for us as well. Also staying away from outlying areas. We're seeing inventory mount up in a lot of the outside areas. Any of the commute time areas. In almost every market, you're seeing a lot of inventory add up there. So we're buying more interior right now and staying disciplined in what we're going to pay. And then obviously focusing on our other asset light services.
spk03: Thanks so much. Thanks.
spk05: Our next question comes from Day Lee with the company JPMorgan. Day, your line is now open.
spk11: Great. Thanks for taking the question. And apologies, I have some phone issues, so these questions might have been answered already. First of all, Peter, could you clarify what you mean by sequential improvement in the study design in your 3-2 guide? Is that on an absolute basis or on a margin basis? And do you anticipate gross margins increasing as well? And then I guess more broadly, you saw a healthy improvement in net sales proceeds percentage. So curious, like how much of that is driven by better targeting of homes that Brian just talked about? And how much of that is driven by maybe renovate contributing more or is it more on your spreads being wider at this point?
spk07: Sorry, so I heard the first, the second part of the question, the net proceeds improvement. Can you repeat the first question?
spk11: Yeah, the first one is, I was hoping if you can clarify what you mean by sequential improvement and adjust that if it's in year three, two, go ahead. If that's an absolute basis or on the margin basis, and if that assumes gross margin is improving as well.
spk07: Yeah, sure. It doesn't necessarily assume gross margin improvement, but it probably, we probably will see gross margin improvement. The most important focus there is getting first to adjusted EBITDA positive, and then second to cash flow positive, contribution profit, and then cash flow positive. So, we are doing that, you know, really two major levers are driving that. One, expanding margins, but also two, cost efficiencies. So, it just depends on the mix between those two. But we're going to see expanding margins sequentially, quarter over quarter, and we're going to see continued cost efficiency. So we had 70 million in 2023 that came out of the business. We were seeing a run rate of 35 million coming out of the business already this year, and there's more to come on that. We have more wood to chop on that, and there's going to be more conversations around that and more information around that. after, as we get into next quarter. And then the net sales proceeds, I think it, oh, go ahead.
spk11: No, go ahead. I'll let you finish.
spk07: Yeah, look, I mean, I think I sort of answered the net sales proceeds question where, you know, we have expanding margins across our products, you know, both with the asset light services growing, And then on top of that, with our higher ROI on the cash offer, we're moving towards higher net proceeds.
spk11: Got it. Thank you. And then I guess as a follow-up, maybe this one for you, Brian. Friday Mac and Fannie Mae seems like a big win for RenovAid. So just wondering how you're looking to work with them and if that's any different versus your existing partners and how that partnership could ramp over time.
spk02: Yeah, we're excited about that. You know, obviously they're both high volume clients, even in this market. And things that are great about them is we can expand markets without having our express or cash offer business in those markets. And so as we expand into some different markets, so we can actually grow in. They're a great example. We can actually go into a market led by our renovation business and have our other services follow into that. And so Um, you know, the, the other things that, you know, they're, they're at high dollar renovations as well. So they take a little bit more time. Um, but you know, with our, with our boots on the ground and efficiencies and things, they see a lot of, a lot of value in what we're seeing there as well. Um, and especially, you know, is with the ground game and the real estate knowledge that we have and, and, and how to, how to repair those homes helps as well. So those are two, two, um, customers we're, we're very, very excited about. Um, you know, we've, Like I mentioned a little bit earlier, we're signing up, renovate customers. Um, uh, I don't want to say almost every day. I don't want to be overdramatic with it, but, but we're signing up a lot of renovate customers and, you know, we like to say, Hey, put a side by side with anybody you're using now. Um, and watch our efficiencies because, you know, it's just different when you're doing renovations on your own behalf, um, on the offer pad side. And I'd say a lot of our, our, our teams on the ground, um, project managers, foreman. The people that are employees of Offerpad, in some cases, they don't know the difference if it's an Offerpad house or one of our partners that we work with. And so they get the same cost and efficiencies and value of our ground game. And so we continue to expand that, especially with kind of the side-by-side challenge that we do with some of our partners there and continue to take more and more of that Renovate business from them. So we're very excited about that. And as we kind of mentioned before, something that Ryan asked is that, no, we're seeing a little bit of loosening in the SFR side, not a bunch, but just a little bit of loosening there. And, you know, they're having trouble with yields and different things of trying to buy and, you know, trying to acquire homes in this environment as well with affordability and some of the other things, but seeing a little bit of loosening there. So anyway, so on the asset light side, I think overall we're going to see some of those things turn on and continue to grow and scale even faster than what we're seeing now.
spk03: Sounds good. Thank you.
spk04: At this time, that will conclude today's conference call.
spk05: Thank you for your participation, and enjoy the rest of your day.
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