Offerpad Solutions Inc

Hello and welcome to the OfferPad Third Quarter 2024 Earnings Conference Call. My name is Harry and I will be your operator today. All lines are currently in a listen-only mode and there will be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please ask staff followed by one on your telephone keypad. I will now hand the call over to Courtney Rood, OfferPad's Chief of Staff, to begin. Please go ahead.

Good afternoon and welcome to OfferPad's Third Quarter 2024 Earnings Call. I'm joined today by OfferPad's Chairman and Chief Executive Officer, Brian Baer, and the 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 related 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 non-GAAP measures to the comparable GAAP measures are available in the financial tables of the third quarter earnings release on OfferPad's website. With that, I'll turn the call over to Brian.

Thank you, Courtney, and thanks to everyone for joining today. In the third quarter, we delivered revenue at the top of our guidance, driven by a healthy mix of our products, including our cash offer, our B2B renovate business, our direct plus institutional buyer program, and our agent partnership program. This occurred in a quarter which the country continued to see residential resale transaction volumes at historic lows, persistent affordability issues, abnormal seasonality, and the implementation of the most significant change in the industry commission practices in our lifetime. That meant that during the past quarter, consumers not only had to contend with volatility and uncertainty in mortgage rates and access to affordable inventory, but also in how much they should pay their agents. Despite these significant macro and market headwinds, we remain focused on our mission to simplify real estate and to provide solutions for consumers and partners. all while continuing to make important strides in building a long-term, profitable business that can weather any economy. Quarter highlights include asset-light growth, now making up 30% of the total contribution margin after interest, continued expansion of our agent partnership program, further enhancements in our technology, enhanced customer journey, and improved operating leverage through our optimization efforts. These wins and positive trends exiting the quarter are expected to continue leading us on our path to adjusted EBITDA profitability and position us for sustained profitability in any market condition. For more than two years now, and especially during the last few quarters, we've been hyper-focused on returning to positive earnings and cash flow. This has required us to adjust our playbook, our way of adapting to unprecedented market conditions that we may not ever see again in our lifetimes. That is not an overstatement. If current estimates for this year hold, there will be under 4 million national real estate transactions in 2024. That would mark the second consecutive year with volumes at levels below even those seen at the depths of the great financial crisis. This reality has meant focusing on diversifying our revenue, adjusting our buy box, and managing our acquisition pace to address market uncertainty. Importantly, it has meant taking a keen look at our operations and expenses and wholly reorganizing our cost structure to thrive. These efforts, though challenging, have been essential and they're working. By prudently reducing acquisitions, especially in Q3, we benefit from owning quality inventory aligned with our return goals. Our revenue diversification through other platform offerings has provided stability and contribution margins beyond the core cash offer business. Additionally, cost-saving measures, tech-driven process improvements, and strategic reorganization have brought us closer to profitability, even amid historically low volume. In short, we've become a leaner, smarter, and more resilient organization, well positioned to leverage market momentum. This is why I'm especially optimistic about the market transition we expect in the coming quarters, a shift we've strategically prepared for and are ready to leverage as we enter the anticipated Fed rate cutting cycle. The milestone eagerly awaited by consumers, lenders, agents, and institutional partners will set the stage for change. We anticipate continued mortgage rate volatility through Q4, stabilizing into 2025, with a busier spring selling season on the horizon. We believe that the combination of rate relief, easing inflation, a resilient labor market, and pent-up demand will help bring buyers and sellers back into the marketplace. Additionally, our Direct Plus partners have shown increased buying activity, signaling early signs of the market beginning to unlock. Based on these indicators, we're projecting a 15 to 20% increase in resale market transaction volume, reaching an estimated 4.3 to 4.5 million transactions in 2025. Before moving forward, I'd like to address the impact of Hurricane Helene and Milton on our East Coast markets, particularly in Florida and the Carolinas. As the storms approached, we implemented our standard precautions to safeguard our properties. The impact was minimal, primarily limited to landscape cleanup and a few fallen fences, with no material damage to our portfolio. The most significant effect was a temporary market slowdown before and after the storms as local communities worked through the aftermath. We're grateful that our team members and partners remain safe and deeply appreciate their dedication through this period. In Q3, our customer engagement remained strong, underscored by a 91% customer satisfaction score and steady monthly request volume, driven by improved advertising efficiencies. Notably, customers turn to us first, often before consulting a real estate agent, with 33% looking to transact within the next 12 months. We're fully prepared to support customers whenever they're ready to transact, whether that's in a week or a year. To maintain strong connections, we've introduced enhanced communication strategies, offering updated customer offers every 30 days. with timely updates and alternative solutions through multiple channels and tailored cadences, ensuring that customers receive relevant information at every stage of their decision-making journey. In anticipation of increased market activity, we're now strategically expanding our buy box and raising acquisition volume. Our goal is to accelerate this effort through Q4 and into Q1, position us ahead of what we anticipate being a strong spring season. We're targeting a return to a run rate of approximately 1,000 acquisitions per quarter by Q1. As we look forward to growth, we're excited to introduce a significant improvement to our customer journey, building on our well-known commitment to deliver competitive and quick cash offers. Previously, our timeline was to provide the offer within 24 hours, followed by an inspection period for further evaluations and possible repair negotiations. Now, customers can expect an estimated offer range within minutes, allowing them to schedule their inspection instantly. This shift reduces multiple touchpoints, giving customers even more control over timing and decision-making. Powered by advanced pricing technology known as OfferPad Citrus Value and extensive internal data gathered from hundreds of thousands of offers, this improvement reflects our confidence in our pricing model, analytics, and real estate expertise. Early results from our Q3 tests in Phoenix and Vegas show an increase in customer engagement and conversions, affirming the workflow's impact. Launched in all markets at the beginning of Q4, this process offers a smoother, more efficient experience that reinforces our commitment to customer-focused solutions. Progress in our agent partnership program, APP, continues to exceed expectations, the pro tier, which allows agents the ability to earn up to 4% on the successful acquisition and listing of a home, grew quarterly requests and acquisitions to 26% and 33% of total respectively. Regarding the exclusive max tier that connects high producing agents with regional access to seller and buyer leads, we have continued to refine pricing and operating models. This program is driving consistent monthly reoccurring revenue and many key markets such as Phoenix, Houston, and Las Vegas. Offerpad Renovate continues to be a strong line of business, capitalizing on the experienced teams and well-honed processes we've developed over the years. This service provides timely, cost-effective, high-quality renovation solutions for our B2B clients. Despite many of our Renovate partners operating at reduced levels, we've achieved another strong quarter with 227 completed projects, generating over $4 million in revenue. bringing 2024's running total to 14 million, already surpassing our 2023 total of 12 million. As we've expanded our client base, our average revenue per renovation has grown from approximately 11,000 to 18,000 over the past year. We've steadily added new partners and look forward to serving the institutional buyers we anticipate entering this market cycle. We continue to invest in technology to make the business more efficient. As a result of these investments, we've been able to streamline costs and improve margins, putting the business on a path to delivering consistent improvements in adjusted EBITDA and cash flow. For example, RenoCaptain, which we discussed last quarter, is not only supporting our renovate business, but also making our internal renovations on Offerpad-owned homes more efficient. Renovation costs are among our most significant expenses, making it essential to continually optimize this area. With targeted investments in technology, we're positioned to drive greater efficiency as we ramp up acquisition volume. To recap, we've remained disciplined and patient in this difficult real estate cycle while planning for long-term success. We focused on diversifying our product mix and optimizing our cost in the short term, setting us up for the long term. We have grown our asset light services, expanded our partner ecosystem, enhanced our customer offer request journey, and optimized our cost structure. This preparation has positioned OfferPad well as we transition to the next phase of the market and return to our normalized acquisition volume and inventory levels in our cash offer business. With that, I'll now turn the call over to Peter.