OPAD - NYSE

Good afternoon. Thank you for attending the Offerpad Second Quarter 2025 Earnings Call. My name is Matt, and I'll be the moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Cortney Read. Cortney, please go ahead.

Good afternoon, and welcome to Offerpad's Second Quarter 2025 Earnings Call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Chief Financial Officer, Peter Knag. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors relating to the company's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward- looking statements, whether as a result of new information, future events or otherwise. On today's call, management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading, Non-GAAP Financial Measures. The reconciliations of Offerpad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian.

Thank you, Cortney, and thank you all for joining us today. Before we move into Q2 results, I want to take a moment to acknowledge a recent development. We finalized a capital raise of $21 million in July. This brings our total liquidity to over $75 million, strengthening our balance sheet and supporting key growth initiatives. This represents a strong endorsement of our model, our execution and the momentum we're building. This capital enhances our flexibility and supports our ability to make selective market- driven acquisition decisions, expand high-margin asset-light services like Renovate and Direct+ and strengthens our customer experience infrastructure, including HomePro in-person appointments and platform enhancements. Turning now to market conditions. Affordability challenges and ongoing economic uncertainty continue to weigh on both buyers and sellers, holding back broader market activity. The traditional spring selling season was underwhelming. Additionally, listing inventory continues to rise, giving buyers more to choose from. This shift has created a more competitive environment for sellers with homes sitting on the market longer and often selling below asking price. The increase in inventory is also putting downward pressure on home prices, which saw a slower pace of appreciation this quarter compared to earlier periods. Even in this buyer favorable environment, high interest rates and tight budgets are still limiting how many buyers can take action. This mix of selective demand and cautious sentiment is causing more homes to linger and reinforcing the need for solutions that help sellers navigate with clarity and confidence. Through effective marketing and strong consumer demand, we continue to see steady request volume, reinforcing both the ongoing need for our model and the trust sellers place in Offerpad as one of the largest homebuyers in the country. For nearly a decade, Offerpad has helped sellers steer through any market. In today's environment, sellers are seeing more for sell signs in their neighborhoods and feel the urgency to act, but many still don't have a clear view of what their home is worth or how to approach the sale. That's where our model stands out. We offer real solutions. Sellers benefit from a fast cash offer with the flexibility to choose their own closing date, exposure through our Direct+ cash offer marketplace, featuring both short-term and long-term investor offers, a program to receive cash upfront with the potential to earn more after the home sales on the open market or a listing option guided by trusted specialized real estate experts. Now turning to the quarter itself. In Q2, we delivered $160 million in revenue and sold 452 homes, reflecting disciplined execution across our platform. Our ability to remain resilient in a slower transaction market is a direct result of our increasingly diversified model, supported by a selective market-driven approach to the homes we choose to acquire. To stay competitive and better support sellers in this environment, we focused on enhancing speed, transparency and service throughout the experience. Over the past few quarters, we introduced real-time pricing ranges delivered in minutes and enhanced the inspection process with quicker scheduling and fewer handoffs. In Q2, we officially launched HomePro. This program brings specialized agents into the home through prescheduled appointments to walk the sellers through every available solution. We spent years building this model to serve sellers in any market, and we were the first to bring it all together. Our infrastructure delivers a true end-to-end solution powered by both people and platform. Our tenured, highly trained customer solution team gives HomePro's direct access to expert guidance and real-time support. Behind the scenes, our proprietary technology creates a faster and more seamless experience. It's the blend of human expertise and smart automation that allows us to deliver high-quality service at scale. Operational excellence and scale remain core to our approach, driving impact beyond the seller experience and into other areas of the business. We achieved another record quarter for our Renovate business, delivering $6.4 million in revenue, our second consecutive record and our strongest performance since launching the product. Backed by experienced teams and proven workflows, we're helping investors and institutions turn distressed inventory into move-in-ready homes and doing it at scale. This momentum in Renovate is part of our broader strategy to expand our asset-light services and deepen relationships with institutional buyers. We continue to invest in Direct+, our asset-light marketplace that drives demand by linking homes with institutional and individual investors. For sellers, this means greater exposure and more opportunities to receive competitive cash offers. Even amid historically low industry-wide acquisition volumes, especially from long-term holders, Direct+ has delivered meaningful growth driven by recent enhancements. Partners now have the flexibility to engage with homes at different points in the sales process, increasing buyer participation and leading to a notable Q2 uptick, clear momentum that directly benefits sellers. In addition to expanding access, we broadened our marketplace to include more partners with varied acquisition strategies. This creates more competitive offers for sellers, allowing them to have the opportunity to a higher price point and the ability to close on a time line that works for their unique situation. For Offerpad, it means greater asset-light deal flow and stronger alignment with partner needs. Across the core initiatives, HomePro, Renovate, Direct+ and our flagship cash offer program, we're building a balanced, agile and efficient business. Each platform plays a vital role in enhancing customer experience, optimizing inventory management and efficiently scaling our asset-light marketplace. Our recent progress demonstrates precise execution and lays a robust foundation for sustainable long-term growth. Looking ahead, our priorities remain clear: scale high-margin, asset-light services that drive predictable contribution profit, maintain cost discipline and operating leverage to support sustainable growth and position Offerpad to accelerate as buyer activity and transaction volumes rebound. Finally, before I turn it over to Peter, I want to thank our team. Despite operating with leaner resources, they have continued to deliver strong results, a testament to the focus, grit, resilience and outstanding execution across our organization.

Thank you. I want to reinforce Brian's message. Our team has been instrumental in driving this performance. Their discipline and focus has led to stronger margins, smarter inventory management and more effective solutions for our sellers. As you just heard, we've been operating with greater efficiency and discipline, and that's reflected in our Q2 results. For the second quarter, we reported revenue of $160.3 million with 452 homes sold. This reflects a measured approach to inventory management aligned with our goal of driving contribution profit, maintaining capital discipline and responding to ongoing market dynamics. At the end of the quarter, we held 662 homes in inventory with only 87 aged homes over 180 days and not under contract. This compares favorably to prior quarters and reflects continued progress in both our acquisition targeting and pricing strategy. We acquired 443 homes during the quarter with continued emphasis on strategic markets and properties aligned to our margin targets and overall business objectives. Gross margin was 8.9%, resulting in $14.2 million in gross profit. Operating expenses, excluding property-related costs, totaled $17 million, down 30% compared to the same quarter last year. This continued improvement reflects the structural cost reductions we've made across the business, including advertising efficiencies, platform improvements and organizational streamlining. Adjusted EBITDA loss improved 39% to $4.8 million, marking another quarter of sequential gains. We ended the quarter with $22.6 million in unrestricted cash and over $55 million in total liquidity, including the net value of our inventory. With July's $21 million primarily nondilutive raise, total liquidity now exceeds $75 million. Also and importantly, thanks to our strategic approach and growing mix of asset-light channels, we're able to operate with less cash on hand, giving us a comfortable runway as we continue progressing towards breakeven. To support that strategy, we also established new lending facilities with Genesis and Ascent. These facilities increase our operational agility and reduce committed capacity, giving us greater control over costs. In Q2, as mentioned, we achieved further reductions through headcount optimization, tighter management of third-party spend and improved lending terms that lowered our cost of capital. We expect these changes to drive additional sequential improvements into Q3 and beyond. Looking ahead, we expect third quarter revenue in the range of $130 million to $150 million with 360 to 410 homes sold. However, as we move through the back half of the year, our revenue mix will shift with a higher percentage coming from asset-light services led by the HomePro program. In addition, we also anticipate continued sequential improvement in adjusted EBITDA as we maintain emphasis on contribution margin and operating leverage. Our focus remains clear: operate with discipline, scale solutions and stay positioned to capture more opportunity as the market evolves. We're building a stronger, more efficient business, one that's built to last and built to lead. We appreciate your time and support. We're now ready to take your questions.

[Operator Instructions] First question is from the line of Dae Lee with JPMorgan.

I have 2. First one, on home acquisition pace for the remainder of the year, could you tell us how it's pacing so far in 3Q and how you're thinking about home acquisition for the back half of the year? And when you're underwriting home right now, is it still with the assumption of higher spreads? Or do you feel like you have enough visibility where the spreads can normalize a little bit? And then secondly, you're seeing very strong momentum in Renovate. I'm just curious what's been driving that and how you're thinking about the pace of Renovate growth in the back half of the year?

I'll jump in. This is Brian. Dae, good hearing from you. Renovate, several things happening there. We continue to sign more and more customers up to the program and deliver good results on that end of it. So our efficiency is still strong. And even in this environment where a lot of the large institutions are on the sidelines or at lower volumes, we've really focused on down the pipeline a little bit with the mid- to small investors that we could do renovations for. And so the team has done a fantastic job there. And so one of the things we say all the time is that if somebody likes the renovation person that they're using, I would say, put us side by side, and we normally will be done from the cost, the efficiency and doing tens of thousands of homes on our own behalf leads to a lot of really good efficiencies there. So really happy with what we're seeing the momentum on that end of it. As far as the pricing and how we're underwriting the spread side, we're still having a very disciplined approach there. As I've mentioned in the last several earnings calls, as we continue to see a lack of buyer excitement and the affordability is still an overhang of everything. And so we're still focused on in areas, there's pockets in every market that are still working that are decent transaction areas. And then there's definitely pockets that are not. And as I mentioned before, outline areas next to new builds. Those are the kind of things that we're being very cautious of buying that. But interior homes that have good transactions, we're still buying and focused on that type of product. And we're still focused on spread. And the way we look at spread, it's just a risk metric for us of what we're seeing in the environment. And so as we see more actives and more for sale signs going up in areas, we want to be really careful from a supply and demand issue of just that our home one shows well that it's going to sell before some of the other ones, but also we're not buying a home even if it's the lowest price in the area with a lot of supply that's getting chased down by prices. So did I cover Dae, any follow-ups on that or Peter do you want to jump in?

I would just add to that on transactions, we're guiding this quarter to somewhere in the neighborhood of 400 cash offer transactions in 3Q. And that's along the lines as Brian was getting to and we've talked about in prior quarters, we're underwriting at higher spreads, so intentionally coming down in volume for our cash offer. But importantly, you're going to see a revenue and mix shift that along the lines of what we've talked about and Brian has also talked about in prior quarters towards a higher percentage of asset-light transactions. So the volume that we'll be focused on will not be only the cash offer moving across the back half and into next year. It will be the total real estate transaction volume that includes with HomePro, which launched in June, includes continued focus on underwriting and selling into institutional, large financial institutions, SFRs and smaller investors, but also selling into partner cash offers that don't go on to our balance sheet. And then finally, this is new -- not new to us. We've done this in other forms previously, but selling in new with HomePro selling into a traditional list. So those are all going to be factors as you look at volume. And as we -- in a quarter, when we get into next quarter, we'll likely shift our guidance from cash offer homes sold to total real estate transaction volume.

Yes. One of the things I'll just add there, too, David, this is a really interesting time because a lot of the sellers that are coming to us, they're the people that are selling in this environment are selling -- they want to -- the cash offer is extremely valuable to them. They have the certainty of the cash, but also the closing date. But we also -- with our HomePro, we also want to give them different alternatives with the ability to get some of the cash now and then the benefit of some of the upside and then a listing if they want to choose to list their house in the open market as well. So it's just interesting because of the timing of the individuals right now is -- we're seeing a lot of urgency and more, I would say, people that are in, like I said, a life moment that they need to sell than we've seen in quite a while.

Got it. And if I could just ask a quick follow-up on the asset-light offering mix going forward. You did talk about mix shifting towards more of those offerings. But right now, Renovate is the biggest piece of the other services revenue, just -- but you also talked about HomePro becoming bigger. So just curious like when you look ahead, like do you feel like HomePro is going to be a bigger piece of the overall asset-light offering? Or like how should we think about that mix shifting going forward?

Yes. And I would say definitely. Again, the idea and the goal from when we started Offerpad was to be a one-stop solution center for customers, that they can come and get exactly whatever the real estate needs is done. And so obviously, the foundation is our cash offer. But also that necessarily -- especially in environments like this, even if our cash offer for whatever reason doesn't work, we can provide another cash offer through our Direct+ channel. And I think that's where you're going to see a lot of opportunity over time as the market starts to get back to a normalized and you start seeing more of the institutions and those jump in and you'll see more of the Direct+ side. But also you'll see a lot of sellers that want to test the market by listing. And so our ability to get into the living room and having face time with the customer and figure out what is the best solution for them, that's always been kind of our mission statement is let's figure out what the best path forward is. And some of the questions we get is -- or we've had before is what's the perfect mixture. I don't know if there ever is a perfect mixture. I'd love to see it completely blended across all of our products. Right now, our Renovate product is just a B2B, it's not B2C yet. A lot of the other things we're doing is more B2C. I won't stay that way forever. But -- so yes, you're definitely going to see HomePro definitely have more of an impact as customers have more choice in the path that they want to choose.

Next question is from the line of Ryan Tomasello with KBW.

This is Yvonne Jeng on for Ryan Tomasello from KBW. On the HomePro offering, could you please elaborate a little bit on how the economics are like with HomePro compared to a traditional cash offer?

I think the volume was pretty low, but I think you're asking about the economics on HomePro. And what I'd stress there -- and thanks for the question. It's an important question. As we move towards a revenue mix and a transaction volume mix that's heavier weighted towards the asset-light HomePro services, the gross profit will be important. From a revenue recognition perspective, for cash offer, we recognize gross revenue with a single-digit margin for the asset-light services for selling into institutions and the HomePro services, we recognize net revenue, which is the same or very similar to gross profit. So you're going to see a shift in our revenue mix and our gross profit mix that drives increasing gross profit, but decreasing revenue just because the margin profile is going to change. From a transaction, the most important thing is from a transaction value perspective, regardless of whether we're selling -- taking a mid-single-digit fee on a cash offer product or selling into institutions, the total value to the bottom line is in the same ballpark is similar per transaction. And so that's what I'd focus you on.

The one thing I'll just add there from -- I'm sorry, did you have another question? Yes, I would just say the -- Okay. Sorry, I was just going to say the one thing I would tell you with HomePro, as we look at it is the idea is that our request volume has stayed strong over the last -- really after -- over the last several years, considering all the market conditions, lack of -- the lower transaction volume, everything else. We still have a lot of our markets, people coming to us first to figure out what they can sell their home for and get a cash offer for and then figure out other solutions. And so the idea of HomePro is to capture those customers, even if the cash offer before, if you have one -- if you just have a cash offer, the cash offer works, yes or no, it's the right price, yes or no, but to really be able to provide the customer with other solutions. Also, we're really indexed on our conversion and our overall conversion to all of our funnel. And whether people are ready to transact now or in the next few months, we're really focused on being part of them or with them through that journey and whatever product is. So a lot of it is from the margin that Peter mentioned, but also from a conversion perspective is to make sure that we can find a home and what works right for that seller.

Got it. And just to quickly follow up. Following the recent equity raise and the new credit facility, how comfortable are you with the company's current capital position and the ability to self-fund that path to breakeven cash flow?

Yes. We are comfortable. In fact, our total liquidity at the end of this quarter was and is around $55 million between our cash and the net equity in our homes. At the end of first quarter, it was around $60 million. So we moderated but not by a tremendous amount. We've really made a lot of big strides on our fixed cost as identified in the prepared remarks. Our fixed expense is $17 million. And based on continued cost outs, that's going to come down -- continue to come down in the third quarter and beyond. So our fixed cost is getting really, really low at a nice level that we're very comfortable with. At the same time, our gross profit is improving. So what I'd say is we have a path. We had a path without the capital raise, but we're excited about the flexibility that the capital raise gives us from a number of different perspectives, including making some changes operationally around how we fund homes, giving us some additional flexibility with the additional liquidity with our warehouse facilities. And then importantly, improving our cost of capital. We've moved to a place where historically, we had some significant commitment fees from financial institutions, and we've taken those down to a very, very low level, which has helped us with our cost outs. And then the last thing that I'd say on the capital raise is I just -- I want to stress that it was primarily nondilutive, and that was our goal. We raised about roughly the level of cash that we were looking for. We did it in a primarily nondilutive structure with -- we met with a lot of different investors and with some -- with a group of investors that were across the 2 tranches of equity and debt that we're excited about. And so we concluded it on that basis.

Next question is from the line of John Colantuoni with Jefferies.

This is Vincent on for John at Jefferies. So you've historically talked about 1,000 homes per quarter as sort of the North Star for the point at which scale should combine with the mix shift to asset-light services to help you deliver breakeven EBITDA and cash flow. So maybe just talk about how you view the path to 1,000 homes from here or whether that's even still a relevant goal now that there's clearly this increased focus on asset-light transactions? And if not, whether there's a new target to keep in mind, whether that pertains to acquisitions in the traditional sense or whether it's total real estate transactions and what the time line looks like at this point? And then just a quick one on following the cost-outs underwent in April. Just curious how you're thinking about runway on those initiatives in the back half.

Thank you, Vincent. Yes, for the 1,000 homes, we're hoping we'd get that question. It is something that, that we've been thinking a lot about as far as what we do from -- in particular, from a guidance perspective there. And as I alluded to earlier, the 1,000 real estate transactions continues to be our North Star. It's just a shift. We're -- we will do directionally fewer asset or balance sheet-based cash offer purchases where we take the home into our inventory, but we'll be adding on transactions with partner cash offers as well as with financial institutions through our Direct+ product and through participating in the traditional list. So the aggregate impact to the bottom line across all those transactions, even though the revenue recognition is different, is similar, and we're still heading towards 1000 transactions, and that's still roughly where we had breakeven. And I think you mentioned cost outs as well. We've come a long way, not quite, but almost $150 million in cost outs over the last 2 years. We're at $17 million in quarterly OpEx. That's going to come down more as the second quarter cost-out initiatives across both employee costs as well as third-party spend come into the actual results in the third quarter and very focused on managing cost creep. So we're going to keep the cost out that we already took out. And then we're going to always continue to look at additional opportunities.

Yes. The one thing I'll add on that, just from a practical operational standpoint, too, from the cost outs because how do you achieve, obviously, if you're making reductions, how can you achieve what we need to achieve. And I will tell you, we are getting like with HomePro, the efficiency we've seen since we started testing HomePro mid- to later last year in just various markets and different variations. But the product and technology lift of HomePro is really allowing us to scale different, be able to provide a range offer instantly, the way that we are scaling some of our other products. So I think technology, we're getting a lot better and smarter on how we're going to go. So as we scale the business again, we're going to scale it much smarter. Quite honestly, I think much faster, too, from some of the efficiencies we're seeing on the technology side. So definitely leveraging that and as we continue to build out HomePro.