OPAD - NYSE

Good afternoon. Thank you for attending the Offerpad's Third Quarter 2025 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] And I would now like to pass the conference over to your host, Cortney Read with Offerpad. You may proceed.

Good afternoon, and welcome to Offerpad's Third 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 reconciliation 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 thanks to everyone joining us today. The housing market remains in a period of transition. Affordability challenges and limited mobility have defined the past 2 years, but signs of stability are beginning to appear. Mortgage rates are easing, buyer confidence is improving and sales activity is picking up in key markets. For Offerpad, that shift represents opportunity. We built this company to adapt, not depend on market conditions. That flexibility has carried us through the toughest housing cycle in a generation and positioned us to lead as the industry transforms around efficiency, technology and customer experience. Now we're channeling the strength into growth. We're playing offense with control, intentionally keeping inventory lean and turning it faster while scaling asset-light services that meet sellers where they are, whether that's speed, certainty or listing-led path. Over the past year, we have taken deliberate steps to strengthen every part of our operation. We refined our buy boxes using proprietary data to sharpen acquisition criteria and improve decision-making. We have also made meaningful progress in deploying artificial intelligence across our operations to drive efficiency and scalability. We're integrating AI-driven picture recognition and smart scoping technology into our workflow. By the end of the year, we plan to launch the first phase of that capability. It will enable our system to analyze property photos, automatically identify condition issues, estimate renovation needs and feed that data directly into our pricing model. Combined with our continuously improving AI pricing engine, which has become more accurate even in today's uneven environment, these tools help us price homes more precisely, reduce manual inspection time and human variability and increase margin confidence before we deploy capital. In parallel, we are creating new process flows to scale our Direct+ business, which enables us to sell homes directly to strategic and institutional buyers. As part of this effort, we are evaluating a new segment of properties with characteristics distinct from our current Direct+ portfolio, broadening our opportunity set and positioning us for future growth. Automation and data power our operations. This allows us to scale efficiently, reduce cost per transaction and deliver more consistent results across every solution we offer. At the same time, we continue to refine our pricing models to optimize margins and support disciplined, profitable growth in any market. Although we are encouraged by early signs of stabilization, we're also realistic that recovery will unfold in phases. Before expanding acquisition volume meaningfully, we are taking the time to ensure we buy the right homes in the right markets under the right conditions. This approach is very intentional. Our outlook is steady today and positioned for tomorrow. We expect heightened seasonality as we move through the winter months. And even with more acquisition and overall transaction opportunities, it takes time for those homes to progress through our inspection, renovation and disposition process. Our disciplined approach keeps us well positioned to benefit as transaction volumes increase and our recent acquisitions convert to closings. We expect that momentum to bring us back towards our near-term goal of 1,000 transactions per quarter. To help drive that next phase of growth and execution, we strengthened our leadership team with the addition of a proven operator. I'm very pleased to share that effective today, Chris Carpenter has joined Offerpad as our Chief Operating Officer. Chris brings more than 20 years of experience leading transformation, operations and strategy across Fortune 500 companies and private equity-backed ventures. He previously served as lead transformation executive at WarnerMedia, where he oversaw large-scale integrations and business strategy initiatives. Chris is known for driving efficiency and execution at scale. His leadership experience and operational mindset will help us strengthen the connection between technology, operations and customer experience, enabling us to scale efficiently and deliver even greater impact for our customers and overall conversion. Everything we have built from our data-driven processes to our diversified solutions comes together into 4 strategic pillars that create value, strengthen resilience and position Offerpad to lead the next phase of real estate innovation. These pillars define how we operate today and how we will continue to grow. Cash offer remains the foundation of our model, providing sellers with speed, certainty and control. We're deploying capital deliberately, prioritizing contribution profit and velocity over volume. That's how we protect returns and optionality in a rate-sensitive environment. HomePro extends that foundation through an agent-led approach that gives sellers in-person guidance and flexibility without requiring incremental capital. Renovate continues to grow rapidly, achieving our third consecutive record as we help partners transform inventory into move-in-ready homes at scale with repeatable workflows and predictable margins. Direct+, our cash offer marketplace, deepens institutional relationships and funnels more transactions through an asset-light channel, lifting margins per unit. Together, these pillars create an integrated ecosystem that adapts to a range of market conditions. With that, I will turn it over to Peter to walk through our financial performance.

Thank you, Brian. In the third quarter, we reported revenue of $133 million and sold 367 homes. Gross margin was 7%, resulting in $9.3 million of gross profit. Operating expenses, excluding property costs, totaled approximately $12 million, a reduction of 37% year-over-year. That improvement reflects the work we have done across every function to drive lasting efficiency from marketing and vendor management to automation and organizational structure. Our teams continue to execute with precision. Every dollar we spend today is focused on performance, margin and scalability. We are not only operating leaner but smarter, making decisions guided by data, automation and technology that give us greater control over both cost and outcomes. Adjusted EBITDA improved sequentially by 4% to a loss of $4.6 million. This progress demonstrates how our disciplined approach and operational improvements are steadily flowing through to results. We have seen higher marketing efficiencies, stronger vendor terms and meaningful savings, all of which position us for continued EBITDA improvement in the quarters ahead. We ended the quarter with an inventory of 498 homes and acquired 203 homes in selective markets that met our margin thresholds. Our balance sheet remains strong with $31 million in unrestricted cash and total liquidity exceeding $75 million at quarter end. We have also expanded our lending relationships to reduce cost of capital and increase flexibility as we scale our asset-light businesses. Looking ahead to the fourth quarter, we expect revenue between $100 million and $125 million and homes sold in a range of 300 to 350. Adjusted EBITDA is expected to remain roughly in line with third quarter levels. We're guiding with discipline, grounded in what we see across our business today and where we have clear visibility to execute effectively. Our intermediate-term goal remains at approximately 1,000 real estate transactions per quarter across cash offers, traditional listings and investor services. That level of activity supported by our ongoing efficiency initiatives sets the foundation for our next milestone, a return back to profitability. Even as acquisition opportunities expand, we are managing volume carefully until demand becomes more sustained. This approach gives us control today and flexibility to capture upside when the market accelerates. A larger share of revenue and margin will continue to come from asset-light services, HomePro, Renovate, and Direct+, as we advance towards a more diversified and capital-efficient model. These businesses demonstrate the strength of our platform and the value of disciplined execution. Finally, I want to echo Brian's enthusiasm about Chris Carpenter joining Offerpad as Chief Operating Officer. His experience in large-scale transformation and operational excellence perfectly complements our focus on financial discipline and scalable growth. I am excited to partner with him as we continue driving efficiency and performance across the business. With that, I will turn it back to Brian.

As Peter highlighted, our disciplined execution and operational strength have created a foundation that allows us to move forward with confidence and control. The past few years have tested this industry, but they have also proven the strength of our model. Our platform is more diverse, our operations are more efficient, and our technology is driving measurable results. The market is still tight on mobility, but it's showing early signs are fine as rates ease and inventory inches higher. In that context, our strategy is simple: Keep inventory tight, turn it fast and scale the asset-light platform. As conditions improve, Cash Offer, HomePro, Renovate, and Direct+ give us multiple ways to win with more capital efficiency, better unit economics and greater resilience than a single path model. We are energized by what is ahead and confident in our future, a company where every part of the business works together to drive growth, efficiency and exceptional customer outcomes. Thank you for your time and continued support. We are now ready for your questions.

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

I have 2. So first one is for Brian. You talked about strengthening the foundation of your business and expanding the reach through asset-light services. So looking ahead, like what are your top priorities to ramp HomePro, Renovate, and Direct+ from here? And as you look out to 2026, where do you see the biggest upside across those 3 asset-light services?

Yes. Dae, there each one of them has its own story about where we're seeing opportunity. And what we're highly focused on with all of them, just in general is conversion. On the HomePro side, we're seeing some really positive signs. Obviously, it's early there, but some very positive signs of meeting the sellers where they're at and the ability to talk to sellers about different products that potentially if the cash offer doesn't work, having them have another cash buyer's opportunity to bid on their home as well and then the listing opportunity as well. And so we're really seeing that with sellers. So I think the opportunity there is just really to maximize conversion. And there are obviously a lot of learnings as we're building out this program and getting better and meeting sellers faster and some different things that we're learning along the way. But I think that is -- that has tremendous opportunity. I think as you start seeing the market pick up and different things happen, I think that's going to expand our Direct+ as we start to buy more homes or as the market starts to loosen up a little bit, you're going to see a lot of our other cash offer partners start to buy as well, which leads to 2 things, more of our Direct+ business, but the second part is really helping our renovation business as well. And -- as you saw with some of the numbers, Renovate continues to grow even in these market conditions. And what I like about that, we have a lot of really diverse customers in that, the Renovate and the Direct+. And so they're going to be there and they're more diverse than any other market opportunity, they'll be able -- would be able to use our services. That's either Renovate or the Direct+ services. So a lot of opportunity that we're seeing. And I will tell you, just to finalize that with the Cash Offer, which is kind of the base of what we do in this environment, we're seeing more and more people that are in moments that really value the Cash Offer. And so obviously, we're working on our efficiency, our timing and making our Cash Offer better every day, but making sure that we're also buying the right type of homes that we want in this environment. So really liking what we're seeing for setting up for 2026.

Got it. And then second one could be either for you, Brian, or Peter. As you work towards that 1,000 transaction target that returns you to breakeven, like how should we think about the mix between asset-light services and traditional cash offer deal? And is there like an optimal blend for margin and growth? And just as a quick follow-up to that, is there like an equivalent number that you guys can provide for 3Q or in your 4Q guide that's equivalent to that 1,000 transaction because understanding that's different from homes selling now going forward.

Sure. So the 1,000 transactions, right now, the mix is roughly whether you look at it based on a gross profit perspective or based on a volume perspective, the mix is directionally around 1/3, 2/3 with the larger piece coming from our Cash Offer, and this is excluding Renovate services, just focused on our real estate transactions. The -- where we're moving is -- the most important thing on this topic is conversion. So as we move from where we were 2 years ago with really primarily one product to today where we have 4 or 5, if you include Renovate, conversion goes up significantly. And as we bring those new products in the market, it becomes the approach to and the execution around getting to 1,000 transaction is easier and more straightforward. We expect the mix to -- as we move across next year to move up and get to at some point next year, over 50% from the asset-light products. And we are going to -- as I mentioned last quarter, we are working towards providing better detail. We do break out other services and Cash Offer in a separate segment in the Q, but we are going to provide more detail on each of the products and the volume on the IR website and the trending schedules as we get into next year. So that will help you from -- just from the perspective of guidance. And finally, what I'd say is we have guided on homes sold for next quarter like we have historically. We are -- if you add it in, we're not guiding towards or disclosing the exact number of real estate transactions. But I'd say at a high level, if you look at the 1,000 transactions that we're working towards this quarter and next quarter, we're about halfway there if you include both the cash offer and the asset-light transaction. So it's a matter of moving to 500-ish -- from 500-ish to 1,000.

One other thing I'll just add there, Dae, is that as we look at it, I continue to think the cash offer is the best product in real estate. It solves the most friction from the customer, the speed, the certainty. And so that is always going to be the foundation. But I also like what we're setting up is it lets them choose their own path, what's best for them. And so if they want to try to explore the open market, we can help them with that as well to see if anyone else is willing or able to pay more money than they can or we can. But also, we're shopping their home through other -- with our Direct+ through other cash offers to see if we can get them a higher offer than even ours. And so I really like where -- what we're doing with the seller to put them in control. And it leads and starts with the cash offer. But overall, we want the seller to eventually choose what's best for them. But I think the Cash Offer is always going to be a really powerful tool in there.

The next question comes from the line of Ryan Tomasello with Keefe, Bruyette, & Woods.

Regarding HomePro, can you just discuss the hiring needs that you envision are needed to support the growth in that channel, just given that it's obviously more high touch with human involvement from these agents? And then I think you alluded to this on your prepared remarks, Brian, but any color just on early stats on impacts to conversion rates that you're seeing? And also, if you have the data, what the mix is on that conversion on Cash Offer versus a traditional listing?

Yes. So I'll talk high level about HomePro and then we can get in a little bit more detail. But as far as headcount, what I really like about HomePro is that whole division is primarily ran from our HomePro and the agents in the field. And so we can run a lot of that through our data. And like, for example, when people come to Offerpad, they can schedule their inspection. That is -- all that is automated through different vendors through HomePros on that end of it. And so we can do a whole bunch with fewer heads internally, especially as I kind of -- again, I talked about in our prepared remarks, we're really leveraging our technology and figuring out how we can grow it and scale the company smarter than we did and as we come into this next market and especially with all the advances we're seeing with AI and some of that. And so -- but as far as the headcount, it's going to be mainly on the HomePros and then we'll use and leverage data and technology on that side. As far as the conversion, what we're seeing -- and again, it's early, but we're seeing right now in this environment, more people choosing the Cash Offer. More people that we're seeing than before are in a life moment that they don't have the time or the patience to wait and try to maximize and on the listing side. So we're definitely seeing more of an appetite for the Cash Offer on that side of it. And we think that will change over time. Obviously, there's a macro environment that comes with all of these products. And we want to be built for every -- anything that's happening in the macro environment, we'll have a product built for that. So that's what we're seeing from the early days of HomePro. Peter, I don't know if you have anything you want to add.

Yes, I'd add 2 things, I mean we will -- we recognized we need to provide more breakout on the mix, Ryan. So we will -- we're 3 months in. So we're still a little bit early stage to have meaningful numbers, although the trends are developing. So that's to come next quarter. But moving from 1/3, 2/3 to kind of 50-50 between asset-light and Cash Offer is where we're headed and HomePro's part of the asset-light and then the Direct+ piece is also part of the asset-light. The other piece that I just mentioned is we also do -- on the HomePro opportunities, do we do receive some revenue or a fee from the broker as they go out to the home effectively for the lead. So regardless of whether we -- if we transact on the home, we end up with a gross profit that's roughly the same magnitude as the gross profit from a Cash Offer for those HomePro traditional list transactions that we don't transact on and those that we do, we still receive a smaller, but we still receive some revenue for each one of those -- each transaction or each conversation in each home visit.

One other thing on that, Ryan, just to kind of double down, and I mentioned in the prepared remarks, but one of the biggest, I would say, manual processes that we have is the ability that we're inspecting thousands of homes to make sure we're buying the right type of product we go out there. And so -- the inspection process is, we've put a lot of tech into that over the years, but nothing like what picture recognition and some of the learnings from machine learning and AI that we're really focused on. We're hoping to have something by the first of the year, and we should have something by the first of the year that's really going to speed up that process. And that's one of the times -- and there's 2 wins on that, obviously, from a headcount and from getting just the AI that can learn from picture recognition and the tens of thousands or hundreds of thousands of homes that we've inspected over the time. But also we can get the seller their final price much, much faster as well, which is also a key to that. So those are some different things that we're doing and leveraging from a tech perspective that we don't have to add a bunch of headcount that we can leverage.

And I guess what's the logic for excluding Renovate services from this math? Just as a quick follow-up to that discussion. And then a separate topic, in terms of institutional homebuyer activity, obviously, that's more impactful to your B2B products like Direct+ and Renovate. Any update on what you're seeing there in terms of demand trends and transaction activity would be helpful.

Yes. I'll take the second one. You can take the first one, Peter.

Okay. Yes, on Renovate, it's just -- it's just the way we think about it, right? We're focused on 1,000 real estate transactions, and those are transactions where a home is purchased and the home is sold. And so from us, the economics on those are very similar when you set aside the GAAP revenue recognition, differences on revenue and net revenue regardless of whether it's a Cash Offer where we balance sheet it, it's a traditional list where a broker lists and we participate in the fee or we underwrite it and the home is purchased by an SFR or an investor or it's on our platform and a partner Cash Offer business buys the -- purchases the home and pays the fee. The economics are very similar on a gross profit perspective. So we think of those as real estate transactions. Renovate is a related business and supports the Cash Offer, but it's a separate business and not necessarily associated with a home transacting. So that's just how we think about it. But, of course, is incremental to our profit and to our business.

Yes. And then on the second one, we have obviously some great partnerships with the Big 5 that buy a lot of our platform. Right now -- sorry, from the single-family rental side, they're buying, but not at the volume that we're normally used to or they're used to for that matter. And -- but what we have done with Direct+ is we continue to add different types of buyers to that division. And for example, and I think I mentioned this in the prepared remarks, but we get a lot of homes that come to us that we just don't have an appetite for. They are more as is conditioned homes or homes that are hard lived in. And those are homes that we now have Direct+, people that can come into or buyers into our platform that they can buy those type of homes, and we can actually help the seller by getting them an offer. It's a little bit different process. But -- so just adding more and more of those. We're having a lot of success with the -- from the long term -- we categorize people in Direct+ by short-term hold and long-term hold. From the long-term holders, we're having a lot of success with -- there are some newer funds that have started. But with that mid-tier fund, they're actively buying in segments of homes across the country, and most of them are more of 1 or 2 market experts that they want to buy in or they have appetite for those 2 markets. But we continue to add more and more to that Direct+ with a variety of different buyers in there to buy homes.

The next question comes from the line of Michael Ng with Goldman Sachs.

I was wondering if you could talk a little bit about what you need from a transactions or Cash Offer versus kind of value-added services mix to get to breakeven? What does the environment look like for breakeven? Is that something that you think you might be able to achieve next year?

Michael, for sure. And first of all, yes, as we identified in the prepared remarks, at least directionally, we're focused on getting to 1,000 transactions. The mix, as I've said -- as I mentioned earlier, is going to move up to -- we expect it's going to -- will move up to around 50-50 as a next step. And both of those steps will happen as we move across 2026. So we're not ready to guide towards which quarter, but we were expecting this to happen almost regardless or really regardless of the real estate environment, and that's part of our strategy around diversifying the product set to a greater -- a larger set of products, 5 products and also products that we can transact on regardless of the market that we're sitting in and reach the conversion levels we need to get to 1,000 transactions in any real estate environment. And the second thing that I'd highlight is we ended -- and we've really made a lot of progress on our fixed expenses. We've taken -- we've removed about $150 million in fixed expense, annual expense from our operation. We -- just going sequentially quarter-over-quarter, we moved from $16 million down to $12 million in operating expenses, and we're going to continue -- we've -- there's been some actions already this quarter. We're going to continue to focus on cost reductions and execute that number down even lower. And so as you match the 1,000 transactions and the lower OpEx, that's when profitability kicks in.

And just on that, too, Michael, just one of the things I will just say on that as well is, we're definitely seeing some on buying a little bit. And hopefully, it's not a glitch. But over the last little bit, we are definitely seeing more sellers that are jumping into the market wanting to sell. And from our perspective, but also from just the overall macro perspective, starting to see more of that. And I think what's also key is being a little bit more patient as well. We saw sellers come on but also pull their houses off the market. So we're seeing sellers that are more willing to engage. And on the buying side of it, we're seeing early signs of purchase loan apps going up. We're seeing more -- some of the showing activity. We're definitely seeing in segments in some of our markets where sellers are selling and buyers are wanting to trade and they're together there in certain segments. And so obviously, a lot of work to still do in this market, but we're definitely seeing some things that are encouraging on that end. And a lot of this is just driven by the interest rates that are in the lower -- at lower 6s now. And so anyway, so we're seeing some of that and obviously, in effect, it makes us more willing, more able to buy homes and we're more comfortable with and then get more aggressive on that end. And also that's going to build the other products as well up over time. Right now, we're staying very disciplined, but we're liking what we're seeing in the market early, early signs.

And just one last thing I want to add to it because I want to make sure that it's come out and it's clear based on these questions in our prepared remarks is we are guiding towards a fourth quarter that's -- from a volume perspective is similar or a little bit less than third quarter. It's for a couple of reasons, including the seasonality of the holiday season and all that. But more importantly, we're guiding towards from a sign perspective, that's ticking up -- and from a close perspective, that from a purchase perspective, transactions are ticking up. And the most important guide for this quarter is for next year and that we expect to ramp back up to 1,000 transactions.

And just as a follow-up, I was wondering if you could just talk a little bit about the appointment of Chris as kind of the -- as somebody who's going to be leading transformation. Your most significant peer also has some leadership changes. I was just wondering if you could talk a little bit about like what are the key things that need transformation in this sector? Is it an acknowledgment that we might be in a kind of lower for longer type of environment? Is there something structural that needs to change about the current business model?

Yes. No, but great question. Yes, very excited about Chris. Chris is here to help on a few main key points. One of them is conversion. One of them is helping us get ready and prepared for scale again as we buy. And we're talking about the 1,000 as getting profitable -- the 1,000 per quarter to get it profitable. And that's our very -- it's our near-term goal where we want to be, but that's not what this company has built for long term. We've -- we want to grow and scale this company. Again, we want to be more disciplined. We want to be smarter, but I want to bring in key talent to help us do it again and do it smarter this time and to have different skill sets and fresh perspectives. And so I think Chris can be able to deliver on all of those fronts. And -- but I will just tell you from the -- the one thing that the 4 product lines that we have, they're all somewhat it's a big wheel tied together. But also I want to even get more efficient of how all those are tying together and how they can help in every one of those, for example, Direct+ helps conversion with Renovate because when people use us for their sourcing for Direct+, especially the mid- to smaller Direct+ partners, they're going to use us on our renovation services. And that's just one example. But to make sure we're -- our logistics, our efficiency and we're getting better and getting some fresh eyes and fresh perspective as we scale again, I think it's going to be extremely helpful.