Offerpad Solutions Inc. (OPAD) Earnings Call Transcript

Thank you. Good afternoon and welcome to Offerpad's second quarter 2026 earnings conference call. My name is Megan and I will be your conference operator today. At this time, all participant lines have been placed on mute to prevent any background noise. After management's prepared remarks, we will open the call for a question and answer session. If you would like to ask a question, please press star followed by the number one button.

A live question and answer session will follow. 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. These 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 second quarter earnings release on OfferPad's website. With that, I'll turn the call over to Brian Baer, Chairman and Chief Executive Officer.

Thank you, Courtney, and welcome everyone. Before we get into the quarter, I'd like to take a step back and talk about where we are as a company. Over the past 18 months, we made a series of deliberate decisions that weren't designed to maximize short-term volume. They were designed to build a stronger company for the long-term. We protected capital, we sold through our aged inventory, When we set our cost structure, we put the right people in place across pricing, operations, and every product line, expanded from a single product company into a multi-solution platform and embedded artificial intelligence across our business. none of those investments were made to improve one quarter. They were made to improve the next decade. We believe those investments are now beginning to translate into measurable operating momentum. The rebuilding phase of Offerpad is largely behind us. The buying engine is back on. I'll be walking through several visuals during the call. So I encourage you to follow along on your screen. First, the quarter itself. We guided to 300 to 350 transactions and 80 to 90 million in revenue. We came in at 295 transactions and approximately 78 million in revenue, while still delivering another quarter of improved adjusted EBITDA. Alongside those numbers, I'll walk you through some leading indicators, contract signs and acquisitions. We think they're helpful for understanding where the business is headed as we scale. For the past year, you've heard us talk about discipline. You've heard Peter walk through our cost structure. You've heard us talk about contribution margins, conversion, and the investments we've made in our operating platform. Those weren't initiatives, they were always the same operating framework. The one that's been guiding how we run this business. By sharing that framework with you today, we want to give you a clear view into how we make decisions, allocate capital, and measure progress. It's also the context behind everything we've reported over the past year. That framework comes down to three objectives. Let's start with the first. Scale transactions through discipline growth. That's straightforward. But here's what it actually means. We're not chasing volume for its own sake. We're using better home selection, more precise pricing, and the data we built over the past several years to grow where we believe we can generate the strong outcomes. Our target hasn't changed, approximately 1,000 transactions a quarter. at a level we believe our current cost structure supports at break-even. But that's not where the plan stops. Beyond break-even, the plan illustrates the operating leverage we scale towards levels we have achieved before. For example, the company averaged approximately 3,500 quarterly transactions in 2022. Here's the visual that helps illustrate how we get there. Starting with the question you may have, how do we get from roughly 300 transactions today to our goal of around a thousand a quarter? START ON THE LEFT. EVERY CLOSED TRANSACTION STARTS AS A SIGNED CONTRACT. IN APRIL, WE SIGNED 129. That grew to 163 in May and 256 by June, nearly double where we started. Now take a look at the middle. Roughly 30 days after signing, approximately 90% of contracts become acquisitions. We acquired 268 homes in quarter two, nearly 70% more than the quarter before. That momentum continued into July, where we acquired roughly 200 homes in a single month. as the stronger June and July signings work their way through. This growing pipeline is expected to drive higher transaction volumes in the second half of fiscal 2026, as homes typically sell within 120 to 150 days after signing. Think about it this way, we expect another meaningful step up in acquisitions in the third quarter. And we can say that with real confidence because most of the activity is already signed. It's sitting on the left side of this chart right now moving through the pipeline. Now let's look at the right side. Roughly 90 to 120 days after acquisition a home sells. which means the fourth quarter is largely being built right now, not in the fourth quarter itself. Today's signings become tomorrow's acquisitions, and those acquisitions become tomorrow's home sales. So when you look at our third quarter transaction guidance next to our longer term target, remember, those quarter three closings were mostly locked in by contracts signed earlier in the year. before conversion improved. Quarter four is where you'll really start to see today's stronger performance show up. And one more thing to highlight, our platform is now broader than CashOffer. CashOffer Marketplace and Brokered Services, shown in light blue on the chart, widen the pool of sellers we can serve and generate fee-based revenue with little to no balance sheet capital. you're seeing here is execution, not spending. The growth in signs I just showed you happened without meaningful increase in marketing. It's conversion. We're converting demand we already had. The second objective is expanding contribution margin. And this is where we made some of our most meaningful progress this quarter. This chart shows the annual picture. Margins compressed through the market slowdown, bottomed out in loss in 2023, and have been recovering since, with 2025's numbers still weighed down by the aged inventory we've been working through. Look at what's happening inside this year, quarter to quarter. Contribution profit after interest reached 13,500 per real estate transaction in Q2, up from 5,500 in quarter one, our strongest quarter since 2023. First we cleared the age book. It peaked at more than 100 homes in 2025. We slowed acquisitions, got it under 30 by quarter one, and we're at under 10 today. What remains consists primarily of homes acquired during the past two quarters. Second, we're moving faster. Our aged homes have taken around 339 days to sell. Our quarter two non-aged homes sold in approximately 82 days, well ahead of our 100 to 120 day target. That velocity is what's driving the stronger margins and putting us on the path toward adjusted EBITDA profitability. Our third objective is driving operating leverage. Over the past several years, we've fundamentally reset our cost structure, removing more than 140 million of annualized operating expense. These weren't cuts tied to the housing market. They were structural changes, and they've left us with a leaner, more efficient business. This chart shows what that means. At today's volume, around 295 transactions a quarter, we're on the steep part of the curve, where fixed costs aren't yet fully absorbed. and a thousand transactions, the level our cost structure is built for, cost per transaction drops sharply because that cost base doesn't grow in step with volume. Every transaction beyond the point should flow more directly to earnings. Those are the three objectives that guide how we run this business. Discipline transaction growth, expanding contribution margin, and operating leverage. Today, they're the framework behind every decision we make, every dollar we allocate, and every result we measure ourselves against. I'd encourage you to spend a few minutes with our full operating plan on our investor relations website. It goes deeper into each of these three objectives, the data behind them, and how they connect to our path to profitability. Peter will now take you through our financial results and guidance in detail.

Thank you, Ryan. For the past year, we've been telling you the model is getting healthier at our margins, tighter costs and a cleaner portfolio. This quarter, you can see it in the numbers themselves. The model is straightforward. Higher transaction volume multiplied by stronger contribution profit per transaction on a largely fixed cost base drives adjusted EBITDA. Let's start with what we produced. Revenue was approximately $78 million on 295 real estate transactions. But the number I point you to this quarter isn't the top line, it's what each transaction earned. Gross profit was $7.1 million, up from $5.6 million in the first quarter and that gain came on slightly lower revenue. Gross margin improved to 9.2% up from 6.9% last quarter, our best since third quarter of 2023. As Brian stated, contribution profit after interest reached $13,500 per real estate transaction percent year over year and 145% quarter over quarter. Earning more gross profit on less revenue is exactly what you'd expect when the improvement comes from unit economics and mix rather than volume. Underneath the top line, our revenue base is diversifying. Brokerage services and cash offer marketplace drove much of the higher margin mix I just mentioned and Renovate contributed $4.8 million of revenue this quarter. Together, these fee-based offerings deepen both our margins and our reach without adding balance sheet risk. On the cost side, quarterly operating expenses, excluding property costs, were 13.3 million, down from 17 million a year ago, and down from a high of over 50 million per quarter in 2022. We've held that cost base largely fixed by design. That will drive incremental volume to convert into profit rather than overhead as we scale. The suggested EBITDA loss for the second quarter was $6.2 million, an improvement from a $6.7 million loss in the first quarter. quarter of sequential improvement towards positive adjusted EBITDA before the year end. We ended the quarter with $33.1 million in unrestricted cash of 46% year-over-year and total liquidity of more than $55 million, including the fair market value of our inventory. Cash Offer and Brokerage Services are leading the acceleration, while Cash Offer Marketplace has moved more slowly as some institutional buyers pull back. Our 2026 framework doesn't require incremental capital. Our liquidity facilities and growing fee-based revenue support the plan as it stands. If cash offer demand runs ahead of plan, we may bring in additional working capital to meet it. We have a clear path forward either way, and we'll keep looking for opportunities improve our flexibility or lower our cost of capital, which has already come down significantly over the past two years. Now to the outlook. For the third quarter, we expect 350 to 400 real estate transactions across cash offer, cash offer marketplace, and brokerage services. total revenue of 90 to 100 million and a narrower adjusted EBITDA loss compared to Q2, continuing our sequential progress towards positive adjusted EBITDA. The full year objective is unchanged. Exit 2026 at a run rate of roughly 1,000 transactions a quarter and reach positive adjusted EBITDA before the year end. It's worth reiterating what's compounding underneath those numbers. The signings that accelerated through the second quarter become acquisitions in the third quarter and closings in the fourth. And they'll carry the stronger unit economics of a cleaner portfolio. So as volume grows, the effect compounds. More transactions, each one worth more than it was a few quarters ago, landing on a cost base we've held largely fixed. Higher volume, higher margin per transaction, and discounted. Discipline costs are three forces building on each other. To close, margins are at multi-year highs, the cost base is disciplined. the leading indicators are moving in the right direction. The pieces are in place. it is about execution quarter after quarter with that we're ready to take your questions.

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A Your first question comes from the line of Ryan Tomasello with KBW. Your line is open. Please go ahead.

Hi, everyone. Congrats on the nice progress in the quarter. Regarding the thousand transaction target by year end, understand the, you know, positive forward indicators here that you're pointing to that give you confidence in that target, but can you just help us understand, WHAT ARE THE MAIN DRIVERS OF THE MEANINGFUL STEP UP FROM 3Q TO 4Q? AND IS THAT TARGET OF 1,000 TRANSACTIONS DEPENDENT ON ANY CONCENTRATED VOLUME FROM SPECIFIC institutional partners or any other partnerships that might need to come online to hit that level.

Hey, Ryan, it's Peter. So I'll take the last piece first so I don't forget, but it is not driven by institutional partners. the among the three products, the two that are growing the most significantly, we talked about cash offer, that's one. but also our brokerage services is growing fairly rapidly too. And you can begin to see some of that in the trending schedules that are on the IR site. So, yes, I'd point back to the, you know, as Brian identified in his prepared remarks, there's if you add up the three months in the quarter, there's about 550 signs just for product number one, just for the cash offer. and those signs you know if at a at a 100 to 110 day time to cash those signs uh uh convert into a a a similar number um of uh um of dispositions roughly 100 or 110 days later. So that's one really important driver and the signs are up. very significantly again. And then again, I'd point to the brokerage services, which is also growing rapidly. Both of those together was right without any dependency on ON PARTNERS WILL GET US TO THE EXIT RATE.

of a thousand transactions. One thing that I'll just add, Ryan, you and I have talked about this in the past. Our demand has stayed very, very strong. Um, We still get thousands and thousands of sellers that are very engaged coming to us every month to sell their home. And so, you know, with less marketing spend, we're seeing more and more demand for our products. And so, as we've talked about that, again, that's a lot of lever for pricing. And so, you know, right now, as we look at some of the, we call it velocity areas that we're buying, areas that we think are when we buy the home, it's going to turn, we can buy, renovate it and sell it within 100 days. So we've spent countless hours and data and trying to figure out where those markets are. We've made a lot of progress on that, but our demand is still there. Demand has always been there. It's just dependent on what we want to pay for homes. And so we've been disciplined in the past, making sure with the uncertainty or when we see homes moving too slow in certain markets, but in the areas that we're seeing, we're getting smarter with our marketing spend, where those marketing dollars are spent, that it's driving customers, we know we're going to have a better, that homes that we wanna buy, a better chance of buying that home. And then we're giving them a stronger offer, whether or not they take our offer, they'll also then use our other products. They can use our listing services and some of the other products as well. So that's where you're seeing the growth come from. And we've been through a lot and- Relative to the prior month, just wondering, I understand your business,.

and running on our full cylinders and having great momentum. But was there anything else like product wise or region wise or from an underlying industrial or industry dynamic that drove that strong inflection? And do you have any,.

update to share on how your July month might be trending? Sure. So we continue to see strong just across the board. But not really an inflection. Like I said, we've been really for the last several months, we've been working on products like Scout and Henry Some of them are farther advanced than others as far as what we're doing and to help us get smarter where and how we're buying homes. And in this environment, we are hyper focused on active inventory. And areas that are normally interior homes, like one of the things you're going to see is you're going to see our price point start to tick up a little bit because we're buying more homes in the interior, high velocity, strong school scores, that, but also one of the other things we're doing in some of those areas, we realized we don't have to put as much renovation in some of those homes. Not all of them, obviously it's market specific, but because of the affordability, normally the playbook is when you see more supply, you want to put more renovations in there, have your home sell before the others because yours is the nicest on the block. a little different there. Now you have velocity areas and desirable places that people want to live. So, but, but in general, I would tell you today, it's, it's, it's specifically hyper-focused on our marketing dollars and, and marketing to areas that we want to buy homes that we feel strongly that they can move quickly. One of the numbers I want to highlight is, we've got rid a lot of our aged inventory and that was weighing down the entire company, the entire portfolio is inventory way when even when interest rates changed and just navigating this environment. And so we're down to, I believe less than 10 of those homes right now. And so now, so that kind of got that got that off of our shoulders that was we rebuild our portfolio going forward um some of our newer inventories performing like in 85 and 90 days on the market. So we're moving through our newer stuff very well, so the velocity stuff is working. So a lot of it is discipline, analytics, but also just making sure that we're buying homes that we feel that can move fairly quickly.

Yes, and I just add some with some context on July, our July signs was higher than the last year. than June, so the trend continues to get even better. WE EXPECT THAT TO BE THE SAME GOING INTO SEPTEMBER.

in August and September. Got it. That's great to hear. And then follow up question to you, Peter. When you look at contribution profit after interest per transaction, it's good to see those reaching multi-year highs. Like how would you describe the performance of that metric relative to your expectations and, you know,.

Where do you expect that to trend going into the back half? Yes, it will continue to go up, but based on two drivers right now, we have, as Brian just highlighted, we have a very new and healthy portfolio of inventory and our expected ROIs across the rest of the year. quite high um the the contribution margin after profit and also the gross margin was it was a little bit temporarily depressed over the last couple quarters as we sold some aged inventory um so that's one driver and the second driver is uh which is equally important is our mix. We've talked about moving, right now we're at about one third fee-based services or brokerage service or our marketplace where we sell to other buyers and two thirds are cash offer. THE MARGIN DYNAMIC ON THOSE IS SIGNIFICANTLY HIGHER. SO AS WE MOVE SHIFT TO A HIGHER PERCENTAGE OF FEE-BASED SERVICES THAT WILL PUSH THE MARGIN UP EVEN FURTHER.

one thing just for the question you asked me, and then you can do a follow up to Peter, but just, I want to highlight this is, You know, one thing that has changed, I think, a little bit, and this is just me and an assumption, but I think sellers' expectations have changed as well. And, you know, if OfferPad's doing their job, we're doing all right, we should be six months to nine months ahead of what the market is doing and what sellers know what the market is. Right. You know, when we, over the last couple of years, we've seen sellers expectations that continued to think we were in a post COVID housing market that wasn't there. So staying disciplined and some of our offers with the lower conversion of what the market value of those homes are. But I think sellers expectations have changed a little bit as well as they're seeing more inventory on the market. you know, month supply going up as well. And so being a buyer in a buyer's market is a good place to be. And there's an opportunity there that I think we're seeing right now as well.