Good afternoon. Thank you for attending the Offerpad Third Quarter 2023 Earnings Conference Call. My name is Hanna, and I'll be the moderator for today's call. [Operator Instructions] I'd now turn the call over to our host Taylor Giles, Investor Relations. You may go ahead.

Good afternoon, and welcome to Offerpad’s third quarter 2023 earnings call. I’m joined today by Offerpad’s Chairman and Chief Executive Officer, Brian Bair; Chief Financial Officer, Jawad Ahsan; and Senior Vice President, Finance, James Grout, are here with me today. 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 third quarter earnings release on Offerpad's website. With that I'll turn the call over to Brian.

Good afternoon and thank you for joining today's call. We are pleased to deliver both top and bottom line results within our expectations. Despite the difficult macro environment, we are exceptionally proud of our expanding contribution margin as we expect to move towards sustainable, positive adjusted EBITDA in 2024. I am truly grateful to our employees, strategic partners and Offerpad customers who enabled us to meet our guidance and nimbly respond to these historic market conditions. During moments like this, our vast real estate experience is more important than ever. Before Jawad shares numbers and his insights, I will update you on our perspective on the real estate market and our strategic imperatives. At a high level buyer affordability, rising mortgage rates and sellers with existing low mortgage rate loans continues to stress real estate markets on all fronts. However, although inventory levels are down over 20% in most markets. We are focused on the 80% of the buyers and sellers that are transacting. In today's environment, providing multiple solutions for customers is more important than ever, and as you'll hear from us today, we're leveraging our robust end-to-end platform to bring value-added services solutions and tools to customers. Most recently, to further support and incentivize buyers of Offerpad homes, we introduced a 4.99% mortgage rate buydown program on eligible Offerpad owned homes. This is a powerful tool that allows us to greatly increase the affordability of our homes and motivate buyers. This allows more buyers to afford their dream home while saving thousands in mortgage costs. Initial uptake has been strong, and we expect to see continued traction. Now, I'll turn to the three strategic imperatives that guide our roadmap and discuss how we're executing against our objectives. Our first imperative is also our guiding mission, removing the friction…

Thanks, Brian. As mentioned, the third quarter marked my first full quarter with Offerpad. I'm very impressed with the team here and pleased with our progress. In his remarks, Brian opened with our intent to drive towards sustainable profitability. Using that as our North Star, we established three key priorities for the business that formed the basis for our 2024 financial plan. These three priorities are one, ensure that the business is on a path to be profitable and self-sustaining. Two, future proof to help mitigate against another downturn in housing or rate shock. Three, better align our marketing strategy with our customer behavior. Let's break these priorities down one by one. The first priority is to ensure that our business is on a path to be profitable and self-sustaining. We must and we will control our own destiny. We've assumed conservatively that we will not have any access to outside capital for two years or through the end of 2025. We felt it prudent to plan to fund our operations assuming a scenario where the capital markets remain tight. We then set out to plan for 2024 using two guardrails. The first guardrail was the assumed lack of access to capital over the next two years. The second guardrail assumed that the current market conditions will persist also for the next two years, and that real estate transaction volumes will not recover from 2023 levels. Again, this is not our expectation, but rather a conservative assumption that we are using to ensure that we can control our own destiny against a difficult macro backdrop. With these guardrails, we determined that we needed to reduce our cash burn rate by over $20 million heading into 2024. And that's exactly what we did with our recent actions to scale back our…

[Operator Instructions] Our first question is from the line of Nick Jones with JMP. Please proceed.

Hi, this is Luke on for Nick. Thanks for taking the question. Could you discuss what, if any, are the implications of Burnett versus NAR on the iBuying business? If commissions do come down broadly, does that change the value proposition at all? Thank you.

Yes, and thanks for the question. No, but so, a couple of things that obviously caused obviously a lot of shockwaves yesterday for the traditional brokerages. We've been following it closely, from like everybody has, but obviously that's early in what's happening there. The short answer from an Offerpad perspective, we underwrite that a co-broke commission in. And so it's really a pass through fee for everything that we do, so we don't see a lot of implications for that. But in saying that, I think this is just maybe one of the first steps of what's going to happen on the traditional side of it, which is one of the reasons I started Offerpad originally was trying to remove the friction and create more transparency for sellers and buyers. And so I think you're going to see a lot more changes on the traditional side. And overall, we're going to still be very focused customer centric in everything that we do, but overall, from a commission standpoint in early, and that's a pass through fee for us. So whether it's zero or 3%, it's a pass through.

Great. I appreciate it. Thank you.

Thank you.

Thank you, Mr. Jones. Our next question is from the line of Ryan Tomasello with Stifel. You may proceed.

Hi, everyone. Thanks for taking the questions. I guess just digging a bit deeper into the change in the marketing strategy, shifting to a promotional I'm sorry, a branding focus versus the promotional focus. Given that you're going to be investing, reallocating those dollars from one to the other, do you anticipate that to have any impact on purchase volumes as it takes time to invest and build that brand and the promotional spend is declining?

Yes, this is Jawad. I'll take this, Ryan, great question. So we look very deeply into this and throughout the year, we're monitoring our effectiveness on our marketing spend through various metrics, CAC, cost per lead. And what we saw is that we're not getting necessarily the efficacy we thought we'd be getting focused purely on promotional. So today our marketing spend is 100% geared towards promotional. And if you think about the buying decision or sorry, the decision a seller makes when they're selling their home, that's something that they come to over a period of time. It's not like a point in time transaction, but in many cases, we were trying to almost perfectly time that transaction when in reality, what you really want is more general brand awareness. And so we think that we're going to be able to shift from purely promotional to a mix of promotional and brand. It's not going to be a hard shift. We're thinking from 100% where it is today in 2024, we're anticipating it to be roughly 70/30 promotional versus brand. And we do think that it is important that, look, we want both Meta brand awareness as well as elevating our brand within a market. Ultimately, real estate is local, so we want to get more granular in the markets and we're still going to spend money on that. But as our brand expands, it's really important that not only the local market knows who we are, but we're in really the national dialogue and national awareness when it comes time to selling your home. We want people to think about Offerpad first.

Yes, I think you summed it up well. The thing I was just going to just add, but you hit on is real estate is definitely local and brand awareness and you have a transaction once every seven to ten years. And so we want to be top of mind when people make a lot of those micro decisions and they're ready to make that decision. I mean, the great thing that we have discovered because of our strong product with the cash offer, that's the foundation of what we do is that in a lot of markets, 70% of the time, people start the process with us. But they come to us first. But then they make a lot of micro decisions and when they are ready and we want to be there for them, and so that's where you see some of the shift on the brand side as well, which we're excited about.

And then as a follow up, the focus on shifting away from more of the capital intensive cash offer business is something you've discussed in the past. It sounds like that's going to be even more at the forefront next year as you're prudently planning around perhaps a tough environment to navigate in terms of that backdrop. I guess, Brian, it'd just be helpful to unpack the different non-capital intensive businesses, the asset like businesses. If you can remind us the value proposition of those how much runway there is for growth and importantly, the economics that show up in those products and how that might impact the P&L next year as we just think about modeling out performance.

Yes. Great. So. Yes, great question, Ryan. So I'll go through the four product lines. So we call Express, which is our cash offer, that's the foundation. And then we have the Direct Plus, which is where we allow other investors, both short term and long term investors to offer on homes top of funnel with us. And then also they get the efficiency of our straight to consumer call center and closing teams and transaction teams through that. The renovation side, obviously, like I mentioned in the remarks, is that we have a lot of efficiency. And we definitely FLEX with our renovation skill set. So allowing people to plug into our Renovations, they get our cost, our timing, the efficiency, our quality by plugging in. We already have teams there on the ground that they can plug into. So using that as a service is something we've been focused on and right now there's a great opportunity to do that. Just as a side note, those two, as we allow select investors to bid top of funnel with us and give the seller wins because they're going to get the top offer, they can for the home. But no matter who gets the home, let's say that a Direct Plus partner gets the house, there's a high likelihood they're going to have us renovate that home as well. So we provide the top of funnel, we provide the efficiency to close the home, but then we also provide the Renovations for them. So the two issues that they normally struggle with are sourcing and renovation. And those are two things that we can solve for. And then the other product line is our FLEX. So it's really important to us that we give people an option or a…

Yes. And then just to add on to that, Ryan so, as Brian mentioned, those are the four pillars, and you heard us talk about in our prepared remarks how half of our transaction volume came from none. For year-to-date, 2023 half of our transaction volume has come from non-cash offer non-ibuying. And so we think we've got the right foundation heading into next year to have those be legitimate business lines. They're still fairly small portions of our revenue, but the baseline is there. The foundation is there for us to build on the momentum that we've got, and specifically, FLEX, as Brian mentioned, are really coming on strong. And so, look, we're really excited about how we are going to be diversifying the business because we've never seen ourselves as an iBuyer. We've seen ourselves as really a real estate solutions platform and the transaction volume is bearing that out and you're going to see that translate into revenue in the next one to two years.

Great. Thanks for the call.

Yes. That was great questions you've asked us. Two of the questions we were looking forward to the most today.

Thank you. That concludes the question-and-answer session as well as today's call. Thank you for your participation. You may now disconnect your lines.