Taiwan Semiconductor Manufacturing Q2 2023 Earnings Call Transcript

There are 13 speakers on the call.

Operator

I'll now turn the call over to Stephanie Leighton, Senior Vice President of Investor Relations and ESG at Offerpad. Stephanie?

Speaker 1

Thank you, and Good afternoon, everyone. Welcome to Offerpad Solutions' 2nd quarter 2023 earnings call. Our Chairman and Chief Executive Officer, Brian Baer Chief Financial Officer, Jawadha San and Senior Vice President, Finance, James Grout are here with me today. During the call today, management We'll 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.

Speaker 1

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.

Speaker 1

These metrics exclude certain items discussed in our earnings release under the heading Non GAAP Financial Measures. The reconciliations of Offerpad's non GAAP measures The comparable GAAP measures are available in the financial tables of the 2nd quarter earnings release on Offerpad's website. I'll now turn the call over to Brian.

Speaker 2

Thanks, Stephanie. Hey, everyone. I appreciate you joining us. Today, I'll cover Q2 highlights, market trends and operational updates. Before we dig in, I would like to introduce Jawad Hassan, our new Chief Financial Officer.

Speaker 2

Jawad is a highly regarded CFO with extensive experience in an accomplished career. He previously served as CFO at Axon and spent 13 years in various roles at GE, including serving as CFO for their health record in enterprise software businesses. I believe his strength and expertise will add significant value to Offerpad by helping drive profitable growth and improving our operational excellence. We are excited to have Jawad as part of our senior leadership team. Turning to our Q2 results, we beat our financial expectations across the board.

Speaker 2

Our homes sold, revenue and adjusted EBITDA All exceeded the top end of our 2nd quarter guidance ranges. This outperformance reflects the improvements we have made to our business processes and our elevated focus on profitability. Other highlights for the quarter include reporting our highest gross margin since quarter 3 2021 at 9.7 percent, achieving 9.5% contribution margin after interest per home sold on homes acquired after September 1, 2022, which is above our target range of 3% to 6% and surpassing 31,000 lifetime renovations. We emphasized last quarter that our plan to produce positive adjusted EBITDA by year end is not dependent on market acceleration. We were prepared to perform through a period of depressed residential transaction volume and that is exactly what we did in the Q2.

Speaker 2

We remain confident in our ability to execute our 2023 plan. As we move into the second half of the year, the economy and housing market continue to show resilience. Despite mortgage rates reaching 7%, low supply continues to support stabilizing resale prices as buyers outnumber sellers in many markets. However, the elevated mortgage rates are also contributing to the lower transaction volume and adding to the affordability challenge for many potential homeowners. Our forecasted 2023 acquisition volume reflects our expectation that current market conditions will continue throughout the remainder of the year.

Speaker 2

Given our acquisition volume increased by 131% from quarter 1 to quarter 2, we have demonstrated our ability to increase our pace in this present environment. On the operation side, our renovation service is more important than ever. The average age of homes in our markets is over 30 years old. This play to our strength of buying a home and adding value. Our ability to renovate is a key differentiator and competitive advantage.

Speaker 2

Our culture of continuous improvement has been a key driver supporting our ability to meet our goals this year. As an example, we recently made tech advances with our customer facing app and enhancements in our ability to leverage forward looking data when underwriting homes. Our commitment to providing the seamless real estate transaction experience for our customers is evident in the significant enhancements made to our mobile and online applications. We've incorporated upgraded features that deliver meaningful and relevant information to sellers, granting them full visibility from request to closing. New features will include video tutorials, seller push notifications, The ability to upload and sign documents and direct messaging with the sellers dedicated Offerpad team members, further providing Parenting control for our customers.

Speaker 2

Additionally, we expect these changes can help boost overall efficiency and reduce costs for Offerpad. We've also integrated new tools to incorporate forward looking data to better predict market trends. The goal is to use this data to make more competitive offers on desirable properties and increase our acquisition volume. At the same time, we can reduce risk exposure by not pursuing homes that are likely to be low performing properties. Upgrading our data driven systems facilitates intelligent growth, But our experienced local real estate professionals remain critical to our success.

Speaker 2

We believe combining human and artificial intelligence Is key to making the best decisions possible. While on the node of technology, I'm very excited about the tremendous potential to harness the power of artificial intelligence. Since the beginning, machine learning has added valuable insights helping us become smarter with every home we buy. And now With the rapid advancements of AI like NLP and computer vision, the possibilities are endless. From the way we find and communicate with likely customers, Underwrite and price a home and sell our homes.

Speaker 2

There are amazing possibilities with AI. I'm enthusiastic about the potential for thoughtfully incorporating AI across our company's operations. With the right strategic integration, we can unlock incredible innovations that propel us forward. Coming back to the operational front, I want to provide an exciting update on our FlexCell program. As a reminder, the program gives customers even more flexibility.

Speaker 2

They can accept our instant cash offer or test the open market with an Offerpad agent while retaining the cash offer as a backup. Given the major shift in market conditions last year, we paused FlexCell. However, I'm thrilled to announce we plan to relaunch this program in all software pad markets in quarter 3. From the very beginning, our vision has revolved around being a comprehensive real estate solution center for everyone. In addition to serving the needs of homebuyers and sellers, Our reach extends to business to business partners and real estate agents across the nation.

Speaker 2

Our direct plus program that connects investors with sellers Continues to build as we onboard new investor partners. Our renovation team continues to expand its impact by renovating non offer pad To further pursue our real estate solution center goals, we are committing even more resources to strengthen and expand our Home Builder Alliance and Agent Partnership Programs. With around 100 Home Builder Brands, Our homebuilder program provides customers with a cash offer on their current home and the flexibility to select a closing date. Homebuilders benefit as Offerpad removes the contingency hurdle with the current home. Additionally, our agent partnership program has proven to be a desirable offering, generating over 130,000 agent initiate offer requests.

Speaker 2

This valuable lead generation channel for Offerpad is also a simple solution for home sellers, while their agent receives a referral fee upon a successful close, a win for all. In conclusion, the achievement of surpassing our 2nd quarter goals instills even greater confidence in the success of our 2023 strategy. Simply put, our product offerings are strong, led by our cash offer. More and more customers start their real estate journey with us first and have consistently raised us over 90% in customer satisfaction. With proven ability to scale even in a challenging macro environment and a commitment to continuous improvement, we are well prepared to seize the opportunity once again.

Speaker 2

As we evolve our processes and products, they become even more efficient and add increased value to our customers. We set out to change the way real estate transacts forever, and that's exactly what we're doing. I'll now turn the call over to Jawad.

Speaker 3

Thanks, Brian. I'm very excited to be at Offerpad and work with this incredibly talented group of individuals. I'd also like to acknowledge Mike helping make my transition a smooth one and for building a world class finance team. I'm also excited to share our strong financial results this quarter. Our expectation that momentum will accelerate throughout 2023 is reflected in our top and bottom line results.

Speaker 3

There are 3 things in particular that I wanted to highlight. First, the key leading indicators of our business model are trending in the right direction. 2nd, we've made substantial progress towards reaching profitability. And third, our balance sheet continues to strengthen. I'd like to start by highlighting the positive trends in our key leading indicators.

Speaker 3

We've reduced our inventory of homes aged greater than 180 days down to less than 2%, well below our previously stated target of 10%. Our acquisition of Homes grew month over month in the quarter. Time to cash or our holding period reflected a 47 day sequential improvement 138 days in Q2 compared to 185 days in Q1. In fact, for the month of June, Time to cash was 94 days solidly below our 100 day target. We expect holding times to continue to trend down this year will likely remain below our 100 day average target in Q3, which lowers our holding costs and reduces our exposure to market volatility.

Speaker 3

And finally, we're seeing a market improvement in the contribution margin for the cohort of homes acquired on or after September of 2022 as opposed to those acquired prior to this time frame. In the Q2, we saw contribution margins of 9.5% or $31,000 per home for homes acquired after September of 2022. This is an important measure of our unit economics and speaks to the strengthening performance of homes in our inventory. Moving to the P and L, we generated $230,000,000 of revenue, exceeding the top end of our guidance range by 15%. Our revenue was driven by the sale of 650 homes, which also exceeded the top end of our guidance range at an average selling price of $348,000 The lower average selling price in the Q2 is the result of our intentional focus on acquiring homes near the median in each market.

Speaker 3

This is where we see the strongest demand and highest transaction volume. The $22,300,000 net loss in the 2nd quarter reflects a 62% improvement over And our adjusted EBITDA for the quarter improved to negative $17,300,000 compared to negative $44,800,000 in the first quarter. This reflects a 61% increase in adjusted EBITDA quarter over quarter. The sequential quarterly improvement in adjusted EBITDA was driven by significant increases in gross profit and disciplined cost reductions. Gross profit increased over 200%, primarily due to improved margins on more recently acquired homes and a lower number of legacy cohort sales.

Speaker 3

Our 9.7% gross margin reflects both a quarter over quarter and year over year improvement from the 1.2% gross margin in Q1 2023 and the 8.6% gross margin in Q2 last year. This is consistent with our expectation that gross margins and contribution margins Would trend upward this year as the last of our inventory acquired prior to September 1, 2022 is sold and the positive performance of inventory acquired in recent periods On the cost side, total operating expenses decreased 25% from $59,000,000 in Q1 to $44,000,000 in Q2 due to previously announced headcount reductions and other general cost reduction measures. Year over year operating costs have decreased 48%. This is the 5th consecutive quarter of operating Leighton:] And our current level, we are well positioned to realize improving margins in the second half of From a balance sheet perspective, our unrestricted cash balance increased to $115,000,000 at the end of Q2, up from $108,000,000 at the end of Q1. Inventory increased to $211,000,000 from $173,000,000 in the 1st quarter.

Speaker 3

This reflects an increase from 557 homes in inventory at the end of Q1 to 7 47 homes in inventory at the end of This increase in inventory was driven by the 840 homes we acquired in the 2nd quarter, which exceeded our expectations and was more than double the 3 Four homes we acquired in the Q1. Our inventory build coupled with the aforementioned reduction in inventory aged over 180 days to less than 2% highlights the quality of our current inventory. Our June 30 debt balance was $191,000,000 During the Q2, we successfully extended the maturity date for our largest credit facility to June 2025, while maintaining our favorable terms and conditions, including interest rate spreads and advance rates. We continue to have a blue chip roster Lending Partners that provide a strong foundation to our debt capital structure. Looking forward to the second half of the year, We expect Q3 to reflect the 2nd quarter over quarter improvement in time to cash as well as increases in acquisitions, inventory and contribution margin after We also expect Q3 to continue the trend of sequential improvement for gross margin, net loss and adjusted EBITDA that began in Q1.

Speaker 3

Specifically, in the Q3 of 2023, we expect to sell between 60700 Homes, generating revenue of between $200,000,000 $240,000,000 We also expect adjusted EBITDA be between negative $17,000,000 negative $9,000,000 which represents another significant sequential improvement bringing us closer to meeting our expectation of achieving positive adjusted EBITDA in the Q4 of this year. Our results in the first half of this year are a reflection of this team's rigorous commitment to adapting to changing market and economic conditions. Our revenue streams will continue to diversify beyond our cash offering and we are excited to share more updates on these areas in the coming months. Our business has never been more resilient than it is today and has never been better positioned to capitalize on the tremendous opportunity in front of us. I joined Offerpad to help this team forever change the way real estate transacts, making it more efficient and driving more value.

Speaker 3

Given the volatility, uncertainty and ambiguity facing home sellers and buyers today, there has perhaps never been a more pressing time for our mission. We were built for this moment and we can't wait to continue sharing our progress with you. And with that, I'll turn the call over to the operator to begin the question and answer session.

Operator

Thank you. We will now begin the question and answer session. After which you may reenter the queue for any additional questions. Before asking your question. We will pause here briefly as questions are registered.

Operator

Our first question comes from the line of J. Lee with JPMorgan. Please go ahead.

Speaker 4

Great. Thanks for taking the questions. I have 2. So first of all, you talked about home acquisition fees growth month over month. I was curious Revise plan today from a home acquisition per month perspective.

Speaker 4

And is $500 per month by end of the year still the right number to think about? And secondarily, on your unit economics and margins, I understand that 3Q should improve from 2Q as a mix shift. But When you compare the contribution margin and gross margins relative to homes acquired after September of last year, You expect those margins to step up or stay stable or should it come down as you accelerate your own home acquisition base?

Speaker 5

Hey, thanks Dave. This is James. On your first question around our acquisition pace overall, so like Kind of like what Brian mentioned, we haven't been seeing improvement month over month. That overall target of 500 per home Excuse me, dollars 500 per month. One thing that's important to keep in mind there is as we're on our path here to profitability, Acquisition volume is only one of the levers that's out there, right?

Speaker 5

So the returns on those homes also are cost saving efforts and the mix shift with those other product lines is important. We're continuing to work on that and seeing that improvement month over month, but what we'll always be focused on is maximizing that return versus volume Expectation for the business. And to your second question there in terms of that new cohort of performance and how contribution margin and margin Should proceed going forward. I think the important thing there is when you look at how we've been underwriting over the past 3 or so quarters, Really the largest spreads that we were underwriting to were that Q4, Q1 timeframe. And then as the conditions have been improving and we've been more comfortable in certain markets, we've Releasing some of that conservatism there, all while making sure that we're buying the right homes that are performing.

Speaker 5

So now that when you look forward into Q3 and Q4, you'll see less of the drag on gross margin and contribution margin from the legacy stuff, but you will see those

Operator

Thank you. Our next question comes from the line of Nick Jones with JMP Securities. Please go ahead.

Speaker 6

Great. Thanks for taking the questions. The first one, I guess, can you maybe Touch on how the kind of an iBuyer solution or Offerpad solution is being received in the marketplace today. Some of the questions we get is around With prices being pretty stable, the market having little supply, how does an iBuyer come in and provide value In this kind of environment, is there any kind of clarity on like how things have changed over the last, I guess, 12 months and what Kind of homeowners and buyers sellers and buyers, and how they're receiving the iBuying solutions. Thanks.

Speaker 7

Yes. Hey, Nick, it's Brian. Yes. It's important to note request volume has been consistent all year. We're seeing very similar to what we saw in the uptick the last couple of years.

Speaker 7

Cash offers, I would say are more important than ever. A lot of the customers that are coming to us for a cash offer, Number one reason is certainty and control, but also it allows them because of the limited supply to find their to buy their next home under their without contingencies in their timeframe. And so similar to what we saw before when the market low supply and we saw Really increased home price appreciation. Now you're seeing the lack of supply. So if a potential seller finds a home that they want, We're able to close on their schedule to make sure that they can get that home.

Speaker 7

So that's what we're seeing. And the other thing, a lot of the noise out of the cash buyers Is gone. I mean, our like I said, I think that's there's really only 2 cash buyers right now buying at volume. And so we're seeing more and more opportunity there than we had before. And then obviously as we add in more of our products on that, it even makes more and more of

Speaker 4

our solutions viable as well.

Speaker 6

Great. And then maybe to follow-up on some of the newer products like direct plus, ballistic service, renovation as a service. How are the what's the uptake on those? And how should we think about those maybe starting to show up in the P and L or in the model over time? Thanks.

Speaker 7

Yes. So overall, like with we're signing up new partners every day for both of those, both for Direct Plus and for Renovate. What's exciting to see is we're seeing more customers using our renovation service, while using our Direct Plus service to buy their home and then using our renovation as a service to have us renovate the home for them, which has been great. Obviously, with the transaction level focused on that, that's going to affect especially for single family and some of the other people buying in those channels. But We have been really happy with the market conditions of where those products are going right now.

Speaker 7

And so we're seeing good growth in both of those products.

Speaker 6

Great. Thanks, Brian.

Operator

Thank you. Our next question comes from the line of Ryan Tomasello with Stifel. Please go ahead.

Speaker 8

Hey, everyone. Thanks for taking the questions. Just I guess a follow-up on the prior remarks. Reading between the lines, it sounds like Maybe maintaining a more tempered purchase volume stance over this quarter and next, but I guess maybe Stronger margins filling that gap to still allow you to hit the profitability targets. I mean, how sustainable do you think these higher spreads are In the current environment given how tight inventory conditions are and what are you looking for in terms of market conditions to get more comfort Ramping volumes.

Speaker 8

Do you feel like that is completely under your control, to widen I'm sorry, widen the acquisition funnel with lower spreads or perhaps is the ability to ramp volumes somewhat limited given the conditions out there? Thanks.

Speaker 7

Hey, Ryan. I'll jump in and then let James or Jawad jump in after that. But first and foremost, for what we're buying, it's Our buy box, I really like. We're right around the medium home price. So I really like what we're buying right now in this environment and which is great.

Speaker 7

And As we scale up, we can move that buy box up as we want to get more market penetration and start buying more homes. Right now, what we're focused on is the sensitivity of mortgage rates, even at a tenth of a basis points right now Is things we're close to, just watching and monitoring really well, especially as interest rates get up above 7%. But overall, like this market has been Extremely resilient from the volume. There's a 20% reduction in transactions across the country. And if you look at some of the signs, you could argue it could be even more than that.

Speaker 7

But we are seeing a lot of opportunity to continue to grow Buy really good product in a really disciplined way right now and really focused controlling of what we can control. And I'm really happy With where we've done with our legacy inventory and where we are today, and now we can just focus on what we're buying going forward. And that's so I really like the position where we're at across the board there. But James or do

Speaker 4

you want to? Yes. I think one thing

Speaker 5

just to add to that Ryan. In Our letter to the shareholders, we shared a couple interesting graphs that break out the contribution margin and it highlights the other services in particular and that would be those other That's the Renovation Direct Plus, the Flex listing and buyer services there. And what's been great to see the business as we brought down our volume as we've seen Those other lines of business as we had hoped and expected to come in and provide more value into the overall profitability for contribution margin, Right. So as we look going forward and that pace on exactly how many homes do we need to acquire for that profitability, it really is Strategy around ramping all of those collectively and having that diversified income, Which gives us a lot of opportunity and levers there to go and approach that.

Speaker 8

And then just an update on how you feel about the balance sheet here in terms of capital. Have you thought about how much volume you think you can drive off of the current equity base and how that compares to the volume you ultimately need to drive for Not only cash flow breakeven, including the net negative carrying costs in the financing side, but also ultimately to generate Positive returns here in terms of the business model.

Speaker 4

Yes. I think there's

Speaker 5

a couple of sides to that. The first one is with our current capital structure in terms of cash and our credit facilities on the debt side, we do have a plan that supports Thanks going forward with that, right. The important thing about the leverage side of the business is coming out of the legacy inventory, You look at that sequential improvement in cash quarter over quarter and a big part of that is going to be driven by leverage returning to normalized levels. And then you take this back to our ability to extend and renew our largest credit facility with the same Favorable terms we've had in place and maintain those good relationships with our partners. So that allows us to be very efficient with our capital.

Speaker 5

It's a very those facilities are daily warehouse facilities that have a lot of activity happening on them regularly, right? And that allows us to buy at the volumes

Speaker 9

Ryan, this is Joanna. I'd like to chime in here. So I feel great about the balance sheet and the team has done a lot of great work to The credit facilities where we want them. We've got, as James mentioned, really good relationships there and we've got the ability to Have our volume grow and reflect the market opportunities that are in front of us. But the thing that I love the question about our non Cash Offer Solutions, because that ultimately is one of the big reasons I joined the company.

Speaker 9

We are positioning Offerpad to be more asset light over time with more of our revenues coming from Direct Plus and Flex and renovations, and that's going to Sort of mute the need for us to have too much reliance on the credit facilities, but the credit facilities we do have and feel great about.

Speaker 8

Thanks. Appreciate the color.

Operator

Thank you. Our next question comes from the line of Michael Ng with Goldman Sachs. Please go ahead.

Speaker 10

Hey, good afternoon. Thank you for the question. I have one on the gross margins for the September 22 and later cohort, really strong at nearly 13%. How are you thinking about The drivers of that 13% gross margin, what's the headline service fee? How much is home price appreciation during the holding period?

Speaker 10

How much contribution from renovation? And just as a quick follow-up to some of the questions asked earlier in the call. How are you thinking about your target home inventory balance? Obviously, you guys were carrying 3000 to 4000 homes at one point. What's the right way to think about what that looks like into 2024, 2025?

Speaker 10

Thank you.

Speaker 7

Mike, I'll jump in first. This is Brian, and then I'll let James jump in. But the thing that you're seeing with the performance is with our risk and underwriting It's obviously the more uncertain we were in the market as coming out of it with our legacy inventory. We're underwriting with more conservative risk built into that. As we've seen the market started to stabilize, we've taken some of that risk off.

Speaker 7

Like I said, we've been focused on The home price is between, think of $2.50 to $4.50 price points. And that's a Really good spot right now. The affordability is really strong. Midwest markets have been performing well as long with the Florida markets. And so We've been hyper focused on the type of products that we're buying.

Speaker 7

The other thing just to note on that is that the value we're getting in renovation Is really strong, maybe you can argue stronger than ever. Most of our inventory that we're seeing hitting the market Yes, is homes that homes that need renovation and can get value in renovations. And so a lot of the data from Mostly like 51% of the homes we're seeing right now are maybe older than 19.90 something like for that stand. So adding value to renovation has been key as well. So I would think underwriting is how we're underwriting the homes and then adding value through renovation.

Speaker 7

And then that's really important because As our house has then hit the market, we have a really desirable product that people can buy and then which limits our time to cash as well, which I'm very happy is below 100 days again. And that's where we like to be as we move forward. But that's that.

Speaker 5

Yes. And I think just to add on The inventory side, if you look back historically, obviously it ranges and there's some seasonality in there, but kind of our inventory turnover usually is about 100 On a quarterly basis, so whatever we whatever our ending inventory is, we'll sell that many homes in the following quarter. There's plenty of seasonal trends that factor into that from a quarter by quarter basis. But so if you think about just generally A 500 a month acquisition target that would suggest about a 1500 unit inventory carry seasonally adjusted. But I think what's important is kind of back to our earlier comments around diversifying our product mix, focusing on Direct Plus and the opportunities there.

Speaker 5

That's going to change as we go forward just based on what the market conditions are doing and how these other product lines are ramping. We'll continue to evolve that. But Overall, our current capital base and our credit facility structure that would support that level of activity.

Speaker 7

And Mike, I know this wasn't your question, but just something that James said, maybe think of this as well is that One of the strengths of just the cash offer as well, relaunching FlexCell that I talked about a little bit earlier It's going to be key as well because as people see limited inventory, if they want to explore the open market and see what they can get on the retail side, We can help them with that as well and have our cash offer as a backup. And that was a very popular product before we paused it and relaunching that again We'll give people again that flexibility of seeing what the market can do, but also the cash offer. But anyway, so I just want to hit on that as well.

Speaker 10

Thanks for the thoughts, Brian and James. Appreciate it.

Speaker 7

Awesome. Thanks.

Operator

Thank you. Our next question comes from the line of John Colantoni with Jefferies. Please go ahead.

Speaker 11

Hey, great. Thanks for taking my questions. 2 about inventory and growth, Starting with inventory. So you saw a ramp in homes purchased, but you're expecting homes sold To be about flat in the Q3. If you keep making progress toward your goal 500 home purchases per month in Q3, Our math suggests that would sort of imply you're going to end next quarter with about 1,000 homes in your inventory balance.

Speaker 11

Does that mean that we should expect to see sort of a substantial step up in homes sold during the Q4? And second question, when you think about transitioning the business from rightsizing inventory levels and improving efficiencies to reaccelerating growth next year. What are some key areas of sort of permanent efficiencies that you've been able to draw out of the business that will help you improve sort of the balance between growth and profitability over time. Thanks.

Speaker 7

Yes. I think a lot of I'll jump into the efficiencies. I think there's countless efficiencies. We've learned a lot and we've done a lot of look backs as well. When the market hit the pause button and with the rapid interest rates from last year, We've learned a lot and underwriting is absolutely key and into all the above and the type of inventory that we want to buy Is going to be key.

Speaker 7

Also the renovations, we continue to get more efficiency out of our renovations and our renovation teams. And the other thing is just with our customer engagement as well. As we're not buying thousands of homes a month, we've been able to focus on Products we want to roll out for a while and our customer communication has never been stronger than ever. And we're getting that from the feedback of our customer Satisfaction scores and everything else. But as it comes from the property level, the segmentation in underwriting.

Speaker 7

We have a project internally called Limelight that we focus highly on the type of homes, so we get smarter and better with every home that we buy. And We're constantly trying to learn and how to get better. And so I think our efficiencies are super strong and I mean, it's strong and I think everyone's more aligned than ever of what success looks like. And as we talked a lot about growth, That's a meter to increase our buy box. Like I said, from is if we can get the volatility now is coming more from the mortgage markets than it is really anything else in the real estate markets.

Speaker 7

And so that volatility is definitely something, again, like I said, we're watching closely. But as we get more comfortable there in certain markets, we can move from higher up the value of homes And then also take on certain kind of renovation homes as well to help us on the growth side. So again, the ability to grow, but really grow disciplined right now in what we're doing. And We are just laser focused on being profitable. That's every day.

Speaker 7

The teams are talking about that and that's really important now and making through what we just did and Super proud of where we've been and really excited about where we're going, but has massive eye on the path to profitability.

Speaker 4

But I'll let you change it.

Speaker 5

Yes. And then John, your question around inventory and sales pace there, right? So when you look at Q2's 650 homes sold, if you The legacy inventory, those homes acquired in August and earlier from last year. There was 4.91 of the new inventory that was sold in That was sold in that in Q2. So the midpoint of our range at $650,000,000 is about a 32% increase quarter on quarter there.

Speaker 5

But you're spot on in terms of As inventory growth, expect things to increase there going forward. The one thing I would caution though, right, is Q4 in particular Real estate perspective, it is a seasonal slow month with the holidays. And just with market conditions, things are I have uncertainty this year of how things will play out, right? So that's why we need to remain diligent and cautious and with the inventory that we're acquiring right now make sure that it's going to be good performing homes for Q4.

Speaker 7

One other thing I'll just jump in on there. The seasonality over the last couple of years because of lack of supply has not been what we've Traditionally, the lack of supply we haven't seen we've seen some seasonality, but not near the seasonality that we would see maybe a few years ago. So The lack of supply is definitely is throwing a little bit of different range at the seasonality side, but again it's something that We're watching closely, but yes, December is definitely one of those months.

Speaker 9

Yes. John, this is Jawad. I wanted to weigh in here as well. Look, it's been a Challenging year. I wasn't here for it, but I love the way that we responded.

Speaker 9

I saw us take really difficult decisions and Makes tough decisions and actions to right size our cost structure. And what I see now is a business that has fundamentally Right size and gotten its costs and infrastructure position to grow profitably from here. And so for me, it's not just profitability, but cash flow. So we gave our guidance on profitability, but we're also laser focused on getting That's cash flow positive as well. And that's something that we're going to drive very hard towards.

Speaker 9

There's still a lot of uncertainty in the market. Brian mentioned volatility in the mortgage markets and Sure, there's still some uncertainty, but I feel really good about how the company is positioned to grow from here.

Speaker 11

Great. Thanks for all the details.

Operator

Thank you. Our next question comes from the line of Jay McCanless with Wedbush. Please go ahead.

Speaker 12

Hey, good morning. Thanks for taking my questions. The first one I had, in terms of the people who are selling homes to you, Brian, Is it typically primary homeowners, family selling or have you seen an uptick in people who maybe Thought they could be a landlord, couldn't pull it off and or some of these Airbnb owners we've heard that are starting to bail. If you could maybe talk about that supplier base of your homes now versus maybe where it was a year ago or 2 years ago?

Speaker 7

Yes. I think fundamentally it's a great I was actually going to throw in the Airbnb when you said that I was thinking about that because there's definitely a little positive that's happening right there. I think fundamentally just as where interest rates where they're at, there's definitely the story of people locked into their 3% or 4% mortgage. And so There's not a lot of people that are moving because of they want the nicer kitchen or nicer cabinets or want a bigger backyard right now. So most people are moving for a purpose.

Speaker 7

Majority of the people that we're buying the homes from our owner occupants that are living in the homes, vast majority of that. But in saying that, we are seeing a lot of A lot more action that we've seen with short term rentals and even some of the long term rentals on that end of it. So We're seeing we're definitely seeing volume from that end of it as well. And to your point, I think there was a rush for the short term rentals in the Airbnbs and those in the world. And I think those are they're having whatever we're just seeing more activity on that end as well.

Speaker 7

But definitely vast majority are people that are owner occupied that are selling us their homes.

Speaker 12

Okay. That's great. And then my second question, kind of unpack what you're talking about with mortgage Brian, is there a is 8% too high even at these new spreads and sticking around the medium price, which Sounds great. I think that's the right approach right now. But is there a ceiling where if Mortgage rates, 30 year rates go above it, then the underwriting doesn't work for what you're buying and what you're trying to sell right now.

Speaker 7

What's interesting, obviously, we're watching very closely. I would have told you not a A while ago that 7% would have been in and we've seen still because of lack of supply, we're still seeing strong demand with anything that we're putting on the market. I think the one thing that maybe doesn't get mentioned enough is because we haven't had the home price depreciation that everyone was Expecting coming through this and the jobs are still holding strong. You still have people with a lot of equity in their current home. People that are selling their home might have $200,000 to $300,000 of equity into that home that they now can put down as a down payment That can offset some of the cost of so instead of getting a mortgage at $500,000 they're getting a mortgage at $250,000 or $200,000 which is offsetting some of the burden of the interest rates.

Speaker 7

So we're still seeing about 25% maybe cash buyers Because some of that equity that I mentioned, but also you're seeing a lot of first time homebuyers as well. I think That have been moved out of the market or that are coming out of a rental that they've been running the last year or 2 That they want to get in on and buying a house while they can. And so anyway, but that's long winded answer, but I hope that answered where what your question was.

Speaker 12

Yes, absolutely. Thanks.

Operator

Thank you. Thank you. That concludes the question and answer session. And that concludes today's conference call. I would like to thank you all for your participation.

Operator

You may now disconnect your line.

Earnings Conference Call
Taiwan Semiconductor Manufacturing Q2 2023
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