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spk04: Thank you for standing by. Welcome to the open door first quarter 2021 earnings conference call. At this time, all participant lines are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone keypad. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero to reach an operator. I'd now like to hand the conference over to your host today, Whitney Kukulka, Investor Relations. Please go ahead.
spk02: Good afternoon, ladies and gentlemen. Thank you for joining us for Open Doors First Quarter 2021 Financial Results Conference Call. Joining me on the call today for prepared remarks are Eric Wu, Co-Founder and Chief Executive Officer, and Carrie Wheeler, Chief Financial Officer. President Andrew Loa Key will be joining Carrie and Eric for the Q&A portion of today's call. Full details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the investor relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws including but not limited to statements regarding OpenDoor's future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's annual report on Form 10-K for the year ended December 31, 2020, and Opendoor's other periodic SEC filings, including the quarterly report on Form 10-Q for the period ended March 31, 2021, to be filed with the SEC. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today and Open Door assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion may contain non-GAAP financial measures. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. Now I will turn the call over to Eric. Eric?
spk05: Thank you, Whitney, and welcome to our 2021 Q1 earnings call. I'm excited to share a result as we significantly exceeded our guidance for Q1 and have strong momentum looking forward to Q2 and the remainder of the year. Everything we do at Opendoor starts and ends with the customer. So let's start by hearing from one of our recent customers, the Bennett family, about their experience with Opendoor.
spk00: My name is Shamika Bennett, and I currently live in the Atlanta metro area of Georgia. My family and I previously owned a five-bedroom, three-bath, two-car garage. We were on the look for something bigger. Once we decided that we were going to sell our home, we came across Open Door. Open Door offered a one-stop shop where you can sell, buy, and finance through them. They offered great rates and competitive offers for us. We found a home that we loved. put in a bid for the listed price of $525,000, and even though our bid was not the highest one, because Open Door guaranteed the purchase of this home through the cash back offer, we were able to win the bid. All the teams and everyone that I came across through the whole process, whether it was through the selling, the buying, and the financing part, were all great. They all worked with us, and they all understood our needs. We're currently now living in our dream home. Moving can be very stressful. I have three kids, so moving during this time, it was an experience, but everything worked out well, and it was a smooth transition. We love our new home, and I would recommend it to anyone.
spk05: Thank you. A special thank you to the Bennetts for choosing Open Door. These are the stories that inspire us in our pursuit to make it possible to buy, sell, and move at the tap of a button. Today, our digital products deliver far greater simplicity, certainty, and speed than the traditional process. We always believed that the future of buying and selling a home can and will be as simple as hailing a ride or booking a flight. It seems that that future is a lot less distant now. We are seeing increasing consumer demand for digital products in a manner that is permanent. This seismic shift is showing up in our numbers As in Q1, we set a number of records. We sent a record number of offers. We saw record real seller conversion, and we launched a record number of new markets. Lastly, we did so with a net promoter score north of 80 from our sellers, telling us that customers love what we're building. Taking a step back, I often get the question whether Opendoor still resonates in today's market. We are experiencing the fastest home price appreciation in decades. with stories of homes getting more than 50 offers in the first weekend. It's certainly a seller's market. Yet, our results and metrics are saying yes. Opendoor resonates. Because for our customers, we don't just stand for a cash offer, and we aren't an iBuyer to them. Opendoor gives our customers the ability to win their next home, select their preferred closing date, and transact without open houses, dozens of steps, and upfront repairs, saving them months of time. What we've built is a digital end-to-end experience that delivers confidence and peace of mind at every step. In terms of results, in Q1, we generated $747 million of revenue, up 200% versus Q4 of 2020, $97 million of adjusted gross profit, up 154% versus Q4 of 2020, and an adjusted EBITDA loss of $2 million, down from a loss of $27 million in Q4 of 2020. This performance was driven by the same three areas of focus we discussed last quarter. First, we are driving existing market growth. In Q1, as I mentioned, we saw a record number of offer requests, driven by increasing awareness and continued increases in our buy box. Even with this surge in consumer demand, we are seeing real seller conversion at record levels. These improvements have enabled us to acquire 3,594 homes in Q1, up 78%, versus the fourth quarter of 2020. Additionally, in Q1, we sold 2,462 homes. Between our buyers and sellers, this growth in transaction volume continues to drive our flywheel with greater awareness, customer adoption, marketing and operational efficiencies, and ultimately, market share. Second, we are increasing our geographic footprint and scaling rapidly to new markets. In Q1, we launched six additional markets, which brought our total markets to 27 at the end of the quarter. Already in Q2, we've launched an additional six markets, bringing our total to 33 to date. We are getting better and more efficient at this, and in Q2, we launched four new markets on the same day for the first time. This acceleration and market expansion lays the foundation for years of growth as we march towards our goal to serve every single homeowner nationwide. Third, we are building the digital one-stop shop for real estate. Today, consumers come to Opendoor because they want a better way to move, whether they are buying, selling, or both. We started by reimagining the home selling experience, bringing simplicity, certainty, and speed to an otherwise offline, complex, and time-consuming process. We then integrated title and escrow as a critical component of the transaction, substantially improving the customer experience while also opening up an incremental margin opportunity for us. Next, we expanded our suite of products to include Buy with Opendoor and Opendoor Home Loans, knowing that two-thirds of sellers are also buying. Similar to Opendoor, we are investing to make buying with Opendoor and financing with Opendoor just as simple, certain, and fast. This past quarter, we launched Opendoor-backed offers, allowing home buyers to leverage Opendoor to submit cash bids, doubling their chances of their offer being accepted. Additionally, we've integrated our trade-in product into our seller experience, helping customers sell their existing home, buy and finance their next home, close with title and escrow, and move seamlessly all within the open-door suite of digital products. We will continue to leverage our pricing, technology, capital markets, and operational infrastructure to build best-in-class products for movers nationwide. This financial performance is the outcome of the hard work and focus by our teammates, that occurs behind the scenes. These teammates obsess every day about how to improve the customer experience, the business, and our culture. We are in the very early innings of the shift to a more digital experience in housing. We are energized by all the opportunities ahead, and we will continue to march against our vision to make it possible to buy, sell, and move at the tap of a button. I'll now turn it to Carrie.
spk01: Thanks, Eric. We provide a commentary on our first quarter results in our shareholder letter, so let me quickly cover off on some of the highlights of the quarter before we move on to questions. As Eric said, we had an exceptional first quarter. Q1 performance demonstrated growing consumer demand for the open-door solution. We purchased 3,594 homes in Q1, up 78% versus Q4, and up 24% versus Q1 2020. Acquisition volume was driven by both record levels of offer growth and conversion, as well as buy box expansions and new market launches. As we continue to rapidly scale the business, we expect to surpass all-time highs for acquisition volumes in Q2. On the resale side, we sold 2,462 homes in Q1, generating revenue of $747 million and an increase of 200% over Q4. significantly outperforming our guidance. This sequential growth was largely driven by higher inventory entering the quarter and high transaction velocity. Consistent with what we're seeing in the overall market, we are selling through our inventory in 21 days from list to pen, relative to 65 days in Q1 2020. Average home price is also a tailwind for revenue performance. With revenue per home sold at 4% sequentially, and up 19% versus the first quarter of 2020. As Eric has noted, we also launched six markets in Q1 and plan to have nine more by the end of Q2. We're well on our way to being in 42 markets by year end. We expect these new markets to contribute to meaningful revenue growth in 2022 and beyond. Our unit economics were strong in Q1, largely driven by a combination of a very fresh book of inventory, strong home price appreciation, and our own inventory management strategies. Contribution profit was 76 million in Q1, up 142% from Q4, and up 97% versus the first quarter of 2020. This represented a margin of 10.2%, down 245 basis points quarter and quarter, and up 712 basis points versus Q1 2020. Finally, adjusted EBITDA was close to breakeven, with a loss of 2 million in Q1, compared to a loss of $27 million in Q4 2020 and $28 million loss in the year-ago period. Adjusted EBITDA margin was negative 0.3% in Q1 versus negative 10.9% in Q4 2020 and negative 2.3% in Q1 2020. EBITDA was well ahead of our guidance due to revenue upsides, unit margin performance, and the benefits of higher average home prices. all of which provides incremental leverage against our operating expense base. Adjusted operating expenses, as measured by the difference between contribution profit and adjusted EBITDA, were $78 million, up from $59 million in Q4 2020. Adjusted net income was negative $21 million in Q1, or negative 2.8% of revenue. With regard to our balance sheet, we raised approximately $860 million in a primary equity offering in February, ending the quarter with $2.1 billion in cash and marketable securities. We are well capitalized to fund our growth and product initiatives. I'd also like to touch base on stock-based compensation expense this quarter, which was $239 million. As I noted in our prior earnings call, this expense is much larger than we'd expect in a typical quarter, and is primarily related to historical equity awards to employees realized as a result of going public in December 2020. For your modeling purposes, you should expect stock-based compensation expense to be down to $175 million in Q2 and then settle in at approximately $70 million in each of Q3 and Q4. Overall, we feel very good about the year ahead. For the second quarter, we expect revenue to range from 1.025 to 1.075 billion, and adjusted EBITDA of negative five to positive five million. On the revenue side, the high end of guidance implies approximately 44% sequential growth from Q1 levels. Looking ahead to the second half, we expect Q2 to mark a record number of home acquisitions. As another leading indicator of our momentum, we had a record 4,027 homes under contract to be purchased at the end of Q1, or $1.3 billion in value, which compares to 1,742 homes under contract at the end of Q4. I'd also note that we've previously talked about 2021 revenue being weighted to the back half of the year, with roughly a third of revenue coming in the first half. Notwithstanding the strong performance we anticipate for the first half, we do still expect those same revenue proportions to roughly play out in 2021. With respect to adjusted EBITDA, we expect Q2 unit margins to benefit from similar trends as Q1, and that contribution margins will moderate in the back half of the year as inventory mix normalizes. Furthermore, we expect adjusted operating expenses to increase sequentially throughout the year. The dollar step up in OPEX and Q1 is a good framework for thinking through sequential trends across the remaining quarters as we make continued investments in marketing, technology, and people. We believe our Q1 results and outlook are reflective of open doors market leadership and the strong secular shifts of consumers increasingly looking to digital-first integrated solutions to buy and sell a home. We have the team, technology, and operating platform to execute on our mission and deliver long-term value for our customers, our partners, and shareholders. That concludes our formal remarks. I'd like to turn the call back to the operator and open up the line to questions. Thank you.
spk04: As a reminder, if you'd like to ask a question at this time, please press the star, then the number one key on your touch-tone telephone. To withdraw your question, press the pound key. Again, that is star then one if you'd like to ask a question at this time. Our first question comes from Jason Helfstein with Oppenheimer.
spk08: Hey, I'm going to ask two. So how much of the increase in the average revenue per home was a function of home price appreciation versus greater success in selling attachment services? And then how should we be thinking about kind of the average revenue per home for the remainder of the year? So that's kind of one thing you can talk about that. And then number two, you kind of noted the ability to move into more expensive homes. I think you cited like a $1.6 million home, I think it was Florida or L.A. or something. Yeah, I think historically many of us have thought about I-bonding as limited to like, you know, homes below like a half a million dollars. So just talk about how, you know, the ability to kind of work in that price area opens up a bigger market. Thank you.
spk01: Hey Jason, it's Carrie. Thanks for the question. So with respect to what we saw in Q1, 200% increase in quarter-on-quarter revenue. First of all, the vast, vast majority of that was driven by volume growth. I think of the 200%, more than 190 points of that comes from volume growth. We were the beneficiary of an increase in higher average resale prices. There's two factors to that. One is HPA, as you know. The other factors are continued growth success in advancing our buy box. Buy box incorporates more things than just price, but certainly price is a key component. I think the market you referenced was actually Los Angeles. We're up to $1.4, $1.6 million right now in that market, and we'll continue to edge up across all our markets over time. That's one. With respect to kind of the outlook for the balance of the year as it relates to resale prices, You know, when you step back, you know, the market right now for housing is very strong. You know that. We're in a trifecta of very low rates, record low inventory, and an incredibly strong pent-up demand for housing. That's resulted in very high and very fast rate of HPA. Given those inputs, we don't see those dissipating for the balance of the year, and housing will continue to be strong. With respect to resale price trends, what I could say is we're not, you know, providing guidance for the back half of the year specifically. I would expect, you know, those to continue to be positive quarter on quarter for the balance of the year. And that's, again, a combination of buy box expansion. Our city mix will continue to evolve as we're in more and more markets. And then the last part of that is HPA tailwind.
spk05: Okay, the only other thing I would add, Jason, is that... Yeah, our aspirations are to service all homeowners nationwide. And our teams are working hard and focused on expanding the buy box and launching, obviously, new markets. And so we're expanding the types of homes we operate in, the types of different price points, and really the goal is to service every home in all the markets we operate in.
spk04: Our next question comes from Nick Jones with Citi.
spk06: Great. Thanks for taking the questions. I guess first, Kerry, could you remind us kind of what the impact of increasing interest rates might be on the business and Opendoor's ability to kind of mitigate increasing interest rates and the impact, I guess, on the bottom line? And then the second question really is just record low kind of inventory levels or multi-decade low inventories. Bubbles, maybe taking a step back, as things normalize, you know, have you contemplated the pendulum swinging the other way? Does it kind of shift to a buyer's market? You know, when the frenzy is over, is it going to be a more challenged environment for maybe a different reason? Thanks.
spk01: Great. Good to hear your voice, Nick. Thanks for the question. So with respect to interest rates and in terms of our cost structure and what we might have to pass on to customers in terms of fees if there is an increase in rates, we'd expect that the impact actually would be quite modest. An example, 100 basis point increase in rates would translate to a 25 basis point move in our cost structure given our inventory turns. So quite manageable in our view. Your second part of your question just was around regulatory levels, but also just what if the market were to go from being very HPA positive right now to something more neutral or even negative. And what I would say is, you know, our model is really designed to work across all kinds of markets, up markets, flat markets, down markets. You should think of us as a market maker and a liquidity provider. So in a market environment where HPA were to turn negative, we can choose increased beds to account for that decline. So declines in HPA would be offset by increased spreads. And certainly in a down market, which is more uncertain for consumers, we believe that the certainty our product provides would be of even greater value to customers in that scenario. Last point I would say is when we think about macro, for us, Obviously, housing macro is always top of mind, but so is what is going on right now. There's a massive secular tailwind that's driving digital adoption. I believe that we are going to continue to be market share gainers across all cycles as a result of that. Certainly, we are right now, and we expect that our value proposition, as I said, only increases in times of uncertainty for sellers.
spk06: Great. Thank you, Kerry.
spk04: Our next question comes from Eddie rumor with the bank.
spk07: Hey guys, thanks for taking the question. I guess first, just on the expansion of the buy box, is this a process that you can apply systematically to other cities? How quickly can you kind of increase maybe the aperture in terms of the expense of the homes you're buying? I guess on the flip side, is there an opportunity to target more value priced homes? I guess it's my first question. And then second, You know, obviously, velocity remains incredibly high. Should we expect that that begins to normalize as we head into the back half of the year? Thank you.
spk09: Hey, Ed. It's Andrew here. I'll take the first part of that, and I'll turn the second piece over to Kerry. With respect to buy box, yes, we believe that's a repeatable process. The team has done a great job building that into a systematic capability that we're constantly looking for places where we can provide our offering to more consumers. As Eric mentioned, our aspiration is that every seller in the United States can take advantage of what Opendoor offers. And so the team is hard at work identifying features, tuning our pricing models so that we can acquire those homes. Importantly, it's more than just price. It's also dimensions like the age of a home, the condition of a home that enable us to drive continuous improvement against that buy box. Carrie, do you want to take the second point?
spk01: Yeah, thanks for the question. So in Velocity, You know, as I said earlier, the market right now for housing is very strong, given the inputs I talked about, rates, constrained inventory, pent-up demand for housing. We expect those to persist for the balance of the year. Velocity would follow from that. I mean, there's a chance, I suppose, that it could slow. I don't see that as a material impact to our model and our results.
spk07: Thank you.
spk04: Our next question comes from Egal Aronian with Redbush Securities.
spk10: Hey, good afternoon, guys. First question just on the improvements in the real seller conversion reaching a record there. Can you talk about some of the things you've done to improve the conversion and how you think about pricing or offers that you make in the current environment? As you've noted, you expect HPA to continue to move up over the course of the year. How do you think about that and what's driving that real seller conversion? The second question, I guess, on your philosophy around inventory, I think still one of the biggest pushbacks you get from investors is, you know, holding on or having meaningful levels of inventory in case of a market downturn or things cool off. And you're stepping up and buying a lot more homes in 2Q, getting to record rates. You know, do you expect... over time for purchases and sales to kind of equal out so that your inventory stays stable and you're buying as much as you're selling? How do you think of that over time? Thanks.
spk09: Sure thing. So in terms of conversion strength and what's underneath that, we're absolutely seeing that record real seller conversion. And there's really two factors underneath that. The first is consumers value a best-in-class experience that's simple, certain, fast, and trusted. We've made seven years of investment in that experience, and we continue to improve that experience day by day. And we continue to grow the awareness and trust around it. And the second thing is that consumers care about net proceeds. And we're able to deliver more to consumers because we've driven improvements in our cost structure, our pricing engine, and our inventory management. in addition to the strength of HPA and the velocity of the housing market. Those pieces were constantly looking at the pricing and the competitiveness of our offers, and we feel good about it.
spk01: It's Carrie. On the second part of your question around inventory, just to step back, so today's market, which we all know is inventory constrained, we have not been constrained in our ability to acquire homes. As Andrew said, You know, 3,500 homes acquired this quarter, up from 2,000 last quarter. And perhaps more importantly, if you think about the future, over 4,000 homes sitting in contract right now. So despite the constraints of this environment, we've not been constrained in our ability to acquire homes. And in a market that was more normal or certainly less constrained, I suspect our job gets even easier.
spk10: Thanks. Can I ask one more follow-up just on open-door backed offers? It seems like an incredibly compelling product to bring buyers or sellers into the funnel, and you noted that that's had some impact on, or at least it ties together with the mortgage product. Can you talk about that for a second, any lift you've seen in mortgage conversion and improvements in how that part of the flywheel works? Thanks a lot.
spk05: Yeah, I appreciate the question. This is Eric. You know, we're excited by the progress and early signal around open door backed offers. Obviously, in today's climate, it's competitive. And if you're a home shopper, you want your offers to be as competitive as possible. So the thing I love about this, we're able to leverage the capabilities we've built over the past seven years and provide a new feature to our customers who are also buying homes. And so There's early signal, and we're very excited by the progress to date. I'll have Andrew kind of address the second part, which is how does that apply to home loans and the progress there?
spk09: If you actually go through the product experience, which I'd encourage you to do, on open-door backed offers, you'll see it's totally seamless in terms of its integration with our mortgage offering. And that seamless customer experience, removing friction and creating value for them, we see turn into higher levels of attach. And we absolutely see our home loan product attach at higher rates with open door backed offers than we do in other places. So we view the uptake and the consumer acceptance of that product as a tailwind to the home loans side of things, absolutely. Great.
spk10: Thanks for taking all the questions.
spk04: Our next question comes from Yoni Yeager with Credit Suisse.
spk03: Thanks for the questions. Two, if I may. So the first is around kind of ramping new markets. You guys have been fairly aggressive in the last quarter or two, more than halfway towards your goal. As you're going to new markets, specifically as you're seeing, you know, strong HPA trends, you are seeing, you know, expanded bar blocks, strong conversion rates. Are you seeing a faster ramp in those markets as a result than you otherwise were expecting? Can you maybe talk about how the pace of ramping those new markets have looked like so far? And I get it's really relative to historical or pre-COVID levels. And the second question is around just supply of lumber as well as service providers have been absolutely constrained in this environment in addition to a tight inventory market for housing itself. Is that at all impacting, you know, days where you guys hold it or your ability to kind of quickly resale a home once you do purchase it? Thank you.
spk09: So on the first question around market launch, We're well on the way towards hitting that doubling of our market footprint that we've been talking about. We've made significant progress this year, and you're seeing in the first quarter our capability is now actually such that we can do multiple launches in a single day. It's a testament to the work the team has done over time here to really hone that machine. Our focus on new markets is really about ensuring we have accurate pricing and repeatable, scalable processes and operations. As we see that come together in a market, we begin to ramp up acquisitions, which is why the impact of new markets is relatively small in the current year, but creates a foundation for growth for years to come. So no real change from our perspective with regard to the new market launch or ramp. And then the second part of your question was really around how some of the considerations around building supplies may be impacting our reno days or repair days or time to list. We're certainly, like everyone in the industry, seeing some of those supply chain pinpoints. We're not heavily dependent on lumber per se, but across the entire spectrum of what goes into a home, there are shortages, and we're seeing that. It's not materially impacting our whole periods right now.
spk03: Great. Thanks so much.
spk04: We have a follow-up question from the line of Jason Helske with Oppenheimer.
spk08: Hey, I just want to, Andrew, good to connect with you again. Just want to ask about OBO. I mean, so just how does that flywheel work? Is it you, if you get OBO, do you have to sell your home through you? Just how does that work? Thanks, because it's kind of a newer product to us.
spk05: Hey, Jason, it's Derek. Yeah, no, it's really just an option for the customer. And, again, we're excited because the customers are electing and choosing to work with Buy With Open Door because of this feature. But it's not required. Again, we have two really big customer pools. One is that there's hundreds of thousands of sellers coming to the site and requesting offers on a quarterly basis. And secondly, we also have hundreds of thousands, if not millions, of home visitors who also are coming to our homes and looking for a place to buy. And so the two customer pools allow us to promote buy with open door, backed offers, and, again, it's not a requirement to use our service, but it's certainly something we want to provide as a value, and customers are choosing it.
spk08: Okay, thanks.
spk04: That concludes today's question and answer session. I'd like to turn the call back to Eric for closing remarks.
spk05: Great. I just want to thank everyone for joining our Q1 earnings call. Before we sign off, I'd like to thank our customers who choose Opendoor to help them with their life transition and to my teammates for their dedication to our customers every single day. Thank you.
spk04: This concludes today's conference call. Thank you for participating. You may now disconnect.
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