Opendoor Technologies Inc

Good day, ladies and gentlemen, and welcome to the open door fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Elise Wong. Vice President of Investor Relations. Thank you. Please go ahead.

Thank you and good afternoon. 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 financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations. 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 Factor section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2021, to be filed with the SEC and Opendoor's other periodic SEC filings. Any forward-looking statements made in this conference call, including responses to your questions, are based on management's current expectations and assumptions as of today, and Opendoor 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 contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. 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. I will now turn the call over to Eric Wu, co-founder, chairman, and chief executive officer of Opendoor.

Good afternoon. On the call with me is Kerry Wheeler, our Chief Financial Officer, and Andrew Lewaki, our President. Our customers are at the center of everything we do, and per usual, let's start by hearing from one of them on the impact that Opendoor has had on their lives.

I'm William Thomas. We live in Woodstock, Georgia. There were several reasons we were looking at selling. Ultimately, we homeschool our kids, so they didn't have really a huge social network, so when they would have friends, We wanted them to get lasting relationships, and we knew that meant spending time together, so they needed space to hang out. I mean, we needed that, and we did not have that in our previous home. We were looking at the traditional route of selling a house previously, and going through the listings and the showings, and being a homeschool family and a work-from-home family, it just didn't really work out. And what happens if we sell our house, but we don't get an offer on another home that's accepted? or we put an offer on another home that's accepted, but we haven't sold our house. We were really worried potentially about being, I guess for lack of better word, homeless. It just made sense for me to use Opendoor. I knew that I could go in and see a home. I could see multiple homes without potentially bothering my realtor when I wasn't particularly ready yet. So Opendoor just made it easy for me to be able to put parameters, search criterias, and actually go look at the homes in person. And when they told me there was an opportunity to be able to simultaneously sell your home while purchasing an Opendoor home. I mean, hearing the numbers, I was like, well, that totally makes sense. With Opendoor, it was a very seamless process. We were at the same closing table. We were able to sign the sale of our old home and then an hour later, sign the documents for the closing of our new home. Selling and buying with Opendoor was the complete package.

We are honored and proud to be helping families like the Thomases who have trusted us with not only their home sale, but also their home purchase so they can seamlessly move in one simple transaction. 2021 was a year that further demonstrated where we're heading, shifting away from a disjointed offline process centered around lead generation and agents and towards a digital experience where consumers can buy, sell, and move with just their mobile device. In the last 12 months, we generated $8 billion in revenue, representing over 200% growth versus the prior year, We delivered $525 million in contribution profit, up nearly 380% year-over-year. And on top of this growth in revenue and unit profits, we booked $58 million in positive adjusted EBITDA, up $156 million from the previous year. These financial results pulled forward our financial targets by years, significantly outperforming the ambitious expectations we set for ourselves across our key metrics. This tremendous growth was a result of focused execution and investments in our consumer experience, our consumer growth, and our technology, pricing, and operations platform. In terms of our consumer experience, we centered our work on improving our seller experience and differentiating our buyer experience. For home sellers, we focused on automation and reducing the friction and steps to sell. We launched virtual assessments, allowing home sellers to complete a home inspection virtually. And then we launched self-service assessments, giving the customer the ability to complete an inspection themselves. For home buyers, we launched open-door backed offers, enabling buyers to make an offer backed by cash, which significantly increases their chances of winning their dream home and gives our customers a superpower which has historically been exclusive for the wealthy. With our launch of open-door complete, we combined two lengthy and disparate processes of selling your existing home and buy a new home into one simple experience. This is so impactful because it gives our customers control of their moving timeline and eliminates costly double mortgages and costly double moves. Furthermore, we acquired the Red Door, Pro.com, and Skylight teams, which will power our home personalization and digital mortgage efforts in 2022 and years to come. The result of all this work was both very high conversion at north of 35% of real sellers and a seller MPS of north of 80 in 2021. In terms of our consumer growth, this year marked a very rapid increase in the number of customers we are serving. We brought in our market coverage with the addition of 23 new markets, up from a total of 21, demonstrating the scalability and robustness of our systems, playbooks, and service offerings. We expanded our partnerships with home builders, now partnering with over 70 home builders, and online sites such as realtor.com giving more home sellers a better solution. We also saw significant increases in customers from re-engaging homeowners who registered in previous years but were not yet ready to move, and this resulted in almost 30% of our acquisitions. Furthermore, our improvements in awareness led to over half a million new homeowners requesting an offer from Opendoor in 2021, which will also help us drive our re-engagement efforts and growth in 2022 and beyond. Last but not least, our core technology, pricing, and operations platforms dramatically improved last year. We made improvements to our home operations system, open to our scout, as well as the virtualization and centralization of multiple labor processes. This has resulted in our ability to deliver 3x more home assessments and repairs with a similar level of operational staffing as two years ago. This also enabled significantly faster turnaround times, and over 170 basis points of cost structure improvements. We continued our investments in pricing, as our pricing system is our secret sauce. We analyzed hundreds of data points about each individual home we assessed, and we ingested millions of new data points, including image data and demand signals. This work led to a significant reduction of pricing variance and the expansion of our buy box by over 50%. Looking forward to 2022, we will take big steps towards our vision for a fully digital experience while significantly growing our audience, revenue, and contribution profits. First, given the positive customer feedback we are seeing, we will expand and grow Opendoor Complete and buy with Opendoor as part of our suite of product offerings. We will continue to expand to more markets nationwide, including some of the largest markets in the US, such as recently launched SF Bay Area. We will continue to invest in our goal of having the lowest cost platform, automation, and scalability, which will lead to lower costs for consumers and expanded contribution margins. We will continue to build on top of our differentiated pricing engine, being the only company to acquire the data and pricing insights necessary to price homes at scale. And finally, we will more deeply integrate home financing and home personalization into an e-commerce-like checkout flow when buying a home. Given the strength of our team, executional focus, market leadership, and innovations in flight, 2022 will prove to be a defining year for Opendoor. Last, I want to thank our Opendoor teammates for your tireless work in servicing and delighting our customers during one of their most important life transitions. I'll now turn it over to Carrie to discuss our financial performance and expectations for Q1 and the year.

Thanks, Eric. 2021 was a record year for Opendoor, and we're entering 2022 with strong momentum. Q1 revenue is expected to be between $4.1 to $4.3 billion, up 460% year-on-year at the midpoint. Adjusted EBITDA is expected to be in the range of $30 to $40 million, up $37 million year-over-year at the midpoint. Let me first touch base on some of the key financial highlights for 2021, including our strong finish in the fourth quarter, and then I'll address our outlook. As always, you'll find all the details in the shareholder letter that we published today. Once again, we meaningfully exceeded our revenue guidance. We delivered a record $3.8 billion in sales in the fourth quarter, up 1435% versus prior year. This outperformance was driven by our resale and operating capabilities, enabling us to lean into strong market demand. We ended the year with $8 billion in total revenue, 211% higher than 2020. And most importantly, we finished the year at a pace more than two years ahead of the plan that we came to market with when we went public at the end of 2020. Our contribution margin was 4% in the fourth quarter, which was in line with our internal expectations. As a reminder, our margin trajectory was consistent with what we guided you throughout 2021, driven by temporary factors in the first part of the year related to a highly favorable inventory mix and conservative underwriting decisions relative to our HPA forecasting. We exceeded our expectations for the year with contribution margins of 6.5% relative to the guardrails we've indicated for 4 to 6% annually. Adjusted EBITDA was $0.4 million in the fourth quarter, and we ended 2021 with positive $58 million versus negative $98 million in 2020. We ended the year with 17,009 homes in inventory, representing $6.1 billion in value, which was up 1,208% versus last year. We purchased a total of 9,639 homes in Q4, in line with what we indicated back in Q3 when we moderated our acquisition pace to ensure we could deliver a seamless customer experience and manage our system-wide operations capacity. Acquisitions were balanced by 9,794 homes sold in the quarter. That volume was over 11 times the volume of Q4 2020. This was a reflection of our systems capabilities that allowed us to increase capacity to repair and list homes during the quarter, enabling us to manage our backlog of homes despite the trade labor shortages impacting the housing industry. As a result, we entered Q1 from a position of strength Our repair timelines for new acquisitions are back to historical norms. We've built in greater operational capacity and flexibility, and our inventory is healthy. I'd call out that we're providing a new inventory metric to offer more insight into the overall health of our portfolio. We maintain a highly disciplined approach to inventory management, including how we manage the duration of our holding periods. As part of that, we track the number of days that a home is listed on the market. As of your end, Only 8% of our listed homes have been in the market for more than 120 days, which is well within the range that we managed to. Moreover, this metric indicates that our inventory is far healthier than the market, which had 24% of homes listed for more than 120 days when filtered for our buy box. Turning now to our guidance. As I mentioned earlier, we expect first quarter revenue to be between $4.1 and $4.3 billion. which represents 460% growth year-over-year at the midpoint. We entered Q1 with a strong inventory balance, which will enable us to meet the elevated demand we're seeing in the housing market, resulting in a high rate of sell-through for our homes. Therefore, we expect to pull in some revenue that would have ordinarily landed in Q2 into the first quarter. While it's difficult to predict with precision exactly when transactions close we expect to generate approximately $8 billion in revenue for the first half of the year, representing over 300% growth year on year. Adjusted EBITDA is expected to be between 30 and 40 million, which represents a 0.8% margin at the midpoint of the expected range. Adjusted OPEX, which we define as that delta between contribution margin and adjusted EBITDA, is forecasted to be up approximately $20 million versus Q4, as we continue to invest across our pricing capabilities, platform scaling, adjacent services, and marketing. Contribution margins are expected to be up sequentially in Q1, consistent with our guidance. Before I open the call for questions, I want to echo Eric and thank all of our teammates, our customers, and our shareholders for your support of Opendoor in what was an incredible year of progress and growth. We're energized and we're focused on delivering on our vision to provide an end-to-end home buying and selling experience that is simple, fast, and certain. And with that, I'll now open up the call for questions. Thank you.

Thank you. At this time, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1 to ask a question. To withdraw your question, just press the PAN key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Ju from Credit Suisse. Your line is now open.

Okay, thank you. So, you know, Eric and Kerry, access to capital is pretty crucial to your ability to purchase and hold inventory. So, you know, will you talk about, you know, whether there has been any sort of change in the stance from your bankers in terms of the existing credit lines and, you know, as you prepare for additional growth in the future, access to additional credit lines? And also, is there anything we should be thinking about in terms of potential changes to your inventory holding period, which I believe historically was around 90 to 100 days? Thank you. Thanks, Stephen. I'll have Carrie take this.

Thanks. Hey, Stephen. So with respect to our financing, we're well capitalized with what we have in hand today to support our growth plans for 2022. We have financing for over $10 billion of inventory. And if you think about how our terms work across the course of a year, that would be north of $30 billion of home acquisition firepower. We have not seen a change in terms of our ability to attract financing from our lenders since the exit of other people in our category. In fact, we've actually added to our overall facilities since the fall. With respect to your question around hold periods, We did see an increase in holding periods in Q4. When you think about how we hold inventory, there's sort of two segments. There's the moment we acquire to when we list, and then there's list until sell. What we saw elongated in Q4 is what we call that pre-list period, and that was a function of working through some of the homes we acquired, lots of homes we acquired in Q3 as we worked through that backlog in Q4. And we accessed the year with that repair timeline back to where we want it to be in terms of historical standards. Thank you.

Your next question comes from the line of Jason Hofstein from Oppenheimer. Your line is now open.

Thanks. Two questions. The first, you know, revenue came in better, I think, than many of us were looking for, but I think gross profit was more in line. And so just, you know, maybe just help us understand just maybe some of the dynamics kind of on the gross profit line this quarter. And then just any comments on kind of attached products and kind of maybe an updated timeline? Who do you expect to be with kind of attached and end story revenue? Maybe it's percent of the mix by the end of the year. Thank you.

Hey, Jason. I'll take that first part and then hand it over. With respect to where we ended up Q4, first of all, we feel really good about how we ended the year. delivered revenue well beyond expectations, a beat of $650 million, and landed contribution margin in EBITDA in line with our guidance. And what you saw in the gross margin line and the CM and then down to EBITDA line is that we made a decision to intentionally clear more inventory to free up that systems capacity we talked about coming out of Q3, having a lot of homes on hand, wanting to make sure that we did not degrade the customer experience, and then we met our overall financial targets for the quarter, which we did. And then we're set up very well to walk into Q1 with a healthy book of inventory and our systems capacity back in line where we want to be. I'll hand it over to Andrew now to talk about part two.

Sure. Hi, Jason. On adjacent services, our title business continues to perform exceptionally well. We've grown it to become one of the largest title agencies in the country. On buyer and mortgage, those offerings are growing quickly, but they're still small compared to our core business, which is now run right in over $15 billion. Taking a step back, our approach to delivering on our long-term goals for services is to focus first on the consumer experience, then to scale it to all markets, and then to maximize margins. We're on the first step, which is building the best experience in the market and seamlessly integrating it with the rest of Opendoor. We're seeing some positive signals. Our buyer NPS is currently 60, and we're increasing awareness in a few targeted markets. Additionally, in the fourth quarter, as you know, we acquired Red Door. We believe it is a best-in-class mortgage experience, and we expect it to launch later in the first half. We believe this approach of focusing on the customer experience before we scale is the right one to deliver on our long-term goal of increasing contribution margins from 4% to 6% to the high single-digit.

Your next question comes to the line of Michael Ng from Goldman Sachs. Your line is now open.

Hey, good afternoon. Thank you very much for the question. Just two, if I could. First, based on the strong 1Q guidance for EBITDA and the commentary around adjusted OPEX, it sounds like there's an implied improvement in gross margin sequentially. I was just wondering if you could talk a little bit more about that and what's driving that implied gross margin improvement, and then I have a quick follow-up. Thank you.

Hey, Michael. Yeah, no, you're exactly right. With respect to what we guided to for Q1, relative to EBITDA and then the OPEX guide we gave, we are seeing sequential improvement of contribution margins in Q1. We look to manage, as you know, that 4% to 6% guardrail on an annual basis, but we'll be well within that for the first quarter.

Great. Thanks, Carrie. And then I was just wondering if you could talk a little bit more about the $8 billion revenue outlook for the first half. I guess, what does that imply for purchases in the first quarter? Is that moderating? And how does the current macroeconomic outlook affect that, if at all? Thank you.

Yeah, I'm happy to address that. What we're seeing right now is a very healthy, robust housing market. And what's implied within our Q1 guide is that we will continue. We're seeing incredible demand for our homes and a strong sell-through rate. We want to give people a little bit of context about the potential shape for the first half of the year. So excellent revenue. Another quarter, we need to get record revenue in Q1. We may pull a little bit of revenue from Q2 into Q1. And that's really what we're trying to indicate with the $8 billion guide. Year-over-year, still fantastic growth, up 200-plus percent quarter-on-quarter. Sorry, year-over-year for both quarters. So that's what we're trying to indicate with the first half, guys.

Thanks, Carrie.

Welcome.

Your next question comes from the line of Edward Yaruma from KeyBank Capital Markets. Your line is now open.

Hey, thanks for taking the question, guys. I guess first, impressive that I think you said that 30% of transactions are driven by repeats. I just want to understand the statistic a little bit more. I guess that's pretty surprising given the relative use of the business and kind of where do you think that re-engaged number could go to over time? And then as a follow-up, just wanted to understand, I know open door complete will be a big focus in the medium term. I guess what level of investment is still required within that business or do you feel like it's kind of all set? Thanks.

Thanks, Ed. I'll take the first part and I'll pass it over to the second part. One of the things that we've been surprised by is our ability to re-engage previously registered homeowners. And historically, we haven't had that large of a pool. And as we've grown the offering for people that are interested in understanding what their home is worth and what they can unlock with Open Door, we've been able to re-engage that pool of customers through the years and then convert them into sellers. We see that pattern pulling forward into the future where our current pool of customers who haven't sold with us and have not sold on the market will be potential sellers for us to tap into in quarters and years to come. I'll have Andrew speak to Open Door Complete.

Sure. And just taking a step back, we just launched Open Door Complete in November, and we launched Complete with the belief that we could help the two-thirds of our sellers who are also buying with their journey. Open Door Complete brings together selling and buying into that one seamless experience. We're excited by the early signal. It's still early days, and we're focused right now on raising awareness amongst sellers in a few target markets, and the incremental investment associated with that is pretty small.

Thank you.

Your next question comes from the line of Curtis Nagel from Bank of America. Your line is now open.

Good afternoon. Thanks very much. Just wanted to go back to the commentary on gross margin and make sure I understand what drove the 7.3 rate. What was that due to clearing homes? What drove the sequential decline in the quarter relative to 3Q? I'm not sure I understood what the implication was for 1Q. I think you talked to contribution margin, but do we expect that to go up in the first quarter?

Yes, I'm happy to take that, Curtis. So if we step back, when you think about the margin trajectory for 2021 and kind of what drove that trajectory, we've been very explicit that we had two large but temporary factors that were driving excess margin in the first half of the year. One was we came into the year with essentially no inventory, having kind of sold our inventory during COVID and then rebuilding that back up. That was really good for margins, and we knew it would dissipate throughout the course of the year, and it has. We're kind of back to normal, given a $6 billion inventory balance. And the second part of that was the fact that as we came, you know, turning on our market, we came into the first part of the year, we deliberately made some conservative underwriting decisions relative to what was at times very, very high HPAs. And that flowed through into resales and to realized margins. Again, that was relatively excessive relative to our 4% to 6% with a guardrail. So it wasn't that we missed on gross margin. It's like we just followed the trajectory we called for all year long. So that's Q4. Q1, what we're seeing is back to sequential contribution margin increases quarter on quarter, and that will flow through to also gross margin.

Right. I mean, can you be a little bit more specific on the gross margin? Just, I mean, should it go back to eight, nine, up from seven? Any commentary there?

You know, we're not really guiding, Frank, we're not really guiding the gross margin, but you can back into it because you're smart. We're not guiding the gross margin. What I would say is, you know, we feel good about how the quarter is going to play out. And ultimately what we are guiding to is that annual baseline of 4% to 6% contribution.

Okay. Fair enough. Just as a follow-up, a commentary in terms of, I guess, the interplay between 1Q and 2Q, right? So, you know, maybe I guess I'll use the words a little pull forward. How much of that do you think could be related to people accelerating purchases ahead of, you know, race and, you know, price appreciation still going up, I guess, on a declining rate? second derivative, but, you know, still going up. So, yeah, how much do you think that could be a factor?

I mean, what I think what we're seeing is an incredible demand for homes. There may be a little bit of what you said, which is people are looking to purchase in advance of the specter of rising mortgage rates. Ultimately, I think we're designed to, you know, respond to whatever mildly environment we're working in. whether rates are going up or they're going down or they're neutral. So this is more about just the shape of how the quarters were coming into than any commentary necessarily about our ability to acquire homes or sell through.

Okay. Thanks very much for taking my questions. I appreciate it.

Your next question comes from the line of Egal Arunian from Wedbush. Your line is now open.

Hey, good afternoon, guys. First, on the macro front, I want to ask about inventory specifically, probably not open-door inventory, but just the limited inventory in the market and how that's impacting your business, both on the sell side, what you're seeing in prices and how it's reflecting, and also how you think about acquisitions in a limited inventory environment. If inventory continues to be at record lows as we kind of go through the year, how that factors in, how you think about pricing, the number of acquisitions, presumably it would be easier to sell homes in a tighter inventory environment. Just how that dynamic can play out for you guys. And then I have a follow-up.

Sure. I'll try to hit all that and you'll correct me where I missed something you got along the way. First part of your question is how are we responding to the current housing environment? What are we seeing in terms of just overall macro for housing? Our outlook for housing for 2022 remains really robust. I mean, rate increases notwithstanding. What we're seeing is all-time lows for supply. I mean, inventory is as low as it has ever been for this time of year, going back to like 1980 when NARA started tracking it. And at the same time, we're seeing continued strong demand for homes. We're seeing that in the Q1 guidance numbers we just talked about. We're seeing in our clearance rates. Our forecast for the balance of the years is that housing will continue to be very strong. That's on the resale side for us as you think about what market we're selling into. The second part of your question was on the acquisition side. In this constrained supply environment, what I can say is we are not having issues with acquiring homes, and we actually don't see it as an issue going forward. Reason being, consumers are coming to Open Door because of what we offer, which is a superior alternative to the traditional listing process that's certain, simple, certain, and fast. And at a time where it's really hard to buy your home, being able to do what we just talked about in Open Door Complete, being able to marry both sides of this transaction, you know, buy your home and sell your home at the same time and have insurance on both sides of the transaction has been a really powerful thing for consumers. We think that's fueling our business, too.

Okay, thanks.

The last thing I'd add to that is, you know, we see the growth with sellers and the amount of customers coming to open door for our solutions as an indication of the strength of our product market fit. The alternatives are to list and sell, and that clearly is not a challenge, but people are still choosing open door because of what we're providing in market.

Got it. Okay, that's really helpful there. And then I wanted to touch on pricing. You guys kind of called out a couple times in the call and investor letter, your breakthroughs and your pricing processes and improvements there. Just maybe a quick two-parter there. Has the exit of Zillow helped you in your pricing at all? And then on the improvements, could we think about that as potentially over time giving you the ability to drive better profitability than what you've talked about? Thank you.

Yeah, it's a good question. We know that market leadership will be very beneficial to the business in the short-term and long-term. In terms of vis-a-vis competitors coming in and out of the market, it hasn't modified our plan. And, again, we've built a pricing advantage over the course of eight years through both better modeling and as well as collecting local data through this time period. So our pricing continues to improve, and it will compound over time as we process more homes, as we analyze more homes, as we resell more homes. And that's not a function of whether there's competition or not.

Okay, and potentially more better margins than we've talked about as you improve there, or is that kind of built into the way you've talked about it?

Sorry, can you repeat the second part of that question?

As you improve, is that built into the kind of profitability that you've talked about, or could that kind of drive improvements to what you've outlined?

We view it as it gives us optionality. It enables us to either capture the improvements as contribution margin, or we can improve our pricing with consumers, which fuels additional growth. And so we view both the pricing improvements as well as operational gains with scale economies as optionality to either drive more contribution margin or drive more growth.

Great. Thank you. Thank you guys so much.

Your next question comes from the line of Ryan Tomasello from KBW. Your line is now open.

Good evening. Thanks for taking the questions, everyone. In terms of your buy box expansion, where do you think the 60% can go, say, over the next year? and longer term. And then as a follow-up to that, in the shareholder letter, you highlighted your intent to expand capabilities beyond single family and was hoping you can elaborate on what opportunities that opens up for Opendoor and the unique considerations that there would be in terms of customer acquisition there and underwriting that different product.

So, Andrew here, 60% could it be more? I would start by saying 60% is already higher than many thought we might ever be able to cover. It's decidedly not niche. In principle, we should be able to cover the entire market. In practical terms, the effort to cover the range of tail scenarios that might exist out there aren't likely to be worth it, but certainly we believe there's room to continue to grow And then in terms of expanding the coverage more broadly, condos, townhomes, other types of properties, again, we believe our investments in our pricing capability and the sophistication we've got there is going to enable us to continue to grow and expand our market coverage.

Thanks. And then maybe you can elaborate on the benefits of the various partnerships you have for customer acquisition, particularly with Homebuilders, you know, is that driving a material portion of your volume today? And are there additional partnerships you could explore for larger customer acquisition funnels, perhaps with financial institutions or maybe even brokerages that could fit into the model?

Yeah, hey, Derek. We view some of these partnerships as extremely beneficial to both partners and consumers. And so in the example of home builders, which does drive substantial volume for the business, it's a win-win-win. So the home builder gets certainty of execution. The consumer oftentimes is looking to buy a new build contingent on selling the current home. And so we're able to help the home builder continue with the build and finish the home for the consumer with certainty there will be funds. And the consumer is able to make an offer on that new build without a contingency. And conversely, we are able to acquire inventory, which then fuels our flywheel. And so we really love the win-win-win situation with home builders. We do view many other partners we have in the pipeline and that are also alive as win-win-win situations. In terms of where we can go from here, my belief is that every single homeowner in the U.S. wants to start their journey with an open-door offer. And they want to understand how much their home is worth and the equity they have in their home. and how to move seamlessly. And so wherever the customer is, we will be looking to explore partnerships there. And again, in our march to expand to every single homeowner in the U.S.

Thanks for taking the questions.

Your next question comes from the line of Justin Ages from Barenburg. Your line is now open.

Hi, thanks for taking the question. I'm just hoping you can expand upon the investments that you're making and the proprietary tools that you called out, seeing as you mentioned that they were improving your ability to get houses back on the market.

Sure. Our investments in our technology and operations platform is core to our ability to grow and scale and serve every customer across the country, as Eric just called out. You're seeing us invest in capabilities like virtualization, centralization, and externalization to actually let us grow and ramp capacity more quickly. What do those words actually mean? Virtualization means the ability to do something by video, which means the consumer may actually be able to do it themselves and self-serve. via video. Centralization, on the other hand, lets us take work out of the field and bring it to central teams, which lets us more agilely manage capacity across our now footprint of 45 different markets. And then externalization lets us use both our own teammates and talent as well as that third party to flex capacity to accommodate demand when we see surges. And so those are just some of the examples of the investments we're making in our platform and that we believe we're able to uniquely make given our market leadership and scale.

No, that's helpful, and I appreciate the color. And then just one more, if I could, on competition. You mentioned that the exit of Zillow hasn't seen really impacts of that, but in terms of other competitors in the markets where you overlap, are you finding that there's a lot of bidding for the same house given the buy box is relatively the same, or are the markets still deep enough where you're not really bumping shoulders just yet?

I'm not sure I look at it that way. Again, this is Eric. Competition has not impeded our growth and we do define our competition as the 99 of transactions that are offline the other thing i would lean on is that i think about is that we have developed some some you know robust and deep capabilities in pricing and operations that enable us to be very competitive in markets that we're in and and be the market leader and grow much faster with a far better cost structure. And so the point I want to make is that our starts are aimed at the 99% of transactions that are offline, and no one is working as hard as us to build a digital, integrated, and seamless consumer experience. And so we remain focused on that.

All right, great. Thanks for taking my questions.

Your next question comes from the line of Ryan McEveney from Zellman & Associates. Your line is now open.

Ryan McEveney Hey, good afternoon. Thank you for taking the question, and congrats on the progress and results this year. So, a high-level one here. So, my sense is there's a couple of what I'll call high-level overlays of uncertainty that investors are thinking through, and these would be, one, the impact of rising rates on the business, you know, maybe not in terms of the availability of financing, as you talked about, But what about in terms of inventory financing costs and maybe also in relation to just affordability, the potential impact to sales and pricing? And then the second area is just inventory impairment risk. So can you talk a little about how you're managing the interest rate risk to the business? And maybe even late 2018 is a decent example where rates rose, housing slowed. So curious how the business fared at that time. And then if you can talk about the process of just managing the inventory risk. And on that second point, and sorry, I know this is long, you know, is there a normal level of impairments as a percent of inventory that we should think is relatively normal, considering, you know, some homes will always be at kind of the tail end of things? Any thoughts on those would be great. Thank you very much.

I'll do my best to remember all that, but you'll keep me honest as I go through it. The first part of that interest rates and the impact to us headline is that we do expect rate increases, but we expect the impact to our P&L to be quite manageable. We're modeling an increase in our unit costs at approximately 20 to 30 basis points over the course of the year, and that's a relatively small impact to our overall cost structure on a per-home basis. And moreover, we embed those costs in our offers. And so we'll look to pass it on to the consumer. There are assumptions that go into that guidance, including how quickly our inventory turns over the course of the year. You know, that's layering the current LIBOR curve and has some expectation for how our facilities come in over time over the course of the year, fixed versus floating. But overall headline for us is we expect interest rate increases to be manageable. That was part one of your question. Part two was around, I believe, just the overall housing market in the specter for increasing rates or?

Yeah, that and then I guess part three was just on the inventory valuation side of things. Thank you.

Yeah, maybe hit that right now for a second. We understand the focus on overall inventory management and the health of our portfolio. That's why we, I don't know if you saw it yet, but we came with a new metric that people can look to as one measure of inventory health that we look at, which is days on market on an absolute basis and also relative to the overall market. As of the end of the year, just 8% of our listed inventory was at 120 days or older, days on market, and we're a lot healthier than the overall market because that same metric for the overall market was 24%. So that's one. And part of the reason for giving that metric is, and I'm happy to talk about impairment, it's not a great measure for how we're doing. The ultimate measure you should hold us accountable for is how we're doing on contribution margin delivery and how those resale cohorts are showing up in our P&L quarter to quarter. Impairment is an accounting standard, and it's not a good measure of overall portfolio performance for us when we're really managing our business more like an asset manager, because it's just It's just taking down the things that are negative, and it doesn't actually do the reverse, which is mark up the things that are positive. So it's a measure that we will provide consistently because we're required to by GAAP. It's not a very good measure of how we're performing. The ultimate measure should be in CM, and then we've given you this new inventory metric. I would say what we saw in the last quarter was very modest on impairment.

Yeah, thank you, Carrie, for all that detail and going through that. Second question, or maybe the fourth question here, in terms of the market coverage, so you had significant expansion in 21. You expect more expansion in 22. Can you maybe just talk about the benefits of that geographic diversification? And, you know, as we think about the concentration of the portfolio, you know, where are the concentrations the greatest? Are they at desired levels? And maybe how does the new market expansion potentially add some geographic diversification? Thank you.

Yeah, I mean, I think that falls within the risk management bucket, as you said. One of the beauties of continuing to expand in terms of scale and number of markets is the benefits of diversification relative to overall risk management. We really do manage the portfolio on an aggregate basis across all our markets, and so we see the benefits of diversification by geography, by home types, and by what may be going on in an individual market when we can weave it across, you know, 45 and counting.

Very helpful. Thank you.

You're welcome.

There are no further questions at this time. I would now like to turn the conference back to Eric Wu, Chief Executive Officer.

Thanks. In closing, I just want to say that we're extremely proud of the results we delivered in 2021 across all of our key metrics. I want to personally thank our teammates who put in the hard work to build our products and delight our customers. For our shareholders, we are heads down innovating for consumers and building the best business. And we are well on our way to fulfilling our mission. Thank you for joining.

This concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.