Q1 2021 Opendoor Technologies Inc Earnings Call
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Good day and thank you for standing by welcome to the open during our first quarter 2021 earnings Conference call.
At this time all participant lines are in listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question during the session you'll need the press Star then one on your telephone keypad.
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I'd now like to hand, the conference over to your host today Whitney <unk> Investor Relations. Please go ahead.
Good afternoon, ladies and gentlemen, thank you for joining us for open doors first quarter 2021 financial results conference call joining.
Joining me on the call today for prepared remarks are Eric Lu co founder and Chief Executive Officer, and Carey, We alert Chief Financial Officer, President, Andrew Low Ah Kee will be joining Kerry 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 day of open door dotcom.
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 open doors future financial results and management's expectations and plans for the business. These statements are neither of promise.
Nor guarantees and involves risks and uncertainties that may cause actual results could 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 the open doors annual report on form 10-K for the year ended December 31, 2020, and open doors 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 doors seems 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 web site at Investor day of open door dotcom.
Now I will turn the call over to Eric.
Eric.
Thank you Wendy and welcome to our 2021 Q1 earnings call.
I'm excited to share of results as we significantly exceeded our guidance for Q1 and have strong momentum looking forward to Q2 of the remainder of the year.
Everything we do at open door 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 open doors.
My name is should meet the opinion and I currently live in the Atlanta Metro area of Georgia.
My family and I personally own the five bedroom three back to hog of Raj really on the look for something bigger once we decided that we were going to sell of a home became across the open door opens or offering a one stop shop, where you can still buy and manage through them. They also of great rates and competitive offers for us.
Some of them for them that would be low putting the bid for the listed price of 500 until the 5000 and even though all of a bid was not the highest one because the open door for guaranteed the purchase of the home to the cash back offer we're able to win the bid all.
All of the teams and it's one that I came across the suite of whole process with us through the selling the buying and the Sun and support for all greatly I'll work with us and the odd on the stood over the knee growth.
Currently no living in all of the Dream home.
Moving can be very stressful and I have three kids don't moving during this time was it wasn't of experience, but everything works out well and it was a smooth transition.
The one new home and are recommended for any one thank you.
A special thank you to the benefits for choosing open door.
Because of the stories that inspire us in our pursuit to make it possible to buy sell and move at the top of the button.
Today, our digital products deliver far greater simplicity certainty and speed than the <unk>.
Traditional process.
I always believed that the future of buying and selling of home, Canada will be a simple of hailing arrived for booking of flight.
It seems that that future, there's a lot less just didnt know.
We are seeing increasing consumer demand for digital products in a matter of that it's permanent.
The seismic shift is showing up in our numbers as in Q1, we set a number of records. We set a record number of offers we saw record of real seller conversion and we launched a record number of new markets.
Luckily we did so with the 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 of whether open doors still resonates in today's market.
We're experiencing the fastest home price depreciation of 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 for saying, yes open door resonate.
Because for our customers, we don't just stand for a cash offer and we arent the ni buyer to them.
<unk> gives our customers of 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.
Well, we've built because the digital end to end experience that delivers confidence of 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 of 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 of 16 market growth in Q1 as I mentioned, we saw a record number of off of requests driven by increasing awareness and continued increases in our buy box.
Even with this surge of consumer demand, we are seeing real seller conversion at record levels.
These improvements have enabled us to acquire 3590 for homes in Q1 up 78% versus the fourth quarter of 2020 the.
Additionally, in Q1, we sold 2462 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 the market share.
Second we are increasing our geographic footprint and scaling rapidly to new markets.
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're getting better and more efficient at this and in Q2, we launched for new markets from the same day for the first time.
The deceleration of market expansion lays the foundation for years of growth that'd be March towards our goal to serve every single home owner of nationwide.
Third we are building the digital one stop shop for real estate today consumers come to open door, because they want a better way to move whether they are buying selling for boats.
We started by re imagining the home selling experience, bringing simplicity certainty and speed to the otherwise offline complex and time consuming process.
We've got the 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 by with the open door and open door home loans, knowing that two thirds of sellers for also buying.
Similar to open door, we're investing to make buying with the open door and financing with of the door just the simple certain and fast.
This past quarter, we launched open door packed offers allowing homebuyers to leverage open door to submit cash bids doubling their chances of their offer being accepted. Additionally.
Additionally, we've integrated our trading products into our seller experience, helping customers solve their existing home buying finance. The next home closed 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 the best in class products for movers nationwide.
This financial performance of the outcome of the hard work and focus by our teammates that occurred behind the scenes. These teammates obsessed 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 were <unk>.
<unk> by all of the opportunities ahead, and we will continue to March against our vision to make it possible to buy sell of move at the top of the button.
I'll now turn it to carry.
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 onto the questions.
As Eric said, we had an exceptional first quarter.
Q1 performance demonstrated growing consumer demand for the open to a solution.
<unk> 3590 for homes in Q1 of the 78% versus Q4 and of 24% versus Q1 2020.
Acquisition volume was driven by both record levels of the off of growth and conversion as well as the buy box expansions and new market launches.
As we continue to rapidly scale the business, we expect the surpass all time high for acquisition volumes in Q2.
On the retail side, we sold 2452 homes in Q1 generating revenue of $747 million, an increase of 200% over Q4 significantly outperforming our guidance.
The sequential growth was largely driven by higher inventory entering the quarter anti transaction velocity consistent with what we're seeing in the overall market. We are selling through our inventory in 21 days from list, Japan relative to 65 days in Q1 2020.
Average home price was also a tailwind from revenue performance with revenue per home for all of that 4% sequentially and up 19% versus the first quarter of 2020.
Eric has noted we also launched six markets in Q1.
Moving to have nine more for the end of Q2, we're well on our way to being in for AG markets by year end. We expect these new markets you contribute to meaningful revenue growth in 2022 and beyond.
Our unit economics were strong in Q1.
Largely driven by the combination of a very fresh book of inventory strong home price appreciation and our own inventory management strategies.
The contribution profit was 76 million of Q1 of 142% from Q4 and up 97% versus the first quarter of 2020.
This represented a margin of 10, 2% down 245 basis points quarter on quarter and up 712 basis points versus Q1 2020.
Finally, adjusted EBITDA was close to breakeven.
Loss of $2 million in Q1 compared to a loss of $27 million in Q4, 2020, and $28 million of loss and a year ago period.
Adjusted EBITDA margin was negative for <unk>, 3% in Q1 for his negative 10, 9% in Q4 of 2020 and negative two 3% in Q1 2020.
EBITDA was well ahead of our guidance due to revenue upside unit margin performance and the benefits of higher average home prices all of which provided incremental leverage against our operating expense base.
Adjusted operating expenses as measured by the difference between contribution profit and adjusted EBITDA was $78 million up from $59 million in Q4 2020.
Adjusted net income was negative $21 million from Q1, where needed of two 8% revenue.
With regard to our balance sheet, we raised approximately $860 million and of 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 the 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 expect in the typical quarter and is primarily related to historical equity awards to employees realize 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 1.0 to five to one point of view of 75 billion and adjusted EBITDA of negative five deposit of $5 million.
On the revenue side, the high end of guidance implies approximately 44% sequential growth from Q1 levels.
Looking ahead for the second half, we expect Q2 to marketing record number of home acquisitions.
I think another leading indicator of our momentum we had a record 4027 homes under contract with the purchase at the end of Q1 of $1 3 billion of value.
Which compares to 1742 homes under contract at the end of Q4.
I'd also note that we 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 from the same revenue proportions to roughly play out in 2021.
With respect to adjusted EBITDA, We expect Q2 unit margins to benefit from similar trends of Q1, and the contribution margins will moderate in the back half of the year of inventory mix normalizes.
Furthermore, we expect adjusted operating expenses to increase sequentially throughout the year.
The dollar step up in Opex in Q1 is of 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 opened with market leadership and the strong secular shifts of consumers increasingly looking for digital first integrated solutions for buy and sell the 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.
Like to turn the call back of the operator.
Often up the line for questions. Thank you.
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 Touchtone telephone.
Withdraw your question press the pound the team again.
Again that of Star then one of if you'd like to ask a question at this time.
Our first question comes from Jason <unk> with Oppenheimer.
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 of 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 once the extent 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 of one $6 million of home I think in a more.
I think it was Florida law or something.
Yeah, I think historically many of us of thought about I bonding is limited to like homes of below like of 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.
Yes.
Hey, Jason Kary, Thanks for the question.
So with respect of what we saw in Q1, 200% increase in the quarter on quarter revenue for us.
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're the beneficiary of an increase in.
Higher average retail prices, there's two factors for that one of HPA as you know the other factor is our continued success in advancing our buy box.
Buybacks incorporates more things than just price the certainly prices of key component I think the market you referenced was actually with Angelus for up to one point for $6 million are now net market and we will continue to.
Adjusted across all of our markets over time.
That's one.
The respect it kind of the outlook for the balance of the year as it relates to resale prices.
The when you step back the market right now for housing is very strong we know that.
We're in the Tri factor of data.
Low rates record low inventory and incredibly strong pent up demand for housing that resulted in very high and very fast rate of HPA.
Given those inputs, we don't see those participating for the balance of the year and housing will continue to be strong.
With respect to we said price trend.
Sales went up.
As we are providing guidance for the back half of the year specifically.
I would expect those.
For those to continue to be positive quarter on quarter for the balance of the year and Thats again, a combination of.
Sorry about the expansion.
So the networking evolves, where more and more markets and for the last part of that of HPA tailwind.
Okay. The only other add Jason is that.
The our aspirations or the service all homeowners nationwide and our teams are working hard and focused on expanding the buy box.
Launching obviously new markets and so we're expanding the types of homes, we operate in the.
The types of price.
For the different price points.
And really the goal is to serve as every home and all of the markets we operate in.
Okay.
Okay.
Yeah.
Our next question comes from Nick Jones with Citi.
Great. Thanks for taking the questions I guess first Carrie could you remind us of kind of what the impact of increasing interest rates might be end of the business and opened over the ability to kind of mitigate increasing interest rates and the <unk>.
<unk> I guess on the bottom line.
And then and then the second question really is just record low kind of inventory levels of multi decade low inventories.
Maybe taking a step back.
There's things normalize.
Have you contemplated the pendulum swinging the other way to the kind of shift to a buyers market.
When the front of these over or is it going to be a more challenged environment for maybe a different reason.
Great.
Thanks, Nick Thanks for the question so with respect to interest rates 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 range.
We would expect the the impact actually was quite modest and example of 100.
At this point of increasing rates would translate to the 25 basis points moving our cost structure, given our inventory turns so quite manageable in our view.
<unk>.
Can you talk to the second part of your question just is around.
Reconcile inventory levels, but also just one of the market where to go from B very HPE pods of right now to something more neutral or even negative and what I would say is.
Sure.
The market model is really designed to work across all kinds of markets Submarkets that mark of down markets, you should think of us as a market maker and a liquidity provider. So in a market environment, where HBA, where the turn negative.
Can choose to increase beds to account for that decline so the queen.
For the HPE will be offset by increased spreads and certainly in the down market, which is more uncertain for consumers. We believe that the certainty of product provides will be an even greater value to customers in that scenario.
Yes.
Last point of I would say is when you think about macro for us.
Obviously, how the macro really top of mind, but so is the is going on right now to the massive secular tailwind is driving digital adoption.
I believe that we were going to continue the market share gains across all cycles. As a result of that certainly we are right now.
We expect the the value proposition to the extent of the increases in times of uncertainty for sandwich.
Yes.
Great. Thank you Carrie.
Our next question comes from Edward <unk> with Keybanc.
Hey, guys. Thanks for taking the question I guess first just on the expansion of the buyback 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, that's my first question and then second.
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.
Hey, Ed Tech camera here I'll take the first part of that and I'll turn the second piece over to Kerry with respect to buybacks, yes, we believe that the repeatable process of the team has done a great job building that into our systematic capability that we're constantly looking for places where we can provide our offerings for consumers as Eric mentioned.
And our aspiration of the average seller in the United States can take advantage of a wide open to our offers and so the team as part of the work identifying features tuning our pricing models. So that we can acquire those homes.
Importantly, it's more than just price. It's also dimension of like the age of the condition of the home.
That enabled us to drive continuous improvement against debt buybacks Kerry do you want to take the second one yeah.
Thanks for the question so on velocity.
No as I said earlier the market right now for housing is very strong given the inputs I talked about rates constrained inventory and the demand for housing we expect that to persist for the balance of the year.
Velocity of a follow up from that.
There is a chance for the could slow I don't see there the material impact to our model of the lab results.
Thank you.
Our next question comes from Yigal <unk> with Wedbush Securities.
Hey, good afternoon guys.
Question.
Just on the improvements in the real solid 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.
You've noted you expect HPA for continued to move up over the course of the year of just how do you.
Think about that and what's driving that.
Got real solid conversion and then the.
The second question I guess.
Your philosophy around inventory I think so one of the biggest push backs we get from investors is.
The holding on are having meaningful levels of inventory.
Okay, some of the market downturn or other things cool off.
You are stepping up and buying a lot more homes.
<unk> got into the record rates do you expect.
Over time for purchases and sales of kind of equal out, but your inventory stays stable and you're buying as much as youre selling of how do you think of that.
At the time thanks.
Sure. Thanks.
So in terms of conversion of strength and what's underneath that we're absolutely seeing a record risks of our conversion and Theres really two factors underneath that the first is consumers volume of best in class experience. The simple certainly fast and trusted we made seven years of it.
Investment in that experience and we continue to improve that experience day by day and.
And we continue to grow the awareness and trust around.
And the second thing is the consumers care about net proceeds and we're able to deliver more of the consumers because we've driven improvements of our cost structure of our pricing engine and our inventory management. In addition to the strength of HPA and the velocity of the housing market those features.
We're constantly looking at the pricing and the competitor the competitiveness of our offers and we feel good about it.
It's Kerry on the second part of your question around inventory.
For today's market, which we all know of inventory constrained.
Not being constrained in our ability to acquire.
As Andrew said.
The 3500 homes acquired this quarter up from 2000 last quarter and perhaps more importantly, do you think about the future over 4000 home sitting in contract right now so despite the strength of this environment.
The other constrained in our ability to acquire homes.
And the market that was.
More normal or certainly less constrained.
I suspect our junkets even easier.
Thanks can.
Can I ask one more follow up just on.
<unk>.
Moving to our back offers it seems like are incredibly compelling product.
To bring buyers or sellers into the funnel and you noted the.
That's had some impact on or at least the ties together with what the mortgage product that you can talk about that for a second any lift you've seen in mortgage conversion.
And improvements of how that part of the flywheel works.
Thanks for that.
Yes I appreciate the question this is Eric.
We're excited by the progress in the early signal around opened or about the offers obviously the in today's climate.
It's competitive and if your home shopper. The one of 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 the early signal of 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 <unk>.
All of us there.
If you actually go through the product experience, which I'd encourage you to do.
An open door back office Youll see it totally seamless.
In terms of its integration with our mortgage effort.
And that seamless customer experience, removing friction, we're creating value for them, we see turn into higher levels of attach and we absolutely see our home loan product attach at higher rates.
If you go back the offers that we do.
Other places so we view the uptake and the consumer acceptance of that product as a as a tailwind to the home loans side of things.
Yes, absolutely.
Great. Thanks for taking all the questions.
Our next question comes from the owner of yogurt with credit Suisse.
Thank you for the questions two of them in so the first one is around kind of revenue new markets you guys have been from.
Of the aggressive last quarter or two.
More than halfway towards your for your goal as we go into new markets. Specifically are you seeing strongest from a pattern.
You are.
Standard box the strong conversion rates.
Are you are you seeing a faster ramp in those markets as a result, when you otherwise we're constructing them kind of you're talking about how like how the piece of revenue for those new markets. How do you look like so far and I get it's early relative to historical you know pre COVID-19 levels and second time.
Around just.
So called part of lumber as well as service providers.
Oh, absolutely constrained in this environment in addition to the tight.
Inventory market for housing yourself is that at all impact. The you know our days on days, where you've got hold of it for you.
The ability to kind of quickly the resale of Homelink once you do put yourself.
Yeah.
Okay.
So on the first question around the market launch.
Well on the way towards hitting that doubling of our market footprint that we've been talking about.
We made significant progress this year and you're seeing it in the first quarter. Our capability is now actually such that we can do multiple launches in a single day. It's a testament of the work. The team has done over time here to really holding that machine are focused on new markets is really about ensuring we have accurate pricing and repeat.
<unk> scalable processes and operations.
As we see that come together in a market we begin to ramp up of acquisitions, which is why of the impact of new markets is relatively small in the current year, but create the foundation for growth for years to come so no real change from our perspective with regard to the new market launch or ramp that.
And then the second part of your question was really around how some of the considerations around building supplies may be impacting our <unk>.
Nowadays or repair days of time constant list.
We're certainly like everyone in the <unk>.
Industry fee income of those supply chain for exports.
We're not heavily dependent on lumber per se.
Across across the entire spectrum of what goes into a home there are shortages and we're seeing that it's not it's not materially impacting impacting our both periods right now.
Great. Thanks, so much.
Okay.
We have a follow up question from the line of Jason <unk> with Oppenheimer.
Hey, I just wanted to Andrew good to connect with you again, just wanted to ask about OBO I mean so.
How does that flywheel work is it you for.
If you get OBO do you have to sell your home through you just how does that work. Thanks, because that's kind of newer product to us.
Yeah.
Hey, Jason the thought there.
Yes, no it's really just it's the.
The option for the customer and again, we're excited because the.
Customers are electing in choosing to work with bio the open door because of the feature but it's not required again.
Of two really big customer pools, one is that yes, there is hundreds of thousands of sellers.
For the site and requesting off first.
On a quarterly basis.
And secondly, we also have.
Hundreds of thousands of not millions of visitors who will also.
Coming to our hopes and looking for a place to buy and so the tools. The two customer pool of allow us to promote the open door best offers and again, it's not a requirement to use our service, but it's certainly something we want to provide the value and.
The customers are choosing it.
Okay. Thanks.
Yeah.
That concludes today's question and answer session I'd like to turn the call back to Eric for closing remarks.
Yeah.
Great. It's one of the.
Everyone for joining our Q1 earnings call before I sign off I'd like to thank our customers who choose open door to help.
Them with the electrification and some of my teammates for their dedication to our customers every single day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
Thank you.
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