Q4 2021 Opendoor Technologies Inc Earnings Call
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.
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Please press Star zero on you touched on the telephone.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference.
Elise Wang 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.
Better.
<unk> Dot 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 <unk> financial condition.
Anticipated financial performance.
And the strategy and plans.
Market opportunity and expansion and management objectives for future operations.
These statements are neither promises no 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 <unk>.
<unk> most recent annual report on Form 10-K for the year ended December 31st 2021 to be filed with the SEC and open those 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 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 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 web site at Investor don't open door Dot com.
I will now turn the call over to Eric.
<unk> founder Chairman and Chief Executive Officer of <unk>.
Good afternoon.
On the call with me is carry Wheeler, our Chief Financial Officer, and Andrew <unk>, 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 <unk> had on their lives.
I'm William Tom Wheeler.
Living Woodstock, Georgia.
Several reasons, we were looking at selling ultimately homeschool Lockheed so they didn't have really a huge social networks. So when they would have friends one of them to get lasting relationships and we knew that med spending time together, so they need that space to hang out and we needed that and we did not have that in our in our previous call.
Looking at the traditional route.
Filling our house previously and going through the listings in the selling and being a home school family in a work from home family and 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.
We put an offer on another home that's accepted but we havent sold our house, we were really worried potentially about being I guess for lack of better word homeless.
Just makes sense for me to use open door, a new that I can go in and see a home I can see multiple homes without potentially bothering my realtor, when I wasn't particularly ready yet so open door just made it easy for me to be able to put parameters search criterias and actually go look at the home and personal and when they told me there was an opportunity to be able to simultaneously sell your home while purchase is going to be.
Turning to our home.
Here in the numbers I was like well that totally makes sense with open though it was a very seamless process.
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 sales.
Selling and buying with open door with 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.
<unk> 2021 was a year that further demonstrated where we're heading.
<unk> away from a disjointed offline process centered around lead generation and agents and towards the 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 500.
Third $25 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 the result of focused execution and investments in our consumer experience, our customer growth and our technology pricing and operations platform.
In terms of our consumer experience with centered our work on improving our seller experience and differentiating our buyer experience for home sellers, we focus 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 and especially into themselves for homebuyers. We lost opened our best offers enabling buyers to make an offer backed by cash which significantly increases the 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 combine too lengthy in disparate processes of selling your existing home and buying a new home into one simple experience.
So impactful because it gives our customers control of their moving timeline and eliminate costly double mortgages.
Lastly, double news.
Furthermore, we acquired the Red door pro Dot com and skylight teams, which will power our home personalization and digital mortgage efforts in 2022 and years to come. The result of all of this work was both very high conversion at north of 35% real sellers and a seller NPS 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 broaden 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 extended our partnerships with homebuilders now partnering with.
Over 70, homebuilders and online sites, such as <unk> dot com, giving more home sellers at better solution.
We also saw significant increases in customers from re engaging homeowners who registered in previous years, but we're 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 open door 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 operation system up in North Scout as well as the virtualization and centralization of multiple labor processes.
This has resulted in our ability to deliver three more home assessments and repairs with a similar level of operational staffing as two years ago.
So 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 adjust that millions of new data points, including Emmis data and demand signals. This work led to a significant reduction of pricing variance and expensive 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 profit first given the positive customer feedback, we're seeing we will expand and grow opened or complete and buy with open door as part of our suite of product offerings, we will.
We need to expand to more markets nationwide, including some of the largest markets in the U S. Such as recently launched SFA 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, it's an e-commerce like checkout flow when buying a home given.
Given the strength of our team execution I'll focus market leadership and innovations in flight 2022 will prove to be a defining year for open door.
I want to thank our open door teammates for your tireless work in servicing and delighting our customers during one of their most important life transition.
Now I'll turn it over to Terry to discuss our financial performance and expectations for Q1 and the year.
Thanks, Eric 2021 was a record year for open door and we're entering 2022 with strong momentum.
Q1 revenue is expected to be between $4, one 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 $37 million year over year at the midpoint.
Let me first touch base on some of the key financial highlights for 2021, including a 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.
<unk> delivered a record $3 $8 billion in sales in the fourth quarter at 1400, 35% versus prior year.
This outperformance was driven by our retail 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. We came to market with only 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 got into 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 six 5%.
Relative to the guide relative indicators for 46% annually.
Adjusted EBITDA was <unk> 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 17009 homes in inventory, representing $6 $1 billion in value, which was up 1208% versus last year.
Purchase a total of 9639 homes in Q4 in line with what we indicated back in Q3, we moderated our acquisition pace to ensure we can deliver a seamless customer experience and manage our system wide operations capacity Act.
Acquisitions were balanced by 9794 homes sold in the quarter that volume with over 11 times the volume of Q4 2020.
This is a reflection of our systems capabilities that allowed us to increase capacity to repair and those 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 and greater operational capacity and flexibility.
Contour is healthy.
I would call out that we are 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 of the homes listed on the market as of year end only eight.
Percent of understood 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 searching for our buy box.
Turning now to our guidance as I mentioned earlier, we expect first quarter revenue to be between four one 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 homes. Therefore.
Therefore, we expect to pull in some revenue that would have ordinarily landed in Q2 into the first quarter.
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 million to $40 million, which represents a 0.8% margin at the midpoint of the expected range.
Adjusted Opex to define is that delta between contribution margin and adjusted EBITDA is forecasted to be 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 Erik and thank all of our teammates our customers and our shareholders for your support of open door in what was an incredible year of progress and growth.
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, so I'll ask a question you will need to press star one on your telephone again that is star one to ask a question.
A question just press the pound key.
Please stand by while we compile the Q&A roster.
Your first question comes from the line of Stephen Ju from Credit Suisse. Your line is now open.
Okay. Thank you, so Eric and Terry.
Access to capital was pretty crucial to your ability to purchase and hold inventory. So when you talk about whether theres been any sort of change in status from your bankers in terms of the existing credit lines.
Prepare for additional growth into 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, David I'll have Terry I'll take this.
Thanks, Hey, Stephen.
So with respect to our financing we are well capitalized with what we have in hand today to support our growth plans for 2022, we have anything to over $10 billion of inventory. If you think about how our turns work across the course of the year that would be north of $30 billion at home acquisition firepower.
We have not seen a change.
In terms of our ability to attract financing from our lenders.
Since the exit other people in our category in fact, we've actually added to our overall facilities.
Since the fall.
With respect to your question around whole periods.
We did see an increase in holding periods in Q4 do you think about how we hold inventory theres sort of two segments. There is a moment we acquire when we list in the new list in T cell. We saw long dated in Q4, as we call that previous period and that was a function of working through some of the homes, we acquired lots and homes. We acquired in Q3 as we work through that backlog.
In Q4, and we exit the year with that repair timeline back to where we want to be in terms of historical standards.
Thank you.
Your next question comes from the line of Jason <unk> from Oppenheimer. Your line is now open.
Thanks, two questions first.
Revenue came in better I think.
Many of US were looking for but I think gross profit.
It was more in line and so just.
Maybe just help us understand if maybe some of the dynamics.
Kind of on the gross profit line this quarter.
And then.
Just any comments on.
Attach products and kind of maybe an updated timeline when do you expect to be with kind of attach and ancillary revenue.
Maybe as a percent of the mix by the end of the year. Thank you.
Hey, Jason I'll take the 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 of being a $650 million.
<unk> landed contribution margin and EBITDA in line with our guidance and what you saw in the gross margin line in the <unk> and then down to EBITDA lines that we made the decision to intentionally clear more inventory to free up that capacity, we talked about coming out of Q3, having a lot of homes on hand wanting to make sure that we did not degree into 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 in our system capacity back and lastly, we want to be.
I'll hand, it over to Andrew now I'll, just talk about pretty sure Hi, Jason.
<unk> services are titled business continued 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 rating 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 to all markets and to maximize margins.
One of the first step which is building the best experience in the market and seamlessly integrating it with the rest of it.
We're seeing some positive signal our buyer NPS is currently 60, and we're increasing awareness you targeted market.
Additionally, in the fourth quarter as you know we acquired Red door. We believe is best in class mortgage experience and we expected to launch later in the first half.
We believe this approach of focusing on the customer experience, where we scale is the right one to deliver on our long term goal of increasing contribution margin from 4% to 6% at the high single digits.
Your next question comes from the line of Michael <unk> from Goldman Sachs. Your line is now open.
Hey, good afternoon, and thank you very much for the question.
Two if I could first based on the strong <unk> guidance for EBITDA and the commentary around adjusted Opex. It sounds like there is an implied improvement in gross margins sequentially.
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 Yes, Youre exactly right with respect to what we guided to for Q1.
Relative to EBITDA and then the Opex kind of again, we are seeing sequential improvement in contribution margin in Q1, we look to manage as you know that 46% guardrail on an annual basis that will be well within that and the first quarter.
Great. Thanks Kerry.
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.
How does the current macroeconomic outlook effect that if at all thank you.
Yes, I'm happy to address that.
So what we're seeing right now is a very healthy robust housing market and whats implied within our Q1 guide is that we will continue we're seeing incredible demand for homes and a strong sell through rate.
We wanted 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 needed to 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.
212% quarter on quarter and year over year for both quarters.
So that's what we're trying to indicate with the first half guidance.
Thanks Kerry.
Okay.
Your next question comes from the line of Edward <unk> from Keybanc capital markets. Your line is now open.
Hey, Thanks for taking the question guys I guess first.
Rest assured that I think you said that 30% of transactions are driven by repeat.
To understand this to pick up 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 reengage number could go to over time and then as a follow up just wanted to understand I know opened or a 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 that over the second part.
One of the things that we've been surprised by is our ability to reengage previously registered homeowners.
Historically, we haven't had that large of a pool and as we've grown the offering for people that are interested interesting what their home is worth and what they can unlock.
With open door.
Been able to reengage that pool of customers.
Through the years, and then convert them into sellers.
See that pattern pulling forward into the future, where our current pool of customers, who havent pulled with us and have not sold on the market.
B potential sellers for us tap into in.
Quarters and years to come.
Andrew speaks to open their complete sure and just taking a step back we just launched open door complete.
November and.
And we've launched complete with the belief that we can help the two thirds of our sellers who are also buying with their journey.
Nor complete brings together selling and buying about one seamless experience.
We're excited by the early signal.
Still early days and we're focused right now on raising awareness amongst.
Sellers and a few targeted markets and the incremental investment associated with that is pretty small.
Thank you.
Your next question comes from the line of Curtis Nagle from Bank of America. Your line is open.
Good afternoon, thanks very much.
Just wanted to go back to the commentary on gross margin I'm not sure I understand what drove.
Seven three.
Right.
Was that due to clearing homes.
What drove I guess the sequential decline in.
In the quarter relative to <unk> I'm not sure I understood.
You know what the application.
Once you.
You've talked to contribution margin, but should we expect that to go up.
In the first quarter.
Yes, I'm happy to take that Curtis.
So let me step back when you think about the margin trajectory for 2021.
Kind of what drove that trajectory, we've been very explicit that we had two large the 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 further inventory during COVID-19 may be building that was really good for margins and you look at the caveats of course of the.
Year end accounts was kind of back to normal given that typically into our inventory balance.
Second part of that.
Thank you Keith.
Turning on our market we came into the first part of the year. We deliberately made some conservative underwriting decision relative to what was that time very very high HPA and that flowed through into resales and to realize margin again.
Okay.
246% with regard well so.
It wasn't that we missed on gross margin just like immediate Talbot trajectory recall all year long.
So that's Q4 Q1.
Seeing is flat.
The sequential contribution margin increases quarter on quarter and that will flow through gross margin.
Okay.
Right, but can you give a little bit more specific on the gross margin.
It should go back to eight nine.
Kevin any commentary there.
We're not really guiding frankly, we're not really kind of gross margin, but you can back into it.
You can do the math may EBITDA would look like.
We're not guiding to gross margin that I would say is.
We.
We feel good about the kind of the court is going to play out and ultimately what we're guiding to that.
Annual baseline of 46% contribution.
Okay fair enough.
Just as a follow up the commentary in terms of I guess the interplay between.
One for you to queue right. So.
B.
I guess I'll use the words, a little pull forward.
How would you what do you think could be related to people accelerating purchases ahead of rates.
Price appreciation is still going up I guess on a declining.
Second derivative, but.
Still its still going up so yes.
How much do you think that could be a factor.
I think what we're seeing is an incredible demand for home 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 respond to an ever mildly environment, we're working in.
The rates are going up are they going down or neutral.
This is more about just the shape of how the quarters are coming into that any commentary necessarily about our ability to acquire homes or something.
Okay. Thanks, very much for taking my questions I appreciate it.
Your next question comes from the line of <unk> <unk> from Wedbush. Your line is now open.
Hey, good afternoon guys.
First on the macro front I wanted to ask about <unk>.
The Tories specifically.
Broadly not not opened or inventory, but just.
The limited inventory in the market.
How thats impacting your business.
Both.
On the sell side.
What youre seeing in the prices.
And also how you think about.
Acquisition.
Limited inventory environment.
Inventory continues to be at record lows, 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.
Tighter inventory environment, just how those dynamics play out for you guys and then I have follow up.
Sure.
I'll try to hit all of that and Youll, correct me, where I Miss something you got along the way.
First part of your question is how are 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 rate increases notwithstanding what we're seeing all time lows.
For supply <unk>.
Mentor is as low as it has ever been for this time of year going back to like 19 eating in our Santa tracking.
And we and then 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 are seeing in our clearance rates.
Our forecast for the balance of the year is that housing will continue to be very strong.
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 that as an issue going forward.
Reason being consumers are coming to open door because of what we offer.
As a superior alternative to the traditional listing process of certain simple certain baas.
And in China, It's really hard to buy your home being able to do what we just talked about and opened our complete being able to marry both sides of this transaction.
To your home and sell your home at the same time.
Sharon's on both sides of the transaction is in a really powerful thing for consumers, we think that's fueling our business too.
Okay.
The last thing I'd add to that is.
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 that's really helpful. There and then I wanted to touch on.
On pricing you guys kind of called out a couple of times in the call Investor letter breakthroughs and pricing processes and the improvements there.
Just maybe a quick through partner there.
Has the exited Zillow help you on your pricing at all and then on the improvement.
Can we think about that as potentially over time.
Giving you the ability to drive better profitability than what you've talked about thank you.
Yes, 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 that vis vis competitors coming in and out of the market. It hasnt modified our plan.
And again, we built a pricing advantage over the course of eight years through both better modeling and as well as collecting local.
Later 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 sell more homes and thats not a function of whether theres competition or not.
Okay.
Potentially more better margins than we've talked about as you improve there or is that kind of delta.
What you've talked about it.
Sorry can you repeat the second part of that question.
As you improve is that does that built in to the kind of profitability that you've talked about.
Or could that kind of drive improvements.
Hello, you've outlined we view it is it gives us it gives us optionality.
<unk> us to either capture the improvements as contribution margin.
Or we can we can improve our pricing with consumers, which fuels additional growth and so we view both the pricing improvements as well as the operational.
Gain with scale economies as optionality to either drive more contribution margin or drive more growth.
Okay, great. Thank you so much.
Your next question comes from the line of Ryan Tomasello from K B W. Your line is now open.
Good evening, thanks for taking the questions everyone.
In terms of your buybacks expansion.
Where do you think the 60% can go say over the next year.
And longer term.
And then and then as a follow up to that in the shareholder letter 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 broken door and the unique considerations that there would be in terms of customer acquisition, there and on our underwriting that.
Current product.
So.
Brian 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.
Decidedly not niche.
People, we should be able to cover the entire market.
In practical terms the effort to cover the range of tail scenarios that might be that might exist out there.
We to be worth it but certainly we believe.
We're going to continue to grow and then in terms of expanding the coverage more broadly condos townhomes are there other types of properties.
We believe.
We believe our investments in our pricing capability and the sophistication. We have 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 <unk>.
Homebuilders is that driving a material portion of your volume today.
Are there additional partnerships you could explore for larger customer acquisition funnel, perhaps with financial institutions are maybe even brokerages that contribute to the model.
Yeah, Hey, it's Eric.
We view 70 purchased are extremely beneficial to both the both partners and consumers.
An example of homebuilders, which does drive substantial volume for the business.
It's a win win win for the <unk>.
Homebuilder get certainty of execution.
The consumer often times is looking to buy a new build <unk>.
<unk> on selling the current home and so we're able to help the homebuilder continue with the build of finished the.
The home for the consumer with certainty there'll be funds and the consumer is able to make an offer on that new bill without a contingency.
And Conversely, we're able to acquire inventory, which then fuels our flywheel. So we really love the win win win situation with homebuilders.
And we do view many other partners we have in the pipeline in that.
So life is as win win win situation 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.
And opened our offer and they want to understand how much the 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.
Next question.
Comes from the line of just in ages from Baron Burke. Your line is now open.
Alright, thanks for taking the question.
I'm just hoping you can expand upon the investments that youre, making in the proprietary tools that you've called out seeing as you mentioned that they were improved and your ability to get houses back on the market.
Sure.
Our investments in our technology.
In operations platform is core to our ability to grow in scale and serve.
Every customer across the country there.
Just called out.
You're seeing us investing in capabilities like virtualization, centralization and external innovation to actually let us grow and ramp capacity more quickly.
Natural.
Virtualization, 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, let's just work take work out of the field and bringing it to central teams, which lets us more accurately manage capacity across our footprint of 40.
45 different markets, and then externalized nation lets us use both our own teammates and talent as well as that third parties 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.
Mentioned that the exit of Zillow Hasnt, we havent seen really impacts of that but.
In terms of other competitors in the markets, where you overlap or are you finding that there's a lot of.
Bidding for the same house given the buyback is relatively the same or the market's still deep enough, where you're not really bumping shoulders just yet.
Im 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 us that I think about it that we have developed some some.
Robust and deep capabilities and pricing and operations and enable us to be very competitive in markets that we're in.
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 thoughts are aimed at the 99% of transactions that are offline.
And no one is working as hard as us to build a digital <unk>.
Integrated and seamless consumer experience and so we remain focused on that.
Alright, great. Thanks for taking my question.
Your next question comes from the line of Ryan Mcevilly from Zelman and associates.
Associates. Your line is now open.
Hey, good afternoon. Thank you for taking the question and congrats on the progress and results this year.
So high level one here. So my sense is theres, a couple what I'll call high level overlays of uncertainty.
Investors are thinking through and needs would be.
One is the impact of rising rates on the business.
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 are 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 and then if you could talk about the <unk>.
So just managing the inventory risk and on the SEC.
<unk> point and sorry, I know this is long.
Is there a normal level of impairments as a percentage of inventory that we should think as relatively normal considering.
Homes will always be a kind of the tail end of things.
Any thoughts on those would be great. Thank you very much.
Hey, you want to give my best remember all that but we will 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 believes.
At least at the impact to our P&L to be quite manageable.
Modeling an increase in our unit cost 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.
Moreover, we embed those costs in our offers and so we will look to pass it onto the consumer.
There are assumptions that go into that guidance, including how quickly our inventory turns over the course of the year.
Thats leering, the current LIBOR curve and have 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 questions part too.
Was around I believe the overall housing market in the sector for leasing rates are.
That and then I guess part two for you is just on the inventory valuation side of things. Thank you.
Yes, let me 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.
Yes.
Keane 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 a 120 days or older days on market.
And we're a little healthier than the overall market because that same metric for the overall market was 24%.
So that's one and the recent borrowing isn't forgiven that metric is.
I'm happy to talk with impairment it is not a great measure for how we're doing the ultimate measure you should hold us accountable for how are we doing on contribution margin delivery and how those resale cohorts are showing up in our P&L quarter to quarter.
<unk> is an accounting standard is not a good measure of overall portfolio performance for us when we are really managing our business more like an asset manager because it's Jeff.
Taking down the things that are negative and it doesn't actually do the reverse which is mark up the things that are positive.
It's a measure that we will provide consistently because we were required by GAAP is not a very good measure of how we're performing the ultimate measure should be in cm and then we've given inventory metric I would say what we saw in the last quarter was very modest.
Darren.
Yes. Thank you carry for all all that detail and going through that.
Second question or maybe the first question here.
In terms of the market coverage that you had significant expansion in 'twenty. One you expect more expansion in 'twenty. Two can you maybe just talk about the benefits of that geographic diversification and as we think about the concentration of the portfolio.
Where are the concentrations the greatest.
Desired levels and maybe how does the new market expansion potentially add some geographic diversification. Thank you.
Yes, I mean, I think that falls within the risk management bucket as you say I mean, one of the beauties is 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 of our markets and so we see the benefits of diversification.
By geography by Homesite by what.
Maybe going on an individual market when we can leave it across 45 and counting.
Very helpful. Thank you.
Youre welcome.
There are no further questions at this time I would now like to turn the conference back to Eric <unk>, Chief Executive Officer.
Thanks.
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.
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