Q3 2022 Opendoor Technologies Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good day and thank you for standing by welcome to the open door third quarter 2022 earnings call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star one one or your telephone.
Please be advised that today's conference is being recorded.
I would now like to turn the conference over to your Speaker today Elise Wang Vice President of Investor Relations. Please go ahead.
Yeah.
Thank you and good afternoon.
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 <unk> Dot <unk> Dot com.
Please note that this call will be simultaneously webcast on the Investor Relations section of the Companys 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.
All statements other than statements of historical fact are statements that could be deemed forward looking including but not limited to statements regarding open doors financial condition anticipated financial performance.
Is this strategy and plan.
Market opportunity and expansion and management objectives for future operations.
These statements are neither promises no guarantees and undue reliance should not be placed on them.
Such forward looking statements 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>. Most recent annual report on Form 10-K for the year ended December 31 2021 as.
As updated by the periodic reports filed after that 10-K.
Any forward looking statements made in this conference call, including responses to your questions.
Based on management's reasonable current expectations and assumptions as of today and <unk> 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.
Company believes these non-GAAP financial measures are useful to investors as supplemental operational measurement 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 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 will walk our president let's start by hearing from one of our customers Corny Dent, who bought our dream home through open door exclusives.
My name is Courtney that I live and Pfluger Hill, Texas with my daughter, Taylor and I use open to work with us to purchase our home I was actually going through a divorce at that time and my husband wanted us to sell our home.
I actually used to open door for that process and they made it so easy for me and a time that was really hard I knew that buying a home through open door, what also more than likely be a very wonderful experience. It was really important to me that I was able to find a home that we love without.
Surprises.
Theres, a health threat by the walking trail and I saw that it had an open door fine in the yard. It's an open door exclusive once I got fired and looked around I was like I'm, taking it I was literally under contract on that home the same day being able to stay in the neighborhood as a single parent and to buy a home.
For my daughter, just felt wonderful without open door I would have never been able to get this home they've worked with me and made everything so incredibly simple and low stress. It definitely men did some things in our heart that was broken at the time, what I recommend opened orthosis to my friends absolutely.
I keep telling everybody what an amazing way to buy a home.
While navigating the current market uncertainty is at the forefront of our day to day Corny story is a reminder of the impact of our work and the opportunity ahead for us to reshape the real estate transaction.
And navigating a once in a 40 year market transition has not been easy.
No one has required us to both operate with discipline to improve the health of our inventory and move with urgency against new product initiatives.
And we are aligning around two core product offerings that we believe will drive our growth and profitability. In this next chapter one is our first party product that open door is known for when we purchase them directly from the seller and resell the home to a buyer and this is the product that attracts hundreds of thousands of sellers has product market fit and powers.
Our engine.
Is that a new marketplace exclusives, which is our third party product, where we connect a seller with one of our buyers and facilitate the transaction and this product has the potential to enable all sellers and buyers to leverage our platform together. These two products help deliver on our vision of enabling a seamless digital transaction, replacing the inefficiencies.
Of a traditional listing process starting with your first party product we're focused on four key areas to navigate this market transition and more importantly, thrive as the market recovers.
First we are focused on improving the health of our inventory by accelerating the resell of homes. We made offers on during Q2.
While this will come at the expensive margin losses in the short term, we expect it will enable us to put these losses are behind us as expeditiously as possible and proceed with a fresh lower risk and better performing book of inventory.
As such we have accelerated our clearance rates versus the market to more than double that of a quarter ago and are on track to have sold or be in resale contract on approximately 65% of these homes by year end.
Second we are focused on growing new acquisition that spreads that we expect will enable a positive contribution margin for homes. We made offers on in Q3, we expect those homes to perform within our contribution margin targets of 4% to 6%. We feel confident these cohorts are meeting our expectations based on how they're performing today.
Third we are executing on operational and platform changes that we expect will increase our resale velocity and reduce inventory hold times. One example, amongst dozens includes reducing the time needed to do repairs and prepare the home for lifting from an average of 23 days in Q1 to 15 days in Q3.
Last we are reducing our cost structure to ensure we continue to adapt to the market environment and rightsize, our overall cost structure.
This includes our announced a reduction of 550 employees or 18% of our workforce across all business functions.
While this was an incredibly difficult decision. It was made to ensure that we forged ahead with a sustainable cost structure that will enable us to accomplish our long term mission.
Ultimately, we believe the combination of having a product customers need the ability to increase spreads to deliver on future contribution margins and a strong balance sheet enable us to safely and successfully navigate this market transition.
With regards to our second priority our marketplace. It is important to remind us that since we started the company. Our stated goal and vision was to build a digital first platform to buy and sell a home. Our belief is that platforms earned enough built so our path to earning our platform with to make it easy to sell a home by buying it directly.
Leveraging the suppliers to build a better buying experience and then launching a marketplace to connect supply and demand with open door as a central transaction layer.
Years ago, we began to lay the foundation to our marketplace, starting with institutional buyers, who could easily adhere to our customer experience standards. In fact this year. These institutional buyers purchased more than 10% of our homes directly including over 800 homes, where we secured a contract to resolve before we close with our sellers.
We aim to aggregate retail buyers and enable them to buy directly from our platform earlier. This year, we built those pathways with exclusive listings and e-commerce like experience to buy an open door home directly from us pre market and completely streamlined today, 20% of our homes listed on our exclusive platform.
<unk> are under contract within two weeks demonstrating the strong momentum we are driving with our direct buyer base. This resulted in a unique opportunity to instantly match hundreds of thousands of our sellers with our growing retail and institutional buyer base, all leveraging our platform to seamlessly transact.
Today, we are launching that vision under the brand umbrella exclusives with years of experience as one of the largest buyers and sellers of homes are seller can now connect directly with our buyers to transact without the hassle and complexity of Attritional listing.
This benefits both buyers and sellers alike.
Our homebuyers there'll be the first to see unique homes before they hit the market. Each one of our homes comes with it by Enel price, enabling customers to bid without negotiations are bidding wars. We backed this up with an appraisal match guarantee of up to $50000, which provide peace of mind around pricing as the buyer pays the price price if it's lower.
For home sellers, we are working to make the experience just as easy as selling to open door.
In addition to an open door offer we seek to bring homeowners additional offers without the need of repairs extensive home prep for months of open houses or listings like an open door offer. These offers require no commitment from the seller and come with the control and flexibility of an early closing.
I believe this is a critical part of our next chapter and we feel uniquely positioned to launch and manage marketplace that can benefit every single home seller and homebuyer in summary, we continue to operate our first party business with the requisite discipline to improve our inventory health and acquire new inventory in line with our contribution margin targets.
And we will alongside accelerated trajectory of our third party product leveraging our audience and capabilities built over the past eight years.
I will now turn the call over to Carrie to discuss our financial performance.
Thanks, Eric.
Last quarter, we outlined key actions, we are taking to navigate the current market transition.
Third quarter results reflect the ongoing impact of those actions as risk management and overall inventory health priorities are driving expedient inventory sell through reduced acquisition pace and widening acquisition spreads.
In addition to these measures we're actively reducing our overall cost structure as we adapt to the market environment.
Made solid progress so far and are confident we will weather this market downturn and emerge even stronger.
Before I discuss our Q3 financial results and Q4 guidance. It's important to levels that are based on our outlook for Q4, we expect to generate over $530 million in contribution profit for the full year.
Three 5% contribution margin.
Which is just shy of our annual target margin range of 4% to 6% notwithstanding the sharp housing market resets.
Turning now to our Q3 financial results, we significantly exceeded the high end of our revenue guidance, reflecting our decision to accelerate our pace of resale and further derisk our balance sheet.
We sold about 2400 more homes in the mid point of what we had guided to ahead of the seasonally slow fourth quarter.
As a reminder, we.
Further to that homes price before the housing market reset our offers made between March and June of this year as the Q2 offer card as of the end of Q3, we sold through or in resale contract on over 40% of Q2 offer cohort and we expect to be approximately 65% of the way through.
By year end.
Another one of our key actions had been to proactively slowed down our pace of acquisitions, the substantially higher spreads and lower marketing spend in light of our risk management priorities.
This resulted in a 73% sequential decline in Q3 acquisition contracts.
41% sequential decline in closed acquisitions.
Our acquisition activity.
Okay.
Those homes are currently performing well and over time, we expect them to deliver margins in line with our targets.
As expected our accelerated pace of retail came at the expense of unit margins, which resulted in lower than expected adjusted EBITDA for the quarter.
Adjusted operating expenses totaled approximately $190 million.
Consistent with our guidance.
Turning to our balance sheet.
Fortunately to have.
Capital position by design to weather periods of market volatility how does the.
End of the third quarter.
$11 $8 billion of borrowing capacity.
$8 6 billion or over 70% was committed.
We have deliberately focus our capital structure on having committed lending capacity with staggered ruling charities.
Despite market uncertainty, we continue to extend our existing lending facilities, which we believe speaks to the resilience of these capital structure.
We also recently closed two new financing facilities with our existing lenders totally over $700 million in borrowing capacity.
These facilities will be used for financing homes remaining in the queue to offer cohort and will give us flexibility to optimize how and when we sell the homes.
Allowing us to maintain more consistent performance in our other financing facilities.
In addition, we ended the third quarter with $1 5 billion I'm.
Mr to cash and securities and $1 5 billion of equity invested in our homes.
Looking ahead, we expect macro volatility to persist through year end and into 2023 with a path of inflation and the size frequency and duration of fed rate hikes continue to dictate the outlook for housing as.
As a result, we will continue to operate our one key product offering with a risk off bias.
We expect our Q4 revenue to be between two three to $2 5 billion. Although similar to this quarter, we will continue to be opportunistic accelerating inventory sell through based on market conditions.
We expect our contribution margins to reflect our retail mix of longer dated lower margin homes as well as typical seasonal softness in the fourth quarter.
<unk> newly acquired homes are expected to perform in line with our contribution margin targets are newer book of inventory will be insufficient scale to offset the negative margin profile as a key to offer cohort given our current acquisition volume pacing.
We anticipate the contribution profit will bottom in Q4, as we sunset more of a Q2 cohort and expect to have a higher proportion of fresh inventory for resale in future quarters.
Total adjusted operating expenses are expected to be approximately $145 million for Q4.
As Eric noted, we are aggressively reducing costs across our operations and marketing commensurate with our volume expectations.
Inclusive of the workforce reduction, we announced yesterday, we estimate that we have reduced our run rate adjusted operating expenses by approximately $110 million on an annualized basis relative to this year's peak levels.
Going to say goodbye to teammates is incredibly difficult. These actions are necessary to rightsize, our cost structure and are reflective of our commitment to returning the business to operating free cash flow positive and building a profitable generational company.
Thank you.
We will now open the call for Q&A.
A reminder to ask a question you will need to press star one one on your telephone.
Please stand by while we compile the Q&A roster.
Operator before we take the first question I also wanted to introduce Daniel <unk>, Our Chief Investment Officer, who is also on the call with us today.
Light of the current macro environment, we thought it would be helpful for Daniel to address any macro or pricing related questions that perhaps we can take the first question.
Thank you.
Our first question comes from the line of Nick Jones with JMP Securities. Your line is now open.
Great. Thanks for taking the questions.
Two if I could sneak into first one I guess is more kind of macro focused.
Yes, there has been some headlines kind of indicating there might be some pretty steep.
Price declines into 2023, so I guess when you think about the inventory youre acquiring now that can offset some of the <unk> inventory.
What gives you confidence that you're maybe not exposed to additional risk.
Are there certain markets that just.
Arent seeing kind of the same declines.
Or is it kind of rates keep going up.
And spreads widening is that still just an inherent risk that we need to be cognizant of.
Hey, Nick it's Gary I'll start to answer that question or probably on <unk> annually for the second half and talk a little bit about macro outlook.
For the homes that we have been offering on acquiring safe from July going forward.
Those homes are that it was.
High spread relative to the environment, we're operating on for all the reasons. You. Just said we are operating at peak uncertainty right now with an expectation of continued home price depreciation, but as we're selling through those homes are performing very well and we expect them to continue to be in line with our target margins as we sell through the phone cohorts. So we feel good about the new book of inventory and we are.
Building into right now and we drew pricing appropriately for the macro environment.
Dan you want to comment on looking forward, yes, Gary I guess, the additional thing that I would say is as Eric mentioned in the intro we.
We continue to carry a risk off.
And that means that we are being conservative in our expectations of the future of macro environment and so as we think about what we're pricing for four offers that we're making today.
Yeah.
Great. Thank you.
Okay.
Thank you. Our next question comes from the line of James Mccanless with Wedbush. Your line is now open.
James Your line is open please check your mute button.
Okay.
Okay, sorry about that.
So I guess congrats on being a net seller of homes this quarter.
Is the expectation that that's going to be the case again in the fourth quarter and then my second question.
Thank you you answered it when you were talking about expecting conditions to get worse, but I guess.
How if you're taking 35% of this Q2 cohort I guess why not go ahead and be more aggressive in moving that inventory. If you do think conditions are going to get worse, because it doesn't seem like the valuations get better on those over time.
We're looking into a down market for 'twenty three.
Yes.
Gary I'll take the first part of that question. So.
We are deciding right now I think you saw it earlier comments to operate with a risk off stance.
Embedding high spreads into our offers in that is compressing volumes and you're right. We do continue.
To continue that pace through the fourth quarter that means we'll sell more homes that we acquire in Q4 and Thats a risk manager decision. We think is appropriate just given the overall macro environment.
Second part of your question was about.
Why not sell faster on the Q2 cohort I would say first of all we've made really good progress.
So that was our first directive coming out of Q2, as expeditiously and effectively as possible.
Monetize the challenged Q2 cohort and we should be around two thirds of the way by the end of the year and we expect to be through that cohort sometime by first half of the next year as to whether we can accelerate I mean, thats about optimizing total outcome over time, but Dan you want to comment a little bit just on pace of retail, yes, I guess, what I would I didn't hear it.
Is that the way, we think about resale phase basically is essentially a tradeoff between what we're observing in the market and over the our expectation is all of it.
In.
Essentially the price action that you would have to take in order to accelerate that resale writing what you saw this.
Last quarter, we're just reporting that we had a much larger revenue than expected.
Because we took the opportunity to do exactly that right and so I would expect I was curious in the intro comments that we would do that again as far as theres opportunity to see that data has to be beneficial.
But to be clear in general we would in fact expect to.
Operating faster than we would have right. So on the market slowed down the market slowed down a lot we would expect to slow down less than the market.
Recycling, because we're looking to take advantage of that trade off right and we're incorporating that into our expectations right inclusive of those additional potential negative outcomes.
Right.
Okay.
Great.
And then I guess just on these two facilities from the 35% cohort, what's the timeframe on those facilities in any rate.
<unk> you can give us.
Yes, I mean, we put those two facilities in place really to address the Q2 offer cohort. We had we knew that there would be structurally lower margin. So this is a way for us to.
We have more flexibility about the pace of resale and optimized for overall outcomes at the same time, we are managing for performance in our core facilities. It came at a slightly higher rate than our core facilities I'm not sure we break that out.
But an appropriate just given the shorter duration facility.
Okay, great. Thank you for taking my questions.
Alright.
Thank you. Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is now open.
Thanks, two questions first.
On three P T.
To the extent you hit your goal of 30% of transactions.
By the end of next year I mean, do you think of this as additive to what you would have done with <unk> or substitute just obviously, we need to come up with their own modeling and it has.
Pretty significant kind of <unk>.
Margin benefit. So just how are you thinking about that and then just kind of a follow up after that.
Thanks, Jason.
Eric here.
Yes.
I view it as.
A substitute in the short term and extremely additive long term and so what I can tell you is that based on early tests.
<unk> are very excited to opt into the program.
And.
That is above and beyond.
The pool of seller that would've accepted and opened our offer and so.
It can be additive long term the target that we're putting out there that were confident in hitting is based on traction we already see with the two products we've had in market which is.
Roughly 10% to rights on the Conservative Conservative side.
And roughly 20% direct to consumers on the exclusive listing side and so that's that's what gets us to a number that we feel confident we can execute against and there is upside to that if its additive.
Okay. That's helpful. And then just a clarification on the inventory adjustment in the quarter. So was that basically.
A reevaluation of the entire second quarter cohort.
Kind of based on today and so.
Market conditions like we could be another write off in subsequent quarters or is it like connect two homes sold just just how do we think about that $400 million $500 million number.
Yes, I'll take that one.
The way this thing first of all let's level set on what the valuation adjustment is and it's not a revaluation of our portfolio. It is taking a look per GAAP requires to do this every quarter. All the assets, we have and we are marketing due to the lower of cost or market and we're just recognizing the losses. It is a one way only downward adjustment there is new.
Offset for any expected gains in our portfolio that would be like looking at your stock portfolio and marketing all the losses do not have any us into the game. So it's not a revaluation portfolio. It's just a noncash charge to recognize expected losses I guess at this 0.1 0.2 is it is a projection.
We in this moment of again peak uncertainty.
Taking what we believe is a very conservative forward view of where we expect these homes to sell over time.
We're assuming additional downside even as per Daniels earlier comments to what we're already observing which is continued home price depreciation continued depression in transaction volumes and in clearance.
What we're doing today is taking those losses resetting expectations resetting our existing book of inventory and really pulling those losses for this quarter and then looking forward.
And the other point of your question.
This is largely about the Q2 cohort in two parts.
One is there's a series of homes that were under contract on we made the decision as we talked about last quarter to close on those homes. They are under contract we didn't own them, we didn't touch them from an inventory valuation perspective, we are having to do some of this quarter and that's about a third of the adjustment. The remainder is about continued deterioration we have seen in.
Forward expectations for the housing macro and that's what comprises the charge we're happy to take this quarter again, we think it's conservative.
Those homes are going to sell over time, we're going to realize in <unk> losses over time and unleash the adjustment, but we're going to sell them next to the newco hardware, creating which are performing very well and we expect those to have the offset of expected gains and profitable margin and we will make that in over time, but yes, we that's the genesis of the value.
Nation assessment.
Thank you.
Thank you.
Our next question comes from the line of Ryan Tomasello with <unk>. Your line is now open.
Hi, everyone. Thanks for taking the questions can you walk us through how the.
Restricted cash balance works in relation to your facilities.
Specifically the drivers of the increase from last quarter.
I know you mentioned in the shareholder letter that you expect to release some of the $1 8 billion of restricted cash as you liquidate I think about $350 million of the Unlevered homes.
But I guess it still implies a pretty sizable remaining balance. So just wondering if we should expect any more of that to be released in coming quarters.
Yes, there's two components I think than what you are talking about there one was on the restricted cash balance yes. It was very inflated this quarter, we had a lot of cash that was trapped in the system.
It's all secured by debt and Thats temporary because we just weren't creating new acquisition volumes or refinancing them to that that's a function of just not having the volumes there that will come down in Q4, that's number one.
Thank you also alluded to I think Ryan the $350 million, we talked about in terms of the Unlevered Hamzah, we have equity mezzanine debt correct.
That is going to be in.
In that process right now that will come back to unrestricted cash for us this quarter.
Okay. Thanks, and then I guess bigger picture question around.
Capital and scaling the business longer term.
Obviously, the <unk> product is a positive in terms of the capital light nature and scale scalability of that but I guess as we consider the prospect for.
Capital destruction near term book value was down 40% from last quarter, presumably.
Will decline further.
Changing how you are thinking about the capital position and the ability to scale the one P product longer term.
We had the highest level, we have plenty of capital we.
We have plenty of capital to navigate this period and the go forward.
That's first and foremost we are focused on making sure that we get back to a place where we arent operating free cash flow breakeven as we're going to get back to you, but we're sort of separating what I'll call the asset losses, which you can time box and we're getting our way through those and line of sight to being done with the Q2 offer cohort.
And we are building into new acquisitions into fresh book of inventory at margins that are performing well, but we are going to like a lot as we sell those homes.
No we're not capital constrained we feel actually.
We will capitalize on this moment in time.
Okay. Thanks for taking the questions.
Thank you.
Our next question comes from the line of Daily with Jpmorgan. Your line is now open.
Great. Thanks for taking the question first of all looking at your airports.
Cheers.
Hi, guys contribution profit per home sold will be worse than what you saw in Q2.
If that's true do you expect <unk> to be the trough.
I'm going to unwind over two to three years.
Two cohort.
Moving into <unk> do you expect the mix looking at homes to shift more towards your newer hopefully by that point and profitability improved from what youre selling through with you.
We do expect Q4 to be the trough two reasons would you just called out one is we're selling more of the Q2 off a cohort you said two thirds of the way through by the end of the year.
At the same time as we're doing that we're not offsetting that by design with much at all in the way of new acquisitions because of the risk off we're choosing to operate with high spreads the market is uncertain.
Regaining the amount of new volumes in the system.
As we sunset the Q2 offer cohort, we would expect to start to ramp up our mix of new acquisition volumes into the coming year I cant give you a specific number for the first quarter, but obviously that resale mix is going to change as we just changed the mix as pool book versus New book T. As a show of hands.
And then as a follow up.
More of a macro question.
Let me talk about the conditions that were short there. So we're looking at.
What do you need to see for Tim.
To come back.
Moreover, People's perception of changing to a new reality or do you need to see how the housing prices come down further before I guess demand.
To recover.
Okay.
Yes. This is Daniel Thanks for your question.
I think the thing you want to think about it is that a lot of what we are observing now is.
Mostly driven by the declining volumes right.
As rates unexpectedly rose quite significant that resulted in.
Particularly at the client transactions right, because the marginal buyer and seller and most people buy to sell and vice versa.
<unk> the reset in that rate to be.
Two on Earth as the volumes come down and Thats. What then result in slowing down the clearance.
Price pressure et cetera, and thats about the change in the rate and so the thing that we're looking for established Asian in that rate outlook, because we would expect that that stabilization. Even if it is at a high level would result in stabilization of volumes at different price pressures et cetera, right and so.
What we're looking for here is not so much rates to come down or for that matter prices to get to any particular level, but simply for those volumes too.
Get to sort of steady state given given the high rates and in that context, we would expect pricing pressures to actually stabilize and somewhat normalized and controlling for us.
For clearance too to be more manageable in terms of protections in terms of what you have to do to to buy and sell that inventory right and so it is that is that established <unk> reduction and certainly far more than what is actually the level of either.
Laser prices.
Great. Thank you.
The only other thing I may add to that is.
Just want to lose sight of the fact that we continue to have a product that people love great people show up they still converted very high rates, notwithstanding which are really high spreads. So your comments were like when new buyers come back.
We're still selling homes, we're still buying people stop buying homes from us and certainly.
We would expect to continue to increase our volumes over time.
This is more about a temporary dislocation in the market and we're managing and our decision. It really gave the volumes that we're taking in but over time again this product still works even in this uncertain environment. It is brands.
Thank you as a reminder to ask a question at this time. Please press star one one on your Touchtone telephone.
Our next question comes from Curtis Nagle Bank of America. Your line is now open.
Great. Good afternoon, thanks for taking the question.
So just the first one would be.
In terms of conversion rates for the homes that you are now.
Firing our offering at higher spreads.
Yes.
What are the conversion rich now compared to when you raised I think late last year.
I don't know I mean.
I would imagine it's a little yes.
Right when youre in a market where home is.
We're still less than it was a week or a month ago and the cost of finances, 50 or 60% higher so.
Would just be curious to hear what the conversion rates that look like on these new and Youre buying.
How much people are yes.
Yes.
Yes, one other heaters.
Sure.
Hey, Curtis it's Eric.
I would say is that we're observing conversion rate somewhere between 10% to 15% of true sellers.
Which is obviously lower than.
The north of 30, we've seen historically.
But that is at a.
Our spread levels, we've never actually had end market so to restate it peak uncertainty.
In this moment.
Which results in us having to take a risk off stance, which means that we have the highest spreads in company history, and we're still seeing somewhere between 10% 15% of sellers.
Saying, yes, and loving the experience in delivering a.
North of 70 NPS experience.
The inputs to that really is as follows one is there is a set of customers that.
Really value the convenience of not having open houses and visitors and some combination of that kids or pets or the impact of COVID-19 and the like and so there are more price insensitive.
And really just the.
And as it turns out there is also a set of customers that just really like the speed and certainty aspect of it.
And what's happened is that over the course of eight years, they've actually built up quite a bit of equity and they're still in their valuing their time or convenience versus maximizing their equity and.
In a backdrop of massive uncertainty and so the combination actually has surprised us on the upside that we're able to convert.
A meaningful amount of our customers.
With spread levels that we've never tested historically.
Okay.
And then just as a follow up.
I guess why not have rolled out the.
<unk> business sooner.
Just given look I would imagine that the margins have to be a lot better its less capital risk right.
This is a matter of just you didn't have the reach of the platform more I guess, why now say versus I don't.
No.
Sure Joe.
Well I'd say two things.
Washington matters marketplaces, then our plan since we founded the company and so if you look at our series APAC. We stated our platform will be used to connect buyers and sellers of which.
Open door would be one of many buyers and our stated ambition remains the same the ambition is to enable every single home buyer and seller to be a participant in <unk> as a customer.
Transparently I wanted to launch this in Q1 of 2020, and we knew we had a deep and large funnel of a sellers. We've we've we're unique in that.
But we needed to build the demand side.
To ensure that we can successfully lots of marketplace.
Having supplies are sufficient obviously.
And so we've made significant investments on the demand side, one starting with our work with institutional investors, which has been a four plus year endeavor for us.
Plus.
Building API the pathways to power those transactions again, selling somewhere between 10% to 20% of those homes to institutional investors.
Another example of this is that we have secured in north of 5000 resale contracts right before even closer with the seller alright.
Alright, and so logically you would say okay. We can make it possible to have those pathways connect directly as opposed to us closing twice on the home.
A second vessel has made more than 12 months ago, which was the key piece for us which is we needed to build a product that attracted demand and so we invested in exclusive listings again, the ability to buy from us directly.
With a very simple experience and features that are offered.
By the current marketplace.
And we've demonstrated that we can sell 20% of our homes directly to buyers on opened or dot com, if you measure that.
14 days, if you measure vis vis.
The market say MLS as represented in the market.
Our 20% mapped to and our cities maps to something like 36% or 40%.
In the market and so we're not actually from a velocity standpoint.
That too far behind what would be full distribution and so that gives us a ton of confidence that there is product market fit and buyers love.
Product and so.
Yes.
The assumption is that would we have liked to launch this two years ago. The answer is yes.
I would have loved to launches in Q1, 2020, which was the original plan, but we had to solve the consumer demand side before launch again and over the past year, we have.
Good evidence that will be solved.
Okay. Thanks I appreciate it.
Yes.
Thank you.
Next question comes from the line of Justin Patterson with Keybanc. Your line is now open.
Okay.
Good afternoon, and thank you for taking the questions. Two if I can first for Eric I wanted to circle back on Jason's question as marketplaces scale, new it becomes less of a substitute more additive to the overall business. How do you think about reinvesting back into growth or letting it drop through at a margin of <unk>.
Dan I appreciate your comments on watching for signs of stabilization.
Realize it's more of a philosophical question, but when you see those signs emerge how are you thinking about the speed in which you flip from risk off the risk on thank you.
Yes, so I'll take the first question, which is.
As we think about this as being additive how do we think about the trade off of growth versus margin.
What I can what I can say is that.
In marketplaces.
Never die based on the liquidity of both sides and once you're once you reached escape velocity that gives you.
It gives you.
A lot of defensibility and lots of opportunity for margin extraction or to increase your margins.
And so they tend to they tend to kind of be.
<unk>.
Built over.
A multiyear multi step process.
So.
In the short term, we would prioritize liquidity a growth of both sides.
Without making substantial investments and then long term we would prioritize.
Margin expansion and that actually increases the expected value of the business unit and business line Holistically and so.
To put it more succinctly.
Right now we're focused on growth.
Both sellers and buyers within local marketplaces.
And the benefit of having the <unk> business along with that is that we believe we can do this.
With positive unit economics.
Without having to go negative and we can we can expand those margins over time, as we get denser and denser within our cities.
I'll pass it to Daniel to answer the second part of that question. Yes. Thanks for the question. It's actually a good question I think the thing.
That I would highlight there is.
Now we're not so much looking to sort of read the tea leaves on the macro itself right like what the deferred do say and what policy in his speech et cetera, and instead, we are very focused on.
Building a series of indicators in our platform that give us.
What we believe is.
The best.
Sort of set of diagnostics about what's happening on the market as compared to pretty much anywhere else anybody else out there right. So we.
We have literally real time metrics for the full I'm going to call a tunnel or behavior on both the buyer and the seller side. So how do how does the rating change, resulting changes in mortgage apps from there to applications from there too.
The actual behavior on the buying and selling side like views of properties in the market.
How it goes visage, our schedule, how many people show up with those visits do they make offers or not what sort of offers do they make and so we have a pretty good mechanism to react.
Like I said pretty much real time to how what we are observing on the macro side is really translating on the behavior side right and so from our point of view, what we're looking for is the.
Instead of selling of the stabilization in the macro let's say that starts to happen pick it up tomorrow.
We would want to observe that that actually result in cannibalization of the behavior that we observe real time in the market right and on the back of that we will have pretty good confidence in and taking action sort of across the spectrum of all the actions that we take everything from letter of spread is too.
Retail strategy pricing strategy negotiation strategy et cetera.
Thank you.
Thank you.
Next question comes from the line of Justin <unk> with Sternberg. Your line is now open.
Hi, Thanks for taking the question.
Just wondering if I could get a little more color on <unk>.
What is driving that reduction in renovation and the time.
Taken on renovations and whether thats going to be the new normal going forward or is that just from the current bush.
Okay.
Okay.
It's Andrew Andrew here Justin.
The teams in the current environment are focused on turning our homes as quickly as we can.
And that that push.
That focus and that emphasis.
It's showing up in a number of our operating metrics you called out the Reno day improvement from 23 down to 15, that's really driven by improvements in the productivity.
The team and credit credit to our teams out in the field, who are finding new ways to reorganize the way they do work to drive those days down.
And that's.
That's a big push equally important we talked about our buyer cancellation rate improving 20%.
Against the backdrop, where the market actually.
Market deteriorated and all of those things contribute to us turning our homes and our book more quickly and Thats a focus and impressive.
Thanks to the teams who are all overdue.
Great. Thanks for that and next I was wondering if we could have a little more detail.
On geographic.
Geographic diversity on where youre seeing.
Relative home price depreciation strength versus weakness.
You gave some color last quarter. So just following on that thank you.
Yes, Im happy to do that this is Daniel.
We are observing broadly speaking.
Sort of shape of.
Not just frankly, HPA, but as you think about some other metrics volumetric metrics.
That is set.
Similar to what we had seen last time around so broadly speaking, we would say that the markets were more volatile and that had higher price appreciation when the market was hot so think of it generally sort of some of the larger western markets places like Phoenix and Austin for example, they have generally done anymore.
More importantly, compared to the other markets and Thats not terribly surprising in a sense. It was more room for that adjustment to take place in markets that have been counter and then sort of on the other side of that.
Smaller and somewhat less expensive markets.
At least one when the market is really hot.
Pat performed a little better and so they tend to be more sort of Midwest.
And eastern markets in places like St Nashville in Orlando for example.
<unk> tended to do better.
And again not surprising one of the things that I would highlight for example is a lot of what you saw when the market was hot in terms of price depreciation came from.
Ashish and gains people, making over list offers multiple offers over lift and that drove a significant part of the appreciation as the market cools that far less likely to happen and its ability symmetric rate. Once you start getting offers less and less that sort of thing.
As to equalize the behavior and Thats somebody who sees a across the regions. I think one last thing that I was saying here that is important to note is that all of this is happening in the context of all of the markets are looking pretty negative right. So we're talking about differences.
Relative performance, but the reality is youre seeing the decline in volume declining premiums to decline or at least increasing price pressures that's pretty common across these are just the relative differences in that larger contracts.
Alright, I appreciate the answers thank you.
Thank you.
Our last question comes from the line of Ryan <unk>, Kevin <unk> with Zelman. Your line is now open.
Okay.
Thank you very much.
One more on the on the treaty marketplace too.
The letter mentions 5% service fees, obviously that helps us think about the revenue side.
Assuming lee without being the principal the margins should be pretty high but I guess, if you can help us think about what you anticipate the cost structure and margin profile potentially looking at looking like.
Within the <unk> marketplace as bad as that scales up.
Hey, Ryan it's Eric.
We're not we're not giving guidance on the cost structure, yet I think the assumption that this should be.
So it dropped to our bottom line and demonstrate.
Really positive your economics is correct and what we are guiding to is.
Again, the goal of north of 30% in the short term by the end of 2023 and I would also say to the question earlier that I fundamentally believe this could be very accretive as well, which is this increases our tam over time.
We're able to service our customers independent of buybacks constraints and operational constraints.
And we're able to actually service all sellers in all our different home types, but from a breakdown on the unit economics, we're not disclosing at this time.
Got it that's very helpful. Eric maybe one more on Canada.
The opportunities to expand this I guess geographically.
Fair to assume.
Your current footprint effectively where you're also asking is <unk> would be kind of the roadmap with the tripi marketplace or.
We envision something 10 years down the road, where there is markets, where youre just the tripi player or do you do you expect to always be.
One key player to some degree.
Within the markets, where this is available.
What I can tell you is in the short term, it's really important to focus on the density and liquidity.
And so the goal is to get.
A sizable portion of sellers and buyers come to open door at the same time.
In providing a solution that works for all of them.
And then expanding that that playbook to all of our 50 plus markets.
I would say.
Also in the short term both of the <unk> business or the first party business and third party business.
Our essential.
And in complementary in nature, the ability to get an offer in minutes from open door attracts the hundreds of thousands of serious sellers.
The ability to buy from us and.
A different way of trucks.
Thousands of buyers.
So the model is is additive to the <unk>.
<unk> model is additive to the <unk> business today.
10 years, I think if we were able to build our brand in a way that people trust the platform and we have.
Services that that enable a seamless transaction in a market, where we're not actually operating in <unk> business thats within the realm of possibility, but not on the short term roadmap.
Got it thank you very much.
Thank you I would now like to hand, the conference back over to Eric <unk> for closing remarks.
Yes, I'd like to close with while it's challenging and I think many of the folks around this table.
Can attest to that.
We will navigate this moment with both the necessary discipline and focus that will enable us to manage short term uncertainty customer and financial goals long term term.
Thank you for attending.
This concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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