Q4 2023 Opendoor Technologies Inc Earnings Call

February 15, 2024

Operator: Thanks for watching! Thank you for standing by, and welcome to Opendoor's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again.

Okay.

Speaker Change: Thank you for standing by and welcome to open doors fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during this.

Speaker Change: Session, you will need to press star one one on your telephone to remove yourself from the queue. You May press Star one one again I would not like to hand, the call over to Kimberly <unk> Investor Relations. Please go ahead.

Kimberly Niehaus: I would now like to hand the call over to Kimberly Niehaus, Investor Relations. Please, go ahead. 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 investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the Federal Securities Law. All statements, other than statements of historical fact, are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial conditions, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them.

Kimberly: Thank you and good afternoon.

Kimberly: Can you talk about 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 thought open door dotcom.

Kimberly: Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

Speaker Change: 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.

Speaker Change: <unk> financial performance.

Speaker Change: <unk> strategy and plans market opportunity and expansion and management objectives for future operations.

Speaker Change: These statements are neither promises nor 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.

Kimberly Niehaus: Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed. Additional information that could cause actual results to differ from forward-looking statements can be found in the risk factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31st, 2023, as updated by our periodic reports filed after that. Any forward-looking statements made on this conference call, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new information, future events, or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financials. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metrics, please see our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor. Good afternoon.

Speaker Change: Additional information that could cause actual results to differ from forward looking statements can be found in the risk factors section of open doors. Most recent annual report on Form 10-K for the year ended December 31 2023.

Speaker Change: David by our periodic reports filed after that 10-K.

Speaker Change: Any forward looking statements made on this conference call, including responses to your questions are based on management's reasonable current expectations and assumptions as of today and open door assumes no obligation to update or revise them, whether as a result of new information future events or otherwise except as required by law.

Speaker Change: 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.

Speaker Change: Reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metrics. Please see our web site at Investor Dot open to our Dot com.

Speaker Change: I will now turn the call over to Karen Wheeler, Chief Executive Officer of open door.

Karen Wheeler: Good afternoon also on the call with me today is Christopher Schwartz interim Chief Financial Officer, and Dr. Frazier President of capital an open exchange.

Carrie Wheeler: Also on the call with me today is Christy Schwartz, Interim Chief Financial Officer, and Dodd-Frazier, President of Capital and Open Exchange, for Opendoor 2023, a year of focus, execution, and results. Despite a dynamic macro environment, marked by the lowest level of home sales since 1995, the team focused on controlling what would get controlled. And we made meaningful progress. We grew our acquisition volumes sequentially every quarter and tripled our market share from Q1 to Q4. Our new book of inventory generated a contribution margin of 8.3% in the year, demonstrating the health of our more recent acquisitions. We also made improvements to our tooling, technology, and processes to make our platform more efficient, which resulted in a year-over-year reduction of nearly 30% in adjusted operating expenses in Q4, excluding the reduction in our advertising. With these improvements, we now enter 2024 with the foundation in place to rescale the business and build a future of sustained profitable growth. Last month, Mark Opendoor celebrated its 10-year anniversary.

Karen Wheeler: Our open door 'twenty to 'twenty, three with your focus execution and results.

Despite a dynamic macro environment marked by the lowest level of home sales since 1995, the team focused on controlling what we could control.

Karen Wheeler: And we made meaningful progress we grew our acquisition volume sequentially every quarter and tripled our market share from Q1 to Q4, our new book of inventory generated contribution margin of eight 3% in the year demonstrating the health of our more recent acquisitions.

Karen Wheeler: We also made improvements to our tooling technology and processes to make our platform more efficient, which resulted in a year over year reduction of nearly 30% and adjusted operating expenses in Q4, excluding the reduction in our advertising spend.

With these improvements we now enter 2024 with the foundation in place to rescale, the business and build the future of sustained profitable growth.

Karen Wheeler: Last month, Mark open doors 10 year anniversary since our founding we've made it possible to sell your house with the tap a button something unthinkable a decade ago, we built the largest e-commerce platform for residential real estate and if served over 250000 customers across 50 markets.

Carrie Wheeler: Since our founding, we've made it possible to sell your house with the tap of a button, something unthinkable a decade ago. We built the largest e-commerce platform for residential real estate and have served over 250,000 customers across 50 markets. And we're committed to building a product suite to become the place where every seller can start their home selling journey in a way that the traditional process cannot provide with simplicity and certainty. Looking to 2024, we're excited about our ability to reach and attract more sellers to our platform, namely through increased advertising spend, continued growth of our partnership channels, and more attractive spread levels. Last year, we reduced our marketing spend by over 60% versus the prior year, as elevated spreads made our marketing investments less efficient.

Karen Wheeler: And we're committed to building our product suite to become a place where every seller can start their home selling journey in a way that the traditional process cannot provide simplicity and certainty.

Karen Wheeler: Looking to 2024, we're excited about our ability to reach and attract more sellers to our platform.

Karen Wheeler: Namely to increase advertising spend continued growth of our partnership channels and more attractive spread levels.

Karen Wheeler: Last year, we reduced our marketing spend by over 60% versus the prior year as elevated spreads made our marketing investments less efficient.

Carrie Wheeler: Despite these reductions, we've maintained our aided awareness, a testament to the effectiveness and efficiency of our creative advertising efforts. In 2024, we plan to ramp up our total marketing spend to widen the top of our funnel and reach more sellers, and we're spending more creatively. Last Sunday during the Super Bowl, we live streamed the Couch family getting an Opendoor cash offer on their home in Atlanta during halftime, proving just how easy and quick it is to sell to us.

Karen Wheeler: Despite these reductions we've maintained our aided awareness a testament to the effectiveness and efficiency of our creative advertising efforts.

Karen Wheeler: In 2024, we plan to ramp our total marketing spend to widen the top of our funnel and reach more sellers and we're spending more creatively.

Karen Wheeler: Sunday during the Super Bowl, we live streamed the couch family getting an open door cash offer on their home in Atlanta during halftime pretty just how easy and quick it is to sell to us.

Carrie Wheeler: Acquisitions from our partnership channels, which includes online real estate platforms, home builders, and agents, continue to increase in the fourth quarter, up 35% versus Q3 and up over 140% since Q1. These partnerships have effectively positioned us as the branded cash offer for residential real estate and are a true win-win. Our offering enhances the selling experience of our partners' platforms to their customers and also provides us with a source of acquisitions and customers an attractive fixed spend. We expect volumes from this channel to continue to grow on an absolute basis in 2024. Finally, as a reminder, our spreads are an important lever in managing seller conversion and mitigating risk on our platform. We immediately reduced our spreads during 2023, which resulted in improved conversion and acquisition volumes throughout the year.

Karen Wheeler: Acquisition from our partnership channels, which includes online real estate platforms Homebuilders and agents continued to increase in the fourth quarter up 35% versus Q3 and up over 140% since Q1.

Karen Wheeler: These partnerships as they start to be positioned us as the branded cash offer for residential real estate and are a true win win are offering enhances the experience of our partners' platforms to their customers.

Karen Wheeler: Also provides us with a source of acquisitions and customers and attractive to expand.

We expect volumes from this channel to continue to grow on an absolute basis in 2024.

Karen Wheeler: Finally, as a reminder, our spreads are an important lever in managing seller conversion and mitigating risk on their platform.

Karen Wheeler: We meaningfully reduced spreads during 2023, which resulted in improved conversion and acquisition volume throughout the year.

Carrie Wheeler: Looking ahead, based on where we are at today, we expect to see an increase in contract volume late in Q1, which would translate to sequential acquisition volume growth in Q2. Christy will speak to our outlook next, but I want to quickly address our goal of returning to positive adjustment income. We have strong tailwinds at our backs, but we're still facing ongoing macro uncertainty because mortgage rates remain volatile.

Karen Wheeler: Looking ahead based on where we are at today, we expect to see an increase in contract volume late in Q1, which should translate to sequentially acquisition volume growth in Q2.

Speaker Change: Chris He will speak to our outlook next but I want to quickly address our goal of returning to positive adjusted net income.

Speaker Change: We have strong tail winds at our back, but we're still facing ongoing macro uncertainty mortgage rates remain volatile.

Speaker Change: Writing the lessons we've learned in recent years and taking a prudent approach to balancing growth and profitability. While also operating within our risk management framework.

Speaker Change: We expect to make significant progress in both scaling acquisition and resale volumes and meaningfully reducing our losses. This year. However, we don't anticipate reaching positive adjusted net income for a full quarter. In 2024, we are focused on driving sustainable growth and our entire business is organized around durably getting back to positive.

Speaker Change: Hi.

Speaker Change: I am proud of what our teams accomplished in the last year, we've emerge smarter leaner and energized and we are building a platform that over the long term has the potential to transform the way millions selling by real estate today, we stand alone in not only what we offer but also the scale at which we were able to do so and we're just getting.

Speaker Change: Got it.

Christie will now review, our financial results and guidance.

Christie: Thank you Terry our fourth quarter results came in above the high end of our outlook across the board as we continue to increase acquisition volumes, while driving margin and cost improvements.

Carrie Wheeler: We've emerged smarter, leaner, and energized, and we are building a platform that, over the long term, has the potential to transform the way millions sell and buy real estate. Today, we stand alone in not only what we offer, but also the scale at which we are able to do so. And we're just getting started. Christy will now review our financial results and guidance. Thank you, Carrie.

Christie: We enter 2024, we remain committed to re scaling our business delivering healthy contribution margin and operating with disciplined cost management, all while providing a best in class customer experience.

Christie: We delivered $870 million of revenue in the fourth quarter above the high end of our guidance range. We continue to make progress on selling through our old book of inventory and had less than 75 of these homes not in resale contract as of year end.

Christy Schwartz: Our fourth-quarter results came in above the high end of our outlook across the board as we continue to increase acquisition volumes while driving margin and cost. As we enter 2024, we remain committed to rescaling our business, delivering healthy contribution margins, and operating with disciplined cost management, all while providing a best-in-class customer experience. We delivered $870 million in revenue in the fourth quarter, above the high end of our guidance range. We continue to make progress on selling through our old book of inventory and had less than 75 of these homes not in resale contract as of year end. For the full year, we achieved $6.9 billion in revenue. As a reminder, we intentionally slowed our home acquisitions beginning in the second half of 2022, prioritizing risk management and inventory health. This resulted in lower resale volumes in 2023 compared to the prior year.

Christie: For the full year, we achieved $6 9 billion of revenue.

Christie: As a reminder, we intentionally slowed our home acquisitions beginning in the second half of 2022 prioritizing risk management and inventory health. This resulted in lower retail volumes in 2023 versus the prior year.

Christie: As Carey mentioned, we reduced our spreads this year as we saw signs of market stabilization.

Christie: <unk> seen an increase in acquisition and sequentially each quarter.

Christie: We purchased 3683 homes in the fourth quarter up 17% from the third quarter and ahead of our prior expectations of approximately 1000 homes per month.

Christie: We continued to generate positive contribution profit in the fourth quarter delivering contribution margin of three 4% ahead of the high end of our implied guidance range.

Christie: While ahead of our expectations contribution margin declined sequentially for two reasons.

Christie: First to maintain our clearance targets, we implemented home level price drops last quarter in response to the amplified seasonal decline in market levels sell through rate.

Christy Schwartz: As Kerry mentioned, we reduced our spreads this year as we saw signs of market stabilization, resulting in increasing acquisitions sequentially each quarter. We purchased 3,683 homes in the fourth quarter, up 17% from the third quarter and ahead of our prior expectations of approximately 1,000 homes per month. We continue to generate positive contribution profit in the fourth quarter, delivering contribution margin of 3.4% ahead of the high end of our implied guidance range. However, while ahead of our expectations, contribution margin declined sequentially for two reasons. First, to maintain our clearance targets, we implemented home-level price drops last quarter in response to the amplified seasonal decline in market-level sell-through rates. Second, sales from the tail homes of our old book continue to be a drag on overall performance. For the full year, contribution margin was negative 3.7 percent, given by sales from our old book of inventory.

Christie: Second sales from the tail homes of our old book continued to be a drag on overall performance.

Christie: For the full year contribution margin was negative three 7% driven by sales from our order book up inventory.

Christie: Notably as Carey mentioned, the new book of poems generated a contribution margin of eight 3% in 2023, demonstrating the health of the more recent acquisition cohorts.

Christie: Adjusted EBITDA loss was $69 million in the fourth quarter ahead of the high end of our guidance range.

Christie: Ended 2023, but the adjusted EBITDA loss of $627 million versus a loss of $168 million in 2022.

Christie: Adjusted operating expenses totaled $99 million for the quarter up from $92 million in Q3 and down from $144 million in Q4 of 2022.

Christie: The sequential increase was expected as we continue to rebuild inventory in the fourth quarter.

Christie: For the full year adjusted operating expenses were $369 million down 47% from $693 million in 2022, which reflects the progress we've made in reducing our cost structure.

Christy Schwartz: Notably, as Kerry mentioned, the new book of homes generated a contribution margin of 8.3% in 2023, demonstrating the health of the more recent acquisition cohort. Adjusted EBITDA loss was $69 million in the fourth quarter, ahead of the high end of our guidance range. We ended 2023 with an adjusted EBITDA loss of $627 million versus a loss of $168 million in 2022. Adjusted operating expenses totaled $99 million for the quarter, up from $92 million in Q3, and down from $144 million in Q4 2022.

Christie: Turning to our balance sheet shareholders equity decreased by $53 million in the fourth quarter.

Christie: We ended the year with $1 3 billion and total capital, which includes $1 1 billion in unrestricted cash and marketable securities and $161 million of equity invested in homes and related assets net of inventory valuation adjustments.

Christie: We also had $8 1 billion and nonrecourse asset backed borrowing capacity composed of $3 8 billion of senior revolving credit facilities, and $4 3 billion of senior and mezzanine term debt facilities.

Christie: Of which total committed borrowing capacity was $2 8 billion.

Christie: Looking ahead to 2024, we will continue to operate with focus and execution to drive results. We expect our Q1 revenue to be between 1.05 billion and $1 1 billion Conor.

Christy Schwartz: The sequential increase was expected as we continue to rebuild inventory in the fourth quarter. For the full year, adjusted operating expenses were $369 million, down 47% from $693 million in 2022, which reflects the progress we've made in reducing our cost structure. Turning to our balance sheet, shareholders' equity decreased by $53 million in the fourth quarter.

Christie: Contribution profit between 40 million and $50 million, which implies a contribution margin of three 8% to four 5% and adjusted EBITDA loss between $80 million and $70 million.

Christie: We expect adjusted operating expenses to be approximately $120 million, a sequential step up as we re ramp marketing and rebuild inventory levels.

Christy Schwartz: We ended the year with $1.3 billion in total capital, which included $1.1 billion in unrestricted cash and marketable securities and $161 million of equity invested in homes and related assets, net of inventory valuation adjustments. We also had $8.1 billion in non-recourse asset-backed borrowing capacity, composed of $3.8 billion of senior revolving credit facilities and $4.3 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $ Looking ahead to 2024, we will continue to operate with focus and execution to drive results. We expect our Q1 revenue to be between $1.05 billion and $1.1 billion, contribution profit between $40 million and $50 million, which implies a contribution margin of 3.8% to 4.5%, and adjusted EBITDA loss between $80 million and $70 million. We expect adjusted operating expenses to be approximately $120 million, a sequential step up as we re-ramp marketing and rebuild inventory levels.

Christie: Additionally, we expect first quarter home purchases to be approximately flat from Q4 and up over 100% year over year.

Christie: We expect home acquisitions will increase sequentially in line with typical seasonality into Q2 as we enter the spring selling season in earnest.

Christie: As we begin 2024, we are focused on re scaling our business in a sustainable fashion, we have the benefit of our book of inventory that is generating healthy margins and the steps, we took last year position us well to accelerate volumes throughout the year with an improved cost structure and a line of sight to achieving our annual contribution margin target range of five.

Christie: To 7%.

Speaker Change: I'd now like to turn the call over to the operator to open up the line for questions.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone if you've not already to remove yourself from the queue. You May press star one again.

Speaker Change: Please standby, while we compile the Q&A roster, we ask that you limit yourself to one question and one follow up.

Speaker Change: Yeah.

Our first question comes from the line.

Daily: Daily of J P. Morgan your question please.

Daley: Great. Thanks for taking the question.

Daily: So first of all all the reaching of adjusted net income profit pressure.

Daily: Appreciate the color on the timing, but just curious to hear like what has to happen to reach this target.

Operator: Additionally, we expect first quarter home purchases to be approximately flat from Q4 and up over 100% year over year. We expect home acquisitions will increase sequentially in line with typical seasonality into Q2 as we enter the spring selling season in earnest. As we begin 2024, we are focused on rescaling our business in a sustainable fashion. We have the benefit of a book of inventory that is generating healthy margins, and the steps we took last year position us well to accelerate volumes throughout the year, with an improved cost structure and a line of sight to achieving our annual contribution margin target range of 5 to 7%. I'd now like to turn the call over to the operator to open up the line for questions. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. If you've not already removed yourself from the queue, you may press star one one again.

Speaker Change: Thank you Brian.

Speaker Change: Patient volume or do you need to see.

Speaker Change: MS Fisher infections will cover to southern levels.

Speaker Change: Hey, Danielle, it's Gerry I'll take that.

Gerry: A couple of things one is we're highly focused on scaling the business.

Gerry: We're intent on doing it in a sustainable way so right now what we're managing to what I'd call a macro neutral environment.

Gerry: Not willing to lean into spreads, we're not willing to lean in to access marketing to drive growth at the expense of margin of risk certainly if there are macro tailwind say second half of this year, we are well positioned to take advantage of those.

Gerry: But our our objective is to meaningfully ramp our acquisitions this year and to do so within our account contribution margin target range, we talked about.

Gerry: All of which will substantially reduce our anti losses year on year. So this is about when not if.

Speaker Change: Got it and then I guess as a follow up.

Speaker Change: Like where is your spread right now I guess one of the two.

Speaker Change: Okay.

Speaker Change: Only three years earlier.

Dae K. Lee: Please stand by while we compile the Q&A roster. We ask that you limit yourself to one question and one follow-up. Our first question comes from the line, Dae Lee of J.P. Morgan. Your question, please, Dr. Great, thanks for taking the question.

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: Kind of at a level to be at the higher end of your contribution margins are I guess, because that's the right way to think.

Speaker Change: Got it.

Speaker Change: Yeah, when we made substantial improvements last year in our cost structure much of which we fed back into durably, reducing spreads. So the combination of cost structure improvements and home price stabilization allowed us to take those down throughout the year and we like where they are today, which is why we're ramping advertising spend by 50% in Q1.

Carrie Wheeler: I guess the first one on reaching adjusted income profit, appreciate the color and the timing, but just curious to hear what needs to happen to reach this target. Is it just a matter of day-to-day ramping up in your acquisition volume, or do you need to see industry transactions recover to a certain level? It's Carrie. I'll take that. A couple of things.

Speaker Change: And why we're leaning into acquisition contract growth.

Speaker Change: Understood. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Benjamin Black of Deutsche Bank. Your question. Please Benjamin.

Carrie Wheeler: One is we're highly focused on rescaling the business, but we're intent on doing it in a sustainable way. So right now, what we're managing to do is what I'd call a macro-neutral environment. We're not willing to lean into spreads, we're not willing to lean into access marketing to drive growth at the expense of margin of risk. Certainly, if there are macro tailwinds, say the second half of this year, we are well positioned to take advantage of that. But our objective is to meaningfully ramp up our acquisitions this year and to do so within our contribution margin target range we talked about, all of which will substantially reduce our ANI losses year on year. So this is about when, not if. I got it.

Hi, This is Jeff on for Ben Thank you for taking my questions.

Jeff: Because I noticed that you have.

Speaker Change: Exhibit three markets.

Jeff: In this quarter what are you seeing there that led to it.

Jeff: The decision to exit those markets change or your strategy around market expansion going forward.

Speaker Change: Yes happy to take that.

Speaker Change: Certainly not an indication of our forward plans.

Speaker Change: These were three small markets represented less than 1% of our volumes.

Speaker Change: And really it's more just the cost structure question, given the size of those markets and where they're physically located.

Speaker Change: Approximate they werent next to one of our other markets.

Speaker Change: So it was more just a cost and efficiency question.

Carrie Wheeler: I guess as a follow-up, like where is your spread right now, I guess, relative to like exiting 2023 and the early part of 2023? Is the spread kind of set at a level to be at the higher end of your contribution margin target? Is that the right way to think about it? Yeah, when we made substantial improvements last year in our cost structure, much of which we fed back into durably reducing spreads. So the combination of cost structure improvements and home price stabilization allowed us to take those spreads down throughout the year. And we like where they are today, which is why we're ramping advertising spend by 50% in Q1 and why we're leaning into acquisition contract growth all the time. Thank you. Welcome.

Speaker Change: Okay.

Speaker Change: Got you I guess, just as a follow up then so.

Speaker Change: Think about expanding your buybacks in any given region.

Speaker Change: They're sort of a contribution margin impacted doing that or is it simply a matter of adding the capability.

Speaker Change: To kind of expand your year.

Speaker Change: Festival market and therefore, youll see similar contribution margins to other other homes in a similar region or where does that come at the expense of some gross margin cost to you.

Speaker Change: And our goal in expanding buybacks as more about pricing accuracy and so we expand our buy box as our pricing system improves and we believe we can price accurately.

Speaker Change: So that we can deliver.

Speaker Change: Same contribution margin across the expanded by box.

Speaker Change: Great. Thank you.

Benjamin Black: Thank you. Our next question comes from the line of Benjamin Black of Deutsche Bank. Your question, please, Benjamin. Hi, this is Jeff Arnn for Bend.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: From the line of Nick Jones of JMP Securities. Your line is open Nik.

Nick Jones: Thanks for taking the questions. So is it the new book.

Carrie Wheeler: Thank you for taking my question. I noticed that you exited three markets this quarter. What are you seeing there that led to the decision to exit those markets and change your strategy around market expansion going forward? Yeah, happy to take that. Certainly not an indication of our forward plans. These were three small markets that represented less than 1% of our volumes.

Nick Jones: Silver contribution margins of eight 3% that you're still kind of targeting five to seven.

Nick Jones: I guess.

Nick Jones: What gets you comfortable maybe increasing that range yes.

Five to seven and maybe being north of eight over time, I guess, just some clarity as to why not expanding that range yet.

Nick Jones: Hey, Nick it's Gary I'd say at a very high level last year's eight 3% <unk> on the new book, which was great was about <unk>.

Carrie Wheeler: And really, it's more just a cost structure question, given the size of those markets and where they're physically located. They weren't approximated, they weren't next to one of our other markets. So it was more just a cost and efficiency question. Gotcha.

Gary: <unk> spreads and we realize that eight 3% this year, given where we set our spreads that's where why we are reaffirming our 5% to 7% contribution margin target. So again, we're balancing that interplay of growth margin risk and we've reduced our spreads to a level, where we want to deliver within that 5% to 7% for the year.

Carrie Wheeler: I guess just as a follow-up then, so as you think about expanding your buy box in a given region, is there some sort of contribution margin impact of doing that? Or is it simply a matter of adding the capability to kind of expand your addressable market, and you'll see similar contribution margins to other homes in a similar region? Or does that come at the expense of some gross margin costs too? Our goal in expanding BuyBox is more about pricing accuracy, and so we expand our BuyBox as our pricing system improves, and we believe we can price accurately so that we can deliver the same contribution margin across the expanded BuyBox. Great, thank you.

Speaker Change: Got it helpful and then.

Speaker Change: On the homes that are kind of lifted over 120 days, you took that down to 18% versus I think it was 21% of the markets. Those homes are as youre kind of outperforming the market.

Speaker Change: Given the model over time like what kind of outperformance can we expect in terms of.

Speaker Change: Hum, you're selecting and how long they stay on the market versus kind of the average in those markets I guess, ultimately where does that kind of percentage go.

Nick Jones: Thank you. Our next question comes from the line of Nick Jones of JMP Securities. Your line is open. Thanks for taking the questions. So is this the new book?

Speaker Change: Overtime, and maybe what's kind of the standard whole type today is the is the market's kind of neutral as we head into 'twenty 'twenty four.

Carrie Wheeler: is over contribution margins of 8.3%, but you're still kind of targeting 5 to 7. I guess, you know, what gets you comfortable maybe increasing that range beyond 5 to 7 and maybe being, you know, north of 8 over time? I guess just some... Clarity as to why not expanding that range yet. Hey Nick, it's Carrie.

Speaker Change: Yes, so we I think from a business portfolio management perspective, I really think about.

Speaker Change: From for the homes that we are shorter and hold periods. So early days on market, we want to be slower and then add homes.

Speaker Change: Sit on our balance sheet longer we want them to be selling faster than market. So our goal is to outperform market.

Carrie Wheeler: I'd say at a very high level, last year's 8.3% CM on the new book, which was great, was about last year's spreads, and we realized that 8.3%. I mean, this year, given where we've set our spreads, that's why we're reaffirming our 5 to 7% contribution margin target. So, again, we're balancing that interplay of growth margin risk, and we reduced our spreads to a level where we want to deliver within that 5 to 7 for the year.

Speaker Change: On that older cohort of homes, we think thats appropriate portfolio management and sort of disciplined risk management.

Speaker Change: But theres not a specific target to your specific question of where we're trying to get to X number. It's much more about four homes that are 90 to 120 days on market, we want to be outperforming market.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Yigal Iranian of Citi. Your question. Please.

Speaker Change: Hi, guys got Max on for Yigal.

Max: I was wondering if we could if you could walk us through how you think about the pace of acquisition through the rest of the year.

Carrie Wheeler: Helpful. And then, on, you know, the homes that are kind of listed over 120 days, you took that down to 18%, versus I think it was 21% of the markets those homes are in, so you're kind of outperforming the market. Given the model over time, like, you know, what kind of outperformance can we expect in terms of the homes you're selecting and how long they sit on the market versus kind of the average in those markets. I guess, ultimately, where does that kind of percentage go?

Speaker Change: Given your market neutral.

Speaker Change: Comment on the macro.

Speaker Change: So your expectations are for home acquisitions.

Speaker Change: Anything youre seeing kind of as we head into the spring season.

Max: Hey, Max.

Max: So.

Max: At a high level, you should see a meaningful increase in acquisitions 2024 over 2023, I'll repeat some of our guidance, which was Q1 being up 100% year on year. So we're going to see a good acquisition growth in the first quarter, where we're seeing right now as.

Max: As we would expect to see for this time of year, just given seasonality people kind of getting back into thinking about selling post Super Bowl is we're seeing a ramping contracts month to month. So February higher than January March higher in February and we're going to see those contracts turned into closes in Q2, which is why we indicated like you should expect to see from us sequential acquisition growth Q.

Carrie Wheeler: over time, and maybe what's kind of the standard hold time today is the market's kind of neutral as we head into 2024. Yeah, so we, I think, from a business portfolio management perspective, we really think about, For the homes that are shorter in the hold period, so early days on the market, we want to be slower. And then, as homes sit on our balance sheet longer, we want them to be selling faster than the market.

Max: Two over Q1.

Max: So that's that's what I can tell you in terms of acquisition pacing for the first half of the year.

Speaker Change: Okay, Great and then.

A follow up just.

Speaker Change: Is there any update on the <unk> model as we walk into 2024.

Speaker Change: Or are you more focused kind of on the core business.

Speaker Change: I'd say.

Speaker Change: We're focused on both but.

Carrie Wheeler: So our goal is to outperform the market on that older cohort of homes. We think that's appropriate portfolio management and sort of disciplined risk management. But there's not a specific target to your specific question of, we're trying to get to X number. It's much more about homes that are 90 to 120 days on market; we want to be outperforming the market. Thank you. Our next question comes from the line of Yigal Arunian of Citi. Your question, please, Iga. Hi guys. Yeah, Max, I'm Fregal. I was wondering if you could walk us through the pace of acquisitions through the rest of the year, you know, giving your market neutral comment on the macro, you know, how your expectations are for home acquisitions and anything you're seeing kind of as we head into the spring. Hey Max, it's Kerry.

Speaker Change: But I would say our plan to get back to.

Speaker Change: Positive cash flow is all about the current core business today or sell direct model that gets us back there our cost structure and our balance sheet will allow us to deliver on that.

Speaker Change: Marketplace for Us certainly.

Speaker Change: Important long term strategic we're one year into it right, we're about connecting buyers and sellers, but we're doing it in a single market. We've said consistently we want to make sure that we.

Speaker Change: Focus on having great product market fit before we scale. It I would say that this has been a tough year for experimentation against a low market supply like record low market supply that's challenging but that's short term long term, we remain committed to continuing to evolve our marketplace product.

Speaker Change: Okay, great. Thanks, guys.

Speaker Change: Welcome.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of.

Speaker Change: Curtis Nagle of Bank of America. Please go ahead Curtis.

Curtis Nagle: Terrific, Thanks very much.

Curtis Nagle: Let's see I guess, the first one would be.

Curtis Nagle: In terms of the I think of.

Curtis Nagle: $20 million Delta on the operating expenses in <unk>.

Curtis Nagle: Positive that is what accounted for about <unk> or.

Curtis Nagle: I guess, how should we think about.

Curtis Nagle: Quarterly operating adjusted expenses and 24.

Speaker Change: Assuming that you'd be maybe something a little bit above 100 mill, given the higher marketing costs.

Speaker Change: To think about that.

Speaker Change: Hi, Curtis it's Christine Thank you for the question.

Carrie Wheeler: We're seeing a ramp in contracts month to month. So, February higher than January, March higher than February, and we're going to see those contracts turn into closes in Q2, which is why we indicated, like, you should expect to see sequential acquisition growth in Q2 over Q1. So that's what I can tell you in terms of acquisition pacing for the first half. Okay, great. And then as a follow up, you know, just are there any updates on the 3T model?

Speaker Change: So.

Christine: The performance of 99 versus our guidance of 120 is a reflection of us continuing to make meaningful progress throughout the P&L. We saw continued strong execution from our teams in the fourth quarter, which allowed us to smooth the timing of some hiring from <unk> out to <unk> is really ramping.

Christine: And we continue to realize some cost savings initiatives.

Christine: We guided in Q1 to a $120 million.

Carrie Wheeler: As we look into 2024, or are you more focused kind of on the core? We're focused on both, but I would say our plan to get back to positive cash flow is all about the current core business today, our sell-direct model. That gets us back there.

Christine: Just to unpack that change, it's about roughly half is marketing and advertising and the other half is increasing our operations and we expect that increase from Q4 to Q1 to be the biggest bump for the year.

Speaker Change: Okay, that's fair.

Carrie Wheeler: Our cost structure and our balance sheet will allow us to deliver on that. The marketplace for us is certainly important, long-term, strategic. We're one year into it.

Speaker Change: Very helpful. Maybe staying on the marketing side you guys, obviously made a big push with the Super Bowl this year.

Speaker Change: Just as a <unk>.

Speaker Change: Indicative of sort of plans for brand marketing for the rest of the year like can't be like a one and done.

Carrie Wheeler: We're about connecting buyers and sellers, but we're doing it in a single market. We've said consistently that we want to make sure that we focus on having great product-market fit before we scale it. I would say that this has been a tough year for experimentation against a low market supply, like a record low market supply. That's challenging.

Speaker Change: Is that really kind of a first shot and.

I would love to see Euro if any.

Speaker Change: We don't have any metrics to have them in terms of lift in traffic or perhaps people requiring about offers post yet this week.

Speaker Change: Hey, Curtis just carry I mean, I think you asked are you asking a marketing mix question.

Carrie Wheeler: But that's the short-term. Long-term, we remain committed to continuing to evolve the marketplace. Great, great. Thanks, Pat.

Speaker Change: Well.

Curtis Nagle: One of the question was right.

Curtis Nagle: Your first Super Bowl AD right, that's a very splashy form of brand marketing. So is that indicative of a big ramp up right as we've kind of been talking about and brand marketing and just kind of how to think about that for the rest of the year and then again just what.

Curtis Nagel: Thank you. Our next question comes from the line of Curtis Nagel of Bank of America. Please go ahead, Curtis.

Curtis Nagel: That's perfect. Thanks very much. See, I guess the first one would be.

Curtis Nagle: What you see in terms of.

Curtis Nagle: <unk> response, and the first our first week.

Christy Schwartz: In terms of the, I think like a $20 million Delta and the operating expenses in 4Q positive, that is, what accounted for that? And I guess, how should we think about quarterly operating adjusted expenses in 24, assuming that should be maybe something a little bit above 100 million given higher marketing costs? Or what's the right way to think about that? Curtis, it's Christy.

Speaker Change: How about that.

Speaker Change: Yeah, I mean, all credit to our creative marketing team, we actually didn't buy a super Bowl ad to be clear.

Speaker Change: We this has been a year of cost discipline as you know as we were not.

Speaker Change: Fair enough Okay, yes, we worry about the first one.

Speaker Change: Wanted to be part of the Super Bowl.

Speaker Change: Pre run and part of the conversation and I think our team did a good job of putting us in that room, and we did a lot of stuff in and around Super Bowl before the game and then we had a live out during halftime in Atlanta.

Christy Schwartz: Thank you for the question. So the performance of 99 versus our guidance of 120 is a reflection of us continuing to make meaningful progress throughout the P&L. We saw continued strong execution from our teams in the fourth quarter which allowed us to smooth the timing of some hiring from 4Q out to 1Q as we're re-ramping, and we continued to realize some cost-saving initiatives. We guided for Q1 to 120 million, and just to unpack that change, it's about roughly half is marketing and advertising and the other half is increasing our operations, and we expect that increase from Q4 to Q1 to be the Okay, that's very helpful.

Speaker Change: So I'd say, it's too early to tell the impact of that we definitely saw a big pickup in traffic and awareness in Atlanta, specifically I think time will tell in terms of what the what the impact of that is obviously at a higher level do you think about how we think about marketing spend.

Speaker Change: Last year, we took down spin substantially that was in response to where our spreads were because some spend became less efficient.

Speaker Change: You think about this year, we have really leaned into some of our more efficient marketing channels branding won the Super Bowl thing is evidenced as one of those but will it be found is that.

Speaker Change: Brand lift all boats for us so we increase our brand spend.

Speaker Change: We're finding that increases conversion across all avenues.

Curtis Nagel: Maybe stay on the marketing. Right. So you guys obviously made a big push with the Super Bowl this year. I guess is that indicative of sort of plans for from red marking for the rest of the year? Like, you know, it can't be like a one and done.

Speaker Change: And actually even though we had lower spend last year, we actually maintain our brand awareness is something we're really proud of and our partnerships will continue to lean into because we're very efficient from a customer acquisition cost perspective, and then theres paid so.

Speaker Change: You should expect to see more creative pharmacy as you start to see more brand, but we're going to do with them, making sure we manage the overall envelope.

Carrie Wheeler: Right? Is that sort of a kind of first shot? And I would love to see any, you know, any metrics if you have them in terms of, you know, Lyft and traffic or perhaps people inquiring about offers post the ad this week. Hey Curtis, it's Carrie.

Speaker Change: Okay that makes sense, thanks very much.

Speaker Change: Okay.

Speaker Change: Thank you again to ask a question. Please press star one one on your telephone again, that's star one on your telephone to ask a question.

Speaker Change: Our next question.

Carrie Wheeler: I think you're asking, are you asking a marketing mix question? Well, I just kind of wondered, right, so you get your first, you know, Super Bowl ad, right? That's a very splashy form of brand marketing. So, you know, is that indicative of, you know, a big ramp-up, right, as we've kind of been talking about in brand marketing, and just kind of how to think about that for the rest of the year. And then again, just, you know, what did you see in terms of, you know, response in the first, first week from that ad? Yeah, I mean, all credit to our creative marketing team. But we actually didn't buy a Super Bowl ad, to be clear.

Speaker Change: Comes from the line of Brian Thomas L. O K VW. Please go ahead Ryan.

Brian Thomas: Variables, you're focused on from a macro perspective is not necessarily the absolute level of rates, but the volatility in rates.

Brian Thomas: Is that an accurate statement and if so it would be helpful. If you can just elaborate on how you define REIT volatility. If there is a difference between upward versus downward volatility if that makes sense.

Brian Thomas: And just generally how that plays into your willingness to ramp volumes.

Speaker Change: Yes happy to cover that Ryan I think rate volatility really flows through and impacts the overall market by keeping sellers and buyers on the sidelines.

Speaker Change: So I think that is why.

Carrie Wheeler: We, this has been a year of cost discipline, as you know, as we were not spending on the Super Bowl. Fair enough, okay. Yeah, we were, by the way, we did want to be part of the Super Bowl, you know, pre-game and part of the conversation, and I think our team did a good job of putting us in that room, and we did a lot of stuff in and around Super Bowl XLV before the game, and then we had a live ad during halftime in Atlanta. So I'd say it's too early to tell the impact We definitely saw a big pickup in traffic and awareness in Atlanta specifically, and I think, you know, time will tell in terms of what the impact of that is.

And you can see it in the numbers and the metrics that we have in the back of our shareholder letter as well if you look at where you've seen rates come down and you've seen increases in supply and demand and so I think really for us at least.

Speaker Change: We care most about the balance of sellers and buyers the balance of supply and demand.

Speaker Change: And so thats really where we stay focused and.

Speaker Change: Based on what we're seeing right now and what we've seen year to date, we continue to see a balance between the sellers and buyers and that is leading to relative price stability and in line with what we've seen historically.

Speaker Change: Okay. Okay. Thanks, and then just on the capital structure it.

Carrie Wheeler: I would say the higher level, though, if you think about how we think about marketing spend. I mean, you know, last year we took down spend substantially. That was in response to where our spreads were because some spend became less efficient. And you think about this year, we have really leaned into some of our more efficient marketing channels, brand being one, the Super Bowl thing is, you know, evidence is one of those. But what we found is that brand lists all boats for us, so we increase our brand spend, and we're finding that increases conversion across all avenues.

Speaker Change: It looks like borrowing capacity came down by a few hundred million dollars quarter over quarter.

Speaker Change: And you remove the language from the shareholder shareholder letter around sufficient capacity to hit the breakeven targets.

Speaker Change: Just to clarify that that commentary in that move into capacity and second just how youre thinking about longer term capacity.

Speaker Change: Beyond the 10 billion in volume, especially as you have to dip into the higher cost floating rate debt.

Speaker Change: Obviously, you bought back some of the convert just any updated thoughts there on capital allocation to the convert.

Speaker Change: Yes, not trying to signal any change so we're comfortable that with our current capital base, both on the equity and debt side.

Carrie Wheeler: And actually, even though we had lower spend last year, we actually maintained our brand awareness, something we're really proud of. And then partnerships, we'll continue to lean into because they're very efficient from a customer acquisition cost perspective, and then there's paid. So you should expect to see more creative from this. You should expect to see more brand, but we're gonna do it within, you know, making sure we manage the overall. Okay, that makes sense. Thanks very much.

Speaker Change: Can get to that breakeven point.

Speaker Change: We are and always have I mean, you saw our students in COVID-19.

Speaker Change: Modulating how much capacity, we have lenders don't like this to have unused capacity. So I think that is something we've been working with our lenders on it and they like to reduce unused capacity and they've been there for us in the past I think really for the near term. We're very focused on the fact that we have these term debt facilities that are fixed.

Ryan Tomasello: Thank you. Again, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question. Our next question... comes from the line of Ryan Tomasello of KVW. Please go ahead, Ryan.

Speaker Change: Through the full year.

Speaker Change: And we feel very comfortable about our ability to use those facilities and cash on hand to finance our business and so really feel quite comfortable on the capital side.

Carrie Wheeler: Hi everyone. Thanks for taking the questions. It seems like one of the more important variables you focus on from a macro perspective is not necessarily the absolute level of rates but the volatility in rates. Is that an accurate statement?

Speaker Change: I think if you sort of zoom out a bit and think about your last question there.

Speaker Change: We obviously don't talk about future capital decisions.

Carrie Wheeler: And if so, it'd be helpful if you could just elaborate on how you define rate volatility, if there's a difference between upward versus downward volatility, if that makes sense, and just generally how that plays into your willingness to ramp volume. Yeah, happy to cover that, Ryan. Yeah, I think rate volatility really flows through and impacts the overall market by keeping sellers and buyers on the sidelines. So I think that is why, and you can see it in the numbers and the metrics we have in the back of our shareholder letter as well, if you look at where you've seen rates come down, and you've seen increases in supply and demand. And so I think really, for us at least, we care most about the balance of sellers and buyers, the balance of supply and demand. And so that's really where we stay focused. And based on what we're seeing right now and what we've seen year to date, we continue to see a balance between sellers and buyers, and that is leading to relative price stability in line with what we've seen historically. Okay, okay. Thanks.

Speaker Change: As you alluded to we did three convertible note buybacks last year, we will always be opportunistic.

Speaker Change: And on the capital front.

Speaker Change: Great. Thanks, David.

Speaker Change: You bet.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line.

Speaker Change: Mike <unk> of Goldman Sachs. Please go ahead Mike.

Mike: Hey, good afternoon. Thank you very much for the question I just had a follow up on the earlier question regarding Opex and marketing spending.

Mike: I was just wondering if you could talk a little bit more about.

Mike: Any of the direct benefits that you see from increasing marketing spending.

Mike: Is there a direct relationship between marketing and your pace of acquisitions.

Mike: And then said differently.

Mike: Should the pace back wages trends increase because of your step up in marketing spend why is it only flat sequentially I'm, assuming the top of funnel would widen because of that incremental spend thank you.

Christy Schwartz: And then just on the capital structure, it looks like borrowing capacity came down by a few hundred million quarter over quarter, and you remove the language from the shareholder letter around sufficient capacity to hit the break-even target, just to clarify, you know, that commentary and that move into capacity, and second, just how you're thinking about longer-term capacity, beyond the $10 billion in volume, especially as you have to dip into the higher cost floating rate debt and obviously buy back some Any updated thoughts there on capital allocation to the converters? Yeah, I'm not trying to signal any change.

Mike: Hey, Mike it's Gary so quickly.

Gary: First of all marketing will not be flat sequentially rate's going to be up 50% in terms of advertising expense in Q1 that is part of the fuel to drive acquisition growth we've been talking about.

Gary: For the first half of the year. That's one there are definitely a correlation between advertising spend and how we drive the Williams as a whole the story even things like partnerships are fixed and brand is less directly correlated certainly, but it's a longer term investment that we're seeing the payoff in things like brand awareness. So.

Gary: As Christie said the step up from Q4 to Q2, a good chunk of that about half of that was in marketing that's probably the biggest chunk of it will have we're always going to evaluate our marketing budget over the course of the year, but we're comfortable with what she just told you which is that should be the biggest step up for the year.

Gary: We tendency we spend into the first part of the year, we tend to get quieter in the very back half of the year because sellers are clients.

Christy Schwartz: So we're comfortable that with our current capital base, both on the equity and debt side, we can get to that ANI break-even point. We are, and always have, you saw us do this in COVID, modulating how much capacity we have. Lenders don't like just to have unused capacity.

Speaker Change: Yes, we feel good about given where spreads are today, we feel good about the marketing investment we sized one added point I think Gary alluded to this earlier, if you think about how things flow through our business, we spend advertising dollars and so what we've seen is an uptick in offers and acquisition contracts each month in the first quarter and so really the impact of that dollar spend flows through.

Christy Schwartz: So I think that is something we've been working with our lenders on, and they like to reduce unused capacity, and they've been there for us in the past. I think really for the near term, we're very focused on the fact that we have these term debt facilities that are fixed through the full year, and we feel very comfortable about our ability to use those facilities and cash on hand to sort of finance our business, and so really feel quite comfortable on the capital side. I think if you sort of zoom out a bit and think about your last question there, like we obviously don't talk about future capital decisions, but as you alluded to, we did three convertible note buybacks last year. We will always be opportunistic on the capital front.

Speaker Change: The closes in the second quarter, which as we said is that we expect to be sequentially up from the first quarter.

Speaker Change: Great. Thanks for the thoughts.

Speaker Change: Thank you.

Speaker Change: Now I'd like to turn the conference back to Kerry Wheeler CEO for closing remarks Madam.

Kerry Wheeler: Hi, Thanks first of all thank you everyone for joining us today I just want to say we're excited about how we're set up for 2024 and beyond.

Kerry Wheeler: Hopefully you can hear from US we've done the hard work in 2023 be leaner.

Speaker Change: Hi, Joe and to be able to rescale the business in a sustainable fashion as I say, it's when not if so heading into 2024 will be deploying the same operating principles focus execution results. We're looking forward to speaking with you next quarter. Thank you.

Michael Ng: Great. Thanks, Pat. You bet. Thank you. Our next question comes from the line of Mike Ng of Goldman Sachs. Please go ahead, Mike.

Carrie Wheeler: Hey, good afternoon. Thank you very much for the question. I just had a follow-up question regarding OPEX and marketing spending. I was just wondering if you could, you know, talk a little bit more about, you know, any of the direct benefits that you see from increasing marketing spending. Is there a direct relationship between marketing and your pace of acquisitions? And then, you know, said differently, should the pace of acquisitions, you know, increase because of your step-up in marketing spend? Why is it only flat sequentially? I'm assuming the top of the funnel would widen because of that incremental spend. Thank you. Hey, Mike, it's Carrie.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Carrie Wheeler: First of all, marketing will not be flat sequentially, right? It's going to be up 50% in terms of advertising expense in Q1. That is part of the fuel to drive acquisition growth we've been talking about for the first half of the year. That's one. There definitely is a correlation between advertising spend and how we drive volumes. But that's not all the story.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Christy Schwartz: We're always going to evaluate our marketing budgets over the course of the year, but we're comfortable with what she just told you, which is that should be the biggest step up for the year. And, you know, we tend to see that when we spend into the first part of the year, we tend to get quieter in the very back half of the year because sellers are quiet. So, yeah, we feel good about given where our spreads are today, we feel good about the marketing. One added point, I think, and Carrie alluded to this earlier, if you think about how things flow through our business, we spend advertising dollars. And so what we've seen is an uptick in offers and acquisition contracts each month in the first quarter. And so really, the impact of that dollar spend flows through to closes in the second quarter, which, as we said, we expect to be sequentially up from the first quarter. Great. Thanks for the thoughts and ideas.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Carrie Wheeler: Thank you. I would now like to turn the conference back to Kerry Wheeler, CEO, for closing remarks.

Carrie Wheeler: Hey, thanks. Well, first of all, thank you everyone for joining us today. I just want to say we're excited about how we're set up for 2024 and beyond. Hopefully, you can hear from us. We did the hard work in 2023 to be leaner, to be more agile, and to be able to rescale the business in a sustainable fashion. As I said, it's when, not if.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: [music].

Carrie Wheeler: So heading into 2024, we'll be deploying the same operating principles, focus, execution, and results. We're looking forward to speaking with you next quarter. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect, www.opendoor.com At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one, one on your telephone. To remove yourself from the queue, you may press star one one again.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Kimberly Niehaus: I would now like to hand the call over to Kimberly Niehaus, Investor Relations. Please go ahead. 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 Investor.Opendoor.com.

Kimberly Niehaus: 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. All statements, other than statements of historical fact, are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial conditions, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Kimberly Niehaus: Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed. Additional information that could cause actual results to differ from forward-looking statements can be found in the risk factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2023, as updated by our periodic reports filed after that date. Any forward-looking statements made on this conference call, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new information, future events, or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financials. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor. Good afternoon.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Alright.

Speaker Change: [music].

Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Thank you.

Speaker Change: Great.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Carrie Wheeler: Also on the call with me today is Christy Schwartz, Interim Chief Financial Officer, and Dodd-Fraser, President of Capital and Open Exchange, for Opendoor 2023, a year of focus, execution, and results. Despite a dynamic macro environment, marked by the lowest level of home sales since 1995, the team focused on controlling what would get controlled. And we made meaningful progress. We grew our acquisition volumes sequentially every quarter and tripled our market share from Q1 to Q4. Our new book of inventory generated a contribution margin of 8.3% in the year, demonstrating the health of our more recent acquisitions. We also made improvements to our tooling, technology, and processes to make our platform more efficient, which resulted in a year-over-year reduction of nearly 30% in adjusted operating expenses in Q4, excluding the reduction in our advertising. With these improvements, we now enter 2024 with the foundation in place to rescale the business and build a future of sustained profitable growth. Last month, Mark Opendoor celebrated its 10-year anniversary.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Thanks.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Thank you for standing by and welcome to open doors fourth quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

Speaker Change: After the speaker presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone to.

Speaker Change: To remove yourself from the queue you May press Star one one again I would now like to hand, the call over to Kimberly <unk> Investor Relations. Please go ahead.

Kimberly: Thank you and good afternoon.

Kimberly: You talk about 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 Dot <unk> Dot com.

Kimberly: Please note that this call will be simultaneously webcast on the Investor Relations section of the Companys corporate website.

Speaker Change: 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.

Speaker Change: All statements other than statements of historical fact are statements that could be deemed forward looking including but not limited to statements regarding <unk> financial condition and anticipated financial performance business strategy and plans market opportunity and expansion and management objectives for future operations.

Carrie Wheeler: In 2024, we plan to ramp up our total marketing spend to widen the top of our funnel and reach more sellers. And we're spending more creatively. Last Sunday during the Super Bowl, we livestreamed the Couch family getting an Opendoor cash offer on their home in Atlanta during halftime, proving just how easy and quick it is to sell to us.

Additional information that could cause actual results to differ from forward looking statements can be found in the risk factors section of open doors. Most recent annual report on Form 10-K for the year ended December 31, 2023 as updated by our periodic reports filed after that 10-K.

Speaker Change: Any forward looking statements made on this conference call, including responses to your questions are based on management's reasonable current expectations and assumptions as of today and opened her assumes no obligation to update or revise them, whether either a bulk of new information future events or otherwise except as required by law.

Carrie Wheeler: Acquisition from our partnership channels, which includes online real estate platforms, homebuilders, and agents, continued to increase in the fourth quarter, up 35% versus Q3 and up over 140% since Q1. These partnerships have effectively positioned us as the branded cash offer for residential real estate and are a true win-win. Our offering enhances the selling experience of our partners' platforms to their customers and also provides us with a source of acquisitions and customers an attractive fixed expense. We expect volumes from this channel to continue to grow on an absolute basis in 2024. Finally, as a reminder, our spreads are an important lever in managing seller conversion and mitigating risk on our platform. We immediately reduced our spreads during 2023, which resulted in improved conversion and acquisition volumes throughout the year.

Speaker Change: A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our web site at Investor Dot open to our Dot com.

Speaker Change: I will now turn the call over to Karen Wheeler, Chief Executive Officer of open door.

Karen Wheeler: Good afternoon also on the call with me today is Christopher Schwartz interim Chief Financial Officer, and Dr. Frazier President of capital an open exchange.

Karen Wheeler: We are open door 2023, with your focus execution and results.

Karen Wheeler: Despite a dynamic macro environment marked by the lowest level of home sales is $19 95, a team focused on controlling what we could control.

Carrie Wheeler: Looking ahead, based on where we are at today, we expect to see an increase in contract volume late in Q1, which would translate to sequential acquisition volume growth in Q2. Chrissy will speak to our outlook next, but I want to quickly address our goal of returning to positive adjustment income. We have strong tailwinds at our backs, but we're still facing ongoing macro uncertainty because mortgage rates remain volatile.

Carrie Wheeler: We're acting on lessons learned in recent years and taking a prudent approach to balancing growth and profitability while also operating within our risk management framework. We expect to make significant progress in both scaling acquisition and resale volumes and meaningfully reducing our losses this year. However, we don't anticipate reaching positive adjustment income for a full quarter in 2024. We are focused on driving sustainable growth, and our entire business is organized around durably getting back to positive ANI. I am proud of what our team accomplished in the last year; we've emerged smarter, leaner, and energized. And we are building a platform that, over the long term, has the potential to transform the way millions sell and buy real estate. Today, we stand alone in not only what we offer but also the scale at which we are able to do so.

Karen Wheeler: With these improvements we now enter 2024 with the foundation in place to rescale, the business and build the future of sustained profitable growth.

Karen Wheeler: Looking to 2024, we're excited about our ability to reach and attract more sellers to our platform.

Karen Wheeler: Namely through increased advertising spend continued growth of our partnership channels and more attractive spread levels.

Karen Wheeler: Last year, we reduced our marketing spend by over 60% versus the prior year as elevated spreads made our marketing investments less efficient.

Carrie Wheeler: And we're just getting started. Chrissy will now review our financial results and guidance. Thank you, Carrie.

Karen Wheeler: Despite these reductions we maintained our aided awareness a testament to the effectiveness and efficiency of our creative advertising efforts.

Karen Wheeler: In 2024, we plan to ramp our total marketing spend to widen the top of our funnel and reach more sellers and we're spending more creatively.

Karen Wheeler: Sunday during the Super Bowl, we live stream the couch family getting an open door cash offer on their home in Atlanta during halftime, proving just how easy and quick it is to sell to us.

Karen Wheeler: Acquisition from our partnership channels, which includes online real estate platforms homebuilders and agents continue to increase in the fourth quarter up 35% versus Q3 and up over 140% since Q1.

Christy Schwartz: As a reminder, we intentionally slowed our home acquisitions beginning in the second half of 2022, prioritizing risk management and inventory health. This resulted in lower resale volumes in 2023 versus the prior year. As Kerry mentioned, we reduced our spreads this year as we saw signs of market stabilization, resulting in increasing acquisitions sequentially each quarter. We purchased 3,683 homes in the fourth quarter, up 17% from the third quarter and ahead of our prior expectations of approximately 1,000 homes per month.

Karen Wheeler: These partnerships are a start to reposition us as the branded cash offer for residential real estate and are a true win win.

Karen Wheeler: Offering enhances the selling experience of our partners' platforms to their customers and also provides us with a source of acquisitions and customers and an attractive to expand.

Karen Wheeler: We expect volumes from this channel to continue to grow on an absolute basis in 2024.

Karen Wheeler: Finally, as a reminder, our spreads are important lever in managing seller conversion and mitigating risk on our platform.

Karen Wheeler: Meaningfully reduce spreads during 2023, which resulted in improved conversion and acquisition volume throughout the year.

Karen Wheeler: Looking ahead based on where we are at today, we expect to see an increase in contract volume late in Q1, which should translate to sequential acquisition volume growth in Q2.

Christy Schwartz: We continue to generate positive contribution profit in the fourth quarter, delivering contribution margin of 3.4% ahead of the high end of our implied guidance range. However, while ahead of our expectations, contribution margin declined sequentially for two reasons. First, to maintain our clearance targets, we implemented home-level price drops last quarter in response to the amplified seasonal decline in market-level sell-through rates. Second, sales from the tail homes of our old book continued to be a drag on overall performance. For the full year, contribution margin was negative 3.7 percent given by sales from our old book of inventory. Notably, as Kerry mentioned, the new book of homes generated a contribution margin of 8.3% in 2023, demonstrating the health of the more recent acquisition cohort. Adjusted EBITDA loss was $69 million in the fourth quarter, ahead of the high end of our guidance range.

Speaker Change: Chris He will speak to our outlook next but I want to quickly address our goal of returning to positive adjusted net income.

Speaker Change: We have strong tailwind at our back, but we're still facing ongoing macro uncertainty mortgage rates remain volatile.

We're adding the lessons we've learned in recent years and taking a prudent approach to balancing growth and profitability. While also operating within our risk management framework.

Speaker Change: Hi.

Christy Schwartz: We ended 2023 with an adjusted EBITDA loss of $627 million versus a loss of $168 million in 2022. Adjusted operating expenses totaled $99 million for the quarter, up from $92 million in Q3, and down from $144 million in Q4 2022. A sequential increase was expected as we continue to rebuild inventory in the fourth quarter. For the full year, adjusted operating expenses were $369 million, down 47% from $693 million in 2022, which reflects the progress we've made in reducing our cost structure. Turning to our balance sheet, shareholders' equity decreased by $53 million in the fourth quarter.

Got it.

Speaker Change: Christie, we will now review, our financial results and guidance.

We delivered $870 million of revenue in the fourth quarter above the high end of our guidance range.

Christie: To make progress on selling through our old book of inventory and had less than <unk> 75 of these homes not in resale contract as of year end for.

Christie: For the full year, we achieved $6 9 billion of revenue.

Christie: As a reminder, we intentionally slowed our home acquisitions beginning in the second half of 2022, prioritizing risk management and inventory health.

Christie: Resulted in lower resale volumes in 2023 versus the prior year.

Christie: As Carey mentioned, we reduced our spreads this year as we saw signs of market stabilization.

Christie: <unk> seen an increase in acquisition and sequentially each quarter.

Christie: We purchased 3683 homes in the fourth quarter up 17% from the third quarter and ahead of our prior expectations of approximately 1000 homes per month.

We continued to generate positive contribution profit in the fourth quarter delivering contribution margin of three 4% ahead of the high end of our implied guidance range.

Well ahead of our expectations contribution margin declined sequentially for two reasons.

Christie: First to maintain our clearance target, we implemented home level price drops last quarter in response to the amplified seasonal decline and market level sell through rate.

Christy Schwartz: Additionally, we expect first quarter home purchases to be approximately flat from Q4 and up over 100% year over year. We expect home acquisitions will increase sequentially, in line with typical seasonality, into Q2 as we enter the spring selling season in earnest. As we begin 2024, we are focused on rescaling our business in a sustainable fashion. We have the benefit of a book of inventory that is generating healthy margins, and the steps we took last year position us well to accelerate volumes throughout the year, with an improved cost structure and a line of sight to achieving our annual contribution margin target range of 5 to 7%. I'd now like to turn the call over to the operator to open up the line for questions. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. If you've not already removed yourself from the queue, you may press star one one again.

Christie: Second sales from the tail homes of our old book continued to be a drag on overall performance.

Christie: For the full year contribution margin was negative three 7% driven by sales from our order book of inventory.

Christie: Notably as Carey mentioned, the new book of poems generated a contribution margin of eight 3% in 2023, demonstrating the health of the more recent acquisition cohorts.

Christie: Adjusted EBITDA loss was $69 million in the fourth quarter ahead of the high end of our guidance range.

Christie: Into 2023, with adjusted EBITDA loss of $627 million versus a loss of $168 million in 2022.

Christie: Adjusted operating expenses totaled $99 million for the quarter up from $92 million in Q3 and down from $144 million in Q4 2022.

Operator: Please stand by while we compile the Q&A roster. We ask that you limit yourself to one question and one follow-up. Our first question comes from the line, Dae Lee of J.P. Morgan. Your question, please, Dae.

Christie: The sequential increase was expected as we continue to rebuild inventory in the fourth quarter.

Christie: For the full year adjusted operating expenses were 369 million down 47% from $693 million in 2022, which reflects the progress we've made in reducing our cost structure.

Dae K. Lee: Great, thanks for taking the questions. I guess the first one on reaching adjusted income profit, appreciate the color and the timing, but just curious to hear like what needs to happen to reach this target. Is it just a matter of day-to-day ramping up in your acquisition volume, or do you need to see industry transactions recover to a certain level? It's Carrie. I'll take that, a couple of things.

Christie: Turning to our balance sheet shareholders equity decreased by $53 million in the fourth quarter.

Christie: We ended the year with $1 3 billion and total capital, which includes $1 1 billion in unrestricted cash and marketable securities and a $161 million of equity invested in homes and related assets net of inventory valuation adjustments.

Carrie Wheeler: One is we're highly focused on rescaling the business, but we're intent on doing it in a sustainable way. So right now, what we're managing to is what I'd call a macro-neutral environment. We're not willing to lean into spreads.

We also had $8 1 billion and nonrecourse asset backed borrowing capacity composed of $3 8 billion of senior revolving credit facilities.

Carrie Wheeler: We're not willing to lean into access marketing to drive growth at the expense of margin of risk. Certainly, if there are macro tailwinds, say the second half of this year, we are well positioned to take advantage of those. But our objective is to meaningfully ramp up our acquisitions this year and to do so within our contribution margin target range we talked about, all of which will substantially reduce our ANI losses year on year. So this is about when, not if. I got it.

Christie: $4 3 billion of senior and mezzanine term debt facilities.

Christie: Of which total committed borrowing capacity was $2 8 billion.

Looking ahead to 2024, we will continue to operate with focus and execution to drive results. We expect our Q1 revenue to be between 1.05 billion and $1 1 billion Conor.

Carrie Wheeler: And I guess as a follow-up, like where is your spread right now, I guess, relative to exiting 2023 and I guess early part of 2023? Is the spread kind of set at a level to be at the higher end of your contribution margin target? Is that the right way to think about it? Yeah, when we made substantial improvements last year in our cost structure, much of which we fed back into durably reducing spreads. So the combination of cost structure improvements and home price stabilization allowed us to take those spreads down throughout the year. And we like where they are today, which is why we're ramping advertising spend by 50% in Q1 and why we're leaning into acquisition contract growth. One more time.

Christie: Contribution profit between $40 million and $50 million, which implies a contribution margin of three 8% to four 5%.

Christie: <unk> EBITDA loss between $80 million and $70 million.

Christie: We expect adjusted operating expenses to be approximately $120 million, a sequential step up as we re ramp marketing and rebuild inventory levels.

Christie: Additionally, we expect first quarter home purchases to be approximately flat from Q4 and up over 100% year over year.

Christie: We expect home acquisitions will increase sequentially in line with typical seasonality into Q2 as we enter the spring selling season in harvest.

As we begin 2024, we are focused on re scaling our business in a sustainable fashion, we have the benefit of our book of inventory that is generating healthy margins and the steps, we took last year position us well to accelerate volumes throughout the year with an improved cost structure and a line of sight to achieving our annual contribution margin target range of five.

Benjamin Black: Thank you. Welcome. Thank you. Our next question... comes from the line of Benjamin Black of Deutsche Bank. Your question, please, Ben. Hi, this is Jeff Arnn for Ben.

Carrie Wheeler: Thank you for taking my question. I noticed that you exited three markets this quarter. What are we seeing there that led to the decision to exit those markets and change your strategy around market expansion going forward? Yeah, I'm happy to take that. It's certainly not an indication of our forward plans. These were three small markets that represented less than 1% of our volumes. And really, it's more just a cost structure question, given the size of those markets and where they're physically located. They weren't next to one of our other markets.

Christie: To 7%.

Speaker Change: Now I'd like to turn the call over to the operator to open up the line for questions.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone if you've not already to remove yourself from the queue. You May press star one again.

Operator: Please standby, while we compile the Q&A roster.

Operator: We ask that you limit yourself to one question and one follow up.

Operator: Okay.

Speaker Change: Our first question comes from the line.

Carrie Wheeler: So it was more just a cost and efficiency question. Gotcha. I guess just as a follow-up then.

Jay: Daily of Jay.

Jay: P. Morgan your question please.

Daily: Great. Thanks for taking my question I guess, the first one reaching an adjusted net income profit pressure.

Carrie Wheeler: So as you think about expanding your buy box in a given region, is there sort of a contribution margin impact of doing that? Or is it simply a matter of adding the capability to kind of expand your addressable market, and you'll see similar contribution margins to other homes in a similar region? Or does that come at the expense of some gross margin costs too? Our goal in expanding BuyBox is more about pricing accuracy, and so we expand our BuyBox as our pricing system improves, and we believe we can price accurately so that we can deliver the same contribution margin across the expanded BuyBox. Great, thank you.

Daily: I appreciate the color on the timing, but just curious to hear like what needs to happen to reach this target.

Speaker Change: Matter of Peter Hey, Rob in your acquisition volume or <unk>.

And just finished transactions will cover to southern levels.

Speaker Change: Hey, Danielle, it's Gerry I'll take that.

Gerry: A couple of things. One is we are highly focused on re scaling the business, but we are intent on doing it in a sustainable way. So right now what we're managing to what I'd call a macro neutral environment.

Gerry: We're not willing to lean into spreads we're not willing to lean in to access marketing to drive growth at the expense of margin of risk certainly if there are macro tailwind say second half of this year, we are well positioned to take advantage of those.

Gerry: But our our objective is to meaningfully ramp our acquisitions this year and to do so within our.

Nick Jones: Thank you. Our next question comes from the line of Nick Jones of JMP Securities. Your line is open. Thanks for taking the questions. So is this the new book?

Contribution margin target range, we talked about all of which will substantially reduce our eni losses year on year. So this is about when not if.

Speaker Change: Got it and then I guess as a follow up.

Speaker Change: Like where is your spread right now I guess.

Speaker Change: Sitting with me at only three and I guess early part is totally clear.

Speaker Change: Yes, Brett.

Speaker Change: Brett.

Brett: Well to be at the higher end of your contribution margins are investments that Brian we have to think about it.

Speaker Change: Yes, when we made substantial improvements last year and our cost structure much of which we fed back into durably, reducing spreads. So the combination of cost structure improvements and home price stabilization allowed us to take those down throughout the year and we like where they are today, which is why we're ramping advertising spend by 50% in Q1.

Speaker Change: And why we are leaning into acquisition contract growth.

Speaker Change: Understood. Thank you.

Speaker Change: Welcome.

Thank you.

Speaker Change: Our next question.

Speaker Change: It comes from the line of Benjamin Black of Deutsche Bank. Your question. Please Benjamin.

Speaker Change: Hi, This is Jeff on for Ben Thank you for taking my questions.

Speaker Change: Because I noticed that you exited three markets.

Jeff: This quarter, what are you seeing there that led to.

Jeff: The decision to exit this market change or your strategy around market expansion going forward.

Carrie Wheeler: Helpful. And then, on, on, you know, the homes that are kind of listed for over 120 days, you took that down to 18%. First, I think it was 21% of the markets; those homes are the answer; you're kind of outperforming the market, given the model over time. Like, you know, what kind of outperformance can we expect in terms of the homes you're selecting and how long they stay on the market versus kind of the average in those markets. I guess, ultimately, where does that percentage go? over time, and maybe what's kind of the standard hold time today is the market's kind of neutral as we head into 2024. Yeah, so we, I think, from a business portfolio management perspective, we really think about, for the homes that are shorter in the hold period, so early days on the market, we want to be slower. And then, as homes sit on our balance sheet longer, we want them to be selling faster than the market.

Speaker Change: Yes happy to take that.

Speaker Change: Certainly not an indication of our forward plans.

Speaker Change: These were three small markets that represented less than 1% of our volumes.

Speaker Change: And really it's more just the cost structure question, given the size of those markets and where they're physically located.

Speaker Change: Approximate they werent next to one of our other markets.

Speaker Change: It was more just a cost and efficiency question.

Speaker Change: Got you I guess, just as a follow up then so.

Speaker Change: As you think about expanding your buybacks in a given region is there sort of a contribution margin impacted doing that or is it simply a matter of adding the capability.

Speaker Change: To kind of expand your year.

Speaker Change: Your addressable market and therefore, you will see similar contribution margins to other.

Speaker Change: Their homes in the semi region or where does that come at the expense of <unk>.

Speaker Change: Gross margin cost to you.

Speaker Change: And our goal in expanding by box is more about pricing accuracy and so we expand our buy box as our pricing system improves and we believe we can price accurately so that we can deliver the same contribution margin across the expanded by box.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our next question.

Carrie Wheeler: It's much more about homes that are 90 to 120 days on the market; we want to be outperforming the market. Thank you. Our next question comes from the line of Yigal Arunian of Citi. Your question, please, Iga. Hi guys, we got Max on for you all. Wondering if you could walk us through the pace of acquisitions through the rest of the year, getting your market neutral, comment on the macro, you know, how your expectations are for home acquisitions and anything you're seeing kind of as we head into the spring. Hey Max, it's Kerry.

Speaker Change: It comes from the line of Nick Jones of JMP Securities. Your line is open Nik.

Nick Jones: Thanks for taking the questions. So is it the new book.

Nick Jones: Silver contribution margins of eight 3% that you're still kind of targeting five to seven.

Nick Jones: I guess.

Nick Jones: What gets you comfortable maybe increasing that range beyond.

5% to seven and maybe being north of eight over time, I guess, just some clarity as to why not expanding that range yet.

Nick Jones: Hey, Nick it's Gary I'd say at a very high level last year's eight 3% GM on the new book, which was great was about <unk>.

Yigal Arunian: So at a high level, you should see a meaningful increase in acquisitions in 2024 over 2023. I'll repeat some of our guidance, which was Q1 being up 100% year on year. So we're gonna see good acquisition growth in the first quarter. What we're seeing right now, as we'd expect to see for this time of year, just given seasonality, people kind of getting back into thinking about selling post-Super Bowls, we're seeing a ramp in contracts month to month. So February higher than January, March higher than February, and we're going to see those contracts turn into closes in Q2, which is why we indicated that you should expect to see sequential acquisition growth in Q2 over Q1. So that's, that's what I can tell you in terms of acquisition pacing for the first half. Okay, great. And then, as a follow up, you know, just are there any updates on the 3P model?

Gary: <unk> spreads and we realize that eight 3% this year, given where we set our spreads that's where why we are reaffirming our 5% to 7% contribution margin target. So again, we're balancing that interplay of growth margin risk and we've reduced the spreads to a level, where we want to deliver within that 5% to 7% for the year.

Speaker Change: Got it helpful and then.

Speaker Change: On the homes that are kind of lifted over 120 days, you took that down to 18% versus I think it was 21% of the markets. Those homes are as youre kind of outperforming the market.

Speaker Change: Given the model over time like what kind of outperformance can we expect in terms of.

Speaker Change: How are you selecting and how long they stay on the market versus kind of the average in those markets I guess, ultimately where does that kind of percentage go.

Speaker Change: Over time, and maybe what's kind of the standard whole type today is that as the markets kind of neutral as we head into 'twenty 'twenty four.

Carrie Wheeler: As we look into 2024, or are you more focused on the core vision? We're focused on both, but I would say our plan to get back to, you know, positive cash flow is all about the current core business today, our sell-direct model. That gets us back there.

Speaker Change: Yes, so we I.

Speaker Change: I think from a business portfolio management perspective, we really think about.

Speaker Change: From for the homes that we are shorter and hold periods. So early days on market, we want to be slower and then add homes sit on.

Carrie Wheeler: Our cost structure and our balance sheet will allow us to deliver on that. The marketplace for us, certainly important, long-term, strategic; we're one year into it, right? We're about connecting buyers and sellers, but we're doing it in a single market. We've said consistently that we want to make sure that we focus on having a great product-market fit before we scale it. I would say that this has been a tough year for experimentation against a low market supply, like a record low market supply. That's challenging.

Speaker Change: Our balance sheet longer we want them to be selling faster than market. So our goal is to outperform market.

Speaker Change: On that older cohort of homes, we think thats appropriate portfolio management and sort of disciplined risk management.

Speaker Change: Okay. Thank you.

Carrie Wheeler: But that's the short term. Long-term, we remain committed to continuing to evolve the marketplace. Okay, great. Thanks, guys. Thank you. Our next question comes from the line of Curtis Nagel of Bank of America. Please go ahead, Curtis. That's terrific. Thanks very much.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change #100: Our next question comes.

Speaker Change #100: Comes from the line of Yigal.

Yigal Iranian: Iranian of Citi. Your question. Please.

Hi, guys got Max on for Yigal.

Yigal Iranian: I was wondering if we could if you could walk us through how you think about the pace of acquisitions through the rest of the year.

Yigal Iranian: Given your market neutral.

Comment on the macro.

Yigal Iranian: Are your expectations are for home acquisitions.

Anything youre seeing kind of as we head into the spring season.

Curtis Nagel: In terms of the, I think, like a $20 million delta in the operating expenses and 4Q positive, that is, what accounted for that? And I guess, how should we think about quarterly operating adjusted expenses in 24, assuming that should be maybe something a little bit above 100 million given higher marketing costs? Or what's the right way to think about that? Curtis, it's Christy.

Yigal Iranian: Hey, Max it's Gary so.

Gary: At a high level, you should see a meaningful increase in acquisitions 2024 over 2023, I'll repeat some of our guidance, which was Q1 being up 100% year on year. So we're going to see a good acquisition growth in the first quarter, where we're seeing right now.

Gary: As we would expect to see for this time of year, just given seasonality people kind of getting back into thinking about selling post Super Bowl is we're seeing a ramping contracts month to month. So February higher than January March or February and we're going to see those contracts turned into closes in Q2, which is why we indicated like you should expect to see from us sequential acquisition growth.

Christy Schwartz: Thank you for the question. So the performance of 99 versus our guidance of 120 is a reflection of us continuing to make meaningful progress throughout the P&L. We saw continued strong execution from our teams in the fourth quarter, which allowed us to smooth the timing of some hiring from 4Q out to 1Q as we're re-ramping, and we continued to realize some cost-saving initiatives. We guided for Q1 to 120 million, and just to unpack that change, it's about roughly half is marketing and advertising, and the other half is increasing our operations, and we expect that increase from Q4 to Q1 to Okay, that's very helpful.

Gary: Two over Q1.

Gary: So that's that's what I can tell you in terms of acquisition pacing for the first half of the year.

Speaker Change #102: Okay, Great and then.

Speaker Change #103: A follow up just.

Speaker Change #104: Is there any update on the <unk> model as we walk into 2024 or are you more focused kind of on the core business.

Speaker Change #105: Hi, there.

Speaker Change #106: We're focused on both but.

Speaker Change #107: But I would say our plan to get back to.

Speaker Change #108: Positive cash flow is all about the current core business today or sell direct model that gets us back there our cost structure and our balance sheet will allow us to deliver on that.

Speaker Change #108: Marketplace for US certainly important long term strategic we're one year into it right whereabout connecting buyers and sellers, but we're doing it in a single market. We've said consistently we want to make sure that we.

Speaker Change #108: Focus on having great product market fit before we scale. It I would say that this has been a tough year for experimentation against a low market supply like record low market supply that's challenging but that's short term long term, we remain committed to continuing to evolve our marketplace product.

Curtis Nagel: Maybe staying on the marketing. So you guys obviously made a big push with the Super Bowl this year. I guess is that indicative of sort of plans for red marking for the rest of the year? Like, you know, it can't be like a one and done, right?

Speaker Change #109: Okay, great. Thanks, guys.

Speaker Change #109: Welcome.

Speaker Change #110: Thank you.

Speaker Change #111: Our next question comes from the line of.

Speaker Change #111: Curtis Nagle of Bank of America. Please go ahead Curtis.

Curtis Nagle: Terrific, Thanks very much.

Curtis Nagle: Let's see I guess, the first one would be.

Carrie Wheeler: Is that sort of a kind of first shot? And I would love to see any, you know, any metrics if you have them in terms of, you know, lift and traffic or perhaps people inquiring about offers post the ad this week. Hey Curtis, it's Carrie.

Curtis Nagle: Yes.

Curtis Nagle: In terms of the I think I could.

Curtis Nagle: $20 million Delta on the operating expenses in <unk>.

Curtis Nagle: Positive that is what accounted for about <unk> or.

Curtis Nagle: I guess, how should we think about.

Curtis Nagle: Quarterly operating adjusted expenses and 24.

Carrie Wheeler: I mean, I think you're asking, are you asking a marketing mix question? Well, yeah, my question was, right, so you get your first Super Bowl ad, right? That's a very splashy form of brand marketing. So, you know, is that indicative of, you know, a big ramp up, right, as we've kind of been talking about, in brand marketing, and just kind of how to think about that for the rest of the year. And then again, just, you know, what do you see in terms of, you know, response in the first week, you know, from that ad? Yeah, I mean, all credit to our creative marketing team. But we actually didn't buy a Super Bowl ad, to be clear.

Curtis Nagle: Assuming that you'd be maybe something a little bit above 100 mill, given the higher marketing costs.

Speaker Change #112: Way to think about that.

Speaker Change #112: Hi, Curtis it's Christine Thank you for the question.

Speaker Change #112: So.

The performance of 99 versus our guidance of 120 is a reflection of us continuing to make meaningful progress throughout the P&L. We saw continued strong execution from our teams in the fourth quarter, which allowed us to smooth the timing of some hiring from <unk> out to <unk> is really ramping.

Speaker Change #112: And we continue to realize some cost savings initiatives.

We guided in Q1 to a $120 million.

Speaker Change #112: Just to unpack that change, it's about roughly half is marketing and advertising and the other half is increasing our operations and we expect that increase from Q4 to Q1 to be the biggest bump for the year.

Carrie Wheeler: We, this has been a year of cost discipline, as you know, as we were not spending on the Super Bowl. Fair enough, okay. Yeah, we were, by the way, we didn't want to be part of the Super Bowl, you know, the pre-run and part of the conversation. And I think our team did a good job of putting us in that room. And we did a lot of stuff in and around the Super Bowl before the game. And then we had a live ad during halftime in Atlanta.

Speaker Change #113: Sure Okay.

Speaker Change #114: Very helpful. Maybe staying on the marketing side you guys, obviously made a big push with the Super Bowl this year.

Speaker Change #114: I guess is that.

Speaker Change #114: Indicative of sort of plans for brand marketing for the rest of the year or it can't be like a one and done.

Speaker Change #114: Is that sort of a kind of a first shot and we'd love to see euro like any.

Speaker Change #114: Any metrics you could have them in terms of.

Speaker Change #114: The lift in traffic or perhaps people requiring about offers post yet this week.

Speaker Change #114: Hey, Curtis just carry I mean, I think you asked are you asking a marketing mix question.

Curtis Nagle: Well I just quoted the question was right. So you had your first Super Bowl AD right. That's a very splashy form of brand marketing. So is that indicative of a big ramp up rate as we kind of been talking about and brand marketing and just kind of how to think about that for the rest of the year and then again just.

Carrie Wheeler: So I'd say it's too early to tell the impact of that. We definitely saw a big pickup in traffic and awareness in Atlanta specifically. I think, you know, time will tell in terms of what the impact of that is.

Curtis Nagel: I would say the higher level, though, if you think about how we think about marketing spend. I mean, you know, last year we took down spend substantially. That was in response to where our spreads were because some spend became less efficient. And you think about this year, we have really leaned into some of our more efficient marketing channels, brand being one, the Super Bowl thing is, you know, evidence is one of those. But what we found is that brand lists all boats for us.

Curtis Nagle: What you see in terms of.

Curtis Nagle: Response, and the first first week.

Curtis Nagle: From that Ed.

Curtis Nagle: Yeah, I mean, all credit to our creative marketing team, we actually didn't by Super Bowl AD to be clear.

Curtis Nagle: We.

Curtis Nagle: As many of you have cost discipline as you know as we were not fair enough. Okay. Yes, we were about even with the first one would be part of the Super Bowl.

Curtis Nagle: Pre run and part of the conversation and I think our team did a good job of putting us in that room, and we did a lot of stuff in and around Super Bowl before the game and then we have a live out during halftime in Atlanta.

Curtis Nagle: So I'd say, it's too early to tell the impact of that we definitely saw a big pickup in traffic and awareness in Atlanta, specifically I think time will tell in terms of what the what the impact of that is obviously at a higher level do you think about how we think about marketing spend.

Carrie Wheeler: So we're increasing our brand spend, and we're finding that increases conversion across all avenues. And actually, even though we had lower spend last year, we actually maintained our brand awareness, something we're really proud of. And then partnerships, which we'll continue to lean into because they're very efficient from a customer acquisition cost perspective, and then there's paid. So you should expect to see more creative from this. You should expect to see more branding, but we're gonna do it within, you know, making sure we manage the overall. Okay, that makes sense. Thanks very much, and we're all the best people in the world. Thank you. I'm Dana Nguyen. I'm the CEO of Opendoor Tech. I own a company called Opendoor Tech.

Curtis Nagle: And last year, we took down spin substantially that was in response to where spreads were because some spin became less efficient than.

Curtis Nagle: When you think about this year, we have really leaned into some of our more efficient marketing channels branding won the Super Bowl thing is evidenced as one of those but will it be found is that.

Curtis Nagle: Brand lift all boats for us so we increase our brand spend.

Curtis Nagle: And we're finding that increases conversion across all avenues.

Curtis Nagle: And actually even though we had lower spend last year, we actually maintained our brand awareness is something we're really proud of and our partnerships will continue to lean into because we're very efficient from a customer acquisition cost perspective, and then theres paid so.

Curtis Nagle: You should expect to see more creative pharmacy as you start to see more brand, but we're going to do with them, making sure we manage the overall envelope.

Okay that makes sense, thanks very much.

Ryan Tomasello: I, Thank you. Again, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question. Our next question comes from the line of Ryan Tomasello of KVW. Please go ahead, Ryan.

Curtis Nagle: Welcome.

Curtis Nagle: Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.

Speaker Change #115: Our next question.

Speaker Change #115: Comes from the line of Brian Thomas L. O K VW. Please go ahead Ryan.

Ryan Tomasello: Hi everyone. Thanks for taking the questions. It seems like one of the more important variables you focus on from a macro perspective is not necessarily the absolute level of rates but the volatility in rates. Is that an accurate statement?

Brian Thomas: Hi, everyone. Thanks for taking the questions.

Brian Thomas: It seems like one of the more important variables you're focused on from a macro perspective is not necessarily the absolute level of rates, but the volatility in rates.

Brian Thomas: Is that an accurate statement and if so it would be helpful. If you can just elaborate on how you define rate volatility. If there is a difference between upward versus downward volatility if that makes sense.

Carrie Wheeler: And if so, it'd be helpful if you could just elaborate on how you define rate volatility, if there's a difference between upward versus downward volatility, if that makes sense, and just generally, you know, how that plays into your willingness to ramp volumes. Yeah, happy to cover that, Ryan. Yeah, I think rate volatility really flows through and impacts the overall market by keeping sellers and buyers on the sidelines. So I think that is why, and you can see it in the numbers and the metrics we have in the back of our shareholder letter as well, if you look at where you've seen rates come down, and you've seen increases in supply and demand. And so I think really, for us at least, we care most about the balance of sellers and buyers, the balance of supply and demand.

Brian Thomas: And just generally how that plays into your willingness to ramp volumes.

Speaker Change #116: Yes happy to cover that Ryan I think rate volatility really flows through and impacts the overall market by keeping sellers and buyers on the sidelines.

Speaker Change #117: So I think that is why.

Ryan: And you can see it in the numbers and the metrics that we have in the back of our shareholder letter as well if you look at where you've seen rates come down and you've seen increases in supply and demand and so I think really for us at least.

Ryan: We care most about the balance of sellers and buyers the balance of supply and demand.

Carrie Wheeler: And so that's really where we stay focused. And based on what we're seeing right now and what we've seen year-to-date, we continue to see a balance between sellers and buyers, and that is leading to relative price stability in line with what we've seen historically. Okay, okay, thanks. And then just on the capital structure, it looks like borrowing capacity came down by a few hundred million quarter over quarter, and you removed the language from the shareholder letter around sufficient capacity to hit the break-even target, just to clarify, you know, that commentary and that moving the capacity and second, just how you're thinking about longer-term capacity, beyond the $10 billion in volume, especially as you have to dip into the higher cost floating rate debt Um, you know, obviously buy back some of the converters.

And so thats really where we stay focused and.

Ryan: Based on what we're seeing right now and what we've seen year to date, we continue to see a balance between the sellers and buyers and that is leading to relative price stability and in line with what we've seen historically.

Speaker Change #119: Okay. Okay. Thanks, and then just on the capital structure it.

Speaker Change #119: It looks like borrowing capacity came down by a few hundred million dollars quarter over quarter.

Speaker Change #119: And you've removed the language from the shareholder shareholder letter around sufficient capacity to hit the breakeven targets.

Speaker Change #119: Just to clarify that that commentary in that move into capacity and second just how youre thinking about longer term capacity.

Beyond the 10 billion in volume, especially as you have to dip into the higher cost floating rate debt.

Speaker Change #119: Obviously, you bought back some of the convert just any updated thoughts there on capital allocation to the convert.

Christy Schwartz: Any updated thoughts there on capital allocation to the converters? Yep. Not trying to signal any change.

Speaker Change #120: Yes, not trying to signal any change so we're comfortable that with our current capital base, both on the equity and debt side.

Speaker Change #120: Can get to that breakeven point.

Speaker Change #120: We are and always have I mean, you saw our students in COVID-19.

Speaker Change #120: Modulating how much capacity, we have lenders don't like this to have unused capacity. So I think that is something we've been working with our lenders on them and they would like to reduce unused capacity and they've been there for us in the past I think really for the near term. We're very focused on the fact that we have these term debt facilities that are fixed.

Speaker Change #120: Through the full year.

Speaker Change #120: And we feel very comfortable about our ability to use those facilities and cash on hand to finance our business and so really feel quite comfortable on the capital side.

Speaker Change #120: I think if you sort of zoom out a bit and think about your last question there.

We obviously don't talk about future capital decisions.

Speaker Change #120: As you alluded to we did three convertible note buybacks last year, we will always be opportunistic.

Christy Schwartz: Great. Thanks, Pat. You bet. Thank you. Our next question comes from the line of Mike Ng of Goldman Sachs. Please go ahead, Mike. Hey, good afternoon.

Speaker Change #120: And on the capital front.

Speaker Change #121: Great. Thanks, David.

Speaker Change #122: You bet.

Speaker Change #123: Thank you.

Speaker Change #124: Our next question comes from the line.

Speaker Change #124: Mike <unk> of Goldman Sachs. Please go ahead Mike.

Michael Ng: Thank you very much for the question. I just had a follow-up on the earlier question regarding OPEX and marketing spending. I was just wondering if you could, you know, talk a little bit more about any of the direct benefits that you see from increasing marketing spending. Is there a direct relationship between marketing and your pace of acquisitions? And then, you know, said differently, should the pace of acquisitions, you know, increase because of your step up in marketing spend? You know, why is it only flat sequentially?

Mike: Hey, good afternoon. Thank you very much for the question I just had a follow up on the earlier question regarding Opex and marketing spending.

I was just wondering if you could talk a little bit more about.

Mike: Any of the direct benefits that you see from increasing marketing spending.

Mike: Is there a direct relationship between marketing and your pace of acquisitions.

Mike: And then you said differently.

Mike: Should the pace back with just trends increase because of your step up in marketing spend why is it only flat sequentially im assuming the top of funnel would widen because of that incremental spend thank you.

Carrie Wheeler: I'm assuming the top of the funnel would widen because of that incremental spend. Thank you. Hey, Mike, it's Carrie.

Gary: Hey, Mike It's Gary.

Gary: For the first half of the year. That's one there definitely is a correlation between advertising spend and how we drive the Williams as a whole the story and things like partnerships are fixed and brand is less directly correlated certainly, but it's a longer term investment that we're seeing the payoff in things like brand awareness. So as Christie said the step up from Q.

Carrie Wheeler: I mean, things like partnerships are fixed, and, you know, brand is less directly correlated, certainly, but it's a longer-term investment that we're seeing a payoff on things like brand awareness. So, as Christy said, the step up from Q4 to Q2, a good chunk of that, about half of that was in marketing. That's probably the biggest chunk up we'll have. We're always going to evaluate our marketing budgets over the course of the year, but we're comfortable with what she just told you, which is that this should be the biggest step up for the year. And, you know, we tend to see, we spend into the first part of the year; we tend to get quieter in the very back half of the year because sellers are quiet.

Gary: For Q2, a good chunk of that about half of that was in marketing that's probably the biggest chunk of it will have we're always going to evaluate our marketing budget over the course of the year, but we're comfortable with what she just told you which is that should be the biggest step up for the year.

Gary: And we tendency we spend into the first part of the year, we tend to get quieter in the very back half of the year because sellers are client.

Carrie Wheeler: So, yeah, we feel good about, given where our spreads are today, we feel good about the marketing investment. One added point, I think, and Kerry alluded to this earlier, if you think about how things flow through our business, we spend advertising dollars. And so what we've seen is an uptick in offers and acquisition contracts each month in the first quarter.

Gary: So.

Gary: Yes, we feel good about given where spreads are today, we feel good about the marketing investment we sized one.

Speaker Change #125: One added point I think Gary alluded to this earlier, if you think about how things flow through our business, we spend advertising dollars and so what we've seen is an uptick in offers and acquisition contracts each month in the first quarter and so really the impact of that dollar spend flows through to closes in the second quarter, which as we said is that we expect to be sequentially up from the first quarter.

Christy Schwartz: And so really, the impact of that dollar spend flows through to closes in the second quarter, which, as we said, we expect to be sequentially up from the first quarter. Great. Thanks for the thoughts.

Speaker Change #126: Great. Thanks for the thoughts.

Carrie Wheeler: Thank you. I would now like to turn the conference back to Carrie Wheeler, CEO, for closing remarks.

Speaker Change #127: Thank you.

Speaker Change #127: I'd now like to turn the conference back to Gary Wheeler CEO for closing remarks Madam.

Gary Wheeler: Hi, Thanks first of all thank you everyone for joining us today I just want to say we're excited about how we're set up for 2024 and beyond.

Hopefully you can hear from US we've done the hard work in 2023, the leaner more agile and to be able to rescale the business in a sustainable fashion as I said, it's when not if so heading into 2024 will be deploying the same operating principles focus execution results. We're looking forward to speaking with you next quarter. Thank you.

Speaker Change #129: This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2023 Opendoor Technologies Inc Earnings Call

Request a DemoDemo

OPEN

Opendoor

Earnings