Q1 2024 Opendoor Technologies Inc Earnings Call

May 2, 2024

Okay.

Operator: Good day, and thank you for standing by. Welcome to Opendoor Technology's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Good day, and thank you for sending by walking through the open door Technologies' first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Operator: 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kimberly Niehaus, Investor Relations. Please go ahead.

Kimberly Niehaus: 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 on your telephone.

Kimberly Niehaus: With inherent automated message revising your hand is race to withdraw your question. Please press star one again please.

Kimberly Niehaus: Please be advised that today's conference is being recorded.

Operator: And I'd like to hand, the conference over to your Speaker today, Kimberly Niehaus Investor Relations. Please go ahead.

Kimberly Niehaus: 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 laws.

Kimberly Niehaus: Thank you and good afternoon 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 adopt open door Dot Com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's Corp.

Kimberly Niehaus: Website.

Kimberly Niehaus: 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 condition, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them.

Kimberly Niehaus: 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 the statements of historical fact are statements that could be deemed forward looking including but not limited to statements regarding open doors financial condition anticipated financial performance business strategy and plans market opportunity and expansion.

Kimberly Niehaus: And management objectives for future operations.

Kimberly Niehaus: 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.

Kimberly Niehaus: 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.

Kimberly Niehaus: 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 more assumes no obligation to update or revise them, whether as a result of new information future events or otherwise except as required by law.

Kimberly Niehaus: The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor Tech. Good

Kimberly Niehaus: The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance for a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our website at Investor Dot open door.

Carrie Wheeler: Com I will now turn the call over to Karri Wheeler Chief Executive Officer of open door.

Carrie Wheeler: Also on the call with me today is Christy Schwartz, Interim Chief Financial Officer, and Dod Fraser, President of Capital and Open Exchange. Our performance in the first quarter reflects our commitment to the three key operating principles we outlined at the beginning of the year, focus, execution, and results. Our North Star remains rescaling our business and building towards the future of sustained profitable growth as we drive the business towards positive adjusted net income.

Carrie Wheeler: Good afternoon also on the call with me today is Christi Schwartz interim Chief Financial Officer of Dod Frazier President of capital an open exchange.

Carrie Wheeler: Our performance in the first quarter reflects our commitment to the three key operating principles, we outlined at the beginning of the year focus execution and results our North Star remains re scaling our business and building towards the future of sustained profitable growth as we drive the business towards positive adjusted net income.

Carrie Wheeler: We are making progress along this path with first quarter revenue, contribution profit, and adjusted EBITDA results all coming in ahead of our expectations. In addition, we remain on track to meaningfully wrap acquisitions year on year each quarter in 2024 and deliver contribution margin within our target range of 5 to 7%. In the first quarter, we nearly doubled our acquisition volume year-over-year. Contribution margin was 4.8%, and excluding approximately 50 homes from the old book, our contribution margin was over 5%.

Carrie Wheeler: We are making progress along this path with first quarter revenue contribution profit and adjusted EBITDA results all coming in ahead of our expectations. Further we remain on track to meaningfully ramp acquisitions year on year each quarter in 2024, and deliver contribution margin within our target range of 5% to 7%.

Carrie Wheeler: In the first quarter, we nearly doubled our acquisition volumes year over year contribution margin with four 8% and excluding approximately 50 homes from the old book, our contribution margin was over 5%.

Carrie Wheeler: Notably, this marks the seventh consecutive quarter that our new book of homes has generated contribution margin within or above our annual target margin range, demonstrating the health of our unit economics across seasons and market conditions. We expect that our acquisition volume growth in 2024 will benefit from further expansion of our partnership channels. For example, at the end of February, our eXp Realty partnership went live, enabling eXp Realty's agents to easily request an Opendoor cash offer for their clients and qualifying properties.

Carrie Wheeler: Notably this marks the seventh consecutive quarter that our new book of homes is generated contribution margin within or above our annual target margin range, demonstrating the health of our unit economics across seasons and market environments.

Carrie Wheeler: We expect that our acquisition volume growth in 2024 will benefit from further expansion of our partnership channels. For example at the end of February our ESP Realty partnership went live enabling ESP realty's agents to easily requests and opened our cash offer for their clients and qualifying properties.

Carrie Wheeler: This partnership should continue to build on our brand awareness amongst agents and provide another way for sellers to learn about the benefits of working with Opendoor. Earlier this year, details began to emerge on the proposed National Association of Realtors settlement.

Carrie Wheeler: This partnership should continue to build on our brand awareness amongst agents and provide another way for sellers to learn about the benefits of working with open door.

Carrie Wheeler: Earlier this year details began to emerge on the proposed National Association of Realtors settlement.

Carrie Wheeler: We believe this settlement represents an important positive change for our industry by giving consumers more transparency and choice on how they transact in the housing market. In the near term, we expect the settlement to have a neutral to positive impact on our business. As you've heard from us before, our business model does not rely on earning revenue from commissions paid to buyer's agents. Rather, those commissions are a cost to us today, which we pay when we resell our homes.

Carrie Wheeler: We believe this settlement represents an important positive change for our industry, but giving consumers more transparency and choice on how they transact in the housing market.

Carrie Wheeler: In the near term, we expect the settlement to have a neutral to positive impact on our business as you've heard from us before our business model does not rely on earning revenue from commissions paid to buyers agents, rather those commissions are cost to us today, which we pay when we resell our homes.

Carrie Wheeler: Over the long term, we believe the settlement will drive lower transaction costs. And if commissions do decline, Opendoor may be able to pass these cost savings back to consumers in the form of a lower spread, which means more cash for our sellers and more customers saying yes will generate at the same margin. We also believe this settlement could result in more transactions as commissions decrease, which may encourage more consumers to transact directly, including through Opendoor's platform, instead of listing on the MLS. We believe that Opendoor stands to benefit as consumers rethink how they buy and sell homes. We've spent the last decade building for this future.

Carrie Wheeler: Over the long term, we believe the settlement will drive lower transaction cost and if conditions do decline open door may be able to pass these cost savings back to consumers in the form of lower spreads, which means more cash for sellers and more customers, saying, yes, well generating the same margin.

Carrie Wheeler: I believe this settlement could result in more transactions as commissions decrease which may encourage more consumers to transact directly including through to open north platform instead of listing on the MLS.

Carrie Wheeler: We believe that open door stands to benefit as consumers rethink how they buy and sell homes. We spent the last decade building for this future.

Carrie Wheeler: We're off to a strong start in 2024 to ramp up our volumes in a sustainable and durable fashion. And during a time when the industry has the potential to undergo a major change and consumers are thinking about how to sell or buy a home, we are very well positioned as the largest digital platform for residential real estate transactions. We're empowering consumers with more control and a simple, certain, and transparent offering during one of life's most important transactions. Christy will now review our financial results and guide us. Thank you, Carrie.

Carrie Wheeler: We're off to a strong start in 2024, as we ramp our volumes and a sustainable and durable fashion and during a time when the industry has the potential to undergo a major change in how consumers are thinking about how to sell or buy your home. We are very well positioned as the largest digital platform for residential real estate transactions, we're empowering consumers.

Christy: Tumors with more control and as simple certain and transparent offering during one of life's most important transactions.

Christy: Christie will now review, our financial results and guidance.

Christina Schwartz: Our first quarter results reflect our ongoing commitment to rescaling the business, generating strong unit economics, and operating with disciplined costs. We delivered $1.2 billion of revenue in the first quarter, exceeding the high end of our guidance. This represents a 36% sequential increase in revenue driven by our acquisition volume growth last year and coinciding with a pickup in clearance rates as is typical for this time of year. On the acquisition side, we purchased 3,458 homes in the first quarter, up 98% versus the first quarter of 2023, primarily due to spread reductions made throughout last year, coupled with added contributions from our partnership channel.

Christy: Thank you Carrie our first quarter results reflect our ongoing commitment to re scaling the business generating strong unit economics, and operating with disciplined cost management.

Christina Schwartz: We delivered $1 2 billion of revenue in the first quarter exceeding the high end of our guidance range. This represents a 36% sequential increase in revenue driven by our acquisition volume growth last year and coinciding with a pickup in clearance rates as is typical for this time of year.

Christina Schwartz: On the acquisition side, we purchased 3458 homes in the first quarter up 98% versus first quarter of 2023, primarily due to spread reductions made throughout last year, coupled with added contributions from our partnership channels.

Christina Schwartz: We delivered contribution margin of 4.8% in the first quarter ahead of the high end of our implied guidance. Contribution margin improved by more than 100 basis points sequentially as there were fewer old book home sales. We continue to expect full year contribution margin within our annual target range of 5% to 7%. Adjusted operating expenses totaled $107 million for the quarter, up from $99 million in the fourth quarter of 2023, driven by increased marketing spend of nearly 60% sequentially and below our guidance of $120 million.

Christina Schwartz: We delivered contribution margin of four 8% in the first quarter ahead of the high end of our implied guidance range contribution margin improved by more than 100 basis points sequentially. As there were fewer older Dot com sales. We continue to expect full year contribution margin within our annual target range of 5% to 7%.

Christina Schwartz: Adjusted operating expenses totaled $107 million for the quarter up from $99 million in the fourth quarter of 2023, driven by increased marketing spend up nearly 60% sequentially and below our guidance of $120 million.

Christina Schwartz: Finally, Adjusted EBITDA loss was $50 million, outperforming the high end of our guidance range and an improvement from an Adjusted EBITDA loss of $69 million in the fourth quarter of 2023. Turning to our balance sheet, we ended the quarter with $1.3 billion in total capital, which includes $1 billion in unrestricted cash and marketable securities and $181 million of equity invested in homes and related assets, net of inventory valuation adjustment. We also had $8 billion in non-recourse asset-backed borrowing capacity, composed of $3.8 billion of senior revolving credit facilities and $4.2 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.5 billion.

Christina Schwartz: Finally, adjusted EBITDA loss was $50 million outperforming the high end of our guidance range and an improvement from an adjusted EBITDA loss of $69 million in the fourth quarter of 'twenty three.

Christina Schwartz: Turning to our balance sheet, we ended the quarter with $1 3 billion and total capital, which includes $1 billion in unrestricted cash and marketable securities at $181 million of equity invested in homes unrelated assets net of inventory valuation adjustments.

Christina Schwartz: So had $8 billion of nonrecourse asset backed borrowing capacity composed of $3 8 billion of senior revolving credit facilities and $4 2 billion of senior and mezzanine term debt facilities of which total committed borrowing capacity was $2 5 billion.

Christina Schwartz: Additionally, this morning, we established an at the market, or ATM, program that allows us to sell up to 200 million in equity through open market transactions within the next three years. We are making progress towards achieving positive adjusted net income. And as we demonstrated with our convertible note repurchases in 2023, which generated over 200 million of shareholder equity, we are managing our balance sheet with discipline. We feel that putting this program in place provides us with the flexibility to fund future growth should we need it.

Christina Schwartz: Additionally, this morning, we established an aftermarket or ATM program, which allows us to sell up to $200 million in equity through open market transactions within the next three years, we are making progress towards achieving positive adjusted net income and as we demonstrated with our convertible note repurchases in 2023.

Christina Schwartz: Which generated over $200 million of shareholders equity, we are managing our balance sheet with discipline, we feel that putting this program in place provides us the flexibility to fund future growth should we need it we plan to be prudent and patient in utilizing the ATM to ensure we are optimizing our cost of capital.

Christina Schwartz: We plan to be prudent and patient in utilizing the ATM to ensure we are optimizing our cost of capital. Looking ahead, we expect our second-quarter revenue to be between $1.4 billion and $1.5 billion, contribution profit between $75 million and $85 million, which implies a contribution margin of 5.4% to 5.7%, and adjusted EBITDA loss between $35 million and $25 million. We expect adjusted operating expenses to be approximately $110 million.

Christina Schwartz: Looking ahead, we expect our second quarter revenue to be between $1 4 billion and $1 5 billion contribution profit between $75 million and $85 million, which implies a contribution margin of five 4% to five 7% and adjusted EBITDA loss between $35 million and $25 million.

Christina Schwartz: We expect adjusted operating expenses to be approximately $110 million.

Christina Schwartz: Additionally, as a result of our increased marketing spend, we have seen an uptick in acquisition contracts in the latter part of the quarter. This, coupled with continued marketing spend and alongside seasonality tailwinds, should result in home purchases of over 4,500 homes in the second quarter. Given the selling season can peak during the second quarter, we expect our acquisitions to be flat or modestly lower on a sequential basis in the third quarter. However, the first quarter should be the trough for quarterly purchases this year.

Christina Schwartz: Additionally, as a result of our increased marketing spend we have seen an uptick in acquisition contracts in the latter part of the quarter. This coupled with continued marketing spend and alongside seasonality tailwind should result in home purchases of over 4500 homes in the second quarter.

Christina Schwartz: Given the selling season can peak during the second quarter, we expect our acquisitions to be flat or modestly lower on a sequential basis in the third quarter. However.

Christina Schwartz: However, the first quarter should be the trough for quarterly purchases this year.

Operator: We are pleased with our execution during the first quarter. We remain on track to increase acquisitions on a year-over-year basis each quarter in 2024 while delivering annual contribution margin in our target range and operating efficiently, which should substantially decrease our adjusted net income losses for the year. 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, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1-1 again.

Christina Schwartz: We are pleased with our execution during the first quarter, we remain on track to increase acquisitions on a year over year basis, each quarter in 2024, while delivering annual contribution margin in our target range and operating efficiently, which should substantially decrease our adjusted net income losses for the year.

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

Operator: Thank you as a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.

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

Operator: Our first question comes from the line of Dae Lee with Jpmorgan. Your line is now open.

Dae K. Lee: Great. Thanks for taking the question.

Dae K. Lee: So the first one, appreciate the color on my position through the year, but current power, like macro conditions, kind of change your expectations for the clearance rate going forward? And I guess those mortgage rates, which picked up again this week, were pretty bad. Like, could that impact?

Dae K. Lee: The first one I.

Dae K. Lee: Appreciate the color on the acquisition.

Dae K. Lee: Positioning through the year.

Dae K. Lee: Curious how the macro conditions.

Dae K. Lee: Change your expectation for care.

Dae K. Lee: Forward.

Dae K. Lee: So if mortgage rates pick up again.

Dae K. Lee: Thank you, Matt, but could that impact.

Dae K. Lee: Going forward.

Dae K. Lee: Yeah.

Carrie Wheeler: Well, we're not going forward. Sure, Jay, happy to start. I think in the sort of, if you start to zoom out from a macro perspective, reiterating what we said in the letter, what we are most focused on and have been for the last 18 months plus is continued price stability. And that really is the key input for us in terms of how we set spreads and how we manage growth and marketing. And so we've continued to see a balance of supply and demand.

Dae K. Lee: Sure happy to start.

Speaker Change: In the sort of.

Carrie Wheeler: If you zoom out from a macro perspective, we reiterate what we said on the letter.

Carrie Wheeler: What we are most focused on and have been for the last 18 months plus is continued price stability and that really is the key input for us in terms of how we set spreads and how we manage growth end markets.

Carrie Wheeler: And so we continue to see a balance of supply and demand. We do think even with some rate relief in the back half of the year that should actually be a tailwind for the business in terms of.

Carrie Wheeler: We do think even with some rate relief in the back half of the year, that should actually be a tailwind for the business in terms of market transaction volumes going up. And one of the points and pieces of the shareholder letter that we added this year, or this quarter, sorry, is around seasonality and how that impacts spreads. And so that is really the primary driver of spread changes right now, which is for this time of year; we typically do increase spreads, but happy to have Carrie add on as it relates to the volume trajectory for the rest of the year. To put acquisitions in context.

Carrie Wheeler: Market transaction volumes going up.

Carrie Wheeler: So, as we said in our remarks, we almost doubled acquisitions year on year in the first quarter, and then a guide for Q2, which would be up, you know, call it over 70% year on year. Sorry, we doubled Q1 year on year, up 70% in the guide year on year. So the macro has not been a tailwind for us, certainly today. It's been a headwind.

Carrie Wheeler: But in terms of focusing on control, we're really pleased with the fact that, you know, in a quarter where new listings for the market in our buy box were up only 6%, we showed 98% acquisition growth and feel good about where we ended the quarter. We were up 24% in contracts sequentially in Q1. And that's feeding into what feels like a really solid Q2 guide in terms of acquisition growth. So we're going to focus on what we can control in this moment, and it's just proof of what we're doing in terms of share gains and acquisition momentum. Okay, great.

Christina Schwartz: And then as a follow-up, sounds like your first quarter adjusted offset didn't increase as much as expected, sequentially, mostly due to more moderate hiring. So does that mean, I guess, two things. First, is your marketing ramp going according to plan? And second, was the more moderate hiring because there was a change in view on volume? Or was that because you guys think you can do more with less?

Christina Schwartz: Thanks for the question, David here. So, you know, as a reminder, our Adjusted Off X is composed of three main pieces, our Fixed Costs, our Marketing, and our Variable SG&S. Our fixed costs, we are continuing to make meaningful reductions and take costs out of our system and continue to refine it, and some of that is what you're seeing in the outperformance. Our marketing, we did increase it as we had indicated. It went up $10 million quarter over quarter, and we don't expect meaningful increases to our marketing spend for the remainder of the year. And then our variable SG&A is the part that will vary with volumes, and so 107 is where it was in Q1, and we've got it to 110. Okay, I understand.

Operator: Thank you. Thank you. Our next question comes from the line of Ygal Arounian with Citi. Your line is now open. Hey, good afternoon, guys.

Ygal Arounian: So let me start by following up on the first question on acquisition strategy and race, and it sounds like there's been no change, really, to your strategy here, but with the recent rate spike aligning with kind of what's the heart of the buying and selling season, if that's impacting how you're thinking about things at all. And then is that maybe just an update on your kind of current market and buy box expansion strategy or path how you're thinking about that. Hey, Ygal. It's Carrie.

Carrie Wheeler: Can you just say a little bit more on your first question? I wasn't quite following that. A little bit more on the recent rate spike we've seen over the past couple of weeks has been a pretty meaningful increase in mortgage rates and that's coinciding with the heart of the buying and selling season and any expectations that that might soften the market and the core key part of the market or the key part of the seasonal market and if that's impacting how you're thinking about things it sounds like it's not but just you're curious if you're taking any of that, Yeah, I mean, certainly we're taking in all those signals all the time.

Carrie Wheeler: And we're watching very closely kind of what the market is telling us in terms of clearance rates and, you know, trending and prices. We did talk a little bit in the shareholder letter about this being the time of year where we do start to increase spreads a bit because we expect that the homes that we're offering on today will be sold post the spring selling season. So we'd expect those homes to have less of a gain to them, and that would be reflected in a slightly higher spread. So those are the adjustments we make. You know, every day and every week with the team.

Carrie Wheeler: And, you know, we certainly are reflecting what will be coming down the pike given recent rate increases. God, do you want to add on to that? Yeah, I think the only thing to add is if you look at some of the charts in the back of the shareholder, you can see what we're observing from a new lifting perspective. And although there's a slight lag there, we really haven't seen a sort of meaningful change on the back of the recent rate changes in terms of lifting volumes, which is really the sort of key driver and input to our acquisition target. Okay, that's helpful. And maybe just a little bit more color on the ATM equity offering, a little bit more detail on how it works. Why now? Can you do more of this?

Christina Schwartz: How should we be thinking about this? Yeah, I mean, I think I should just start with leveling the playing field on where we are from a balance sheet perspective. So, as you can see from our financials, we've got over a billion in cash, 1.3 billion in total capital, and 8 billion in debt capacity. I think we feel very good about executing our business plan again with our current capital base. Really, the ATM for us gives us the ability to opportunistically raise equity over the next three years. I think it's really important. It's a three-year program.

Christina Schwartz: And because of how they're structured, we do that at a lower fee and at market price, so there's no discount to the market. So we really do it as a tool and toolkit for us as a business to opportunistically fund future growth. This is one of many ways we could implement that. But we wanted to get it out there. These programs are very common in capital-intensive businesses like the REIT sector or biotech

Christina Schwartz: But there is actually a growing list of technology companies putting these in place, especially post-COVID. I think people sort of realize how useful they can be. Carvana has one, Zillow has one, and Tesla has one.

Christina Schwartz: And so to Chrissy's point earlier, we were opportunistic last year in repurchasing the convertible notes, creating over 200 million in equity. We do not plan to utilize the ATM immediately. We'll be patient with this. And we don't plan to use it this quarter.

Christina Schwartz: Got it. That's really helpful. Thank you. Thank you. Our next question comes from the line of Nick Jones with Citizens JMP. Your line is now open.

Nicholas Freeman Jones: Great, thanks for taking the questions. I guess maybe one on, you know, the path to positive adjusted EBITDA, and I guess I mentioned net income. You know, it's been a nice cadence over the last few quarters.

Carrie Wheeler: As we kind of think about shaping the rest of the year, is it right to kind of think of 4Q maybe being the weaker quarter throughout the year, but maybe not as weak as Q1. And then are we kind of on a linear path? From here, are you confident that we can kind of get to positive adjusted EBITDA? I guess maybe even this year or next year. Hey Nick, it's Carrie.

Carrie Wheeler: I'll take that. What I would say at a high level is that we are on this path of increasing acquisitions, you know, year on year for every quarter in 2024, and we feel good about delivering within our five to 7% contribution margin target. And all of that goes together to substantially reduce the losses we've seen in the system. So without giving you specifics regarding kind of where EBITDA is going to fall in subsequent quarters, I just said that we're feeling good about the path we're on to substantially improve the bottom line of the business. Got it. It's helpful.

Carrie Wheeler: And then maybe a higher level question, Carrie, you mentioned the NAR settlement, and I think there's some headlines that the DOJ might be, you know, taking a look or a closer look at the NAR. I think you said in your comments that folks might bypass the MLS. At a high level, you know, the NAR and the MLS, while it was kind of the original marketplace, whatever, 100 plus years ago, there are complaints that they create this sense of urgency that, you know, potentially damages the selling and buying experience.

Carrie Wheeler: You know, do you think this is the start of, kind of their dominance in the ecosystem potentially starting to wane, and is that kind of a long-term secular talent for Opendoor? Yeah, it's a good question.

Carrie Wheeler: And I just want to clarify my comments. We think this is net positive, first of all, for consumers. I mean, it's good for consumers, and that's good for Opendoor. I mean, this is all about giving more choice, transparency, and agency in the hand of home buyers in terms of how they want to engage with an agent. The reason I think we're so set up well in this context is because we have this direct platform. I wasn't talking about homes going off the MLS, although there's been some talk about that. We think the MLS is a great thing because it's democratic.

Carrie Wheeler: Everyone can understand what's available for sale. But it really says to certain homebuyers or sellers... I may decide I don't need an agent in this transaction, or I can dial in the amount of advice I need to get. The only place you can sell your home directly today, and the only place you can buy a home directly with an e-commerce-like transaction is Opendoor.

Carrie Wheeler: We have the only direct platform in the industry. So no matter how the real estate ecosystem evolves, we're really set up well to take advantage of that. And there's lots of talk about touring and having to get a, you know, buy a representation agreement beforehand. You can self-tour our homes.

Carrie Wheeler: We want to give the consumer, like, total agency to do what is right for them in whatever way they want to do it, including if they want an agent to come with them. So my comments were not about, like, off the MLS; we're supportive of the MLS, but really about enabling consumers to go direct. Got it. Really helpful. Thanks, Carrie.

Carrie Wheeler: Thank you. Our next question comes from the line of Jason Helstein with Oppenheimer. Your line is now open. Hey, thanks, this is Chad on behalf of Jason.

Jason Helstein: So, home purchases were down slightly sequentially, but there was a nice increase in the sequential homes under contract. So anything like what's going on there? Is that just normal seasonality?

Carrie Wheeler: Or is there something that's just giving you more confidence to lean back into buying? Yeah, I mean, I said the market is fluid enough. And also, we offer the customer a great deal of choice about when they close their home. So I focus less on the quarter to quarter because a contract in one quarter may close; it may slip and close another quarter. This is about, I think the focus should be on like the year-on-year growth for proposing or for showing.

Carrie Wheeler: And to your point, Chad, like we had a really nice end to the quarter with a really nice number of contracts in the queue of 24% versus Q4. So just that nice momentum going through the quarter, and that really feeds into that contract momentum, really feeds into what is a strong guide for over 4,500 acquisitions in Q2. Okay, thank you. I guess what I'm saying is I wouldn't make too much of the, you know, slightly down versus Q4.

Carrie Wheeler: Yep, fair enough. And then just on the eXp partnership, just, you know, anything else you can share there and, you know, how meaningful could that be, you know, kind of over the long... Yeah, happy to give a little more context there. It's still very early.

Carrie Wheeler: So we just launched in February. We're seeing sort of steady, steady weekly growth since launch, but just since February, it's like the low end. So I think the sort of key piece there is it really helps broaden our reach into the agent community. EXP has 70,000 agents in its network, and we're growing. And so we are actually quite excited about the sort of brand expansion opportunities, the understanding of our product, and as well as the specific application of EXP, which is embedded directly into their workflows. And so we've made it really simple and easy for EXP agents to utilize our product.

Carrie Wheeler: And going back to what Carrie said earlier, like we're on the side of transparency and choice for customers, this is another option for them when they're talking to their customers.

Carrie Wheeler: Thanks. Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone. Our next question comes from the line of Ryan Tomasello with KBW. Your line is now open. Hi, everyone.

Ryan John Tomasello: Thanks for taking the questions. Just trying to parse through the different comments on the seasonal cadence of purchase volumes. I think in your prepared remarks, you said you expected purchase volumes to increase sequentially in every quarter, and in the shareholder letter, you say on page 12 that you are actually, expecting purchase volumes in 3Q to be flat or decline modestly. So am I missing something there?

Carrie Wheeler: And can you just clarify that commentary? And then, beyond just from a seasonal perspective, how should we be thinking about 4Q volumes with normal seasonality? Yeah, let me try and parse it.

Carrie Wheeler: I think quarter over quarter versus year over year is the piece that I think was the dissonant rhyme to your specific question about 3Q. So, year over year, we're increasing every quarter. What we have also said in the letter is over 4,500 in the second quarter, flat to slightly down in the third quarter, and then we did say the first quarter would be the lowest of the year. So 4Q will be above the first quarter.

Carrie Wheeler: Given where we are and sort of given how 4Q tends to unfold, you've got some headwinds on market volumes and marketing spend, but you've got some great tailwinds around low spreads. And so that was what we were trying to think that the year over year was quarter over quarter is the dissonant rhyme.

Carrie Wheeler: Okay, got that. That's really helpful. And maybe just to entertain for a moment or more.

Speaker Change: Okay got it that's really helpful and maybe just to entertain for a moment of more.

Ryan John Tomasello: Extreme scenario with respect to the NAR settlement and industry structure. You know, clearly the consensus opinion, at least from most folks you talk with expect commission rates to decline. But even then, I think, you know, the international comparisons would suggest, you know, something that could be substantially worse in terms of fewer homebuyers using agents, perhaps compression on the listing side.

Ryan John Tomasello: Clearly.

Ryan John Tomasello: The consensus opinion at least from most folks you talk with expect commission rates to decline.

Ryan John Tomasello: But even then I think.

Ryan John Tomasello: The international comparisons again in a more extreme scenario would suggest.

Carrie Wheeler: I guess, again, just to entertain the scenario, is there, is there a lower clearing rate in terms of commission rates and all transaction costs where the Opendoor model perhaps needs to pivot in terms of the value proposition that it's providing relative to the benchmark rate, that is, Prevailing Commission. Well, I guess a couple things.

Ryan John Tomasello: That could be substantially worse in terms of fewer homebuyers using agents, perhaps compression on the listing side.

Carrie Wheeler: Yes, again just to entertain the scenario is there is there a <unk>.

Carrie Wheeler: Lower is there a clearing right in terms of commission rates and all and transaction costs.

Carrie Wheeler: Where the open door model, perhaps needs to pivot in terms of the value proposition that it's providing relative to the benchmark rate that is.

Carrie Wheeler: Availing commissions.

Carrie Wheeler: One is, we provide something that you can't get in a traditional transaction. So we provide utmost certainty, no fall-through rate, and utmost simplicity: no listings, no doing repairs on spec, no doing open houses, like all the incredible amount of friction and uncertainty that goes with traditional listings. We're just providing something very different.

Carrie Wheeler: Well I guess a couple of things one is.

Carrie Wheeler: We provide something that you can't get in a traditional transaction.

Carrie Wheeler: We provide utmost certainty no fall through rate and that most simplicity no listings no during repairs on snack new doing open houses like all of the incredible amount of friction uncertainty that goes with traditional listing we're just providing something very different and today, we charge a premium to the traditional listing for that through our spreads right we have.

Carrie Wheeler: And today, you know, we charge a premium for that through our spreads, right? We have an analogous service fee, and there's an incremental spread. And that's in part to, you know, meet margin targets. And it's just, you know, we're paying, people are paying a premium for the certainty and simplicity that we provide. I think in the event that there is more spread, sorry, more fee compression, and that's the point you're trying to bring across, Ryan, we will adjust with the market.

Carrie Wheeler: Now I'll just service fee and there is an incremental spread and thats in part two.

Carrie Wheeler: Margin targets and it does it just we're paying our people are paying a premium for the certainties simplicity that we provide.

Carrie Wheeler: I think in the event that there is more spread.

Carrie Wheeler: Our fee compression and disappoint you are trying to bring across Ryan.

Carrie Wheeler: We will adjust with the market and.

Carrie Wheeler: I don't worry a lot about our ability to continue to like have an incredible value prop because you're guiding for providing something that is just so different and while there is a premium and it like theres a lot of value, which is why we have such a high converting product when we can deliver in a reasonable price.

Carrie Wheeler: This extensive broker commissions come down like what we've said.

Carrie Wheeler: It's probably a pass through it's probably neutral to maybe some interim benefits to us.

Carrie Wheeler: So the real question would be like how do you sell are listing fees change over time.

Carrie Wheeler: And we will see how the market responds post July it will be.

Carrie Wheeler: Prepared to respond in kind.

Speaker Change: Appreciate the color thanks Kerry.

Carrie Wheeler: Yes.

Carrie Wheeler: Thank you and I'm currently showing no further questions at this time I would like to hand, the call back over to Cary Wheeler for closing remarks.

Speaker Change: Just thanks, everyone for joining us today I was hoping you heard we are pleased with our results to kick off this year.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

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Speaker Change: Good morning.

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Speaker Change: Thank you.

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Speaker Change: Thank you.

Carrie Wheeler: Yes.

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Carrie Wheeler: Thanks.

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Carrie Wheeler: Yeah.

Carrie Wheeler: Yes.

Carrie Wheeler: And I don't worry a lot about our ability to continue to have an incredible value product because, again, if we're providing something that is just so different, and while there's a premium in it, there's a lot of value, which is why we have such a high-converting product. When we can deliver a reasonable, the extent of our broker commissions comes down, like as we've said, you know, ultimately, It's probably neutral.

Speaker Change: Good day, and thank you for standby and welcome to the open door technologies first quarter 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you have inherent automated message.

Carrie Wheeler: There may be some interim benefits to us. So the real question will be like, how do seller listing fees change over time? And we'll see how the market responds post-July, and we'll be prepared to respond in kind. Appreciate the color.

Carrie Wheeler: Why isn't your hand is reyes towards draw. Your question. Please press star one again.

Carrie Wheeler: Thanks, Carrie. Thank you, and I'm currently showing no further questions at this time. I'd like to hand the call back over to Carrie Wheeler for closing remarks. I would just thank everyone for joining us today.

Carrie Wheeler: I hope you've heard we are pleased with the results to kick off this year. The housing market is challenging, for sure, but we are staying focused. I hope you can see that our team is executing really well, and we are driving results.

Speaker Change: 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 <unk> Com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate.

Operator: And we look forward to updating you on further progress next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and thank you for standing by.

Operator: Welcome to the Opendoor Technologies First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kimberly Niehaus, Investor Relations. Please go ahead.

Kimberly Niehaus: Web site.

Kimberly Niehaus: 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 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.

Kimberly Niehaus: Before we start I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal Securities laws. All statements other than statements of historical fact are statements that could be deemed forward looking including but not limited to statements regarding open doors financial condition anticipated financial performance business strategy and plans market opportunity and expansion.

Kimberly Niehaus: And management objectives for future operations.

Kimberly Niehaus: These statements are neither comments with Morgan Ts and undue reliance should not be placed on such forward looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here additional information that could cause actual results to differ from forward looking statements can be found in the risk factors section of <unk>. Most recent annual report on Form 10-K.

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 time. 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.

Kimberly Niehaus: For the year ended December 31, 2023 as updated by our periodic reports filed after that 10-K.

Kimberly Niehaus: Following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance for a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our web site at Investor Dot open door Dot com.

Carrie Wheeler: I will now turn the call over to Karri Wheeler Chief Executive Officer of open door.

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

Carrie Wheeler: We are making progress along this path, with first quarter revenue, contribution profit, and adjusted EBITDA results all coming in ahead of our expectations. In addition, we remain on track to meaningfully wrap acquisitions year on year, each quarter in 2024, and deliver contribution margin within our target range of 5 to 7%. In the first quarter, we nearly doubled our acquisition volumes year over year, and our contribution margin was 4.8%. And excluding approximately 50 homes from the old book, our contribution margin was over $5,000.

Carrie Wheeler: We're making progress along this path with first quarter revenue contribution profit and adjusted EBITDA results all coming in ahead of our expectations. Further we remain on track to meaningfully ramp acquisitions year on year each quarter in 2024, and deliver contribution margin within our target range of 5% to 7%.

Carrie Wheeler: We expect that our acquisition volume growth of 2024 will benefit from further expansion of our partnership channels. For example at the end of February our ESP Realty partnership went live enabling ESP realty's agents to easily requests and opened our cash offer for their clients on qualifying properties.

Carrie Wheeler: This partnership should continue to build on our brand awareness amongst of agents and provide another way for sellers to learn about the benefits of working with open door.

Carrie Wheeler: Earlier this year details began to emerge on the proposed National Association of Realtors settlement. We believe this settlement represents an important positive change for our industry by giving consumers more transparency and choice on how they transact in the housing market.

Carrie Wheeler: We believe this settlement represents an important positive change for our industry by giving consumers more transparency and choice on how they transact in the housing market. In the near term, we expect the settlement to have a neutral positive impact on our business. As you've heard from us before, our business model does not rely on earning revenue from commissions paid to buyer's agents. Rather, those commissions are a cost to us today, which we pay when we resell our homes.

Carrie Wheeler: In the near term, we expect the settlement to have a neutral to positive impact on our business as you've heard from us before our business model does not rely on earning revenue from commission paid to buyers agents, rather those commissions are cost to us today, which we pay when we resell our homes.

Carrie Wheeler: I believe the settlement could result in more transactions as commissions decrease which may encourage more consumers to transact directly including through to opened north platform instead of listing on the MLS.

Carrie Wheeler: We believe that open door stands to benefit as consumers rethink how they buy and sell homes. We spent the last decade building for this future.

Carrie Wheeler: We're off to a strong start in 2024, as we ramp our volume in a sustainable and durable fashion and during a time when the industry has the potential to undergo a major change in how consumers are thinking about how to sell or buy your home. We are very well positioned as the largest digital platform for residential real estate transactions, we're empowering consumers.

Christy: Tumors with more control and as simple and transparent offering during one of life's most important transactions.

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

Christy: Thank you Carrie.

Christina Schwartz: First quarter results reflect our ongoing commitment to re scaling the business generating strong unit economics, and operating with disciplined cost management.

Christina Schwartz: We delivered $1 $2 billion of revenue in the first quarter exceeding the high end of our guidance range. This represents a 36% sequential increase in revenue driven by our acquisition volume growth last year and coinciding with a pickup in clearance rates as is typical for this time of year.

Christina Schwartz: On the acquisition side, we purchased 3458 homes in the first quarter up 98% versus first quarter 2023, primarily due to spread reductions made throughout last year, coupled with added contributions from our partnership channels. We.

Christina Schwartz: We delivered contribution margin of 4.8% in the first quarter ahead of the high end of our implied guidance. Contribution margin improved by more than 100 basis points sequentially, as there were fewer old book home sales. We continue to expect full-year contribution margin within our annual target range of 5% to 7%. Adjusted operating expenses totaled $107 million for the quarter, up from $99 million in the fourth quarter of 2023, driven by increased marketing spend of nearly 60% sequentially and below our guidance of $120 million.

Christina Schwartz: We delivered contribution margin of four 8% in the first quarter ahead of the high end of our implied guidance range contribution margin improved by more than 100 basis points sequentially. As there were fewer all dotcom sales. We continue to expect full year contribution margin within our annual target range of 5% to 7%.

Christina Schwartz: We also had $8 billion in non recourse asset backed borrowing capacity composed of $3 8 billion of senior revolving credit facilities and $4 2 billion of senior and mezzanine term debt facilities of which total committed borrowing capacity was $2 5 billion.

Christina Schwartz: Additionally, this morning, we established an at the market, or ATM, program that allows us to sell up to 200 million in equity through open market transactions within the next three years. We are making progress towards achieving positive adjusted net income, and as we demonstrated with our convertible note repurchases in 2023, which generated over $200 million of shareholders' equity, we are managing our balance sheet with discipline. We feel that putting this program in place provides us with the flexibility to fund future growth should we need it.

Christina Schwartz: We are making progress towards achieving positive adjusted net income and as we demonstrated with our convertible note repurchases in 2023, which generated over $200 million of shareholders equity, we are managing our balance sheet with discipline.

Christina Schwartz: We expect adjusted operating expenses to be approximately $110 million.

Christina Schwartz: Additionally, as a result of our increased marketing spend, we have seen an uptick in acquisition contracts in the latter part of the quarter. This, coupled with continued marketing spend and alongside seasonality tailwinds, should result in home purchases of over 4,500 homes in the second quarter. However, given the selling season can peak during the second quarter, we expect our acquisitions to be flat or modestly lower on a sequential basis in the third quarter.

Christina Schwartz: Given the selling season can peak during the second quarter, we expect our acquisitions to be flat or modestly lower on a sequential basis in the third quarter. However.

Christina Schwartz: However, the first quarter should be the trough for quarterly purchases this year. We are pleased with our execution during the first quarter. We remain on track to increase acquisitions on a year over year basis each quarter in 2024 while delivering annual contribution margin in our target range and operating efficiently, which should substantially decrease our adjusted net income losses for the year. 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, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Christina Schwartz: However, the first quarter should be the trough for quarterly purchases this year.

Christina Schwartz: Thank you as a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.

Operator: Our first question comes from the line of Daily with Jpmorgan. Your line is now open.

Dae K. Lee: Great. Thanks for taking the question.

Dae K. Lee: So the first one, appreciate the color on my position through the year, but current macro conditions, kind of change your expectations for the clearance rate going forward? And I guess the mortgage rate, which picked up again this week for recognition, could that impact? Well, we're not going forward. Sure, Jay, happy to start.

Dae K. Lee: First of all.

Speaker Change: I appreciate the color on the lot position through the year.

Speaker Change: How is the macro conditions how.

Speaker Change: Now, let's change your expectation for Kurt Congrats great going forward.

Speaker Change: I guess first mortgage credit risk.

Speaker Change: And your outlook going forward.

Carrie Wheeler: I think in the sort of, if you zoom out from a macro perspective, reiterating what we said in the letter, what we are most focused on and have been for the last 18 months plus is continued price stability. And that really is the key input for us in terms of how we set spreads and how we manage growth and the market. And so we've continued to see a balance of supply and demand.

Jay: Sure Hey, happy to start.

Carrie Wheeler: I think in the sort of.

Carrie Wheeler: If you zoom out from a macro perspective, we reiterate what we said on the letter.

Carrie Wheeler: What we are most focused on and have been for the last 18 months plus is continued price stability and that really is a key input for us in terms of how we set spreads and how we manage growth end market.

Carrie Wheeler: And so we continue to see a balance of supply and demand.

Carrie Wheeler: We do think even with some rate relief in the back half of the year, that should actually be a tailwind for the business in terms of market transaction volumes going up. And one of the points and pieces of the shareholder letter that we added this year, or this quarter, sorry, is around seasonality and how that impact spreads. And so that is really the primary driver of spread changes right now, which is for this time of year; we typically do increase spreads, but happy to have Carrie add on as it relates to the volume trajectory for the rest of the year, to put acquisitions in context.

Carrie Wheeler: Even with some rate relief in the back half of the year that should actually be a tailwind for the business in terms of.

Carrie Wheeler: And one of the points and pieces of the shareholder letter that we added this year or this quarter, sorry is around seasonality and how that impacts spreads and so that is really the primary driver of spread changes right now which is for this time of year, we typically do increase spread.

Carrie Wheeler: So, as we said in our remarks, almost doubled acquisitions year on year in the first quarter, and then a guide for Q2, which would be up, you know, call it over 70% year on year, sorry, up double. We doubled Q1 year on year, up 70% in the guide year on year. So the macro has not been a tailwind for us, certainly today. It's been a headwind.

Carrie Wheeler: So put acquisitions in context, so as we said in our remarks almost doubled acquisitions year on year in the first quarter and then a guide.

Carrie Wheeler: Call over 70% year on year sort of doubled we doubled Q1 year on year of 70% and the guide year on here. So.

Carrie Wheeler: The macro has not been.

Carrie Wheeler: But in terms of focusing on control, we're really pleased with the fact that, you know, in a quarter where new listings for the market in our buy box were up only 6%, we showed 98% acquisition growth and feel good about where we ended the quarter, and we're up 24% in contracts sequentially in Q1. And that's feeding into what feels like a really solid Q2 guide in terms of acquisition growth. So we're going to focus on leading control at this moment, and it's just proof of what we're doing in terms of share gains and acquisition momentum. Okay, great.

Carrie Wheeler: In a quarter, where new listing for the market in our buy box was up only 6% we showed 98% acquisition growth and feel good about where we ended the quarter and were up 24% and contracts sequentially.

Carrie Wheeler: Sequentially in Q1, and that's feeding into it feels like a really solid Q2 guide in terms of acquisition growth. So we're going to focus on what you can control in this moment.

Carrie Wheeler: And just proof is in what we're doing in terms of share gains and acquisition momentum.

Christina Schwartz: So it sounds like your first quarter adjusted Opex increased by as much as expected.

Christina Schwartz: So does that mean I guess too.

Christina Schwartz: And according to plan.

Christina Schwartz: Two more.

Christina Schwartz: Moderate hiring because there was a change in view on volume or was that because you guys think you can do more with less.

Christina Schwartz: Thanks for the question Dave This is Christy here so.

Christina Schwartz: Yeah.

Christina Schwartz: As a reminder, our adjusted Opex is composed of three main pieces, our fixed costs, our marketing our variable SG&A our fixed costs, we are continuing to make meaningful reductions and take costs out of our system and continuing to refine and.

Christina Schwartz: Some of that is what youre seeing in the outperformance or marketing we did increase it as we had indicated it went up $10 million quarter over quarter, and we don't expect meaningful increases to our marketing spend for the remainder of the year.

Speaker Change: Okay. Thank.

Speaker Change: Thank you.

Operator: Thank you. Thank you. Our next question comes from the line of Ygal Arounian with Citi. Your line is now open.

Christina Schwartz: Our next question comes from the line of Yigal Iranian with Citi. Your line is now open.

Ygal Arounian: Hey, good afternoon, guys. So let me start on the first question about acquisition strategy and race and seems like there's really no change, really, to your strategy here, but with the, Just thinking about the recent rate spike aligning with kind of what's the heart of the buying and selling season, if that's impacting how you're thinking about things at all. And then is that maybe just an update on your kind of current market and buy box expansion strategy or path how you're thinking about that. Hey, Ygal, Carrie, can you just say a little bit more on your first question? I wasn't quite following that. Brand seasonality question or not?

Ygal Arounian: Hey, good afternoon guys.

Speaker Change: Let me start on.

Speaker Change: Following up on the first question on.

Speaker Change: Acquisition strategy in rates.

Ygal Arounian: At all and then is that and maybe just an update on <unk>.

Speaker Change: Your kind of market buy box expansion strategy.

Speaker Change: Strategy or pass how youre thinking about that.

Speaker Change: Brian seasonality question or.

Carrie Wheeler: Well, yeah, it's a little bit more on the recent rate spike, right? We've seen over the past couple of weeks, it's been a pretty meaningful increase in mortgage rates. And that's coinciding with, you know, the heart of the buying and selling season and any expectations that that might soften the market and the core, key part of the market or the key part of the seasonal market. And if that's impacting how you're thinking about things, it sounds like it's not, but I was just curious if you're taking any of that into consideration.

Carrie Wheeler: Well, yes, it's a little bit more on the recent rates Spike right, what we've seen over the past couple of weeks since then.

Carrie Wheeler: The heart of the buying and selling season.

Carrie Wheeler: Any expectations that that might soften the market in the core.

Carrie Wheeler: A key part of the market and the key part of the seasonal market and if that's impacting how you're thinking about things. It sounds like it's not but just curious if you are taking any of that into consideration certain.

Carrie Wheeler: Yeah, I mean, certainly, we're taking in all those signals all the time. And we're watching very closely kind of what the market is telling us in terms of clearance rates and, you know, trends and prices. We did talk a little bit in the shareholder letter about this being the time of year where we do start to increase spreads a bit because we expect that the homes that we're offering on today will be sold, you know, post the spring selling season. So we'd expect those homes to have less of a gain and that would be reflected in a slightly higher spread. So those are adjustments we make every day and every week with the team.

Carrie Wheeler: We were taking in all those signals all the time and we're watching very closely kind of what the market is telling us in terms of.

Carrie Wheeler: Clearing rates trending in prices.

Carrie Wheeler: Talk a little bit in the shareholder letter about this is the time of year, where we do start to increase spreads a bit because we expect that the homes that were offering on today will be sold post the spring selling season. So we would expect those homes to have less of a gain to them are reflected in slightly higher spreads. So.

Carrie Wheeler: Those are adjustments we make.

Carrie Wheeler: Doug do you want to add Andre.

God: Yes, I think the only thing to add on it if you look at some of the charts in the back of the shareholder you can see what we're observing from new lithium perspective.

God: Although there's a slight lag there, we really havent seen a sort of a meaningful change on the back of the recent rate changes in terms of lifting volumes, which is really the.

God: A key driver in input to our acquisition targets.

Carrie Wheeler: That's helpful.

Carrie Wheeler: Okay.

Carrie Wheeler: More detail on how it works why now can you do more of this and how should we be thinking about that.

Christina Schwartz: How should we be thinking about this? Yeah, I mean, I think I should just start with leveling the playing field on where we are from a balance sheet perspective. So, as you can see, from our financials, we've got over a billion in cash, 1.3 billion in total capital, and 8 billion in debt capacity. I think we feel very good about executing our business plan again with our current capital base. Really, the ATM for us gives us the ability to opportunistically raise equity over the next three years. I think it's really important. It's a three-year program.

God: Yes, I mean, I think I'd just start with level setting on where we are from a balance sheet perspective. So.

Christina Schwartz: 3 billion total capital 8 billion of debt capacity I think we feel very good about executing our business plan again with our current capital base.

Christina Schwartz: The ATM for us gives us the ability to opportunistically raise equity over the next three years I think it's really important it's a three year program.

Christina Schwartz: This is one of many ways, we could implement that but we wanted to get it out there.

Christina Schwartz: These programs are very common in capital intensive businesses like the REIT sector or biotech.

Christina Schwartz: There is actually a growing list of technology companies, putting these in place, especially post Covid I think people realize how useful that can be carbon.

Christina Schwartz: Carvana has one zillow has one Tesla has one.

Christina Schwartz: And so to Chris's point earlier, we were opportunistic last year and repurchasing the convertible notes, creating over $200 million equity, we do not plan to utilize the ATM immediately we will be patient with this.

Christina Schwartz: And so to Chrissy's point earlier, we were opportunistic last year in repurchasing the convertible notes, creating over $200 million in equity. We do not plan to utilize the ATM immediately. We'll be patient with this, and we don't plan to use it this quarter.

Christina Schwartz: We don't plan to do that this quarter.

Christina Schwartz: Okay.

Christina Schwartz: Got it. That's really helpful. Thank you. Thank you. Our next question comes from the line of Nick Jones with Citizens JMP. Your line is now open.

Speaker Change: Got it that's really helpful. Thank you.

Nicholas Freeman Jones: Thank you.

Nicholas Freeman Jones: Our next question comes from the line of Nick Joseph with citizens JMP. Your line is now open.

Nicholas Freeman Jones: Great, thanks for taking the questions. I guess maybe one on, you know, the path to positive adjusted EBITDA, and I guess I'm mentioning net income. You know, it's been a nice cadence over the last few quarters.

Nicholas Freeman Jones: Great. Thanks for taking the questions I guess, maybe one on.

Nicholas Freeman Jones: Path to positive adjusted EBITDA, and then I guess I mentioned net income.

Carrie Wheeler: As we kind of think about shaping the rest of the year, is it right to kind of take a forecue maybe, being the weaker quarter throughout the year, but maybe not as weak as Q1. And then are we kind of on a linear path? From here, are you confident that we can kind of get to positive adjusted EBITDA? I guess maybe even this year or next year. Hey Nick, it's Carrie.

Nicholas Freeman Jones: It's been a nice cadence over the last few quarters.

Carrie Wheeler: As we kind of think about shaping the rest of the year is it right to kind of take a <unk> maybe.

Carrie Wheeler: Throughout the year, but maybe not as big as Q1, and then are we kind of on a linear path.

Carrie Wheeler: From here are you confident that we can kind of get to.

Carrie Wheeler: What I would say at a high level. This is what we are indicating is that we are on this path of <unk>.

Carrie Wheeler: Increasing acquisitions.

Carrie Wheeler: We feel good about delivering within our 5% to 7% contribution margin target and all of that goes together to substantially reduce the losses, we've seen in the system. So.

Carrie Wheeler: Without giving you specifics regarding Q kind of where EBITDA is going to fall in subsequent quarters I'd, just say that we're feeling good about the path we're on to substantially improve the bottom line of the business.

Carrie Wheeler: Got it helpful and then.

Carrie Wheeler: A higher level question Cary you mentioned.

Carrie Wheeler: With the NAR settlement and I think there's some headlines that the Doj might be taken a look a closer look at the NAR.

Carrie Wheeler: I think you said in your comments that folks might bypassed the MLS.

Carrie Wheeler: At a high level.

Carrie Wheeler: There are components that they create this sense of urgency that debt.

Carrie Wheeler: Potentially damaging the selling you're buying experience.

Carrie Wheeler: Do you think this is the start of.

Carrie Wheeler: Kind of their dominance in the ecosystem.

Carrie Wheeler: So you're starting to wane and is that kind of a long term secular tailwind for <unk>.

Carrie Wheeler: Broken north.

Carrie Wheeler: And I just want to clarify my comments. Like, I think this is net positive, first of all, for consumers. I mean, it's good for consumers. That's good for Opendoor.

Carrie Wheeler: It's a good question and I just want to clarify my comments.

Carrie Wheeler: We think this is now positive first of all for consumers and it's good for consumers. That's good for open door. I mean, this is all about giving more choice and transparency and agency in the hand of homebuyers in terms of how they want to engage with an agent. The reason I think we're set up well in this contact with because we have this direct platform I wasn't talking about homes going off the <unk>.

Carrie Wheeler: I mean, this is all about giving more choice and transparency and agency in the hand of home buyers in terms of how they want to engage with an agent. The reason I think we're so set up well in this context is because we have this direct platform. I wasn't talking about homes going off the MLS. There's been some talk about that. We think the MLS is a great thing because it's democratic.

Carrie Wheeler: There's been some talk about that we think BMO is a great thing because its democratic everyone can understand kind of what's available for sale.

Carrie Wheeler: Everyone can understand kind of what's available for sale, but it really says something to, you know, certain home buyers or sellers. I may decide I don't need an agent in this transaction, or I can dial in the amount of advice I need to get. The only place you can sell your home directly today, and the only place you can buy a home directly with an e-commerce-like transaction is Opendoor.

Carrie Wheeler: But it really says too.

Carrie Wheeler: Home buyers or sellers.

Carrie Wheeler: Lots to talk about touring and having to get out buyer representation agreement forehand <unk> homes, we wanted to give the consumer like total agency to do what is right for them in whatever way they wanted to including if they wanted to get you to come with them. So my comments were not about like off the MLS we're supportive of the MLS.

Carrie Wheeler: We want to give the consumer, like, total agency to do what is right for them in whatever way they want to do it, including if they want an agent to come with them. So my comments were not about, like, off the MLS. We're supportive of the MLS, but really about enabling consumers to go direct. Really helpful. Thanks, Carrie. Thank you. Our next question comes from the line of Jason Helstein with Oppenheimer. Your line is now open. Hey, thanks. This is Chad on for Jason.

Chad: Really about enabling consumers to go direct.

Chad: Got it really helpful. Thanks, Gary.

Carrie Wheeler: Welcome.

Chad: Thank you our.

Chad: Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is now open.

Jason Helstein: So homes purchased were down slightly sequentially, but there was a nice increase in the sequential homes under contract. So anything like what's going on there? Is that just normal seasonality? Or is there something that's just giving you more confidence to lean back into buying?

Carrie Wheeler: Hi, Thanks, This is Chad on for Jason So.

Chad: Purchase were down slightly sequentially, but there was a nice increase increase in the sequential homes under contract. So just timing like what's going on there or is that just normal seasonality.

Chad: Or is there something thats, just giving you more confidence to lean back into buying and then I have another one.

Carrie Wheeler: Yeah, I mean, I'd say the market is fluid enough, and we offer the customer a great deal of choice about when they close on their home. So I focus less on like the quarter to quarter because a contract in one quarter may close, may slip, and close another quarter. This is about, I think, the focus should be on like the year-on-year growth we're proposing or for showing. And to your point, Chad, we had a really nice end to the quarter with a really nice number of contracts in the queue of 24% versus Q4.

Carrie Wheeler: I'd say the market is fluid enough and also we offer the customer.

Carrie Wheeler: And to your point, Chad like we had really nice we ended the quarter with like really nice number of contracts in the Q and 24% versus Q4, so just a nice momentum going through the quarter and that really feeds into that contract momentum really feeds into what are they.

Carrie Wheeler: So just that nice momentum going through the quarter, and that really feeds into that contract momentum, really feeding into what is a strong guide for over 4,500 acquisitions in Q2. Okay. Thank you. I guess what I'm saying is I wouldn't make too much of the, you know, the slightly down versus Q4. Yep, fair enough. And then just on the eXp partnership, just, Um, you know, anything else you can share there? You know, how meaningful could that be, you know, kind of over the long run? Yeah, happy to give a little more context there, but it's still very early.

Carrie Wheeler: A strong guide for over 4500 acquisitions in Q2.

Speaker Change: Okay. Thanks, I wouldn't make too I guess, what I'm, saying I wouldn't make too much of the the down slightly versus.

Carrie Wheeler: Yeah Fair enough and then just on the ESP partnership just.

Carrie Wheeler: How meaningful could that be kind of over the long run.

Carrie Wheeler: So we just launched in February. We're seeing sort of steady, steady weekly growth since launch, but just in February, it's like the low end. So I think the sort of key piece there is it really helps broaden our reach into the agent community. eXp has 70,000 agents in its network, and we're growing. And so we are actually quite excited about the sort of brand expansion opportunities, the understanding of our product, and as well as the specific application of eXp, which is embedded directly into their workflows. And so we've made it really simple and easy for eXp agents to utilize our product.

Speaker Change: Yes, happy to give a little more context there.

Carrie Wheeler: And so.

Carrie Wheeler: The key piece there.

Carrie Wheeler: Really helps broaden our reach into the agent community.

Carrie Wheeler: <unk> 70000 agents in our network and we are growing.

Carrie Wheeler: So we are actually quite excited about.

Carrie Wheeler: We made it really simple and easy for <unk> to utilize our product.

Carrie Wheeler: Kerry said earlier, we're on the side of transparency and choice for customers.

Carrie Wheeler: Another option for them.

Carrie Wheeler: When they're talking to their customers.

Carrie Wheeler: Got it thanks.

Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 or your touchtone telephone. Our next question comes from the line of Ryan Tomasello with KBW. Your line is now open. Hi, everyone.

Speaker Change: Thank you.

Ryan John Tomasello: Reminder, to ask a question at this time, please press star one one touchstone telephone.

Operator: Our next question comes from the line of Ryan Tomasello with <unk>. Your line is now open.

Ryan John Tomasello: Thanks for taking the questions. I'm just trying to parse through the different comments on the seasonal cadence of purchase volumes. I think in your prepared remarks, you said you expected purchase volumes to increase sequentially in every quarter, and in the shareholder letter, you said on page 12 that you actually are. I'm expecting purchase volumes in 3Q to be flat, or to decline modestly. So am I missing something there?

Ryan John Tomasello: Hi, everyone. Thanks for taking the questions.

Ryan John Tomasello: Just trying to parse through the different comments on the seasonal cadence of purchase volumes I think in your prepared remarks, you said you expect to purchase volumes to increase sequentially in every quarter.

Ryan John Tomasello: But in the shareholder letter you say on page 12 that you actually are you expecting purchase volumes in <unk> to be flat to decline modestly. So am I missing something there and can you just clarify that commentary and then beyond.

Carrie Wheeler: And can you just clarify that commentary? And then, beyond 3Q, just from a seasonal perspective, how should we be thinking about 4Q volumes with normal seasonality? Yeah, let me try and parse it.

Carrie Wheeler: Just from a seasonal perspective, how should we be thinking about for Q volumes with normal seasonality.

Speaker Change: Yes, let me try and parse out I think.

Carrie Wheeler: Quarter over quarter versus year over year.

Carrie Wheeler: Piece that I think was the deferred Brian.

Carrie Wheeler: Brian to your specific question on <unk>, so year over year, we are increasing every quarter.

Carrie Wheeler: What we've also said in the letter is over 4500 in the second quarter flat to slightly down in the third quarter and then we did pay the first quarter would be the lowest of the year. So <unk> will be above the first quarter.

Carrie Wheeler: Given where we are and sort of given how 4Q tends to unfold, you've got some headwinds on market volumes and marketing spend, but you've got some great tailwinds around low spreads. And so that was what we were. I think that the year over year was quarter over quarter is the dissonant rhyme.

Carrie Wheeler: Given where we are in and sort of given how <unk> dunhill.

Speaker Change: Got it.

Carrie Wheeler: Linda on market volumes and market marketing spend but <unk> got some great tailwind around low spreads.

Carrie Wheeler: And so that was what we were.

Speaker Change: The year over year this quarter over quarter is that a thanks Ryan.

Carrie Wheeler: Okay, got that. That's really helpful. And maybe just to entertain for a moment or more.

Speaker Change: Okay got it that's really helpful and maybe just to entertain for a moment are more.

Ryan John Tomasello: Extreme scenario with respect to the NAR settlements and industry structure. You know, clearly, the consensus opinion, at least from most folks you talk with, expects commission rates to decline. But even then, I think, you know, the international comparisons, again, in a more extreme scenario, would suggest something that could be substantially worse in terms of fewer homebuyers using agents, perhaps compression on the listing side.

Carrie Wheeler: Extreme scenario with respect to the NAR settlements and industry structure.

Ryan John Tomasello: Clearly.

Ryan John Tomasello: The consensus opinion at least from most folks talk with expect commission rates to decline.

Ryan John Tomasello: But even then I think.

Ryan John Tomasello: The international comparisons again in a more extreme scenario would suggest.

Carrie Wheeler: I guess, again, just to entertain the scenario, is there, is there a lower clearing rate in terms of commission rates and all transaction costs where the Opendoor model perhaps needs to pivot in terms of the value proposition that it's providing relative to the benchmark rate, that is, the prevailing commission. Well, I guess a couple things.

Ryan John Tomasello: That could be substantially worse in terms of fewer homebuyers using agents, perhaps compression on the listing side.

Carrie Wheeler: Yes, again just to entertain the scenario is there is there a.

Carrie Wheeler: Lower is there a clearing right in terms of commission rates and all and transaction costs.

Carrie Wheeler: Where the open door model, perhaps needs to pivot in terms of the value proposition that it's providing relative to the benchmark rate that is.

Carrie Wheeler: Bailing commissions.

Carrie Wheeler: Well I guess a couple of things one is.

Carrie Wheeler: One is, You know, we provide something that you can't get in a traditional transaction. So we provide utmost certainty, no fall-through rate, and utmost simplicity: no listings, no doing repairs on spec, no doing open houses, like all the incredible amount of friction and uncertainty that goes with traditional listings. We're just providing something very different. And today, you know, we charge a premium for that through our spreads, right? We have an analogous service fee, and there's an incremental spread. And that's in part to, you know, meet margin targets.

Carrie Wheeler: We provide something that you can't get in a traditional transaction.

Carrie Wheeler: We provide most certainty no fall through rate and Atmos simplicity no listings no during repairs on snack new doing open houses like all of the incredible amount of friction uncertainty that goes with traditional listing we're just providing something very different and today, we charge a premium to the traditional listing for that through our spreads right we have.

Carrie Wheeler: Now I'll just service fee and there is an incremental spread and that's in part two.

Carrie Wheeler: And it's just, you know, we're paying, people are paying a premium for the certainty and simplicity that we provide. I think in the event that there is more spread, I'm sorry, more fee compression, and that's the point you're trying to bring across, Ryan, we will adjust with the market. And I don't worry a lot about our ability to continue to have an incredible value proposition because, again, we are providing something that is just so different.

Carrie Wheeler: Margin targets and it does exist we're paying our people are paying a premium for the certainties simplicity that we provide.

Carrie Wheeler: I think in the event that there is more spread.

Carrie Wheeler: Our fee compression within disappoint, you tried to bring across Ryan.

Carrie Wheeler: We will adjust with the market and I don't.

Carrie Wheeler: Don't worry a lot about our ability to continue to like have an incredible value prop because you're guiding for providing something that is just so different and what is the premium minute. Mike. There's a lot of value, which is why we have such a high converting product when we can deliver in a reasonable price.

Carrie Wheeler: And while there's a premium in it, like there's a lot of value, which is why we have such a high-converting product, when we can deliver a reasonable price, you know, the extent that buyer broker commissions come down, like we've said, ultimately, it's probably a pass-through, it's probably neutral, there may be some interim benefits to us. So the real question will be like, how do you sell our listing fees change over time?

Carrie Wheeler: This extensive broker commissions come down like we said the ultimate is probably a pass through it's probably neutral there maybe some interim benefits Josh.

Carrie Wheeler: So the real question would be like how do you seller listing fees change over time.

Carrie Wheeler: And we will see how the market responds post July will be.

Carrie Wheeler: And we'll see how the market responds post July, and we'll be prepared to respond in kind. Appreciate you on the call. Thanks, Carrie. Thank you, and I'm currently showing no further questions at this time. I'd like to hand the call back over to Carrie Wheeler for her closing remarks. And I would just thank everyone for joining us today. I hope you've heard we are pleased with the results to kick off this year. The housing market is challenging, for sure, but we are staying focused.

Carrie Wheeler: Prepared to respond in kind.

Speaker Change: Appreciate the color thanks Kerry.

Carrie Wheeler: Yes.

Carrie Wheeler: I hope you can see that our team is executing really well and we are driving results, and we look forward to updating you on further progress next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Carrie Wheeler: Thank you and I'm currently showing no further questions at this time I'd like to hand, the call back over to Cary Wheeler for closing remarks.

Carrie Wheeler: I would just thank everyone for joining us today I was hoping you have heard we are pleased with our results to kick off this year.

Carrie Wheeler: Mark it's challenging for sure, but we are staying focused hope you can see that our team is executing really well and we are driving results and we look forward to updating you on further progress next quarter.

Carrie Wheeler: This concludes today's conference call. Thank you for your participation you may now disconnect.

Q1 2024 Opendoor Technologies Inc Earnings Call

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