Q2 2024 Opendoor Technologies Inc Earnings Call

August 1, 2024

Good day and thank you for standing by. Welcome to Opendoor's second 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 need to press star 1 1 on your telephone. You will then hear an automated message device and your hand is raised.

Operator: 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 need to press star 1-1 on your telephone. You will then hear an automated message device in your hand as you speak. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to turn the conference over to your speaker today, Kimberly Niehaus, head of investor relations. Please go ahead.

To withdraw your question, please press star 11 again. Please be advised, today's conference is being recorded. I would like to turn the conference over to your speaker today, Kimberly Niehaus, Head of 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. 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: 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 reliance should not be placed on them.

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 under-reliance should not be placed on them.

Kimberly Niehaus: 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 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 10-K. 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 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.

Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

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 a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please visit our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor. Good afternoon.

Carrie Wheeler: Also on the call with me today are Christy Schwartz and Dod Fraser. At Opendoor, our vision is to build the most trusted e-commerce platform for residential real estate, and we're focused on building a durable generational business that customers love, so that one day, every seller will start their home selling journey with Opendoor. We're proud of our performance in the second quarter; revenue, contribution margin, and adjusted EBITDA all outperformed guidance, and acquisitions grew nearly 80% year over year.

Speaker Change: Good afternoon. Also on the call with me today are Christy Schwartz and Dod Fraser.

Speaker Change: At Opendoor, our vision is to build the most trusted e-commerce platform for residential real estate. And we're focused on building a durable generational business that customers love, so that one day every seller will start their home selling journey with Opendoor.

Kimberly Niehaus: We're proud of our performance in the second quarter. Revenue, contribution margin, and adjusted EBITDA all outperformed guidance, and acquisitions grew nearly 80% year-over-year. At the same time, our seller NPS reached the highest level we've seen in two years, proof of the strength of our customer value proposition. Home sellers desperately need an alternative to the traditional real estate process, and that's exactly what we're providing.

Carrie Wheeler: At the same time, our seller NPS reached the highest level we've seen in two years, proof of the strength of our customer value proposition. Home sellers desperately need an alternative to the traditional real estate process, and that's exactly what we're providing. During the quarter, we continued to make meaningful progress growing our top of the funnel to reach more sellers and expanding our product offering to convert more customers. Today, our buy box is just north of $650 billion.

Carrie Wheeler: This is a massive addressable market that we're going after. One of the most important ways we can grow our top of the funnel is by increasing awareness of our brand and our product. Year to date, we've seen that over one in four true sellers or customers within our buy box that ultimately went on to list or sell their home had previously entered their home address on our website.

Kimberly Niehaus: Today, our buy box is just north of $650 billion. This is a massive addressable market that we're going after.

Kimberly Niehaus: One of the most important ways we can grow our top of funnel is by increasing awareness of our brand and our products.

Kimberly Niehaus: Year to date, we've seen that over one in four true sellers, or customers within our buy box that ultimately went on to list or sell their home, had previously entered their home address on our website.

Carrie Wheeler: And while that's something to celebrate, we also recognize that we have a significant opportunity to expand our reach. We want all sellers to start the journey with Opendoor. To do this, we have shifted our marketing mix toward brand media spend versus direct response.

Carrie Wheeler: And as a result of our efforts to increase brand salience, aided awareness and consideration have reached the highest levels in Opendoor history. Importantly, while higher awareness brings more customers to the platform, it also improves conversion rates. As an example, in our markets where aided awareness is 45%, which are primarily our most mature markets, we see 33% higher offer-to-contract conversion rates when compared to markets with an awareness of 26%. Further, over half of our markets were launched in 2021 and 2022, right before the housing reset, during our significant pull-back in marketing spend, and these markets have awareness of less than 20%.

Kimberly Niehaus: Importantly, while higher awareness brings more customers to the platform, it also improves conversion rates.

Kimberly Niehaus: As an example, in our markets where aided awareness is 45%, which is primarily our most mature markets, we see 33% higher offer-to-contract conversion rates when compared to markets with an awareness of 26%.

Carrie Wheeler: We believe that with incremental investments in time, these cohorts should provide significant tailwinds to future volume growth. We also have the ability to drive growth by sending a product offering with a suite of products that best suits the needs of all sellers that come to us. For a decade, our flagship all-cash offer product has provided simplicity and certainty to sellers who are looking for an easier way to sell their home. However, we know that other sellers are interested in testing the market and listing their home on the MLS.

Kimberly Niehaus: We believe that with incremental investments and time, these cohorts should provide significant tailwinds to future volume growth.

Kimberly Niehaus: We also have the ability to drive growth by expanding our product offering with a suite of products that best suits the needs of all sellers that come to us.

Carrie Wheeler: And in an effort to better serve these customers, we've expanded Opendoor lists to nearly all of our markets in the second quarter. We now give customers a choice of how they'd like to sell their home, selling directly to Opendoor or listing on the market. If they choose our listing product, we list their home with the help of one of our partner agents.

Carrie Wheeler: And if they don't find the price they want, they have up to 30 days to accept our cash offer and complete their sale. Since launching this product, we've seen a nearly 10% uplift in NPS. Further, this capital aid offering has the potential to be creative in terms of both total volumes and margins as it gains traction over the long term. While we are focused on making enduring improvements to our business, we also have to make tactical decisions in the short term to strike the right balance of growth and risk against what continues to be a challenging housing backdrop.

Kimberly Niehaus: Since launching this product, we've seen a nearly 10% uplift in NPS. Further, this capital aid offering has the potential to be creative to both total volumes and margins, as it gains traction over the long term.

Carrie Wheeler: In the back half of the second quarter, we began observing and responding to signals that indicated additional slowing in the housing market. A combination of higher delistings and slowing clearance rates led to a decline in month-over-month home price appreciation, or HPA. HPA entered negative territory in June, two months earlier than a typical year.

Carrie Wheeler: In response to this weaker HPA, we began increasing spreads more than we had expected. This will weigh on acquisition volumes in the third quarter. In addition, we have taken larger home price drops to maintain clearance levels within our resale targets, which will impact our contribution margin. However, with an increasing probability of interest rate reductions by the Fed in the second half of 2024, there are reasons to believe that we may benefit from any potential tailwinds in housing market activity.

Kimberly Niehaus: This will weigh on acquisition volumes in the third quarter. In addition, we have taken larger home-level price drops to maintain clearance levels within our resale targets, which will impact our contribution margin.

Carrie Wheeler: That being said, we will continue to preserve flexibility in setting spreads to operate against a range of macroeconomic outcomes in 2024. While we expect the current macro environment to be temporary, the progress we've made growing our top of funnel and expanding our product offering, combined with the operating and cost discipline we're driving across the business, will withstand. Today, we announce that our business unit, Mainstay, is becoming an independent, privately held company in conjunction with an outside equity investment led by Coastal Ventures. Mainstay is a comprehensive market intelligence and transaction platform for the single-family rental industry. Mainstay was built as a separate business, leveraging Opendoor's data insights, transaction platform capabilities, and enterprise customer relationships.

Kimberly Niehaus: While we expect the current macro to be temporary, the progress we've made growing our top of funnel and expanding our product offering, combined with the operating and cost discipline we're driving across the business, are enduring.

Speaker Change: Mainstay is a comprehensive market intelligence and transaction platform for the single-family rental industry.

Speaker Change: Mainstay was built as a separate business, leveraging Opendoor's data insights, transaction platform capabilities, and enterprise customer relationships.

Carrie Wheeler: This transaction sets up both Opendoor and Mainstay to focus on building their respective businesses with dedicated teams and resources. Mainstay will be co-led by Dod Fraser, who's led the business's development since inception, alongside a dedicated team. With today being his last earnings call, I want to extend my thanks to Dod for all his contributions to Opendoor. As we look forward to the future, we remain as focused as ever on reinventing one of life's most important transactions.

Kimberly Niehaus: Mainstay will be co-led by Dod Fraser, who's led the business's development since inception, alongside a dedicated team.

Speaker Change: As we look forward to the future, we remain as focused as ever on reinventing one of life's most important transactions.

Carrie Wheeler: And to do that, we're positioned to rescale our business in a durable and sustainable way that we can provide simplicity and certainty to the millions of customers who will move in the years to come. Chrissy will now review our financial results and guidance. Thank you, Carrie.

Speaker Change: Chrissy will now review our financial results and guidance.

Christina Schwartz: Our second quarter performance reflects strong execution and continued operating and cost discipline across the business. We delivered over $1.5 billion of revenue in the second quarter, exceeding the high end of our guidance. This represents a 28% sequential increase in revenue driven by acquisition volume growth over the last several quarters. On the acquisition side, we purchased 4,771 homes in the second quarter ahead of our expectations. Acquisitions were up 78% versus 2Q23 due to lower spreads and an increase in marketing and contributions from partnership channels.

Chrissy: Thank you, Carrie. Our second quarter performance reflects strong execution and continued operating and cost discipline across the business.

Christina Schwartz: Contribution margin was 6.3% in the second quarter, ahead of the high end of the implied guidance. This outperformance was partially due to selling more newly listed homes with shorter holding times than anticipated. Adjusted operating expenses totaled $100 million for the quarter, lower than the guidance of $110 million and down from $107 million in the first quarter of 2024 due to a pullback in marketing spend and reduced fixed headcount hiring. Finally, adjusted EBITDA loss was $5 million, significantly outperforming the high end of our guidance range and an improvement from an adjusted EBITDA loss of $50 million in the first quarter.

Chrissy: We delivered over $1.5 billion of revenue in the second quarter, exceeding the high end of our guidance range.

Chrissy: Acquisitions were up 78% versus 2Q23 due to lower spread and increase in marketing and contributions from Partnership Channel.

Chrissy: Contribution margin was 6.3% in the second quarter ahead of the high end of the implied guidance range.

Chrissy: This outperformance was partially due to selling more newly listed homes with shorter holding times than anticipated.

Chrissy: Adjusted operating expenses totaled $100 million for the quarter, lower than the guidance of $110 million and down from $107 million in the first quarter of 2024 due to a pullback in marketing spend and reduced fixed headcount hiring.

Christina Schwartz: Adjusted EBITDA came in ahead of expectations due to contribution margin outperformance and ongoing cost discipline. Turning to our balance sheet, we ended the quarter with $1.2 billion in total capital, which primarily includes $809 million in unrestricted cash and marketable securities and $300 million of equity invested in homes and related assets. We also had $7 billion in non-recourse asset-backed borrowing capacity, composed of $3 billion of senior revolving credit facilities and $4 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.3 billion.

Chrissy: Adjusted EBITDA came in ahead of expectations due to contribution margin outperformance and ongoing cost discipline.

Chrissy: Turning to our balance sheet, we ended the quarter with $1.2 billion in total capital, which primarily includes $809 million in unrestricted cash and marketable securities and $300 million of equity invested in homes and related assets.

Chrissy: We also had $7 billion in non-recourse asset-backed borrowing capacity, composed of $3 billion of senior revolving credit facilities and $4 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.3 billion.

Christina Schwartz: Before we get into guidance, I'd like to provide a few additional comments on the mainstay transaction. Mainstay will operate independently, and Opendoor will retain less than 50% ownership on a fully diluted basis. The company is in the process of assessing the financial statement impact of the fundraise, but we do not anticipate recognizing Mainstay's ongoing financial results in Opendoor's income or loss from operations going forward. In the first half of 2024, Mainstay's business had a de minimis impact on Opendoor's revenue and contribution profits and incurred approximately $17 million of adjusted operating expenses.

Chrissy: The company is in the process of assessing the financial statement impact of the fund rate, but we do not anticipate recognizing Mainstay's ongoing financial results in Opendoor's income or loss from operations going forward.

Chrissy: In the first half of 2024, Mainstay's business had a de minimis impact on Opendoor's revenue and contribution profit, and incurred approximately $17 million of adjusted operating expenses.

Christina Schwartz: Our 3Q guidance reflects reductions in operating expenses as a result of the mainstay transaction, which closed one month into the quarter. As Carrie mentioned, in the back half of the second quarter, we began observing signals and leading macrometrics that indicated additional slowing in the housing market. In response, we have increased spreads more than previously anticipated and slowed marketing spend to ensure dollars are being spent efficiently. These actions will put pressure on third-quarter acquisitions, which we expect to be up slightly year over year.

Chrissy: Our 3Q guidance reflects reductions in operating expenses as a result of the mainstay transaction, which closed one month into the quarter.

Chrissy: As Carrie mentioned, in the back half of the second quarter, we began observing signals and leading macrometrics that indicated additional slowing in the housing market. In response, we have increased spreads more than previously anticipated and slowed marketing spend to ensure dollars are being spent efficiently.

Carrie: These actions will put pressure on third quarter acquisitions, which we expect to be up slightly year over year.

Christina Schwartz: We will continue to acquire homes at spreads we believe are appropriate as we manage our business against a dynamic housing backdrop. We expect third-quarter revenue to be between $1.2 billion and $1.3 billion, contribution profit between $35 million and $45 million, which implies a contribution margin of 2.9% to 3.5%, and adjusted EBITDA loss between $70 million and $60 million. We expect adjusted operating expenses to be approximately $105 million.

Chrissy: We will continue to acquire homes that spreads we believe are appropriate as we manage our business against a dynamic housing backdrop.

Chrissy: We expect third quarter revenue to be between $1.2 billion and $1.3 billion, contribution profit between $35 million and $45 million, which implies a contribution margin of 2.9% to 3.5%, and adjusted EBITDA loss between $70 million and $60 million.

Chrissy: We expect adjusted operating expenses to be approximately $105 million.

Operator: We are maintaining our target clearance levels via larger than anticipated price drops on our homes, the impact of which will weigh on contribution margin as reflected in our third quarter guidance. If current macro trends persist, there is a risk that our full year contribution margin may fall below our 5% to 7% annual contribution margin target. We are pleased with our second quarter performance and continue to make progress on the things we can control.

Chrissy: If current macro trends persist, there is a risk our full year contribution margin may fall below our 5% to 7% annual contribution margin target.

Operator: We will continue to evaluate our cost structure to mitigate losses, and we remain committed to making progress in increasing acquisitions and substantially decreasing our adjusted net income losses for the year as compared to 2023. I'd now like to turn the call over to the operator to open up the line for questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star one one.

Operator: We'll pause for a moment while we compile our Q&A, Ryan. Our first question comes from Dae Lee, but J.P. Morgan, your line is open. Great, thanks for taking the questions. I have two.

Speaker Change: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 1 1 again. We will pause for a moment while we compile our Q&A roster.

Chrissy: [inaudible]

Speaker Change: Our first question comes from J.P. Morgan. Your line is open.

Carrie Wheeler: The first one, like, what do you attribute the recent softness in the housing market to? I'm wondering if this is something that continues to get worse, or has it stabilized? Are you seeing any signs of improvement? And then secondly, just given the worse macro outlook, do you feel the need to tap into the ACM program that you used to? I'm back in now starting fall. Hey, Dave, Carrie, I'll start with that

Speaker Change: Great, thanks for taking the questions, Matthew. The first one, like, what do you attribute the recent softness in the housing market to?

Speaker Change: Wondering if this is something that continues to get worse or has it stabilized or are you seeing any signs of improvement? And then secondly

Speaker Change: I guess given the worst macro outlook, do you feel the need to tap into the ATM program that you announced back in last earnings call?

Carrie Wheeler: So with respect to the macro, what we saw really for late May was a worsening of signals as it relates to clearance, so clearance about 35% lower this year than last year. So just homes selling more slowly, taking longer days on market. We saw the listings really start to accelerate, and they're at a decade high.

Speaker Change: So with respect to the macro, what we saw really for late May was a worsening of signals as it relates to

Speaker Change: Clearance, so clearance about 35% lower this year than last year, so just homes selling more slowly, taking longer days on market.

Speaker Change: We saw the listings really start to accelerate, and they're a decade high. We've been in the market now for ten years, and they're at a level we have not seen in our operating history. About one in five sellers are not seeing the price they hope to realize, and they're pulling themselves off the market.

Carrie Wheeler: We've been in the market now for 10 years, and we're at a level we have not seen in our operating history. About one in five sellers are not seeing the price they hope to realize, and they're pulling themselves off the market. That's creating a shadow book of inventory that's out there.

Carrie Wheeler: All of those have been weighing on home prices. And so that's what we've been responding to. We raised rates in response to that. I mean, sorry, we raised spreads in response to that. I really pulled back on acquisition pacing and, With respect to your question about the ATM, I'm going to hand it over to... Hi, Dae. Thanks for the question.

Speaker Change: With respect to your question about the ATM, I'm going to hand it over to Christy.

Unknown Executive: Just as a reminder, as of the end of the quarter, we have $1.1 billion inclusive of cash, marketable securities, and equity in our homes and related assets. We'll continue to be opportunistic and flexible in managing our capital base, as we demonstrated with our convertible note repurchases in 2023 and in implementing the ATM last quarter. We did not utilize the ATM in the previous quarter, as you can see in our 10-Q, but we don't speak to future capitalists.

Christy Schwartz: Hi Dae, thanks for the question. Just as a reminder, as of the end of the quarter, we have $1.1 billion inclusive of cash, marketable securities, and equity in our homes and related assets.

Christy Schwartz: We'll continue to be opportunistic and flexible in managing our capital base, as we demonstrated with our convertible note repurchases in 2023 and in implementing the ATM last quarter. We did not utilize the ATM in the previous quarter, as you can see in our 10-Q, but we don't speak to future capital issuances.

Carrie Wheeler: Just as a follow-up to your answer to my first question, It doesn't feel like macro conditions haven't really changed, right? Mortgage rates are holding somewhat steady, and they're still at, you know, the federal cost rate. So just wondering, like, why do you think sellers and buyers are behaving like this despite what seems to be a pretty stable macro environment? Yeah, I mean, we're sitting now and underwriting across our buy box about a third of the US residential market. And we're taking in these signals every single day.

Speaker Change: It doesn't feel like macro conditions haven't really changed, right? Mortgage rates are...

Speaker Change: We're being somewhat steady, and there's hope that, you know, the Fed will cut rates. So, I'm wondering, like, why do you think sellers and buyers are behaving like this despite what seems to be a pretty stable macro environment?

Carrie Wheeler: And this is definitely what we are seeing in terms of where seller expectations are and how buyers are responding. I just think buyer affordability is a real issue here. We are seeing the listings coming up; we're not seeing the pace of sell-through. And this delisting phenomenon today, like there's a chart in the back of our short order letter that you may want to go look at. I don't think this has gotten a lot of action in some of the industry talk, but I think it's a real factor that is weighing on the industry.

Speaker Change: Yeah, I mean, we're sitting now and underwriting across our buy box about a third of the U.S. residential market, and we're taking in these signals every single day, and this is definitely what we are seeing in terms of, like, where

Speaker Change: Seller Expectations are and like how buyers are responding. I just think buyer affordability is a real issue here. We are seeing the listings coming up. We're not seeing the pace of sell-through. And the listing phenomenon today, like there's a chart in the back of our short order letter you may want to go look at,

Carrie Wheeler: Obviously, we all know that there's pretty low transaction volumes right now that have not picked up. And just, you know, the phenomenon of not a lot of buyers and, you know, sellers who are relatively frozen right now. Thank you. One moment for our next question. Our next question comes from Ygal Arounian with Citi. Your line is open. Hi guys, we have max time for Ygal.

Christy Schwartz: I don't think this has gotten a lot of action in some of the industry talk, but I think it's a real factor that is weighing on...

Speaker Change: All right. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Kukulka, Unknown Executive, Christina Schwartz, Carrie Wheeler, Kimberly Niehaus, Kimberly Niehaus, Kimberly Niehaus

Speaker Change: Our next question comes from Ygal Arounian with Citi. Your line is open.

Christina Schwartz: I guess just my first question on your comments on the contribution margin may be coming in lower than that five to seven percent. Just, you know, how do we think about, you know, kind of that as it rolls through the year and looking through your prior book? We noticed that 2Q did better with selling some of the newer homes first, so can you just speak to maybe the health of the older book and how that compares? Yes, this is Christy here.

Weigal Arunayan: Hi guys, see you next time for Ygal.

Weigal Arunayan: I guess this is my first question on your comments on the

Weigal Arunayan: Contribution margin may be coming in lower than that 5 to 7 percent. Just, you know, how do we think about, you know, kind of that as it rolls through the year and looking through your, like, the prior book.

Speaker Change: You know, we noticed that 2Q did better with selling some of the newer homes first, so can you just speak to maybe the health of kind of the older book and, you know, how that compares?

Christina Schwartz: Thanks for the question. So we're not providing guidance for 4Q. We provided the guidance for 3Q. For 4Q, I'll just caution that it is seasonally a softer quarter than that typically sees lower HPA. In terms of the health of the book and the newer book, as we mentioned, in the second half of last quarter and the second quarter, we saw additional softness in the housing market, including slowing clearance, increased safety listings, and worsening HPA.

Christy Schwartz: Yes, this is Christy here. Thanks for the question. So we're not providing guidance for 4Q. We provided the guidance for 3 Q4 4Q, I'll just caution that it is seasonally a softer quarter, then that typically sees lower HPA.

Weigal Arunayan: In terms of the health of the book and the newer book, as we mentioned, in the second half of last quarter, in the second quarter, we saw additional softness in the housing market, including slowing clearance, increased delistings, worsening HPA. And at that time, we increased spreads, and we feel good about the homes that we've acquired after those increases.

Christina Schwartz: And at that time, we increased spreads, and we feel good about the homes that we've acquired after those increases. We enacted home-level price drops to operate against our resale targets, and that impacts contribution margin, but it also enables us to clear that portfolio quickly. I mean, Chris, everything that Christy said, the only thing I would pile on top of that is that we were acting quickly in response to the environment we're seeing

Speaker Change: We enacted home-level price drops.

Weigal Arunayan: to operate against our resale targets, and that impacts contribution margin, but it also enables us to clear that portfolio quickly.

Christina Schwartz: So yes, there's some pressure on the homes we already own. We're operating to manage within our resale targets, and that shows up in the Q3 margin guide. And then we get to reset, and as we raise spread, now we're buying a new set of homes, and we like the way those early cohorts are performing. And we're being nimble, advancing inflows and outflows. I think this is a good idea.

Speaker Change: I agree with everything that Christy said. The only thing I would pile on top of that is we were acting quickly to the environment we're seeing. So yes, there's some pressure on the homes we already owned. We're operating to manage within our resale targets. That shows up in Q3 margin guide. And then we get to reset. And as we raise spread, now we're buying a new set of homes. And we like the way those early cohorts are performing. And we're being nimble. We're balancing inflows and outflows. I think this is just good risk management.

Christina Schwartz: This is just good risk management. Okay, thanks. That's helpful.

Speaker Change: Okay, thanks, that's helpful. And then just maybe on expenses.

Speaker Change: You know, just with the maybe tougher macro, do you, you know, do you expect that there's more cost optimizations that you'll need to undertake to reach that kind of adjusted net income target?

Christina Schwartz: And then maybe on expenses, you know, just with the maybe tougher macro, do you, you know, do you expect that there's more cost optimizations that you'll need to undertake to reach that kind of net adjusted net income target? Yeah, absolutely. So I'll start by saying that we're still very focused on durably optimizing our cost structure. We've made and are continuing to make meaningful progress throughout the P&L. In terms of looking forward, you know, we guided to 105 million that's kind of comprised of two components for how it relates to Q2.

Christina Schwartz: One is that we expect to remove some costs from the system because of the mainstay transaction; that's approximately a $5 million reduction. But then the OPEX guidance, the increase gives us some flexibility to operate in a dynamic environment, especially as we consider deploying marketing dollars later in the quarter. You know, we've been operating at about 100 million or less of OPEX for the last six quarters at a variety of volumes, and we believe that that 100 million does give us a lot of flexibility to scale. Yes, I agree there.

Christina Schwartz: I mean, Christy said, I'd also say just stepping back. We know that we need to manage the business to a place where we are profitable, where we're generating positive cash flow, and the entire organization is really geared towards that, and that is what we are going to manage for. So, if we're not pacing where we need to be on volume, we're going to continue to look harder. Okay, guys.

Speaker Change: One moment for our next question.

Operator: One moment for our next question. The next question comes from Nick Jones at Citizens JMP. Your line is open.

Speaker Change: Our next question comes from Nick Jones at Citizens JMP. Your line is open.

Operator: Great. Thanks for taking the questions. I have two.

Nick Jones: Great, thanks for taking the questions. I have two. The first one, in a letter you cut out 28% of consumers within your buy box.

Carrie Wheeler: The first one in the letter you cut out 20%-28% of consumers within your buy box. Can you speak to how that rate has fluctuated, particularly given increased delisting? Um, when you know that things start to increase as maybe people have more confidence, they can sound just curious as to how that metric maybe has moved over time. I think the stat, Nick, that you're referencing is within the markets we are in today of true sellers.

Nick Jones: They can sound just curious as to how that metric maybe has moved over time.

Carrie Wheeler: So those are people who, within our buy box, 28% of true sellers defined as people if they either took an Opendoor offer or if they didn't take us up on the offer, they went and listed their home on the market. About a third of the people in those markets have come to us and entered their home; that's the stat I think you're referring to. Yes. And how has that fluctuated? I mean, it's something that we all are...

Speaker Change: Within the markets we are in today, of true sellers, so those are people who, within a buy box, 28% of true sellers are people who either took an Opendoor offer, or if they didn't take us up on the offer, they went and listed their home on the market. About a third of the people in those markets have come to us and entered their home.

Speaker Change: And how is that fluctuated? I mean it's something that we are...

Carrie Wheeler: It's higher in more mature markets; it's lower in less mature markets at a very high level. A lot of that has to do with awareness and us being in the market for longer. [inaudible] all over time, frankly, are starting their own. Got it.

Speaker Change: We convert better, and more people are coming to us first to start their home selling journey. And our goal over time is to graduate all our more immature markets and get them to a place where, you know, it's not, you know, one in four people coming to us, it's hopefully, you know, all over time, frankly, are starting their home journey with us.

Carrie Wheeler: And maybe kind of along the same thread, you know, as we think about more mature markets versus less mature markets and just kind of overall awareness of Opendoor. I mean, how should we think about your strategy around maybe increasing Brand Spend or Marketing Spend Ahead of an Improving Resi Real Estate Market? It would seem like if you, you know, if you have quite a bit of cash, maybe you'd want to start spending ahead of things improving, or is this kind of an indication that you and the team view things as still pretty precarious, and we need kind of more quarters of evidence that volume is coming back out. I guess just overall, like, why not start spending more money ahead of, I guess, rates coming down, if that' Yeah, I mean, it's a really good question.

Speaker Change: Got it. And maybe kind of along the same thread, you know, as we think about more mature markets versus less mature markets and just kind of overall.

Speaker Change: Transcribed by https://otter.ai

Speaker Change: Or is this kind of an indication that you and the team view things as still pretty precarious and we need kind of more quarters of evidence that...

Carrie Wheeler: I'd like to say a couple things. If you look back at kind of where we've been, say, since 2022, when we did cut a lot of marketing spend, we've been able to drive a lot more awareness on the back of, frankly, lower dollars. And that's because we've been changing the mix; we've been taking money, you know, away from paid marketing and really leaning into brand and creative. And that has been driving for what is now, you know, the highest level of awareness we've had across our markets in our history, which is great because when we have higher awareness, people trust us, and conversion response commensurately. While we would like to invest more in the brand over time, I think we're always moderating our total amount of marketing spend relative to kind of where we are and how effective that is vis-a-vis where our spread

Carrie Wheeler: But your meta point is right is that over time, the way for us to grow top of funnel and grow awareness is we're going to continue to invest in the brand because we think that's just going to set us up for success in the future and just expand the, Great, thank you. If I could squeeze in one more, you know, the kind of buyer agent contracts are going to, I think, be implemented in a couple weeks here. Is that included any impact that is included in the guidance? Is there?

Speaker Change: and Conversion Response commensurately. We would like to invest more in brand over time. I think we're always moderating our total amount of marketing spend relative to kind of where we are and how effective that is vis-a-vis how where our spreads are set. But your meta point is right, is that over time the way for us to grow top of funnel and grow awareness is we're going to continue to invest in brand because we think that's just going to set us up for success in the future and just expand the pie.

Speaker Change: If I could squeeze in one more, the buyer-agent contracts are going to be implemented in a couple weeks here. Is that included, any impact on that included in the guidance?

Carrie Wheeler: Anything to flag on how you're thinking about how that may impact the ecosystem, maybe in 3Q? Yeah, we are, it's early yet. I'd say we've been doing some experimentation to understand how this is all going to roll out so that we are ready. I would say one of the things that we are seeing in our market is about 10 to 15 basis points of pressure on the commission rate since April. And while that's not a huge amount, it's decidedly different from all prior years where that rate has been pretty flat.

Speaker Change: Anything to flag on how you're thinking about how that may impact the ecosystem maybe in 3Q?

Speaker Change: Yeah, we're, it's early yet. I'd say we've been doing some experimentation to understand how this is all going to roll out so that we are ready. I'd say one of the things that we are seeing in our market is about 10 to 15 basis points of pressure on the commission rate since April .

Speaker Change: And while that's not a huge amount, it's decidedly different than all prior years where that rate has been pretty flat. So, change is coming. We know that it's going to take some time to educate home buyers and home sellers and agents. We see that as we interact with them, as we experiment with how we're going to...

Carrie Wheeler: So change is coming. We know that it's going to take some time to educate home buyers and home sellers and agents. We see that as we interact with them as we experiment with how we're going to, how we're going to show up with like, how we're going to compensate buyers. The thing we're most focused on long term is we think this is better for consumers.

Carrie Wheeler: It's going to take down the cost of the transactions, it's going to lower friction, and we can pass it on to consumers and drive more transactions. And we think as people become more educated, the potential to lean into the fact that we have the only direct e-commerce platform to buy a home is really important. And people, as we become educated, the cost of additional agency help should lean into our direct platform because we can share more savings. So we'll see. It's going to be interesting.

CastingWords: Transcription by CastingWords

Speaker Change: The potential to lean into the fact that we have the only direct e-commerce platform to buy a home is really important and people as we become educated the cost of additional agency help should lean into our direct platform because we can share more savings with them. So we'll see. It's going to be interesting this summer.

Operator: Thanks, Carrie. One moment for our next question. Our next question comes from Ben Black with Deutsche Bank. Your line is open. Hi, this is Jeff Van for Venn.

Carrie: Thanks, Carrie.

Speaker Change: One moment for our next question.

Operator: Thanks for taking my questions. When you think about managing sort of the balance between maintaining your home clearance rates and when there's sort of a multi-month period of like home price appreciation volatility and while also, you know, having a kind of core focus on reducing spreads, how do you manage that balance? Because as you go through this period of volatility, you're lowering prices in order to get the homes off your balance sheet, but then at the same time, focusing on lowering the spread to which you acquire homes. So how do you kind of manage that balance? I mean, we talk a lot.

Speaker Change: Hi, this is Jeff Van for Ben. Thanks for taking my questions.

Speaker Change: When you think about managing sort of the balance between maintaining your home clearance rates and

Jeff: when there's sort of a multi-month period of like home price.

Speaker Change: Appreciation Volatility and while also you know having a kind of core focus on reducing spreads. How do you manage that balance because as you go through this period of volatility you're lowering price in order to

Speaker Change: to, you know, get the homes off your balance sheet, but then at the same time, you know, focusing on lowering the spread to which you acquire homes.

Speaker Change: So how do you kind of manage that balance?

Carrie Wheeler: Externally and internally, about managing for growth and margin and risk. And one of the ways we manage for risk is we have well-defined resale targets by market and in total across our portfolio. And those are pretty sacrosanct for us.

Speaker Change: And one of the ways we've managed for risk is we have well-defined resale targets.

Jeff: by market and in total across our portfolio. And those are pretty sacrosanct for us. You know, we make sure that we are clearing our inventory so that we are not creating a mismatch between inflows and outflows and that we're number one managing for risk.

Carrie Wheeler: You know, we make sure that we are clearing our inventory so that we are not creating a mismatch between inflows and outflows and that we're number one in managing for risk. And there may be some cost to that sometimes. And we think that, though, is appropriate risk management. So, this is sort of the model is working as intended, and maybe the 5 to 7% contribution margin target is sort of an over time type target, but we're going to experience some volatility in that number, quarter of a quarter, depending on how HPA trends play out. Is that sort of the right way to think about it, about the model?

Jeff: And there may be some cost to that sometimes, and we think that, though, is the appropriate risk management decision. And that's healthy.

Jeff: So this is sort of the models working as intended, and maybe like the 5 to 7% contribution margin target is sort of over time type target, but we're going to experience

Speaker Change: maybe some volatility in that number, quarter of a quarter, depending on how HPA trends play out. Is that sort of the right way to think about it, about the model?

Carrie Wheeler: Yeah, I mean, we very much give an annual target by design, like over the course of a year, we want to be within that 5 to 7% range, and nothing about that has changed in terms of where we want to manage the business. You may have some quarter-to-quarter volatility because of seasonality or market swings, but I think the point is that we want to instrument our system so that we are managing for balance sheet health and delivering margins within an annual goal. Great, thank you. And one quick follow-up on the NAR question. Did you think that that factor played a factor at all?

Speaker Change: Yeah, I mean, we very much give an annual target by design, like over the course of a year, we want to be within that 5 to 7% range, and nothing about that has changed.

Speaker Change: In terms of where we want to manage the business to, you may have some quarter-to-quarter volatility because of seasonality or market swings, but I think the point is we want to instrument our system so that we are managing for balance sheet health and delivering margins within an annual guide.

Carrie Wheeler: In this kind of sellers freezing up in taking homes off the market? Do you think that there's any maybe sellers are waiting to put their you know, to sell their homes post NAR settlement and get lower pay lower fees? me, not really, to be honest, I don't think so. Great, thank you.

Speaker Change: Great, thank you. And one quick follow-up on the NAR question. Did you think that that played a factor at all?

Speaker Change: Do you think that there's any, maybe sellers are waiting to put their, you know, to sell their homes post the NAR settlement and get lower, or pay lower fees?

Speaker Change: I mean, not really, to be honest. I don't think so.

Speaker Change: Great. Thank you.

Operator: One moment for our next question. Our next question comes from Curt Nagel with the B of A. Your line is open.

Speaker Change: Our next question comes from Curtis Nagle with the B of A. Your line is open.

Operator: Great, thanks so much for taking the questions. So that comment, Carrie, you just made on the 10 to 15 depth. [inaudible] That statistic is across our market, so against the third of the markets that we can underwrite today. Overall, buyer broker commission for those markets, putting aside what we're doing, that's where the pressure's coming in. It's pretty dispersed.

Curtis Nagle: Great, thanks so much for taking the questions. So that comment, Carrie, you just made on the 10 to 15 depth.

Curtis Nagle: Declining commission rates is really interesting. It sounds like it's an average, so...

Curtis Nagle: I guess are you seeing, you know, a uniform decline across agents or are you seeing some agents getting really aggressive on rates, right, or off of rates and that's dragging down the overall average? What's the composition of that statistic?

Speaker Change: That statistic is across our markets, so again, so those are the markets that we can underwrite today. Overall, buyer-broker commission for those markets, in total, putting aside what we're doing, that's where the pressure's coming, and it's pretty dispersed, like it's not any one market driving the vast majority of that.

Carrie Wheeler: It's not any one market driving the vast majority. Right now, I understand it from a market perspective, but I'm just saying, are the, you know, per agent, right? Are they all kind of taking it down a little bit? Or, you know, do you have agents that are getting really aggressive on the rates? And that's dragging down the average. That's the distinction I'm trying to figure out.

Speaker Change: I understand it from a market perspective, but I'm just saying.

Speaker Change: are the, you know, per agent, right, are they all kind of taking it down a little bit, or, you know, do you have agents that are getting really aggressive on the rates, and that's dragging down the average.

Speaker Change: That's the distinction I'm trying to figure out.

Carrie Wheeler: I mean, I think we have an 80-20 rule anyway on agents in terms of the fact that, you know, a small percentage of agents drive the vast majority of transaction volumes. So, by definition, I guess there is sort of a small number of agents who are driving most of those changes in terms of on the sell side. This is where it's coming from, right? This is sellers deciding if they want to pay less. Okay, I got it. And then just what's the latest thinking on the 26 converts?

Speaker Change: I mean I think we have an 80-20 rule anyway on agents in terms of like the fact that like the vast you know a small percentage of agents drive the vast majority of the transaction volumes so by definition I guess there is sort of a you know a few number of agents who are driving most of those changes in terms of on the sell side. This is where it's coming right? Is the sellers deciding they want to pay less to the buyer?

Unknown Executive: I know it's, I don't think about a year or so before the term current, but cash did dip a bit in 2Q. Should we expect to be opportunistic as you have been in the past in terms of buying at a discount? Or is the priority more, you know, preserved cash or maybe a capped ATM? How are you thinking about that? [inaudible] I was gonna say just, I think we obviously don't comment on future capital transactions, and we'll always look to optimize our capital structure, but no comment on future repurchases. Okay, fair enough, understood. Thanks.

Speaker Change: But cash did dip a bit in 2Q, should we expect to be opportunistic as you have been in the past in terms of buying at a discount or is the priority more, you know, preserved cash or I don't know, maybe a capped ATM, how are you thinking about that?

Curtis: Yeah, Curtis, look, well...

Speaker Change: I was going to say, we obviously don't comment on future capital transactions and we'll always look to optimize our capital structure, but no comment on future repurchases.

Curtis: Okay. Fair enough. Understood. Thanks.

Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your remote control. One moment for our next question. Our next question comes from Ryan Tomasello with KBW. Your line is open. Hi everyone, thanks for taking the question. Just to put a finer point around the shifts you're making in your marketing strategy. You know, what's driving that in terms of changes you're seeing? around why you're choosing to do that now versus something, earlier or later.

Speaker Change: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. One moment for our next question.

Speaker Change: Our next question comes from Ryan Tomasello with KBW. Your line is open.

Ryan Tomasello: Hi everyone, thanks for taking the questions.

Ryan Tomasello: Just to put a finer point around the shifts you're making in the marketing strategy, you know, what's driving that in terms of changes you're seeing around why you're choosing to do that now versus something you might have done earlier or later? And then in terms of mix.

Operator: And then in terms of Nick, how has brand spend contributed to the overall marketing budget historically? Where is that mix going? And do you see this as net neutral to the marketing budget on a normalized basis? through the moving pieces with the 3Q-OPEX guided sounds like. That's going to be up sequentially despite.

Christina Schwartz: So just trying to understand how additive to the marketing budget overall. Hi Ryan, it's Christy here. I can start by taking the marketing kind of budget and forward-looking question. And so we did reduce our advertising spend in the second quarter over the first quarter. I think our first quarter was $27 million, and then we brought it down to $21 million in the second quarter as we were increasing spreads. The operating expense guide that we provided for Q3 does give us some flexibility to consider deploying marketing dollars later in the quarter.

Speaker Change: The Moving Pieces with Mainstay. So just trying to understand if this is additive to the marketing budget overall or more of just a mix shift. Thanks.

Speaker Change: Ryan, it's Christy here. I can start by taking the marketing kind of budget and forward-looking question. And so we did reduce our advertising spend in the second quarter over the first quarter. I think our first quarter was 27 million and then we brought it down to 21 million in the second quarter as we were increasing spreads.

Christina Schwartz: And maybe just a comment on your question about how marketing strategy has evolved. If you go back, we've gone from heavy local spend to now having the size and scale to be effective at marketing nationally. You've seen some of our advertising campaigns and some of our work, but we couldn't do that cost effectively at 20 markets. We can do it at 50.

Speaker Change: And maybe just a comment on your question about how marketing strategy has evolved, if you go back.

Christina Schwartz: And the other change in mix has been, you know, mostly paid, mostly online, or a lot of it, you know, direct mail, certainly, and now being able to kind of put more and more of that mix into branding. And even though we may have had less dollars certainly coming out of 2022, we've seen a heavy return on investment show up in the form of higher awareness and higher conviction. I'm happy to go on from there if I'm not sure that there are as many shows responsive to your question. Yeah, that's helpful.

Christina Schwartz: I guess maybe just to clarify on one of the other sub questions of the question, which is, if this is additive or net neutral, I guess, notwithstanding the pullback that you made last quarter in response. The shift in spend, I would call it neutral. It's been like, if the pie is six, we're just moving around the dollars differently.

Ryan Tomasello: Yeah, that's helpful. I guess maybe just to clarify on one of the other sub questions of the question, which is, if this is additive or net neutral, I guess notwithstanding...

Christina Schwartz: Obviously, we flex marketing up and down sometimes, depending on where we are in the cycle of the year or when spreads are really low, we can market more aggressively; we want to market into that, or we may pull back when spreads are high. But then the general point is that this isn't about adding a bunch of brand dollars; it's about allocating away from other things into what is more cost effective. Brand Building Channels for us because we know that as we grow, branded like list all our, Got it. And then Just turning to, The Balance Sheet and Finance. What visibility do you feel like you have into the maturities coming down the pipeline next year and more in 2020?

Speaker Change: Got it. And then, just turning to...

Ryan Tomasello: the balance sheet and financing.

Speaker Change: What visibility do you feel like you have into the maturities coming down the pipeline next year and I guess even more in 2026, just in terms of pricing and other terms around capacity and advance rates?

Christina Schwartz: Just in terms of pricing and other terms around capacity and advanced, and just generally, you know, your comfort level, having enough financing capacity at favorable enough terms to fund it, Yeah, happy to cover it. So we've set up our capital structure with a lot of different lenders for a reason, which gives us flexibility. Second, we've set up the capital structure to have staggered rolling maturities. So if you go back really each quarter, every year, we are extending maturities across our capital stack.

Speaker Change: And just generally, you know, your comfort level with having enough financing capacity at favorable enough terms to fund the business as you look to scale from here.

Christina Schwartz: So we've continued to be able to roll them, we're comfortable, our lenders are comfortable with the balance sheet. So we feel very comfortable with both the relationships and the capacity that we have to continue to roll them. Thank you. Our last question comes from one... comes from the line of Ryan McKeveny with Zellman Associates. Your line is open. Hey guys, this is Nick. I'm for Ryan.

Speaker Change: So we've continued to be able to roll them. We're comfortable, our lenders are comfortable with the balance sheet, so we feel very comfortable with both the relationships and the capacity that we have to continue to roll them.

Operator: Thanks for taking our questions. One quick one on the partnership side. Is there any color you can add in terms of which partnership channel or channels have been the most significant in terms of volume contribution? And then I have a follow-up after that.

Unknown Executive: Hey, just we've never broken down our partnership channel and like who contributes what amongst home builders, agents, and the online real estate players. They're all important as a group, as we said before, it's, you know, 40% plus of our volumes, but we don't discriminate between them. Got it.

Unknown Executive: That's helpful. Thank you. Oh, I was just gonna give you a little more tidbit, which is like, we've been with home builders for a long time, and we've been with agents for a long time, and growing. And then the online real estate folks are newer, but important. Got it. Yeah, thanks for the clarification.

Speaker Change: I'm going to give you a little more tidbit, which is like, we've been with home builders for a long time, we've been with agents for a long time and growing, and then the online real estate folks for us are newer but important.

Unknown Executive: And then maybe switching gears, just as we look around the country, there are obviously many markets seeing inventory up on a year-of-year basis, with some up more than others, Florida, for example. And I'm just curious if that growth in inventory is helping you expand acquisitions in certain locations more than others, and then maybe on the home price side, if there are any differences in price or margin trends on resales as a result of those inventory dynamics. No, a short answer: not really.

Speaker Change: Got it. Yeah, thanks for the clarity. And then maybe switching gears, just as we look around the country, there's obviously many markets seeing inventory up on a year of year basis with some more than others, Florida, for example. And I'm just curious if that growth in inventory is helping you expand acquisitions in certain locations more than others.

Carrie Wheeler: I think the growing level of inventory you're seeing also is weighing on things like clearance rates that we talked about and the fact that people are sitting out there for longer and not seeing their homes turn and the pressure we talked about on home prices and delisting rates coming up. So we're seeing inventory growing, but inventory getting kind of stale. And I think that pressure is clearance.

Carrie Wheeler: And that makes us very, very attuned to how we're clearing our book of inventory and making sure that we're managing within our. Typically, at this time of year, things start to slow down. Got it. Thank you so much, and I'm not asking any further questions at this time. I'd like to turn the call back over to Carrie Wheeler for any closing remarks. Appreciate it, thanks everyone for joining us today. We're pleased with where the results came out for the second quarter. We know the housing market continues to be challenging, but we also know it will never last forever.

Speaker Change: Got it. Thank you so much.

Speaker Change: And I'm not showing any further questions at this time. I'd like to turn the call back over to Carrie Wheeler for any closing remarks.

Carrie Wheeler: Appreciate it. Thanks everyone for joining us today. We're pleased with where results came out for the second quarter. We know the housing market continues to be challenging. We also know it will never last forever. It's going to be temporary and the improvements we're making today to drive future growth will be enduring. Look forward to connecting with you next quarter.

Carrie Wheeler: It's going to be temporary. And the improvements we're making today to drive future growth will be enduring. Look forward to connecting with you next. Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a, ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and thank you for standing by. Welcome to Opendoor's second quarter 2024 earnings conference. At this time, all participants are in a listen-only mode.

Speaker Change: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: [inaudible]

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone. You will then hear an automated message device in your hand saying, "To withdraw your question, please press star 1 1 again."

Speaker Change: [inaudible]

Speaker Change: ?? ?? ?? ?? ??

Speaker Change: [inaudible]

Kimberly Niehaus: Please be advised that today's conference is being recorded. I would like to turn the conference over to your speaker today, Kimberly Niehaus, head of investor relations. Please go ahead.

Speaker Change: Good day and thank you for standing by. Welcome to Opendoor's second 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 need to press star 1-1 on your telephone. You will then hear an automated message device and your hand is raised.

Speaker Change: To withdraw your question please press star 1 1 again. Please be advised today's conference is being recorded. I would like to turn the conference over to your speaker today, Kimberly Niehaus, Head of Investor Relations. Please go ahead.

Kimberly Niehaus: Thank you and good afternoon.

Kimberly Niehaus: 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.

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 Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations.

Speaker Change: These statements are neither promises nor guarantees, and under-reliance should not be placed on them.

Speaker Change: Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

Speaker Change: 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 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 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.

Carrie Wheeler: Revenue, contribution margin, and adjusted EBITDA all outperformed guidance, and acquisitions grew nearly 80% year over year. At the same time, our seller NPS reached the highest level we've seen in two years, proof of the strength of our customer value proposition. Home sellers desperately need an alternative to the traditional real estate process, and that's exactly what we're providing. During the quarter, we continued to make meaningful progress growing our top of the funnel to reach more sellers and expanding our product offering to convert more customers. Today, our buy box is just north of $650 billion.

Speaker Change: At the same time, our seller NPS reached the highest level we've seen in two years, proof of the strength of our customer value proposition. Home sellers desperately need an alternative to the traditional real estate process, and that's exactly what we're providing.

Speaker Change: Year-to-date, we've seen that over 1 in 4 true sellers, or customers within our buy box that ultimately went on to list or sell their home, had previously entered their home address on our website.

Speaker Change: And while that's something to celebrate, we also recognize that we have a significant opportunity to expand our reach. We want all sellers to start the journey with Opendoor.

Carrie Wheeler: And as a result of our efforts to increase brand salience, aided awareness and consideration have reached the highest level in Opendoor history. Importantly, while higher awareness brings more customers to the platform, it also improves conversion rates. As an example, in our markets where aided awareness is 45%, which are primarily our most mature markets, we see 33% higher offer-to-contract conversion rates when compared to markets with an awareness of 26%. Further, over half of our markets were launched in 2021 and 2022, right before the housing reset and our significant pullback in marketing spending, and these markets have awareness of less than 20%.

Speaker Change: To do this, we have shifted our marketing mix toward brand media spend versus direct response. And as a result of our efforts to increase brand salience, aided awareness and consideration have reached the highest levels in Opendoor history.

Speaker Change: Importantly, while higher awareness brings more customers to the platform, it also improves conversion rates.

Speaker Change: As an example, in our markets where aided awareness is 45%, which is primarily our most mature markets, we see 33% higher offer-to-contract conversion rates when compared to markets with an awareness of 26%.

Carrie Wheeler: We believe that with incremental investments and time, these cohorts should provide significant tailwinds to future volume growth. We also have the ability to drive growth by expanding our product offering with a suite of products that best suits the needs of all sellers that come to us. For a decade, our flagship all-cash offer product has provided simplicity and certainty to sellers who are looking for an easier way to sell their home. However, we know that other sellers are interested in testing the market and listing their home on the MLS.

Speaker Change: Further, over half of our markets were launched in 2021 and 2022, right before the housing reset in our significant pullback in marketing spend, and these markets have awareness of less than 20%.

Speaker Change: We believe that with incremental investments and time, these cohorts should provide significant tailwinds to future volume growth.

Speaker Change: We also have the ability to drive growth by expanding our product offering with a suite of products that best suits the needs of all sellers that come to us.

Speaker Change: For a decade, our flagship all-cash offer product has provided simplicity and certainty to sellers who are looking for an easier way to sell their home. However, we know that other sellers are interested in testing the market and listing their home on the MLS.

Carrie Wheeler: In an effort to better serve these customers, we've expanded Opendoor lists to nearly all of our markets in the second quarter. We now give customers a choice of how they'd like to sell their home, selling directly to Opendoor or listing on the market. If they choose our listing product, we list their home with the help of one of our partner agents.

Speaker Change: And in an effort to better serve these customers, we've expanded lists with Opendoor to nearly all of our markets in the second quarter. We now give customers a choice of how they'd like to sell their home, selling directly to Opendoor or listing on the market.

Carrie Wheeler: And if they don't find the price they want, they have up to 30 days to accept our cash offer and complete their sale. Since launching this product, we've seen a nearly 10% uplift in NPS. Further, this capital aid offering has the potential to be accretive to both total volumes and margins as it gains traction over the long term. While we are focused on making enduring improvements to our business, we also have to make tactical decisions in the short term to strike the right balance of growth and risk against what continues to be a challenging housing backdrop.

Speaker Change: If they choose our listing product, we list their home with the help of one of our partner agents. And if they don't find the price they want, they have up to 30 days to accept our cash offer and complete their sale.

Speaker Change: Since launching this product, we've seen a nearly 10% uplift in NPS. Further, this capital aid offering has the potential to be creative to both total volumes and margins, as it gains traction over the long term.

Speaker Change: While we are focused on making enduring improvements to our business, we also have to make tactical decisions in the short term to strike the right balance of growth, margin of risk, against what continues to be a challenging housing backdrop.

Speaker Change: In the back half of the second quarter, we began observing and responding to signals that indicated additional slowing in the housing market.

Speaker Change: The combination of higher delistings and slowing clearance rates led to a decline in month-over-month home price appreciation, or HPA.

Speaker Change: HPA entered negative territory in June , two months earlier than a typical year. In response to this weaker HPA, we began increasing spreads more than we had expected.

Speaker Change: This will weigh on acquisition volumes in the third quarter. In addition, we have taken larger home-level price drops to maintain clearance levels within our resale targets, which will impact our contribution margin.

Speaker Change: With an increasing probability of interest rate reductions by the Fed in the second half of 2024, there are reasons to believe that we may benefit from any potential tailwinds in housing market activity. That being said, we will continue to preserve flexibility in setting spreads to operate against a range of macroeconomic outcomes in 2024.

Carrie Wheeler: While we expect the current macro to be temporary, the progress we've made growing our top of funnel and expanding our product offering, combined with the operating and cost discipline we're driving across the business, is enduring. Today, we announce that our business unit, Mainstay, is becoming an independent, privately held company in conjunction with an outside equity investment led by Coastal Ventures. Mainstay is a comprehensive market intelligence and transaction platform for the single-family rental industry.

Speaker Change: While we expect the current macro to be temporary, the progress we've made growing our top of funnel and expanding our product offering, combined with the operating and cost discipline we're driving across the business, are enduring.

Speaker Change: Today, we announce that our business unit, Mainstay, is becoming an independent, privately held company, in conjunction with an outside equity investment led by Coastal Ventures.

Speaker Change: Mainstay is a comprehensive market intelligence and transaction platform for the single-family rental industry.

Carrie Wheeler: Mainstay was built as a separate business, leveraging Opendoor's data insights, transaction platform capabilities, and enterprise customer relationships. This transaction sets up both Opendoor and Mainstay to focus on building their respective businesses with dedicated teams and resources. Mainstay will be co-led by Dod Fraser, who's led the business's development since inception, alongside a dedicated team. With today being his last earnings call, I want to extend my thanks to Dod for all his contributions to Opendoor. As we look forward to the future, we remain as focused as ever on reinventing one of life's most important transactions.

Speaker Change: Mainstay was built as a separate business, leveraging Opendoor's data insights, transaction platform capabilities, and enterprise customer relationships.

Speaker Change: This transaction sets up both Opendoor and Mainstay to focus on building their respective businesses with dedicated teams and resources.

Speaker Change: Mainstay will be co-led by Dod Fraser, who's led the business's development since inception, alongside a dedicated team.

Speaker Change: With today being his last earnings call, I want to extend my thanks to Dod for all his contributions to Opendoor.

Speaker Change: As we look forward to the future, we remain as focused as ever on reinventing one of life's most important transactions.

Carrie Wheeler: And to do that, we're positioned to rescale our business in a durable and sustainable way, so we can provide simplicity and certainty to the millions of customers who will move in the years to come. Chrissy will now review our financial results and guidance. Thank you, Carrie.

Speaker Change: And to do that, we're positioned to rescale our business in a durable and sustainable way so we can provide simplicity and certainty to the millions of customers who will move in the years to come.

Speaker Change: Chrissy will now review our financial results and guidance.

Chrissy: Thank you, Carrie. Our second quarter performance reflects strong execution and continued operating and cost discipline across the business.

Chrissy: We delivered over $1.5 billion of revenue in the second quarter, exceeding the high end of our guidance range.

Chrissy: This represents a 28% sequential increase in revenue driven by acquisition volume growth over the last several quarters. On the acquisition side, we purchased 4,771 homes in the second quarter ahead of our expectations.

Chrissy: Acquisitions were up 78% versus 2Q23 due to lower spread and increase in marketing and contributions from Partnership Channel.

Chrissy: Contribution margin was 6.3% in the second quarter, ahead of the high end of the implied guidance range.

Chrissy: This outperformance was partially due to selling more newly listed homes with shorter holding times than anticipated.

Christina Schwartz: Adjusted operating expenses totaled $100 million for the quarter, lower than the guidance of $110 million and down from $107 million in the first quarter of 2024 due to a pullback in marketing spend and reduced fixed headcount hiring. Finally, adjusted EBITDA loss was $5 million, significantly outperforming the high end of our guidance range and an improvement from an adjusted EBITDA loss of $50 million in the first quarter. Adjusted EBITDA came in ahead of expectations due to contribution margin outperformance and ongoing cost discipline.

Chrissy: Finally, adjusted EBITDA loss was $5 million, significantly outperforming the high end of our guidance range, and an improvement from an adjusted EBITDA loss of $50 million in the first quarter.

Speaker Change: Adjusted EBITDA came in ahead of expectations due to contribution margin outperformance and ongoing cost discipline.

Christina Schwartz: Turning to our balance sheet, we ended the quarter with $1.2 billion in total capital, which primarily includes $809 million in unrestricted cash and marketable securities and $300 million of equity invested in homes and related assets. We also had $7 billion in non-recourse asset-backed borrowing capacity, composed of $3 billion of senior revolving credit facilities and $4 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.3

Speaker Change: Turning to our balance sheet, we ended the quarter with $1.2 billion in total capital, which primarily includes $809 million in unrestricted cash and marketable securities, and $300 million of equity invested in homes and related assets.

Speaker Change: We also had $7 billion in non-recourse asset-backed borrowing capacity, composed of $3 billion of senior revolving credit facilities and $4 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.3 billion.

Christina Schwartz: Before we get into guidance, I'd like to provide a few additional comments on the Mainstay Transact. Mainstay will operate independently, and Opendoor will retain less than 50% ownership on a fully diluted basis. The company is in the process of assessing the financial statement impact of the fund rate, but we do not anticipate recognizing Mainstay's ongoing financial results in Opendoor's income or loss from operations going forward. In the first half of 2024, Mainstay's business had a de minimis impact on Opendoor's revenue and contribution profits and incurred approximately $17 million of adjusted operating expenses. Our 3Q guidance reflects reductions in operating expenses as a result of the mainstay transaction, which closed one month into the quarter. As Carrie mentioned, in the back half of the second quarter, we began observing signals.

Speaker Change: Before we get into guidance I'd like to provide a few additional comments on the mainstay transaction.

Speaker Change: Mainstay will operate independently and Opendoor will retain less than 50% ownership on a fully diluted basis.

Speaker Change: The company is in the process of assessing the financial statement impact of the fund raise, but we do not anticipate recognizing Mainstay's ongoing financial results in Opendoor's income or loss from operations going forward.

Speaker Change: In the first half of 2024, Mainstay's business had a de minimis impact on Opendoor's revenue and contribution profit, and incurred approximately $17 million of adjusted operating expenses.

Speaker Change: Our 3Q guidance reflects reductions in operating expenses as a result of the mainstay transaction, which closed one month into the quarter.

Q2 2024 Opendoor Technologies Inc Earnings Call

Request a DemoDemo

OPEN

Opendoor

Earnings