Q1 2025 Opendoor Technologies Inc Earnings Call
Good day, and thank you for sending by. Welcome to the Opendoor Technology's first quarter, twenty-five earnings conference call. At this time, all participants are in a
After the speaker's presentation, there will be a question and answer session.
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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: Thank you and good afternoon. Details of our results in additional management commentary are available in our earnings release and shareholder letters 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.
Kimberly Niehaus: Before we start, I would like to remind you that the following discussion convenes forward with looking statements within the meaning of the Federal Security Flots.
Kimberly Niehaus: All statements other than statements of historical facts 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 and management objectives for future operations.
Kimberly Niehaus: These statements are neither promises nor guarantees, and your alliance should not be placed on them. Such four-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Kimberly Niehaus: Additional information that could cause actual results to differ from four looking statements can be found in the risk factor section of the open doors most recent annual report on form 10k for the year end of December 31, 2024 as updated by a periodic report filed after that 10k. [inaudible]
Kimberly Niehaus: Any four-looking statements made on this conference call, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today. And open door seems no obligation to update or advise 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.
Kimberly Niehaus: For reconciliation of each of these non-GAAP financial measures to the most directly comparable Gap metric, please see our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Open Door.
Kimberly Niehaus: Thanks everyone for joining us today. At Opendoor we remain relentlessly focused on our mission to read and residents of rural state in the U.S., making it simpler and more convenient and more customer-centric.
Kimberly Niehaus: The strategy we're executing against is designed to take full advantage of this train we've built over the past decade and to position us for long term success.
Kimberly Niehaus: We continue to operate in an extremely challenging macroeconomic environment, with heightened uncertainty on the back as shifting economic policies and the evolving tariff landscape.
Homestellers and buyers are taking a pause. [inaudible]
Kimberly Niehaus: Mortgage rates are back up over 7%. Clarence rates are down there, the 25% year-over-year, and the listings are up over 30% as sellers continue to exit the market.
Kimberly Niehaus: Despite these headwinds, our focus hasn't changed. We're here to give customers certainty, convenience, and choice, especially when they get it most.
Kimberly Niehaus: We enter 2025 with a clear plan to drive towards profitability while strengthening our project experience and leadership position.
Kimberly Niehaus: Our progress is reflected in our first quarter results where acquisition volumes, revenue, contribution profit, and adjustment even demonstrate strong execution amidst a challenging macro backdrop.
Kimberly Niehaus: And when we're focused on driving a profitability, we're also investing in our future. Over the past decade, we've built a trusted category to find a platform that gives sellers the certainty of a cash offer. Now, we're evolving into a platform where every seller can explore all their selling options.
Kimberly Niehaus: whether that's through cash offer or listing with an agent. We are standing how we go to market, leveraging our unique platform and relationships.
Kimberly Niehaus: Today, a meaningful percentage of our acquisitions come to us through an agent who is bringing their customer over the door and requesting a cash offer.
Kimberly Niehaus: For many listing agents, having a cash offer as part of a complete set of selling solutions is considered table stakes, and we've built the platform that allows and provide a certain inseam with that, but fulfilling the cash offer on behalf of their client.
Kimberly Niehaus: We are taking our existing vibrant partnership with agents and flipping the script, so to speak, by sending open door customer referrals to vetted agent partners.
Kimberly Niehaus: Those agents are able to talk through the options that a customer has to sell from an Opendoor cash offer to a full listing and doing so, they're meeting that customer where they are and they're able to put all options in context relative to that particular seller's needs.
Kimberly Niehaus: We are piloting this experience in select markets and are encouraged by the early indicators
Kimberly Niehaus: Customers are receptive to having a local expert explain their options.
Kimberly Niehaus: Agents benefit from high-intempsed other referrals from our marketing engines and are able to bring all oxen to the table and assessing the smartest move for the customer. An open door has the opportunity to improve conversion, whether it is higher conversion for cash offers or our participation in the listing which in turn generates asset or light revenue for us.
Kimberly Niehaus: Moreover, we're able to deliver final onto it and offer to fast-
Kimberly Niehaus: by Lallie Agents to do in-home assessment in their first meeting by leveraging our platform.
Kimberly Niehaus: There will continue to be customers who come to Opendoor directly and want the self-serve experience that we have pioneered. But we expect many customers will benefit from having a new advisor help them navigate the filming process.
Kimberly Niehaus: We will see how our palette evolves when we believe that this channel will allow us to serve more sellers, monetize a greater portion of our funnel, and leverage our platform to drive more asset-like business.
Kimberly Niehaus: In addition to how it expanded the consumer experience, we are continuing to operate the business of four core priorities. First, we're maintaining our pricing discipline, or monitoring macro-conditions closely given an uncertain market and heightened volatility, and against that backdrop have been proactively reaching our spread.
Kimberly Niehaus: Well, that does impact acquisition growth. We believe it's a right trade-off to protect contribution margin.
Second, we are working on improving conversion.
Kimberly Niehaus: In addition to the channel expansion I just spoke about, we are making enhancements to our pricing models, including refining how we allocate spreads and improving price agmentation with the goal of enhancing our conversion performance and Q1 continue to add new features to our algorithms, like school district quality and active competition.
Kimberly Niehaus: Third, we're allocating our marketing investments to better align with seasonal housing dynamics and spreads. As a short last quarter, we believe this shift in our advertising strategy drives greater spend efficiency. Consistent with that strategy, we expect our marketing spending Q2 to be meaningfully lower than in Q1. We'll continue to employ dollars with a focus on efficiency and impact.
Kimberly Niehaus: And finally, we are highly focused on delivering our product as efficiently as possible. We're building a leaner, more agile organization. Fixed operating expenses in Q1 were $19 million lower, or down 33% versus a year ago.
Kimberly Niehaus: These cost efficiencies paired with our margin improvements should position us to reduce adjustment and loss as in 2025 as compared to last year.
Kimberly Niehaus: We have built a powerful platform and now we are working to unlock even more value for customers and agents all while keeping our sights firmly in profitability. We look forward to sharing more as we progress throughout the year. And with that, I will turn it over to Tusa Lee for the financial overview.
Selim: Thank you, Carrie. At the beginning of the year, we shared a commitment to drive towards profitable, sustainable growth. Our first quarter results reflect progress towards that objective.
Selim: We delivered 1.2 billion of revenue in the first quarter, roughly in line with the same quarter in 2024, representing 2,946 homes sold. On the acquisition side, we purchased 3,609 homes in the first quarter, up 4% versus the same quarter last year.
Selim: Growth in Acquisitions was enabled by enhancements to our product flow and improvements to our pricing
Selim: Contribution Profit was 54 million in the first quarter versus 57 million in Q124 or a contribution margin of 4.7%.
Selim: This improvement in Adjusted EBITDA was primarily driven by reduction in the adjusted operating expenses, which were 84 million in the first quarter, down from 107 million in Q124. We continue to be focused on operating with greater efficiency and strong cost discipline.
Selim: Turning to our balance sheet, we ended the quarter with 7,080 homes, representing 2.4 billion in net inventory, up 24% from the prior year.
Selim: We also had 1 billion in total capital, primarily comprised of 559 million in unrestricted cash and 350 million of equity invested in homes, net of inventory valuation adjustments.
Selim: At quarter end, we had $7.9 billion in non-recourse asset-back borrowing capacity of which total committed borrowing capacity was $2.3 billion.
Selim: In the first quarter, we renewed three revolving credit facilities and one-term debt facility at consistent or improved credit spreads, while both of our mezzanine facilities were extended through at least 2027.
Selim: The successful extension of these credit facilities reflects the continued confidence and support of our capital partners.
Selim: Looking forward, as Carrie mentioned, the housing market has further deteriorated since the beginning of the year. Persistently high mortgage rates continue to suppress fire demand, and we are seeing more sellers pull out of their contracts than we normally would expect, which speaks to the uncertainty that sellers have at this moment.
Selim: Our outlook assumes that these headwinds will continue to impact our performance in the near term.
Selim: RL looked for the second quarter of 2025 includes the following following.
Revenue is expected to be between 1.405 and 1.525 billion.
Selim: Contribution profit between 65 and 75 million, which implies a contribution margin of 4.5 to 4.9 percent.
Selim: Adjusted EBITDA between $10 and $20 million, representing a $20 million year-over-year improvement at the midpoint of our guidance, marking a return to positive quarterly adjusted EBITDA for the first time in three years.
Selim: Adjusted operating expenses of approximately 55 million and non-cash stock-based compensation expense between 13 and 15 million which represents a decline of over 50% year-of-year.
Selim: Looking a bit deeper at our operating expense guidance, we are assuming a significant sequential step down in marketing spend given typical seasonal dynamics and spreads. Additionally, our operating expense includes timing adjustments related to changes in inventory levels.
Selim: In Q2, we expect resales to outpace acquisitions, which will reduce our inventory balance and result in a favorable adjustment to operating expenses on a quarter of a quarter basis.
Selim: Finally, we expect home acquisitions of approximately 1,700 in the second quarter. Our acquisition outlook is informed by two key factors, higher spread levels and lower marketing spend.
Selim: With respect to spreads, we expect to continue to operate at these elevated levels with the intent of focusing on margin improvement, and the reduction in marketing spend will further impact acquisition. Given our focus on efficiency and current market dynamics, we believe this is a prudent approach to managing our business at this time.
Selim: This slowdown in acquisitions is expected to put pressure on the top line in the back half of the year with revenue expected decline on a year-over-year basis in the third and fourth quarters all else equal.
Selim: However, our goal is to deliver year-to-year contribution to margin improvements in those quarters through continued operating efficiencies and wider spreads. And our ongoing cost-discipline should result in an improvement in adjusted net losses in 2025 as compared to last year.
Selim: Finally, the current macro volatility makes it challenging to predict how buyers and sellers will react or how market conditions will unfold.
Selim: Given the consumer hesitation we're seeing, we feel a more cautious approach is warranted. That said, we are closely monitoring market signals and we are prepared to react to more favorable conditions.
Selim: With that, I will ask the operator to open the line for questions.
Speaker Change: Thank you. As for Liner, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question and one follow up. [inaudible]
Selim: Our first question comes from the line of Dae Lee with JP Morgan. Your line is open.
Daylee: Great. Thanks for taking the questions. I have two. So first, Selim, on your comments about following down my acquisition, um, growth to about 1700 and two Q, um,
Speaker Change: Is that kind of the right level to think about, as you look into the back half of the year, or is there some element of rebalancing the inventory too?
Speaker Change: Karen, housing market levels, and it's said something that you're doing across all markets or just some markets, so curious.
Speaker Change: If there are any markets that are working there for you right now, and then...
Speaker Change: Secondly, how should we think about contribution margins of these newer homes that you're acquiring given higher spread is it going to be towards the medium to high end of that 57% target that you guys don't really have? Thanks.
Speaker Change: Thanks for the questions, Dae. On the acquisition pace, what I would say is all else equal given that we are in a generally uncertain environment with respect to the outlook on the housing market. We would expect the normal seasonal pattern to look like a sort of a barbell similar to our marketing approach, where we're going to acquire more homes in Q1 and Q4 and view our homes in Q2 and Q3. So on a sequential basis, going forward, we would expect a sequential decline from Q1 to Q2.
in Q2 and for the New York cohorts.
I would first say that, you know, our expectation of the contribution margin...
between 4.5 and 4.9 percent.
Speaker Change: would be 47 at the midpoint, fairly consistent with Q1 and down roughly a point and a half.
versus the prior year.
Speaker Change: and simply put, this is a mix issue. The decline is really driven by older inventory at relatively lower margins, making up a larger share of home sold in Q2.
Speaker Change: given the slower acquisition pace of new homes in Q2 that we're seeing.
Speaker Change: setting that aside, we do see cohorts that we are acquiring in more recent times performing very well from a contribution margin perspective in the early resale days, but it's not enough to offset the prior year mix impact that I referenced.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ygal Arounian with City Group. Your line is not open.
Yigal Aronian: You guys, thanks for taking the question. First, William, just to follow up on that point on the other homes or maybe for Carrie also. Is that how you view the overall health of that?
Yigal Aronian: that book of inventory. How much with the room, I guess, is there in...
Yigal Aronian: the evaluation of those homes if we might continue to get.
Yigal Aronian: Continuing softness in the house market with the whole prices start to fall. I think we're starting to see that in some geography geographies particularly in the South. So if you factor that in, how do you think about that and then I have a follow-up?
Yeah, our-
Thanks for the question you got.
Yigal Aronian: Like, generally what we see when we acquire cohorts is...
Yigal Aronian: and we'll decay from there, but that gives us some confidence on sort of year-over, expected year-over, your improvements in contribution margin in the second half.
Yigal Aronian: With respect to sort of the valuation expectation, that is factored in, you know, into our outlook. It's factored in, you know, to how we set spreads and obviously pricing is a lever that we can use. But, but there's no incremental or additional pressure that we see because we do look out sort of on the resale environment and make an assumption on where we think homes will resale that relative to the current carrying costs that we have
on the book.
Yigal Aronian: Okay. And then I want to spend a little bit of time on the extension of the aging partnerships. So this feels maybe like a little bit more of a shift in the asset light model than the products we've talked about in the past.
Yigal Aronian: A little bit more of what this product is, is how different it is, are you?
Speaker Change: Can you continue to operate with the Opendoor and marketplace as it become part of this? You've had relationships with other brokerages. Is this a shift where you're working directly with the agents versus the brokerages and then in terms of mix?
Speaker Change: What is it today? You talk about moving more in this direction, and some people will continue to come direct, but it sounds like this.
Speaker Change: might be the, at least your goal for it to be the kind of predominant channel. So what's the overall fix that you intend to get to as well? I know there's a bunch of questions in that, but just try to understand how this plays out. Thanks.
Speaker Change: I'll try and hit all those, and if I don't, you go, just for free to come back in the end.
Speaker Change: If you step back for a second, it is important to appreciate that today a meaningful percentage of our business already comes from agents, agents coming to us every day who want to bring a cash offer to their client because they want to give their client choice.
Speaker Change: and they understand the value prop of our cash offer and their expert at converting it because that clients looking for convenience, certainty, and speed. So those are agents coming to us today, and we understand that motion very, very well. We know who those powerlifting agents are across the 50 markets we're working in.
Speaker Change: We're kind of flipping the script now. Instead of agents coming down to their customer, we are going in eleven markets we're repiliting. We are providing them our customer referrals and we're doing it earlier in the customer engagement.
Speaker Change: We think that trusted age and partner then learns more about the seller's needs. [inaudible]
Speaker Change: They can provide more local expertise and they're also completing an in-home assessment on our behalf. It's a way to improve conversion.
Speaker Change: Speed delivery, more trust, aid and decision making, and ultimately to your point
Speaker Change: We believe this is the distribution channel and a partnership that allows us to drive more
Speaker Change: Very much want that direct to consumer self-service interaction that we pioneered. People will still come to us and want to catch offer and be very happy to do that on a one-to-one basis.
Speaker Change: Agent Relationship and Advice, and we're going to be able to, I think, over time to figure out how we direct customers in the most optimal way. So it's early at day. I said we're piloting, but in a meaningful number of markets, and over time that will continue to evolve.
Speaker Change: Okay, thanks. I guess the only thing that you miscarried.
Speaker Change: just for clarification on lips with Opendoor and marketplace. Are those going to continue to operate? Are they going to be separate products? Are you rolling it into this Asian partnership thing? Yeah, I think about the new partnership of it.
Speaker Change: Channel Strategy, go to Market Strategy, and then it may end up with a listing. So for us, list with Opendoor, think about that as a...
and a funnel referral program, really. A customer comes to us for
Speaker Change: a cash offer. They go through the offer process and we refer them at the end towards the partner agent to explore listing.
Speaker Change: Oftentimes with our backstop cash offer is something for them to think about as a test the market. So those two things are not mutually exclusive. We'll continue to have a list of Opendoor product across.
Speaker Change: Director of Consumer Channels, and we'll be powering more and more agents with the benefit of our marketing engine and our referrals and that may happen with the listing, it may have been a cash offer, that's okay.
With respect to Marketplace...
What I would say is we're currently today in Dallas.
Speaker Change: Charlotte Raleigh, and we're holding there for now. Not a material contributor to revenue or earnings for us today. Given the pause and the pullback we're seeing in the housing market right now, we are going to evaluate the best past four from Marketplace.
Speaker Change: I really believe that sitting here today, our new expanded partnership channel is a much more immediate path to allow us to serve more customers, monetize more of that funnel that we have, and generate that incremental asset like revenue we're looking for, and that's where we're going to put more and more of our energy resources into most likely.
Okay, very helpful. Thank you. Thanks.
Speaker Change: Thank you. Our next question comes from the line of Nicholas Jones with Citizen's JMP Security. Your line is now open.
Speaker Change: Hi, this is Luke on for Nick. Thanks for taking our question. Can you just speak on further cost savings opportunities? You've made a nice progress over the past few quarters, improving the cost structure. How much more room do you think you have there to gain additional efficiencies, you know, particularly if macro worsens? Thanks.
Yeah.
Speaker Change: and our Q2 guidance implies a similar reduction. These are durable cost savings that are here to stay. Beyond these, we continue to look at various aspects of our business and our operations to drive more efficiency as we go forward, including infrastructure, including how we go to market, and including the overall fixed cost base. At this point,
Speaker Change: I don't know that we would expect similar reintroductions beyond this, but we do think that there is more efficiency opportunity as we move forward. And to your question on, you know...
Speaker Change: What does this look like in a slower market? We have right side of the business.
Speaker Change: for a slower market. That has been the dynamic in which we've been operating for the last year plus.
Speaker Change: and as we look forward, the outlook will also inform how we think about the fixed cost-base going forward. We do think that there are still opportunities ahead of us.
Sir, I'm very helpful. Thank you.
Speaker Change: Thank you. As a reminder to ask a question at this time, please press star 11 or you touched on telephone. Our next question comes from the line of Ryan Tomasello with KBW. Your line is in open.
Ryan Tomasello: Hi everyone, thanks for taking the questions. Following up on the expense topic.
Ryan Tomasello: Can you just clarify how much of the 29 million quarter of a quarter reduction implied in the NOPEX guidance is driven by lower marketing expenses?
Ryan Tomasello: that are more seasonal and intentional based on the pullback, you know, you're implying on acquisitions and how much is more of like a structural reduction.
Ryan Tomasello: Yeah, I would say that the majority of the reduction is in marketing and the step down in marketing spend.
Ryan Tomasello: is driven by the typical seasonal dynamics that we've discussed before and the spread levels at which we're operating right now. Additionally, our operating experience includes timing adjustments related to changes in inventory levels.
Ryan Tomasello: In Q2, expect resale, south, pace acquisitions, and that will reduce our inventory balance and result in a favorable adjustment to operating expenses on a quarter over quarter basis.
Ryan Tomasello: between the two of those things, I would say those are the material contributors to the quarter of a quarter variance. There will be some amount for the fixed cost reduction, but I would say that's less material in the face of the marketing move.
Speaker Change: Okay, I appreciate that. And then on the agent partnership program, can you just elaborate on what the economics are of this new arrangement where you'll be bringing the agent in early in the process? Is that just simply?
Speaker Change: A referral fee, a success fee, you know, just trying to understand what that, what those contributions, incremental contribution margin look like on these types of partnership acquisitions.
Speaker Change: Sure, I'd say we were still piloting, but at a high level.
and Generates at Assembly Revenue for us.
Speaker Change: So on a listing, we would earn a share of that commission.
Speaker Change: On a cash offer, we are in the margin we are in today on that cash offer minus any referral fee that we would plan to pay to that agent. And our hypothesis is that the incremental conversion benefits are likely to outweigh the cost of that additional referral fee.
Got it. Thanks for the color, Carrie. Yeah, I'm sorry. [inaudible]
Speaker Change: Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank. Your line is now open.
Thank you for tuning in. We'll see you next time.
Speaker Change: Great. Thanks for the questions. Just a quick follow-up on the Asian partnership. I mean, you spoke about the test market, you know, one signal you're looking for that would that would potentially drive a, you know, a broader rollout of the partnership. And then
Speaker Change: All the curious to hear if you have all the infrastructures that would speak to scale up the partnership or if there's some go-to-market investments that are required going forward, thank you.
Speaker Change: Yeah, I'll do this in reverse order, maybe. Like, if you think about what we've built.
We have built the brand, The Marketing Engine.
The huge funnel of high-attent sellers.
Speaker Change: All the pricing capabilities in the transaction platform, and this is just a way for us to leverage all those capabilities.
via another go-to-market channel.
Speaker Change: So we have all those things built today. We're just leveraging them, these are the our age and partnership relationships.
Speaker Change: with people of many of whom we're interacting with already every day as they fulfill their cash offers. So I think it's actually a pretty seamless move. We've built things like creating a platform to do assessments that we do, or sometimes agencies do on our behalf. So we are very set up and we've been working on that for a while to be able to expand it. So that's one...
Speaker Change: Do you first part of your question, which is what are we looking for in terms of signal? Ultimately, we will be looking for a conversion. Whether that's incremental conversion, neutral better, you know, to a cash offer, and also incremental conversion to a listing outcome that we participate in.
Lee, Nicholas Jones, Ryan Tomasello, Ryan Tomasello,
Thank you. Thank you.
Thanks.
Speaker Change: Thank you. This concludes today's questioning at the session. Thank you all for your participation on today's call. This does conclude the call. You may now disconnect.
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