Opendoor Technologies Inc. (NASDAQ:OPEN) Q4 2023 Earnings Call Transcript
Opendoor Technologies Inc. (NASDAQ:OPEN) Q4 2023 Earnings Call Transcript February 15, 2024
Opendoor Technologies Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.18. Opendoor Technologies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by and welcome to Opendoors’ Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Kimberly Niehaus, Investor Relations. Please, go ahead.
Kimberly Niehaus: Thank you and good afternoon. Details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the Investor Relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking, including but not limited to statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion, and management objectives for future operations.
These statements are neither promises nor guarantees, and undue reliance should not be placed on them. 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 Factor 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 or revise them whether as a result of new information, future events or otherwise, except as required by law.
The following discussion contains references to certain non-GAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metrics, please see our website at investor.opendoor.com. I will now turn the call over to Carrie Wheeler, Chief Executive Officer of Opendoor.
Carrie Wheeler: Good afternoon. Also on the call with me today is Christy Schwartz, Interim Chief Financial Officer and Dod Fraser, President of Capital and Open Exchange. For Opendoor 2023 was a year of focus, execution, and results. Despite a dynamic macro environment marked by the lowest level of home sales since 1995, the team focused on controlling what would get control. And we made meaningful progress. We grew our acquisition volume sequentially every quarter and tripled our market share from Q1 to Q4. Our new book of inventory generated a contribution margin of 8.3% in the year, demonstrating the health of our more recent acquisitions. We also made improvements to our tooling, technology, and processes to make our platform more efficient, which resulted in a year-over-year reduction of nearly 30% in adjusted operating expenses in Q4, excluding the reduction in our advertising spend.
With these improvements, we now enter 2024 with the foundation in place to rescale the business and build a future of sustained profitable growth. Last month marked Opendoor's 10-year anniversary. Since our founding, we've made it possible to sell your house with the tap of a button, something unthinkable a decade ago. We built the largest e-commerce platform for residential real estate and have served over 250,000 customers across 50 markets. And we're committed to building a product suite to become the place where every seller can start their home selling journey in a way that the traditional process cannot provide with simplicity and certainty. Looking to 2024, we're excited about our ability to reach and attract more sellers to our platform, namely through increased advertising spend, continued growth of our partnership channels, and more attractive spread levels.
Last year, we reduced our marketing spend by over 60% versus the prior year, as elevated spreads made our marketing investments less efficient. Despite these reductions, we've maintained our aided awareness, a testament to the effectiveness and efficiency of our creative advertising efforts. In 2024, we plan to ramp our total marketing spend to widen the top of our funnel and reach more sellers. And we're spending more creatively. Last Sunday during the Super Bowl, we live streamed the Couch family getting an Opendoor cash offer on their home in Atlanta during halftime, proving just how easy and quick it is to sell to us. Acquisitions from our partnership channels, which includes online real estate platforms, home builders, and agents continue to increase in the fourth quarter, up 35% versus Q3, and up over 140% since Q1.
These partnerships have effectively positioned us as the branded cash offer for residential real estate and are a true win-win. Our offering enhances the selling experience of our partners' platforms to their customers, and also provides us with a source of acquisitions and customers an attractive fixed spend. We expect volumes from this channel to continue to grow on an absolute basis in 2024. Finally, as a reminder, our spreads are an important lever in managing seller conversion and mitigating risk on our platform. We immediately reduced spreads during 2023, which resulted in improved conversion and acquisition volume throughout the year. Looking ahead, based on where we are at today, we expect to see an increase in contract volume late in Q1, which would translate to sequential acquisition volume growth in Q2.
Christy will speak to our outlook next, but I want to quickly address our goal of returning to positive adjusted net income. We have strong tailwinds at our back, but we're still facing ongoing macro uncertainty. Mortgage rates remain volatile. We're acting on lessons we've learned in recent years and taking a prudent approach to balancing growth and profitability, while also operating within our risk management frameworks. We expect to make significant progress in both scaling acquisition and resale volumes and meaningfully reducing our losses this year. However, we don't anticipate reaching positive adjusted net income for a full quarter in 2024. We are focused on driving sustainable growth, and our entire business is organized around durably getting back to positive A&I.
I am proud of what our teams accomplished in the last year. We've emerged smarter, leaner, and energized. And we are building a platform that over the long-term has the potential to transform the way millions sell in by real estate. Today, we stand alone in not only what we offer, but also the scale at which we are able to do so. And we're just getting started. Christy will now review our financial results and guidance.
Christy Schwartz: Thank you, Carrie. Our fourth quarter results came in above the high-end of our outlook across the board as we continued to increase acquisition volumes, while driving margin and cost improvement. As we enter 2024, we remain committed to rescaling our business, delivering healthy contribution margins, and operating with disciplined cost management, all while providing a best-in-class customer experience. We delivered $870 million of revenue in the fourth quarter, above the high-end of our guidance range. We continued to make progress on selling through our old book of inventory and had less than 75 of these homes not in resale contract as of year-end. For the full-year, we achieved $6.9 billion of revenue. As a reminder, we intentionally slowed our home acquisitions beginning in the second-half of 2022, prioritizing risk management and inventory health.
This resulted in lower resale volumes in 2023 versus the prior year. As Carrie mentioned, we reduced our spreads this year as we saw signs of market stabilization, resulting in increasing acquisitions sequentially each quarter. We purchased 3,683 homes in the fourth quarter, up 17% from the third quarter, and ahead of our prior expectations of approximately 1,000 homes per month. We continued to generate positive contribution profit in the fourth quarter delivering contribution margin of 3.4% ahead of the high-end of our implied guidance range. While ahead of our expectations, contribution margin declined sequentially for two reasons. First, to maintain our clearance targets, we implemented home-level price drops last quarter in response to the amplified seasonal decline in market-level sell-through rates.
Second, sales from the tail homes of our old book continued to be a drag on overall performance. For the full-year, contribution margin was negative 3.7% given by sales from our old book of inventory. Notably, as Carrie mentioned, the new book of homes generated a contribution margin of 8.3% in 2023, demonstrating the health of the more recent acquisition cohorts. Adjusted EBITDA loss was $69 million in the fourth quarter, ahead of the high-end of our guidance range. We ended 2023 with adjusted EBITDA loss of $627 million versus a loss of $168 million in 2022. Adjusted operating expenses totaled $99 million for the quarter, up from $92 million in Q3, and down from $144 million in Q4 2022. The sequential increase was expected as we continued to rebuild inventory in the fourth quarter.
For the full-year, adjusted operating expenses were $369 million, down 47% from $693 million in 2022, which reflects the progress we've made in reducing our cost structure. Turning to our balance sheet, shareholders' equity decreased by $53 million in the fourth quarter. We ended the year with $1.3 billion in total capital, which includes $1.1 billion in unrestricted cash and marketable securities, and $161 million of equity invested in homes and related assets, net of inventory valuation adjustments. We also had $8.1 billion in non-recourse asset-backed borrowing capacity composed of $3.8 billion of senior revolving credit facilities and $4.3 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $2.8 billion.
Looking ahead to 2024, we will continue to operate with focus and execution to drive results. We expect our Q1 revenue to be between $1.05 billion and $1.1 billion, contribution profit between $40 million and $50 million, which implies a contribution margin of 3.8% to 4.5%, and adjusted EBITDA loss between $80 million and $70 million. We expect adjusted operating expenses to be approximately $120 million, a sequential step up as we reramp marketing and rebuild inventory levels. Additionally, we expect first quarter home purchases to be approximately flat from Q4 and up over 100% year-over-year. We expect home acquisitions will increase sequentially in line with typical seasonality into Q2 as we enter the spring selling season in earnest. As we begin 2024, we are focused on rescaling our business in a sustainable fashion.
We have the benefit of a book of inventory that is generating healthy margins and the steps we took last year position us well to accelerate volumes throughout the year with an improved cost structure and a line of sight to achieving our annual contribution margin target range of 5% to 7%. I'd now like to turn the call over to the operator to open up the line for questions.
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