Thank you for standing by, and welcome to the Opendoor Second Quarter 2021 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. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Elise Wang, VP of Investor Relations, please go ahead.
Thank you, and good afternoon. Full 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, including, but not limited to, statements regarding Opendoor's Future financial results and management's expectations and plans for the business.
These statements are neither promises nor guarantees and 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 Annual Report on Form 10 ks for the year ended December 31, 2020, and Opendoor's other periodic SEC filings, including the quarterly report on Form 10 Q for the period ended June 30, 2021, to be filed with the SEC. Any forward looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion may contain non GAAP financial measures. For a reconciliation of each of these non GAAP financial measures To the most directly comparable GAAP metric, please see our website at investor.
Opendoorpendoor.com. I will now turn the call over to Eric Wu, Co Founder and Chief Executive Officer.
Thank you, Elise, and good afternoon. On the call today, I'm joined by Kerry Wheeler, our Chief Financial Officer and Andrew Lewaque, our President. I'm excited to share our outstanding second quarter results and the significant progress towards our goal of making it possible to buy, sell and move at the tap of a button. As always, the consumer experience is at the center of everything we do here at Opendoor. We recently hit a special milestone of completing our 100,000 customer transaction, and I'm proud to have that family, the Petitos, share their experience with Opendoor.
I'm Jack Petitto.
And I'm Nicole Petitto. We live in Buildera Ranch, California.
So we owned our home in Michoimio for about 4 years. We had our first son two and a half years ago. And with him coming into the picture and all his toys, our space just got smaller and smaller every single day. We both work from home. So we obviously have a young kid who his schedule changes daily.
The idea of having to list the house, show the house, Keep the house perfectly clean nonstop depending on who's going to be viewing the home. Obviously, it's something you in the traditional market has to do, but that was something I did not want to do. My experience with Opendoor was easy. I don't know what any other way to describe it. It was just so simple.
There was never really any unknowns. Now that helps when I'm taking this venture on and I'm communicating to my wife. The app is obviously very user friendly to work with. So we can both be in tune to what every step is along the way.
I think it was just overall transparency. It was just very honest and open communication. So it just made us feel really Confident and comfortable moving forward, especially moving forward with a company and a service that was Really new and foreign to us, especially with the way in which we purchased our home originally.
Everyone I've interacted with so far has been perfect. And I can't say anything more about how great they've done. You really have the type of experiences with a brand that makes you kind of have that wow moment. So You guys have done an incredible
job. We really couldn't have been more thankful that this is the route that we went.
Jack and Nicole's story is one of many that we hear every day from consumers who have trusted us with their most important financial transaction and to make their life transition a whole lot easier. We set out with an audacious goal to redefine how people buy and sell a home and we knew we could reach 100,000 consumers en route to 1,000,000, but we didn't imagine it happening this quickly. We pride ourselves on our relentless focus on the consumer experience, pricing expertise and operational excellence, and our progress is clear in our results. In the Q2, our revenue grew 59% versus Q1 to nearly $1,200,000,000 This top line outperformance combined with our strong unit economics led us to generate $25,600,000 in adjusted EBITDA, which is $28,000,000 higher than the prior quarter, as well as $2,500,000 in adjusted net income. What's even more exciting is that based on our current progress, our second half revenue run rate is on track to exceed our 2023 target, a full 2 years ahead of plan.
These results are driven by the progress we've made across our 3 strategic priorities. Starting with existing market share growth. We continue to drive all time highs again in seller offers and true seller conversion across our existing markets. In Q2, we acquired a total of 8,494 homes, the highest in our history by nearly 50%. This record volume was in part driven by our buy box expansion as we are now able to underwrite the majority of homes in all of our existing markets.
We expect this increase in market coverage to play a key role in driving the next phase of our growth. We are also observing an increase in awareness of our product offering with direct traffic up 103% since the beginning of this year. This tells us our value proposition is resonating deeply with consumers and more and more home sellers are exploring Opendoor as an alternative to the traditional sale. In our top 5 markets, for example, we are driving a combined acquisition run rate of over $8,000,000,000 This momentum is further evidence of the seismic shift in consumer demand towards a modern real estate experience. And we are meeting this demand with a home sales experience that continues to exceed a net promoter score of 80.
Secondly, we continue our expansion efforts into new markets, making progress towards our goal of servicing buyers and sellers nationwide. We launched 12 new markets in the Q2 and 2 additional markets in July, which broadens our total market presence to 41 as of today. The scalability of our model is driven by our improvements in our launch playbook, investments in technology and automation and increased centralization, allowing us to expand into new markets quickly with limited upfront cost. And finally, We continue to make progress towards our North Star of building the end to end digital experience for every buyer and seller. Our product teams are driving towards an on demand transaction that is simple, certain and fast.
For sellers, We launched self-service assessments, allowing customers to completely self serve and on demand complete the home assessment with just their mobile device. This is not only a superior customer experience, but also reduces our cost structure, allowing us to put more money in the pockets of our customers. For buyers, we continue to see significant growth of our Buy with Opendoor product. With the recent addition of Opendoor backed offers, Experiencing rapid adoption since launch less than 6 months ago, we are excited to share that our Buy With Opendoor product has crossed the $1,000,000,000 run rate and will continue to grow and scale at a rapid pace. This is a great example of the speed in which we are able to innovate to meet consumer demand on top of our platform.
Lastly, we know that 65% of sellers are also buyers. So we are integrating our products into one bundled experience. We are adding buy with Opendoor for each of our sellers also looking to buy and bundling title, escrow and home loans to make the transaction completely seamless and low cost. As we look ahead, we believe that a relentless focus on the consumer experience, Developing the most accurate pricing engine and building the lowest cost platform are our foundation to become a clear digital one stop shop for all homebuyers and sellers. Before I turn the call over to Carrie, I want to thank all of our teammates at Opendoor.
It is their dedication and hard work in servicing our customers every day that allows us to deliver the industry's best in class conversion,
Thanks, Eric. A detailed summary of our Q2 financial results can be found in our shareholder letter. So I'm going to quickly walk through key second quarter highlights before moving on to Q and A. As Eric mentioned, we are driving strong momentum across our business. We achieved record acquisition volume in the quarter.
We purchased 8,494 Homes, up 136% versus Q1, largely driven by high conversion and buy We reached record real seller conversion and over 35% of our total homes purchased in Q2 homes that we were not able to offer on as of the end of 2019. Acquisition momentum has further accelerated into Q3, and we're on track to Significantly exceed Q2 levels in the back half. On the resale front, we sold 3,481 Homes in Q2, up 41% versus Q1 and generated revenue of nearly $1,200,000,000 up 59% quarter over quarter. The increase in homes sold was due to ramping inventory levels and high transaction velocity in the supply constrained market. Revenue growth exceeded our initial expectations, primarily due to acquisition strength fueled by record offer growth and conversion.
Based on our resale strategies, Enabled by our position as principal versus a traditional agent, we moderated our resale pace against our inventory at the end of Q2 and into Q3. We believe this maximizes the ROI in our portfolio, while still maintaining very healthy absolute clearance levels in whole periods. You should expect that we will continually evaluate and tune our resale strategies based on market dynamics and seasonality. Unit margins were strong in the quarter with adjusted gross margin up 50 basis points versus Q1 at 13.5% and contribution up 60 basis points versus Q1 at 10.8%. Our ability to use data and technology to manage our inventory resale is a structural advantage It's beneficial to our margins.
We use data to manage our sell through velocity and margin and a portfolio approach to optimize which resulted in over 200 basis points of structural improvement over the last year. In addition to these durable improvements, We did see higher than expected home price appreciation or HPA as a tailwind to margins. We also continue to benefit having a healthy inventory mix weighted to recently acquired homes. We anticipate both lease benefits to moderate during the course of the second half. As a result, as we also indicated last quarter, we are planning for our contribution margins to trend lower in the second Half of the year.
Normalizing for these temporary benefits, we would expect contribution margin to trend to the mid single digit level. As we operate at ever greater scale and leverage our structural advantages around resale strategy and cost structure, we We feel confident in our ability to deliver our target contribution margin in any HPA environment. Adjusted EBITDA in the quarter was $26,000,000 compared to negative $2,000,000 in Q1. Adjusted EBITDA margin was 2.2%, up from negative 0.3% in Q1. Adjusted EBITDA was well ahead of our expectations due to revenue outperformance and strong unit economics, both of which provided incremental leverage against our operating expense base.
Adjusted operating expenses Or the delta between adjusted EBITDA and contribution profit were $102,000,000 in Q2, up $24,000,000 quarter over quarter. We expect Q3 sequential OpEx to increase approximately $30,000,000 from $5,000,000 or 0.2 percent of revenue compared to negative $21,000,000 or negative 2.8 percent of revenue in Q1. Turning to the balance sheet. We ended Q2 with $1,800,000,000 in cash and cash equivalents and marketable securities And total borrowing capacity of $4,300,000,000 across our non recourse asset backed facilities. As we continue to outpace our prior growth projections, we're well positioned to scale our borrowing capacity in support of a rapid growth.
And as we look ahead, we're optimistic about our outlook. Starting with what we're seeing for the housing market, which continues to be underpinned By strong demand and tight supply. While inventory levels did pick up sequentially in Q2, they remain at multi decade in terms of available supply. Real mortgage rates remain low and homeownership levels are still well off their previous decade highs, further supporting demand for housing. On the HPA front, we're observing a moderation from the recent all time highs and we're reflecting this in our pricing.
That said, given our outlook for continued strong housing fundamentals, we expect HPA to remain Elevated even when considering normal year end seasonality. But taking a step back, it's important to remember that the Key macro driver behind our results is the massive secular shift in consumer demand for integrated digital first solution to buy and sell a home. We will be a share gainer across all cycles. Turning to our guidance. Given current market dynamics and our accelerating We expect acquisitions and revenue growth to remain strong in the back half.
For the Q3, we forecast revenue to Between $1,800,000,000 $1,900,000,000 which represents 56% sequential growth over Q2 2021 at the midpoint of the expected range. As a leading indicator of our momentum, we had a record 8,158 homes under contract to We purchased at the end of Q2, representing $3,000,000,000 of value. That is more than double the number of homes we had under contract at the end of Q1. We expect adjusted EBITDA to be between $15,000,000 $25,000,000 and that represents a 1% margin at the midpoint of the expected range. This reflects Our planned moderation and contribution margins, as I mentioned earlier.
As we look at our second half trajectory, it's helpful to put into context we provided at the time of our listing just 7 months ago. We've effectively pulled forward our financial plan by 2 years on both Top and bottom lines. We're extremely proud of our teams for making this possible. It's clear that our value proposition And with that, I'd like to open up the call now for questions.
Thank you.
Thank you. Please stand by to follow the Q and A roster. Our first question comes from Yigal Arunyan with Wedbush Securities. You may proceed with your question.
Hey, good afternoon guys. Thanks for taking my questions. I guess the first one for Eric. Can we just dig into Opendoor back offers and buy with Opendoor a little more and Maybe get a little bit more color on how that flywheel is working. You noted, I think it was $1,000,000,000 A run rate at OVO, what was that referencing exactly?
And then Zillow Highlighted a product that kind of gives discounts around different things to bring someone in all the way from the top of the funnel to the bottom of the funnel.
Is that something you
guys I thought about doing as well. And then for Carrie, can you expand on the strategy around moderating resale pace in Q2 and Q3 and why that why you use that approach? Just want to understand that a little bit better. Thanks. Not sure if we got caught off.
Did you guys hear my questions?
Got it. Yigal, I think we are on mute. So Let me first thank you for the question. And so I might tag team this with Andrew, but Digging into open deck offers, we're excited about the progress we made. We launched the feature less than 6 months ago and we're seeing rapid adoption.
It's very clear that buyers Love this service and are attaching to Buy With Open Door. One of the things we look at as a leading indicator is Of the homes we sell, how many customers are saying yes to buy with Opendoor? And in some of our mature markets, we're seeing a 50% attach. That means for every 2 homes we sell, we're seeing one customer say yes to buy with Opendoor, which is part of our flywheel. To the second part of that question, we're seeing a $1,000,000,000 GMV number.
Again, it's very early since launch and we're seeing Rapid adoption in some of our core cities, we're focused on driving attach. So we're really excited about the product market fit there, About the growth and subsequently the conversion that we'll see into services from that. You mentioned the bundled services. It's something that we've been focused on for years, transparently. We've talked a lot about building a digital one stop shop and we've made Big investments in our platform to make that possible.
And for us, this means that consumers can buy, sell and move at the tap of a button. That's been our product vision for a very long time. We integrated Title and Escrow in 2017 and that was a big step towards that vision. We launched Buy With Open Door and home loans as additional steps and we're leading the way and we're building the connective tissue between all of these services in house to make it truly seamless for the consumer. I'll pass it to Carrie to answer the second part of your question.
Thanks, Eric. Hey, Gail. So retail, let me answer that in 2 parts. One is how we think about retail and I'll talk about what we're doing today. We are structurally better at selling in the market.
We are operating as a principal, not an agent, not a single home seller. That means we're making decisions that are all economically based, they're informed by substantial amounts of data And we're doing that against a diversified scale portfolio, very different from how any individual home seller or agent is going to make those same decisions. And we're managing resale relative to the environment we're in, and we're balancing all the time how we maximize return on our portfolio At the same time, we manage risk and our balance sheetinventory balance. That's the approach to resale. With respect to the comment that we slowed resell in Q2, which we did, I would say that was just frankly different flavor of FAST So we are still selling into a very, very receptive market for residential housing.
We are Maintaining very healthy sell through rates, in terms of how quickly we're selling through inventory base and we're still managing to very short holding periods relative to historical averages. So they did moderate relative to say prior quarter. But again, I think we feel very good still about how we are selling down and managing our inventory. And in Q3, you'll see us pick up that resale pace, just to foreshadow that as we respond to seasonality. That's just what we do.
Okay. Thank you.
Just a quick follow-up on OVO and Home Loans. Anything you could share in terms of the attach rate there or how OVO is driving the mortgage product?
Sure. Hi, guys. It's Andrew. As we've been pressing on services, our focus really has been on driving that buyer product and That's because we know, there's very strong attach between that buyer offering and the whole host of other services that go around it. We've been focused, Therefore, I'm really pressing on the buyer offering as the leading indicator,
as the tip
of the spear, so to speak, around driving casing
services. Great. Thanks for the questions. Appreciate it.
Our next question comes from Nick Jones with Citi. You may proceed with your question.
Great. 2.
First,
your profitability comes in kind of better than expected. Could you potentially accelerate market launches today? Is that an opportunity in this market to be able to do that? And then the second question is, I thought it was interesting on the homeowners that came back after the first offer. What are your thoughts on that dynamic?
And does that increase as a percent of the offers you're buying is the Opendoor solution kind of marinates for these homeowners? Thanks.
Sure. Happy to take both of those. In terms of our overall launch cadence, launch sequence, We're really pleased that we're on track to deliver our 21 markets in 2021. As Eric mentioned, we currently launched 20 markets this year and the new launches are performing really well. We've honed that launch playbook and continue to refine it.
You saw us launch 6 Quarter at 6 markets in a single day this quarter. And given that we're on track to deliver those market launch goals And at the same time, our run rate acquisition volume is really where we're targeting in our 3 year plan. We're shifting some of the resources away from incremental market launches really to help us operationally scale to meet that massive demand And also driving more and better integration as we execute on that digital one stop shop that Eric has been talking about. Our focus is really on scaling the business and providing an absolute best in class experience to our customers right now versus more markets. With respect to the second part of your question or your second question around homeowners that came back, We think it's a powerful testament to the brand experience that we offer.
The experience we offer is the sum total The brand we have is the sum total of all the interactions the customer has. And we think that the fact that 35% of our Q2 acquisitions Actually came from customers who first engaged with us before the beginning of the year, speaks to the value that customers see and receive from Opendoor And that they're willing to engage at different points in time as we build up our offering, as we build up awareness And that those people come back and that they really value the offer and the service that we deliver.
Yes. One more thing to add on top of that, Nick, is that our There's a world where every single home seller starts their journey of a move with an open door offer. And that can happen 12 months from the move or 6 weeks. And we're excited to really drive towards that outcome.
That's great. Just maybe a quick follow-up on that. What do you think happens? Like, do they come, get an offer and then maybe Talk to an agent and start kind of realizing what they're going to have to go through to sell it and they're just kind of like this seems easier and better. I mean, any thoughts Maybe what they're doing between the first offer and when they come back?
It's a high consideration transaction. And so there's a lot of things that have to line up for people to move. And reminding us of why people move. They have a new family, they just got married, They have a new job or they're downsizing. And it's not just about the equity in their current home, but there's other things that impact that timeline.
What they want from Opendoor is a certainty, simplicity and speed of the sell side transaction today. And so they come to Opendoor To get a signal of what they could afford in their next purchase, to have the certainty they can complete that transaction, and they will actually work with us over the course of many months And so that at that time they need to transact, we're there for them. And so it's not really an impulse decision to sell. It's actually a planned move.
Got it. Thank you for the questions.
Thank you. Our next question comes from Jason Helfstein with Oppenheimer. You may proceed with your question.
Thanks. I'll ask you, so given the large HPA, are you using that as an opportunity to reduce service fees to consumers? And then second, I guess, any commentary on percent of homes purchased for over 1,000,000 Dollars and how that compared to
Q1? Thanks.
Hey, Jason, it's Andrew. I'm happy to speak to fee. We continue to offer a flat fee of 5% that you're seeing in the market. That said, I wouldn't over anchor on fee. We're calibrating our pricing every day to make sure that we're offering really competitive value.
Over time, we've seen that customers Really focusing care about the net cash that they receive in an offer. And we're trying to keep things simple for consumer, which is why we're setting fees At or below what you would see in the traditional market, and we're seeing this resonate strongly for consumers, with record high conversion that we mentioned earlier.
Your second question, I believe, is just around percent of homes purchased Over $1,000,000 We made really good strides this quarter, continue to increase the buy box. A good part of that is price, increasing The cap on where we're topping in terms of pricing given markets, there are other components we've talked about in the past, home types, zip codes, What have you. I can't break out for you exactly what percent was driven by mix shift because of buy box, but it was a Reasonable chunk,
I would
say. But the reality is that most of our existing markets and the way we're approaching our business is driving the majority, vast majority
And just can I ask a quick follow-up? Are there any inherent limitations to expanding the mortgages product? How are you thinking about scaling it?
Yes. As we talked about earlier, as we've been pressing on services, our focus has really been on driving that buyer product, where we see a compelling consumer value proposition will help people be more successful in winning the Under Their Dreams with that offer. And we know there's really high attach. And so as we look to grow and scale that business Very much. We're focused on the buyer product as a leading indicator.
Thank you.
Our next question comes from Mike Ng with Goldman Sachs. You may proceed with your question.
Hi. Thank you very much for the question.
I was just wondering if
you could talk
a little bit about what's happened with Opendoor and Ibuyer market share in some of the, I guess, I would call it like more mature Ibuyer markets like Phoenix.
I think there have been
a couple of They're down from pre pandemic levels. I'd just love to hear a little bit more about what you're seeing there and whether or not It's indicative of where you can get to in Western markets. Thank you.
Michael, it's Richard the question. And No, we're actually from an iBuyer standpoint, we're above pre pandemic levels in terms of market share and especially Within our ecosystem, Open Door, we're well above pre pandemic market share levels. The business is really driven on acquisitions and so we measure ourselves Based on the homes that we're acquiring and again, we have exceeded pre pandemic highs. Great. Thank you very much.
One additional point I'd like to make is, the appetite for a simple turn and fast digital experience is We think it's mainstream and all homeowners crave what we're offering. And so when it comes to the long term potential of Yes. What we may call an iBuyer, we think it over the long haul could be the majority of transactions. And so we're already seeing significant market share gains in our mature markets and We don't expect that to decelerate. In fact, we believe that can accelerate.
Great. Thanks.
Thank you. Our next question comes from Edward Yruma with KeyBanc Capital Markets. You may proceed with your question.
Hey, thanks very much for taking our question. I guess first on the acquisition cadence, you guys indicated in the shareholder letter that it's kind of accelerated further into 3Q. You've also mentioned though that you did get some pickup from a bigger buy box. I guess as you adjust for HPA normalizing, have you seen Any change in kind of your close rates or the customers that are using your service? And then as a follow-up, just thinking about this comment on trends going forward and that we should expect this to look more like you had initially planned in 2023.
Thanks.
Thanks for the question. So first part of that, just acquisition cadence. When I think about the drivers, that really feel the awesome pickup we had in volumes, A bunch of factors go into that. 1, we're in more markets, right? We've almost doubled our footprint year on year.
Growing consumer awareness of our offering, has been increasing our investment in marketing and that's been very effective. Increased buy box size to your question, so that just means we can turn More consumer interest into a real offer, which is great. And the last point is a point Andrew talked about earlier, which is just the success we've had with the reengagement funnel. I'd also say at the same time, we're seeing an increase in sort of consumer quality and intent, and all that is driving higher acquisition volumes. 2nd part of your question is just, I believe, unless you want to reframe it, is around How are we thinking about margin ex HVA and what's the outlook for margins going forward?
Couple of things on that. I sort of bucket our margin Turning to 2 components. Certainly, there has been a component of our margins where we're seeing tailwind from unprecedented levels of HPA And this continued fresh inventory mix we talked about in the past, we've called out both those factors as things that are benefiting us, but they will period over time and they'll come down in the second half. The biggest call on our margin structure is that we continue to drive a very low cost system. We called out 200 basis points of improvement year on year, which is fantastic, and we continue to optimize our own portfolio management capabilities.
I called out for Centimeters to moderate in the back half of the year as we've been doing the last two quarters, but I called it out and said, listen, we expect mid single digits In the second half, and I would think of that as a good proxy for where we think the business is operating today on a sustained basis.
So
our long term margin targets we talked about previously, those still hold. We're just frankly tracking Well ahead of where we thought we'd be right now.
Great. Thank you
for that color.
You're welcome.
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Eric Wu for any further remarks.
I just
want to end by thanking our customers. And these are the customers that really do trust Open Door with their largest and most important financial decision. So just want to give all of our customers throughout the years a huge thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.