Good day and thank you for standing by. Welcome to the Opendoor First Quarter 2021 Earnings Conference Call. At this time, all participant lines are in listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference may be recorded.
I'd now like to hand
the conference over to your host today, Whitney Kokulka, Investor Relations. Please go ahead.
Good afternoon, ladies and gentlemen. Thank you for joining us for Opendoor's Q1 Results Conference Call. Joining me on the call today's remarks are Eric Wu, Co Founder and Chief Executive Officer and Keri Wheeler, Chief Financial Officer. President, Andrew Loa Key will be joining Keri and Eric for the Q and A portion of today's call. Full details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the and Investor Relations section of our website at investor.
Opendoorpendoor.com. Please note that this call will be simultaneously webcast on the 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 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 March 31, 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. Opendoor.com. Now I will turn the call over to Eric.
Eric?
Thank you, Whitney, and welcome to our 2021 Q1 earnings call. I'm excited to share our results As we significantly ceded our guidance for Q1 and have strong momentum looking forward to Q2 and the remainder of the year. Everything we do at Opendoor starts and ends with the customer. So let's start by hearing from one of our recent customers, the Bennett family, about their experience with Opendoor.
My name is Shameka Bennett, and I currently live in the Atlanta Metro area of Georgia. My family and I previously owned a 5 bedroom, 3 bath, 2 car garage. We're on the look for something bigger. Once we decided that we're going to sell our home, we came across Opendoor. Opendoor offered a one stop shop where you can sell, buy and finance through them.
They offered great rates and competitive offers for us. We found a home that we love, put in a bid for the listed price of $525,000 and even though our bid was not the Because Opendoor guaranteed the purchase of this home through the cash back offer, we're able to win the bid. All the teams and everyone that I came across through the whole process, whether it's through the selling, the buying and the financing part were all great. They all worked with us and they all understood our needs. We're currently now living in our dream home.
Moving can be very stressful. I have 3 kids, so moving during this time was it was an experience, But everything worked out well and it was a smooth transition. We love our new home and I'll recommend it to anyone. Thank you.
A special thank you to the Bennett's for choosing Opendoor. These are the stories that inspire us to be in our pursuit to make it possible to buy, sell and move at the tap of a button. Today, our digital products deliver far greater simplicity, certainty and speed We always believed that the future of buying and selling a home can and will be as simple as hailing a ride or booking a flight. It seems that that future is a lot less distant now. We are seeing increasing consumer demand for digital products in a manner that is permanent.
This seismic shift is showing up in our numbers as in Q1 we set a number of records. We sent a record number of offers. We saw record real seller conversion and we launched a record number of new markets. Lastly, we did so with a net promoter score north of 80 from our sellers, telling us that customers love what we're building. Taking a step back, I often get the question whether Opendoor still resonates in today's market.
We are experiencing the fastest home price appreciation in decades with stories of homes getting more than 50 offers in the 1st weekend. It's certainly a seller's market. Yet our results and metrics are saying yes. Opendoor resonates. Because for our customers, we don't just stand for a cash offer and we aren't an I buyer to them.
Opendoor gives our customers the ability to win their next home, select their preferred closing date and transact without open houses, other steps and upfront repairs, Saving them months of time. What we've built is a digital end to end experience that delivers confidence and peace of mind at every step. In terms of results, in Q1, we generated $747,000,000 of revenue, up 200% versus Q4 of 2020, $97,000,000 of adjusted gross profit, up 154% versus Q4 of 2020 and an adjusted EBITDA loss of $2,000,000 down from a loss of $27,000,000 in Q4 of 2020. This performance was driven by the same three areas of focus we discussed last quarter. First, we are driving existing market growth.
In Q1, as I mentioned, we saw a record number of offer requests, driven by increased awareness continued increases in our buy box. Even with this surge in consumer demand, we are seeing real seller conversion at record levels. These improvements have enabled us to acquire 3,594 Homes in Q1, up 78% versus the Q4 of 2020. Additionally, in Q1, we sold 2,462 homes. Between our buyers and sellers, this growth in transaction volume 2nd, we are increasing our geographic footprint and scaling rapidly to new markets.
In Q1, we launched 6 additional markets, which brought our total markets to 27 at the end of the quarter. Already in Q2, we've launched an additional 6 markets, bringing our total to 33 to date. We are getting better and more efficient at this and in Q2 we launched 4 new markets on the same day for the first time. This acceleration and market expansion lays the foundation for years of growth as we march towards our goal to serve every single homeowner nationwide. 3rd, we are building the digital one stop shop for real estate.
Today, consumers come to Opendoor because they want a better way to move, Whether they are buying, selling or both, we started by reimagining the home selling experience, bringing simplicity, certainty and speed Otherwise offline complex and time consuming process. We then integrated title and escrow as a critical component of the transaction, Substantially improving the customer experience, while also opening up an incremental margin opportunity for us. Next, We expanded our suite of products to include Buy With Opendoor and Opendoor home loans, knowing that 2 thirds of sellers are also buying. Similar to Opendoor, we are investing to make buying with Opendoor and financing with Opendoor just as simple, certain and fast. This past quarter, we launched Opendoor backed offers, allowing homebuyers to leverage Opendoor to submit cash bids, doubling their chances of their offer being accepted.
Additionally, we've integrated our trade in product into our seller experience, helping customers sell their existing home, buy and finance their next home, Close with title and escrow and move seamlessly all within the Opendoor suite of digital products. We will continue to leverage our pricing, Technology, Capital Markets and Operational Infrastructure to build best in class products for movers nationwide. This financial performance is the outcome of the hard work and focus by our teammates that occurs behind the scenes. These teammates obsess every day about how to We are in the very early innings of the shift to a more digital experience in housing. We are energized by all the opportunities ahead and we will continue to march against our vision to make it possible to buy, sell and move at the tap of a button.
I'll now turn it to Keri.
Thanks, Eric. We provided commentary on our Q1 results in our shareholder letter, So let me quickly cover off on some of the highlights of the quarter before we move on to questions. As Eric said, we had an exceptional first quarter. Q1 performance demonstrated growing consumer demand for the Opendoor solution. We purchased 3,594 Homes in Q1, up 78% versus Q4 and up 24% versus Q1 2020.
Acquisition volume was driven by both record levels of offer growth and conversion as well as buy box expansions and new market launches. As we continue to rapidly scale the business, We expect to surpass all time highs for acquisition volumes in Q2. On the resale side, we sold 2,462 homes in Q1, Generating revenue of $747,000,000 an increase of 200% over Q4, Significantly outperforming our guidance. This sequential growth was largely driven by higher inventory entering the quarter and high transaction velocity. Consistent with what we're seeing in the overall market, we are selling through our inventory in 21 days from list depend relative to 65 days in Q1 2020.
Average home price is also a tailwind for revenue performance, with revenue per home sold up 4% sequentially and up 19% versus the Q1 of 2020. As Eric has noted, we also launched 6 markets in Q1 and plan to have 9 more by the end of Q2. We're well on our way to being in 42 markets by year end. We expect these new markets to contribute to meaningful revenue growth in Our unit economics were strong in Q1, largely driven by a combination of Contribution profit was $76,000,000 in Q1, up 142% from Q4 and up 97% versus the Q1 2020. This represented a margin of 10.2%, down 2 45 basis points quarter on quarter and up 7 12 basis points versus Q1 2020.
Finally, adjusted EBITDA was close to breakeven was a loss of $2,000,000 in Q1 compared to a loss of $27,000,000 in Q4 2020 $28,000,000 loss in the year ago period. Adjusted EBITDA margin was negative 0.3% in Q1 versus negative 10.9 percent in Q4 2020 and negative 2.3% in Q1 2020. EBITDA was well ahead of our guidance due to revenue upside, unit margin performance and the benefits of higher average home prices, all of which provide incremental leverage against our operating expense base. Adjusted operating expenses, As measured by the difference between contribution profit and adjusted EBITDA were $78,000,000 up from $59,000,000 in Q4 twenty Adjusted net income was negative $21,000,000 in Q1 or negative 2.8 percent of revenue. With regard to our balance sheet, we raised approximately $860,000,000 in a primary equity offering in February, Ending the quarter with $2,100,000,000 in cash and marketable securities, we are well capitalized to fund our growth and product initiatives.
I'd also like to touch base on stock based compensation expense this quarter, which was $239,000,000 As I noted in our prior earnings call, this expense is much larger than we'd expect in a typical quarter and is primarily related to historical equity awards to employees realized as a result of going public in December 2020. For your modeling purposes, You should expect stock based compensation expense to be down to $175,000,000 in Q2 and then settle in at approximately $70,000,000 in each of Q3 and Q4. Overall, we feel very good about the year ahead. For the 2nd quarter, We expect revenue to range from $1,025,000,000 to $1,075,000,000 and adjusted EBITDA of negative $5,000,000 to positive $5,000,000 On the revenue side, the high end of guidance implies approximately 44% sequential growth from Q1 levels. Looking ahead to the second half, we expect Q2 to mark a record number of home As another leading indicator of our momentum, we had a record 4,027 homes under contract to be purchased at the end of Q1 or $1,300,000,000 in value, which compares to 1742 homes under contract at the end of Q4.
I'd also note that we've previously talked about 2021 revenue being weighted to the back half of the year With roughly a third of revenue coming in the first half, notwithstanding the strong performance we anticipate for the first half, We do still expect those same revenue proportions to roughly play out in 2021. With respect to adjusted EBITDA, We expect Q2 unit margins to benefit from similar trends as Q1 and the contribution margins will moderate in the back half of the year As inventory mix normalizes. Furthermore, we expect adjusted operating expenses to increase sequentially throughout the year. The dollar step up in OpEx in Q1 is a good framework for thinking through sequential trends across the remaining quarters as we make continued investments in marketing, technology and people. We believe our Q1 results and outlook are reflective of Opendoor's market leadership and the strong secular shift to consumers increasingly looking to digital first integrated solutions to buy and sell the home.
We have the team, technology and operating platform to execute on our mission and deliver long term value for our customers, our partners and shareholders. That concludes our formal remarks. I'd like to turn the call back to the operator and open up the line to questions. Thank
Our first question comes from Jason Helfstein with Oppenheimer.
Hey, I'm going to ask 2. So how much of the increase in the average revenue per Home was a function of home price appreciation versus greater success in selling attachment services. And then how should we be thinking about kind of the average revenue per home for the remainder of the year? So that's kind of one, if you think you can talk about that. And then number 2, you kind of noted the ability to move into more expensive homes.
I think you cited like a $1,600,000 home, I I think it was Florida or LA or something. Yes, I think historically many of us have thought about iBuying as limited to like homes below $500,000 So just talk about how the ability to kind of work in that price area opens up a bigger market? Thank you.
Hey, Jason, it's Carrie. Thanks for the question. So with respect to what we saw in Q1, 200% increase in quarter on quarter revenue. First of all, the vast, vast majority of that was driven by volume growth. I think of the 200%, more than 190 points of that comes from volume growth.
We were the beneficiary of an increase in higher average resale prices. There's 2 factors to that. 1 is HPA, as you know. The other factors are continued success in advancing our buy box. Buy box incorporates more things than just Certainly, price is a key component.
I think the market you referenced was actually Los Angeles. We're up to $1,400,000 $1,600,000 right now in that market, And we'll continue to edge up across all our markets over time. That's one. With respect to kind of the outlook for the balance of the year as it relates To resale prices, when we step back, the market right now for housing is very strong, you know that. We're in a trifecta of very low rates, record low inventory and an incredibly strong pent up demand for housing That's resulted in very high and very fast rate of HPA.
Given those inputs, we don't see those dissipating for the That balance of the year and housing will continue to be strong. With respect to resale price trend, what I'd like to say is we're not Providing guidance for the back half of the year specifically, I would expect those to continue to be positive quarter on quarter for the balance of the And that's again a combination of buybacks expansion, our CDNX looking to evolve as we're in more And more markets and then the last part of that is HP ATL end.
The only thing I would add Jason is that Yes, our aspirations are to service all homeowners nationwide and our teams are working hard and focused on expanding the buy box and launching obviously new markets. And so we're expanding the types of homes we operate in, the types of different price points And really the goal is to service every home in all the markets we operate in.
Our next question comes from Nick Jones with Citi.
Great. Thanks for taking the questions. I guess first, Carrie, could you remind us kind of what the impact of increasing Interest rates might be in the business and Opendoor's ability to kind of mitigate increasing interest rates and the impact, I guess, on the bottom line. And then the second question really is just record low kind of inventory levels or multi decade low inventories Bubbles, maybe taking a step back, as things normalize, have you contemplated the pendulum swing in the other way? Does it kind of shift to a buyer's When the frenzy is over, is it going to be a more challenged environment for maybe a different reason?
Thanks.
Great. Good to hear, guys, Nick. Thanks for the question. So with respect to interest rates and in terms of our cost structure and what we might have to pass on to In terms of fees, if there is an increase in rates, we'd expect that the impact actually would be quite modest. An example, 100 Basis point increase in rates would translate to a 25 basis point move in our cost structure given our inventory turns.
So quite manageable in our view. Your second part of your question just was around record low inventory levels, but also just what are the market where to go from being They're HPA positive right now to something more neutral or even negative. And what I would say is Our model is really designed to work across all kinds of markets, up markets, flat markets, down markets. You should think of us as a market maker And we'll include the provider. So in a market environment where HBA would have turned negative, we can choose increased beds to account for that decline.
So declines in HPA will be offset by increased spreads. And certainly in a down market, which is more uncertain for consumers, We believe that the certainty our product provides would be of even greater value to customers in that scenario. Last point I would say is when we think about macro for us, obviously housing macro is always top of mind, So is what is going on right now, doing massive secular tailwind is driving digital adoption. I believe that we were going to continue to Share gainers across all cycles as a result of that. Certainly, we are right now, and we expect that our value proposition, as I said, only increases in times of uncertainty for sellers.
Great. Thank you, Kerry.
Our next question comes from Eddie Ruma with KeyBanc.
Hey guys, thanks for taking the question. I guess first Just on the expansion of the buy box, is this a process that you can apply systematically to other cities? How quickly can you kind of increase Maybe the aperture in terms of the expense of the homes you're buying. I guess on the flip side, is there an opportunity to target more value priced homes, I guess is my first question. And then second, obviously, velocity remained incredibly high.
Should we expect that that begins to normalize as we head into the back half of the year? Thank you.
Hey, Ed. It's Andrew here. I'll take the first part of that and then I'll turn the second piece over to Carey. With respect to buy box, yes, we believe that's a repeatable Process, the team has done a great job building that into a systematic capability that we're constantly looking for places Where we can provide our offering to more consumers. As Eric mentioned, our aspiration is that every seller in the United States can take advantage of what Opendoor offers.
And so the team is further work identifying features, tuning our pricing models so that we can acquire those homes. Importantly, it's more than just price. It's also dimensions like the age of a home, the condition of a home that enable us to drive continuous improvement against that buy box.
Carrie, do you want to take the second point?
Yes. Thanks for the question. So on velocity, as I said earlier, The market right now for housing is very strong, given the inputs I talked about, rates, constrained inventory, pent up demand for housing, we expect those to persist for the balance of the year. Velocity would follow from that. I mean, there's a chance I suppose that it could slow.
I don't see there's a material impact to our model during our results.
Thank you.
Our next question comes from Ygal Arounian with Wedbush Securities.
Hey, good afternoon guys. First question, just on the improvements in the real seller conversion reaching a record there.
Can you talk about some of
the things you've done to improve the conversion and how you think about pricing or offers that you make In the current environment, as you've noted, you expect HPA to continue to move up over the course of the year. Just how do you think about that and what's driving That real seller conversion. And then, the second question, I guess, on your philosophy around inventory. I think still one of the biggest pushbacks we get from investors is holding on or having meaningful levels of inventory in
Case of a
market downturn or things cool off, and you're stepping up and buying a lot more homes into Q2, getting to record rates. Duke's thoughts, over time for purchases and sales to kind of equal out, but your inventory stays stable and you're buying as much How do you think of that over time? Thanks.
Sure thing. So in terms of conversion strength and what's underneath That we're absolutely seeing that record real seller conversion and there's really two factors underneath that. The first is consumers value a best in class experience that's simple, certain, fast and trusted. We've made 7 years of investment in that experience and we continue to improve that experience day by day and we continue to grow the awareness and trust around it. And the second thing is that consumers care about net proceeds and we're able to deliver more to consumers because we've driven improvements in our cost structure, our pricing engine and our inventory management, in addition to the strength of HPA, the velocity of the housing market.
Those pieces We're constantly looking at the pricing and the competitiveness of our offers and we feel good about it.
It's Carrie. On the second part of your question around inventory, just to step back, so today's market, which we all know is inventory constrained, We have not been constrained in our ability to acquire homes. As Andrew said, 3,500 homes acquired this quarter up from 2,000 last quarter. And perhaps more important, as you think about the future, over 4,000 homes sitting in contract right now. So despite the constraints of this environment, We've not been constrained in our ability to acquire homes.
And in a market that was more normal or certainly less constrained, I suspect our job
gets even easier. Thanks.
Can I ask one more follow-up just on Opendoor back offers, it seems like an incredibly compelling product to bring buyers or sellers into the funnel? And you noted that That's had some impact on or at least it ties together with the mortgage product.
Can you talk about that for
a second? Any lift you've seen in mortgage conversion And improvements in how that part of the flywheel works? Thanks a lot.
Yes, I appreciate the question. This is Eric. We're excited by the progress in early signal around Opendoor backed offers. Obviously, in today's climate, It's competitive and if you're a home shopper, you want your offers to be as competitive as possible. So the thing I love about this, we're able to leverage The capabilities we've built over the past 7 years and provide a new feature to our customers who are also buying homes.
And so There's early signal and we're very excited by the progress to date. I'll have Andrew kind of address the second part, which is And how does that apply to home loans and the progress there?
Yes. If you actually go through the product experience, which I'd encourage you to do On Opendoor backed offers, you'll see it's totally seamless in terms of its integration with our mortgage offering. And that seamless customer experience removing friction or creating value for them, we see turn into higher levels of attach. And we absolutely see our home loan product attach at higher rates with Opendoor backed offers than we do In other places, so we view the uptake in the consumer acceptance of that product as a tailwind to the home loans Side of things, absolutely.
Great. Thanks for taking my questions.
Our next question comes from Yoni Yagarin with Credit Suisse.
Thanks for the questions. 2 if I may. So the first is around kind of ramping new markets and fairly aggressive in the last quarter or 2, More than halfway towards your full year goal. As you go into new markets, specifically as you're seeing strong HPA trends, You are seeing expanded bottoms and strong conversion rates. Are you seeing a faster ramp in those markets as a result You otherwise weren't expecting, can you maybe talk about how the pace of rent in those new markets have looked like so far?
And I guess it's early Relative to historical or pre COVID levels. And second question is around just supply of lumber as well as Service providers have been absolutely constrained in this environment in addition to a tight inventory market So is that at all impacting days where you guys hold it or your ability to kind of quickly resell a home once you Thank you.
So on the first question around market launch, We're well on the way towards hitting that doubling of our market footprint that we've been talking about. We made significant progress this year and you're seeing In the Q1, our capability is now actually such that we can do multiple launches in a single day. It's a testament to the work the team has done over time here To really hone that machine, our focus on new markets is really about ensuring we have accurate pricing and repeatable scalable As we see that coming together in a market, we begin to ramp up acquisitions, which is why the impact New markets is relatively small in the current year, but creates a foundation for growth for years to come. So no real change from our perspective With regard to the new market launch or ramp. And then the second part of your question was really around How some of the considerations around building supplies may be impacting our, rental days or repair days or Time to list.
We're certainly like everyone in the industry seeing some of those supply chain pinpoints. We're not heavily dependent on lumber per se, but across
the entire spectrum of what goes into
a home, there are What goes into a home, there are shortages and we're seeing that. It's not materially impacting our growth periods right now.
Great. Thanks so much.
We have a follow-up question from the line of Jason Helfstein with Oppenheimer.
Hey, I just want to Andrew, good to connect with you again. Just want to ask about OBO. I mean, So just how does that flywheel work? Is it you if you get OBO, do you have to sell your home Through you, just how does that work? Thanks, because it's kind of newer product to us.
Hey, Jason, it's Derek. Yes, no, it's really just it's an option for the customer. And again, we're excited because the customers are electing and choosing to work with buy with Opendoor because of this feature. But it's not required. Again, we have 2 really big customer pools.
One is that there's 100 of 1000 of sellers Coming to the site and requesting offers on a quarterly basis. And secondly, we also have 100 of thousands, if not millions of home visitors who also are coming to our homes and looking for a place to buy. And so the 2 customer pools allow us to promote Bios Open Door, fast offers. And again, it's not a requirement to But it's certainly something we want to provide as a value and customers are choosing it.
Okay. Thanks.
That concludes today's question and answer session. I'd like to turn the call back to Eric for closing remarks.
Great. I just want to thank everyone for joining our Q1 earnings call. Before I sign off, I'd like to thank our customers who choose Opendoor to help Them with their life transition and to my teammates for their dedication to our customers every single day. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.