Good day and thank you for standing by and welcome to the Opendoor Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Elise Wang. 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 www.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-K for the year end of December 31, 2020, and Opendoor's other periodic SEC filings, including the quarterly report on Form 10-Q for the period ended September 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.Opendoor.com. I will now turn the call over to Eric Wu, Co-Founder and Chief Executive Officer.

Good afternoon and thank you for joining us today. I'm excited to share our third quarter results alongside Carrie Wheeler, our Chief Financial Officer and Andrew Low Ah Kee, our President. Aligning with our first core value, which is to start and end with the customer, I want to ground us in our work with a recent customer story. You'll hear from Tyler Botma, who sold his home and bought a home completely with Opendoor while fulfilling a childhood dream.

Hi, I'm Tyler Botma, I live in Litchfield Park, Arizona, and I bought and sold my house through Opendoor. The main reason we wanted to move was, one, we wanted to fund the dream home and probably most importantly, was getting to a location that had really high marks for education for our son. We first started the process. A lot of the apprehension we had was trying to locate the ideal or specific home that we wanted, also selling the home. We've sold conventionally and bought conventionally before, and going through that process and then going through Opendoor's process, I really couldn't put a value on how much easier that process was. What they made possible for us was essentially getting us a life that we didn't think was possible. Being able to sell a home that we weren't quite sure we'd get what we wanted, or even if the sale would go through, and to be able to buy a home, move into our dream neighborhood and dream house. The Opendoor experience, I'd say in one word is easy. We often cite externally that two-thirds of sellers are also buyers. But we've really detailed the complexity and timing of managing these transactions while balancing the realities of life. These realities include forming a new family, the pressures of work, the hardships of a pandemic, the passing of a family member, or the drive for a better school district. This is why our work matters. Our vision, which has remained the same since starting Opendoor, is to make it possible to buy, sell, and move at the tap of a button.

We know the end state for the real estate marketplace will be a simple, certain, and fast transaction powered by technology. It's not a matter of if, but when. So we've been heads down building this future experience piece by piece with the consumer in mind at every step. Our third quarter results are a byproduct of this focus, exceeding our expectations on the top line and bottom line. We generated $2.3 billion in revenue, acquired over 15,000 homes, delivered over $170 million in contribution profit, and generated $35 million in adjusted EBITDA. While we are clear on our vision and strategy, the foundation of our performance has been and will continue to be our team and execution. In terms of our team, we've added substantial talent this past quarter. In addition to expanding our pool of executives across pricing, engineering, product, operations, and people teams, we've made three acquisitions. We acquired Pro.com and Skylight, two seasoned and really special teams that spent years combining logistics and technology to build digital consumer experiences to upgrade a home. This will, in turn, strengthen our ability to continue to scale our home operations. We also acquired reddoor.com, a digital home financing product, which makes it possible to get pre-qualified for a mortgage in less than 60 seconds with an elegant mobile experience. We're excited to welcome our new teammates to Opendoor as we build out the next evolution of our products. In terms of our execution, we're continuing on our journey of driving existing market growth, expanding nationwide, and building an end-to-end digital experience. With existing market growth in Q3, we saw material gains in the adoption of Opendoor, growing acquisitions by 79% and resales by 72% quarter-on-quarter. This was driven by rising consumer awareness and expanded buy box coverage, which again resulted in record offer growth and record seller conversion. As a tangible example of the impact of our pricing and cost advantages, nearly half of our acquisitions are arising from our expanded buy box. With expanding nationwide, we launched five new markets in Q3, bringing our total footprint to 44 markets, more than doubling our market count year-to-date and ahead of our 2021 forecast. With our growing footprint, we are already seeing the benefits of increasing scale in driving awareness and operational efficiency, which further reduces the cost and efforts to launch more markets. Upcoming, we're laying the groundwork for continued expansion next year and we are well on our way to our long-term goal of servicing customers in every market nationwide. Most importantly, we continued our investments in building the digital one-stop shop for movers. There's a generational shift happening from offline to online, and we intend to capture this opportunity. Last week, we launched Opendoor Complete, which brings together all the disparate steps to buy and sell a home into a single streamlined experience. Opendoor Complete provides homeowners certainty and instant access to the equity in their home, the power and guarantee of our cash to strengthen a buyer's offer, and the ability to line up closing dates to avoid double moves and double mortgages. This is the integrated experience buyers and sellers are demanding. Last, we are not standing still. We are pushing forward with the same speed, focus, and grit that has defined us over the past seven years. I will now turn it over to Carrie to discuss our financial performance.

Thanks, Eric. As Eric said, Q3 was another strong quarter for Opendoor. We purchased 15,181 homes, up 79% versus Q2. This growth was driven by our superior value proposition and robust operational capabilities, which led to record levels of offers and real seller conversion. Our buyback expansion provided a strong tailwind with more than 45% of the homes acquired in Q3 coming from our expanded buybacks since the end of 2019. On the resale front, we sold 5,988 homes, up 72% versus Q2 and generated revenue of nearly $2.3 billion, up 91% quarter-over-quarter. We exceeded the high end of our guidance primarily due to unit volumes driven by strong home acquisition growth and the overall strength of demand for homes, which led to a faster sell-through rate than we'd anticipated. Home price appreciation and price-related buy box gains were also tailwinds to revenue, driving a sequential increase in revenue per home sold of 11%. Our adjusted gross profit margin was 10.3% and our contribution margin was 7.5% in Q3, compared to 13.5% and 10.8%, respectively, in Q2. This sequential moderation is in line with our expectations and prior guidance. As a reminder, we believe we can sustainably deliver mid-single-digit contribution margins of approximately 4% to 6% on an annual basis, given our cost structure and the strength of our pricing and operational capabilities. In Q1 and Q2, our margins outperformed these levels for two primary reasons. First, as we exited 2020 with very low inventory levels, our resale mix was heavily over-indexed to recently acquired homes. Second, we were deliberately a bit conservative in how much home price appreciation we embedded into our pricing in the early part of the year, particularly as appreciation accelerated throughout Q1. We saw both of these temporary factors begin to unwind in Q3, in line with our internal expectations and the guidance we provided last quarter. We expect to be back to operating within our 4% to 6% target margin range in Q4. Over the long term, we believe this moves to 7% to 9% as we continue to grow our services revenue and margin streams. I would note that Q4 of 2021 will mark our 20th consecutive quarter of positive contribution margins. Adjusted EBITDA for the quarter was $35 million compared to $26 million in Q2, well ahead of our expectations due to revenue outperformance and strong unit economics, both of which provide incremental leverage against our operating expense base. Our adjusted operating expenses defined as the delta between adjusted EBITDA and contribution profit were $135 million, up $33 million quarter-over-quarter. We expect Q4 operating expenses to increase sequentially by approximately $20 million from Q3 levels, as we continue to invest in our platform and growth. We ended the quarter with adjusted net income of -$17 million compared to +$2 million in Q2. We view adjusted net income as the best proxy for free cash flow, as it distinguishes true free cash flow on an operating basis from how we fund our inventory purchases. Turning to the balance sheet, we ended Q3 with $1.8 billion in cash and cash equivalents and marketable securities, as well as $484 million in restricted cash that represents working capital related to our inventory financing. As of today, we have more than doubled our maximum borrowing capacity from last quarter up to $9 billion across our non-recourse asset-backed facilities. We are well-capitalized to fuel the tremendous growth we're seeing across our business. Turning now to our guidance, we are reiterating the expectations we laid out last quarter, which puts us at a run rate that pulls ahead of our original three-year financial plan by two years. Overall, housing fundamentals remain strong, with inventory levels at multi-decade lows for this time of year alongside continued high demand for single-family housing. Home price appreciation has softened relative to all-time highs, largely due to seasonality, but remains positive and well above the typical levels expected for this time of year. But most importantly, the dominating driver for our business is that customers value the simplicity and certainty of our products, and product adoption continues to accelerate. This is evident in our acquisition volume growth of almost 80% quarter-on-quarter, which puts us in an annualized GMV run rate of over $20 billion. We expect Q4 acquisition volumes to be lower than the third quarter due to proactive volume management initiated in the middle of Q3, as well as a typical seasonal slowdown associated with Q4. As our growth significantly exceeded our expectations, we made the decision to moderate our acquisition growth to ensure we continue delivering a seamless customer experience. We have been and will continue to invest aggressively in our internal operations, vendor network, and tooling and automation to lay the foundation for another strong year of growth in 2022, while continuing to meet our overall customer operating and financial objectives. We expect fourth quarter revenue to be between $3.1 billion and $3.2 billion, which represents 39% sequential growth over Q3 at the midpoint of the expected range. We expect adjusted EBITDA in the range of -$5 million to +$5 million, representing breakeven at the midpoint. This outlook is consistent with the expectations we outlined last quarter. We are proud of Q3. Kudos to our team for these results, for their agility in navigating market conditions during a period of hyper-growth, and for their unwavering focus on delivering a simple, certain, and trusted experience to our customers. And with that, we'll now open up the call for questions. Thank you.

And thank you. We please ask that you limit yourself to one question. Our first question comes from Nick Jones from Citi. Your line is now open.

Great, thanks for taking my questions. I guess, maybe two. One, can you touch on housing pricing volatility, and how you feel your model is positioned to withstand that, and detect that given the turnover? And then if, let's say prices do compress a little bit, how much contribution margin compression can we expect? And how much can a model withstand, given some of the other headlines in iBuying over the last two weeks? Thanks.

Thanks, Nick. Let me before I pass to Carrie to talk about the housing price volatility question and the compression of contribution margin question, I just want to re-emphasize that we're in a generational shift in housing from offline to online. And we understand empirically that consumers love our products, and we have very strong, stable unit economics. Let me pass to Carrie to talk about the two questions you had.

Thanks, Eric. Hey, Nick. In your question is, how do we price for homes, and how do we think about forecasting? A couple of comments. First, we're very good at this. This is core to what we do. We have built over the last seven years very robust pricing systems. We have seven years of investment in the data, in the modeling, and in our team that allows us to continuously improve how we model and approach home price valuations. We operate our business with great discipline. As Eric said, we are rigorously backtesting our models every day. They're highly responsive, they have fast feedback loops, and we can react to changing market conditions. Our forecasting accuracy allows us to manage the business within a reasonable range of outcomes and deliver margins within the net 4% to 6% contribution margin range that we've guided you. Ultimately, the proof of our ability to do that is in our results. I just want to mention again, Q4 will mark our 20th consecutive quarter of positive contribution margins. So that's housing and the forecasting question in total. The second part of your question was around contribution margins and how they may fluctuate with changes in home price appreciation. It's important to note that our model really works in up-markets, and it's going to work in flat markets, as well as down-markets. We've talked about this before, but we are a market-maker. That means we provide liquidity to our customers, we're pricing with certainty, and we're taking a spread, we're getting paid for that. We're managing our business to that 4% to 6% margin range. So I would not correlate home price appreciation trends and contribution margin trends together. We're driving for consistency within that range of outcomes.

Great. Maybe I could ask a follow-up just around pricing models. I think there's a lot of available data to many people to try to understand how real estate agents operate, as they have access to a lot of data. Is there an aspect of how this data is organized and used that we should consider more in relation to building a competitive advantage? Thanks.

It's a good question, Nick, and it's something that we view as proprietary, forming a large competitive moat that compounds as we scale over time. Since we started Opendoor, this has been core and foundational to the business. We've invested time, energy, in the team, the data pipelines, and housing about feedback loops across multiple vectors of pricing to be in the position where we are today. I'm not going to speak to the specifics, but it is a very big investment area for the Company.

Great. Thanks for taking the questions.

And thank you. Our next question comes from Jason Helfstein from Oppenheimer. Your line is now open.

Thanks. I'm going to ask, how much of the 11% quarter-to-quarter increase in revenue per home was a byproduct of the buyback expansion versus home price appreciation? And then second, with Zillow exiting, how do you think this impacts your marketing efficiency? Or do you think there will be no impact or just general thoughts there? Thanks.

Hey Jason. The 11% increase in revenue per home was really a mix of, I'd say, price-related buyback expansion and some market appreciation. We don't break those two things out specifically, but I would say it's a good mix overall, more weighted to the buyback side.

To the second part of the question, I'd just say that the value proposition is resonating. It's resonated before Zillow exited within the category, and it will continue to resonate as we expand nationwide and deepen our market share within our existing cities. In fact, we see the opportunity happening as we get to scale within cities; our marketing becomes quite efficient.

Thank you.

And thank you. Our next question comes from Ygal Arounian from Wedbush Securities. Your line is now open.

Hey, good afternoon guys. One of the things that came up over the past couple of weeks with the situation in our bank's business has been about the presence side. The other thing that's come up is on the operational side; you touched on it in your comments and in your investor letter. Can you maybe expound on Scout a little bit, how it drives benefits and helps you scale more efficiently? You mentioned, I think, when you guys first went public, about 10,000 contractors in the app; can you update that number? And then maybe talk a little bit about how the acquisitions can integrate with Scout and help you improve your scalability on the operational side.

Hey, Ygal, it's Andrew here. Happy to speak to that. We did see acquisition demand significantly outpace our own expectations beginning early in Q3, and we took steps to proactively manage the overall system balance. It's really a good reflection of the integrated system we run here at Opendoor. You mentioned Scout and our ability to absorb that 80% quarter-over-quarter increase in our acquisition volume really highlighted seven years of investment, not just in Scout, but in our technology and operations platform more broadly. Capabilities like centralization, the ability to take calls from across our 44 market footprint in one location, or virtualization, we've introduced new things for customers, employees, and vendors to do things by video instead of in person, or self-serve capabilities, allowing a customer to take actions on their own timeline without ever involving a person. Those are capabilities that don't happen overnight. It's those investments that led us to flex up so rapidly and quickly, even while maintaining the customer experience to an incredibly high standard.

Okay, that's really helpful. And then I guess in all that's happening, a little bit lost in the shortfalls was something that usually gets a little bit more attention is just on the ancillary services. Any update on that in general and Opendoor back offers? And how Opendoor Complete can or how you expect Opendoor Complete to tie that together and potentially drive better traction in the coming quarters? Thank you.

Sure thing. Last quarter, we shared that we hit that $1 billion GMV milestone on Opendoor back offers, which was about product markets where our Opendoor back offers were helping customers be more successful in winning their next home. Right now we're focused on scalability, making sure our tech and operations platforms for our services are ready to scale. Further comments on our core business, we know that those upfront investments are critical to delivering great experiences over time, and we're focused on investing there. We continue to make progress; as you called out, we launched Opendoor Complete last week, which helps the nearly two-thirds of sellers who are also buying have certainty on their sale and the equity in their home, while also providing the power of an Opendoor back to offer to win their next home, and the convenience of lining up all the dates. All the power of Opendoor's innovation in one seamless offering. We also announced the acquisition of RedDoor, a fully digital mortgage brokerage that delivers a truly delightful customer experience. Eric mentioned in the prepared remarks that a buyer can go from app install to pre-qualification in less than 60 seconds. We're focused on getting the integration and licensing done and look forward to rolling that out in the early part of next year. Overall, we're seeing strong signs that the end-to-end digital experience is what our customers crave, and we're confident that our strategy and execution will deliver for years to come.

Appreciate the answers. Thank you.

Thank you. Our next question comes from Stephen Ju from Credit Suisse. Your line is now open.

All right, thank you so much. I'm sorry if this was covered a little bit earlier, but can you talk about your level of inventory buildup this quarter? Should we be thinking that the traditional holding period of around 90 to 100 days may be elongating a bit here so you can give yourself a little bit more time to refurbish, given the labor constraints, or is there another operational factor that's going into a decision here? And I guess there's probably nuances for each market. But are you finding that the timeline to launch each subsequent city or market is coming down as you get more practice? And at this point, how much prep work or timeline does it really take to go into each new market? Okay, thanks.

Hey Stephen, this is Carrie. Let me touch base a little on inventory. Andrew can speak to the last part of your question. Yes, inventory grew significantly in the last quarter. That's a function of us growing, which is a good thing. We feel good about what we own right now in the pace of our resale. Our resale pace is going to be slower or faster, depending on the market environment we're in. Certainly, the time of the year is one consideration there; people don't love moving during the holidays. So Q4 may be slower, Q1 a little bit faster, etc. We factor our resale expectations into how we price and manage our inventory. Q4 reflects that resale pace and where we're at right now against what continues to be a very healthy housing market. Nothing fundamentally has changed regarding the holding period, but I'll ask Andrew to comment on the latter part of your question.

Sure, and I think there are two parts to your question. The first around holding periods. Overall, we did, as I mentioned, take steps to proactively manage the overall system balance because that holding period has elongated. We're confident that the supply will be balanced with our demand outlook across the majority of our 44 market footprint by the end of the year. Certainly, we see some of the labor constraints that are prevalent across the country right now, but it's really important to call out that the homes we buy are generally in good condition. We typically do small jobs like repairs, so getting a home resale-ready doesn't require specialty labor. We feel good about our ability to balance that system by the end of this year. Regarding the question about launching additional cities, we've more than doubled our market footprint. We started the year with 21 markets, and we're now in 44. That 23 market increase is really a testament to our team's execution and the refinement of the playbook we've made. You saw us launch 23 markets year-to-date, including six markets in a single day. That's a function of time and investment in centralizing the team, so we could launch and scale more quickly. Our team continues to work hard to expand our footprint nationwide, so we feel good about our playbooks.

Thank you.

And thank you. Our next question comes from Michael Ling from Goldman Sachs. Your line is now open.

Hey, good afternoon. This is Adam Hodge on for Mike. Thanks for taking the questions. I have two. First, you mentioned the record real seller conversion, which given the bidding wars in the market and high velocity of homes going through the traditional process seems to be quite impressive. Could you give us a sense for what dynamics do you think are driving this in the quarter? And then second, with the 45% of acquisitions you mentioned coming from the expanded buybacks since 2019, could you give us a sense of how much of that is new markets versus the expansion of the buybacks in your other core markets? I guess it would be good to get a sense of how quickly you ramped the buybacks in more heterogeneous markets as you launch them and what gives you the confidence there. Thanks so much.

Yes, appreciate the question, Adam. Like you mentioned, we're seeing record highs in two vectors: offer requests and real seller conversion. What I can highlight is that we're working and continue to focus on three vectors to drive conversion, which are simplicity, speed, and trust. We see aggregate debt in markets where the Net Promoter Score is north of 80, and that helps drive additional conversion and offer awareness. To the second part of the question, I'll pass it to Carrie to discuss the market and buyback extension.

Yeah, I'm happy to. The 45% increase in buybacks we've seen since the 2019 time period is driven by what's in our existing markets. It's just expanding the surface area we can cover with any given market, whether that's home type, price, age, or other factors; it's mostly driven by the existing market side.

And thank you. Our next question comes from Edward Yruma from KeyBanc Capital Markets. Your line is now open.

Hi, this is Abbie Zvejnieks on for Ed. So I know that penetration of iBuying is still low. But do you believe that sellers were cross-shopping different iBuyers, and if so, have you seen any localized pricing changes due to the exit of Zillow? And then a second part to the question, it seems like the buybacks have extended to higher-value homes. But are you also open to older housing stock or homes that require a remodel?

I appreciate the questions. The first part was how we observed cross-shopping, and iBuying, and what is the impact of less competition. I think what we've seen is that if we can meet customer expectations and deliver on a simple, certain, and fast transaction, people will say yes to Opendoor. While there are cases where people are cross-shopping, we're investing heavily in the experience, our offers capabilities to lower the costs in our pricing accuracy to win the trust of our customers. Conversion is north of 35%. Cross-shopping hasn't at all impaired our ability to grow and, in fact, there's too much demand for our product. On your question around buyback changes, Carrie mentioned that's expanding our coverage of homes that we can offer on. We want to delight more customers with the experiences we offer. That could be an older home, a higher-value home, or a variety of home conditions.

Great. Thank you.

And thank you. Our next question comes from Ryan McKeveny from Zelman and Associates. Your line is now open.

Hey, Eric and Carrie, congrats on the results and thanks for taking the question. So obviously, inventory risk management is top of mind here, and Carrie you mentioned that risk management is in the DNA of the Company. We can see the results in terms of unit margins remaining good and the inventory valuation impairment staying very modest relative to the size of the inventory. So to ask what several of my colleagues would have asked but in a different way. Part of it relates to the pricing accuracy at the start, but then there's also managing once it becomes inventory, managing that resale pace. Can you talk about your philosophy around managing cohorts based on geography or time and inventory, and how you think about managing to avoid getting caught with inventory not selling for where you thought it would? Just general thoughts on risk management would be helpful.

Sure. I'm happy to provide more color on that. As you said and highlighted in your remarks, it really is part of our DNA. We spend as much time on the risk management side as we do thinking about the acquisition side; obviously, those two things are paired together. We're constantly looking at cohort performance and making sure they're performing in line with our expectations. We're not just looking at geographies, Ryan, but we're looking at home segments and price segments. You name it to understand, relative to our expectations, how they are performing over time. That analysis feeds into our ability to forecast and manage to the margin ranges we have. We have a large team of very smart people who spend the majority of their time on this topic of pricing and investment led by our Chief Investment Officer. The ownership for risk and the risk management system extends beyond that. It's core to not just the pricing team, but our operations team is held accountable for managing homes and risk, and our finance team is also involved in this area. We meet regularly on the topic of risk management at the very senior levels of the Opendoor management team, and it is part of our daily operating cadence.

That's helpful Carrie. Thank you. Second question so on the labor and material side of things for renovation. So obviously, whether it's homebuilders, whether it's renovators, there are constraints and makes sense to call out the Opendoor Scout platform. I guess to take it a step further and think a bit big picture as opposed to the near-term, should we think of the acquisitions of Pro.com and Skylight as platforms that can get you over the long term into things like customizations, upgrades, or options that a customer could actually come in digitally and start customizing some things and become, in theory, an added income stream over time? Maybe just some commentary on Pro.com and Skylight and how that ties in.

Yeah, it's a good question and a good idea. I've known the founders of Pro and Skylight for years. From my perspective, it's rare to find teams that understand the complexity and have the expertise to combine logistics and technology. That's why we acquired these companies. These teams are passionate about solving consumer problems in housing, and they have technology capabilities to accelerate our roadmap. They're going to be working on helping us scale Opendoor. Regarding your question about integrating these capabilities in the future to help consumers personalize homes and add revenue streams, it's something we dream about and will put into motion once we feel comfortable with our operational scale. Importantly, that we can consistently deliver a fantastic consumer experience in that category; adding something that we can pursue in the future.

Thanks, Eric.

And thank you. I am showing no further questions. I would now like to turn the call back over to Eric Wu for closing remarks.

I just want to take a moment to thank our teammates here at Opendoor that put in the hard work when no one is looking to delight our customers. These results are a byproduct of that hard work and the dedication of our team who spend their nights and weekends helping our customers. Thank you.

Thank you. This concludes today's conference call. Thank you for participating, you may now disconnect.