Good day and thank you for standing by. Welcome to the Opendoor Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Kimberly Niehaus, Investor Relations Officer. Please go ahead.

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 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 Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2022, 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-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. 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 Carrie Wheeler, Chief Executive Officer of Opendoor.

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. As the market leading platform that is leveraging technology to transform and simplify the way people buy and sell their home, Opendoor has the opportunity to build a generational company and disrupt a massive market. Over the past year, our team has been hard at work scaling our customer acquisition channels and improving our pricing systems and cost structure. We believe we've laid the foundation to reaccelerate revenue next year as we build for a future of sustained profitable growth. In the third quarter, Opendoor purchased 3,136 homes. This was an increase of 17% quarter-over-quarter, despite the fact that average new listings were down 8% within our buybox in our markets, demonstrating our ability to gain share despite lower market transaction volumes. Throughout 2023, we made cost structure and pricing accuracy improvements and passed those through despite reductions, which in turn enabled us to increase acquisitions quarter-over-quarter. These spread improvements, combined with our growing partnership channels and plans to increase advertising spend in the first half of 2024, should allow us to accelerate home acquisitions next year. Our third quarter results demonstrate continued execution in what remains an uncertain US housing market. Mortgage rates hit a 22-year high of 8% in October, up over 100 basis points since reported Q2 results in August. Market clearance rates, while still at historically healthy levels, have declined more than expected with higher rates further depressing buyer demand. While these market moves do have implications for our business, we continue to operate within our risk management framework and focus on controlling what we can control. Based on current conditions and signals we're observing, our plans to increase acquisition volumes next year have not changed. We continue to closely monitor leading indicators so that we can respond to shifts in the market. Acquisitions from our partnership channels increased 33% sequentially in Q3 and are up over 76% compared to Q1. We continue to make progress on expanding our partnership channels across online real estate platforms, agents, and home builders. Our exclusive partnership with Zillow continues to scale and is live in 45 markets as of this week. With more opportunities for customer re-engagement in this channel and our previously launched markets continuing to mature, we saw meaningful transaction growth in the quarter. In early October, we announced a partnership with eXp Realty, the largest independent real estate company in the world. This agreement enables eXp’s agents to request a cash offer on qualifying properties on behalf of the clients directly within their eXp dashboard. Ultimately, we believe Opendoor enables agents to better serve their clients and improve productivity. By leveraging AI and other technologies, we continue to drive operational excellence across our platform, including pricing, inventory management, and home operations. In terms of pricing, our proprietary home data asset that we've built over the last decade, coupled with deep human expertise, is enabling Opendoor to build proprietary real estate specific AI models. For example, we use AI to extract home conditions from customer provided inputs such as chat conversations, images, and videos. These inputs are used by our centralized pricing team and improve our pricing accuracy with the objective of durably reducing spreads. For inventory management, we continue to develop technology and improve processes to centralize operations and conduct quality control remotely. We get real-time home-specific signals from our proprietary home security system and customer and agent feedback from each home visit which enhances our ability to quickly and cost-effectively respond to issues. We've leveraged AI to automatically categorize feedback and extract data points. Maintenance quality has improved significantly, with 99% of work meeting our quality standards of our statements of work. Additionally, agent feedback has indicated that listed home quality improved by over 10% throughout the year. Finally, we continue to enhance our transactions and operations platforms in Q3. We piloted automated operator work assignments successfully to more effectively load balance work across operators and are expanding it to all operator groups over the next two quarters. We also recently revised our end-to-end CRM. Changes to the platform have enabled us to respond to customers faster, capture more useful structured data, and ensure that each step of the transaction is completed on time. Switching gears for a minute, I wanted to make a comment on potential disruption in the real estate industry regarding the buyer broker commission. Just this week, a jury ruled against NAR and other brokerages in one of several lawsuits that are challenging the practice of listing agents and therefore home sellers being required to pay the buyer broker’s commission. To be very clear, Opendoor's core business does not derive revenue from the buyer broker commission. On the contrary, the buyer broker commission is a cost that we pay when we resell our homes. The BBC currently represents approximately 2.5 points of our overall cost structure, which is meaningful. If the buyer broker commission were reduced or went away, those costs to us would be reduced. At Opendoor, we built our entire platform with a focus on giving customers transparency and choice as to how they sell their home. As such, we believe we're well positioned to improve the experience of sellers and buyers as changes in the real estate ecosystem materialize. Before I turn the call to Christy, I'd like to thank the Opendoor team for their continued hard work to reshape the real estate industry and fix a broken process. We believe we built the foundation for a future of profitable growth as we exit the year with an improved cost structure, strong balance sheet, and scaled customer acquisition channels. And we remain steadfast in our mission to power life’s progress one move at a time. Christy will now review guidance and the financial results. Thank you.

Thank you, Carrie. Our third quarter results reflect increased acquisition volume, the growing mix of our new book of inventory, and our continued focus on cost discipline. We remain focused on delivering healthy, risk-adjusted contribution margins and preserving capital through disciplined cost management. We delivered $980 million of revenue in the third quarter, slightly exceeding the midpoint of our expected guidance range. We have continued to sell-through our longest held homes with less than 150 old book homes not in resale contract at quarter-end. On the acquisition front, we purchased 3,136 homes in the third quarter, a 17% sequential increase, despite a decline in market new listings within our buybox. We returned to positive contribution margin in the third quarter, generating positive 4.4% versus negative 4.6% in Q2 2023. These results were ahead of our implied guidance range of 3.2% to 4%. The outperformance reflects both the strong performance of our new book of homes as well as slightly higher mix of new book versus old book resales than expected. Our new book of homes generated gross margins of 12% and contribution margin of 9.2% in the third quarter. Adjusted EBITDA loss was $49 million in the third quarter, inclusive of our previously recorded inventory valuation adjustments of negative $29 million. This beat the high end of our guidance range and is an improvement from an adjusted EBITDA loss of $168 million in the second quarter of 2023. Adjusted operating expenses, which we defined as the delta between contribution profit and adjusted EBITDA, were $92 million in Q3, up from $78 million in Q2, 2023, and down from $189 million in Q3, 2022. The sequential increase reflects the fact that we began rebuilding inventory in the third quarter, while the decline versus the prior year period reflects our improved cost structure. Adjusted operating expenses outperformed our prior guidance of $100 million due primarily to the timing of certain expenses that we now expect to incur in 4Q ‘23. We expect adjusted operating expenses to be approximately $120 million in the fourth quarter, which reflects both the shift in some expenses from 3Q to 4Q, as well as our expectation to continue rebuilding inventory while continuing to prioritize cost discipline. Turning to our balance sheet, we ended the third quarter with $1 billion in total shareholders equity, which is a decrease of $66 million from the second quarter of 2023. We ended the third quarter with $1.5 billion in total capital, which includes $1.2 billion in unrestricted cash, cash equivalents, and marketable securities, and $182 million of equity invested in homes and related assets, net of inventory valuation adjustments. At quarter-end, we had $8.4 billion in non-recourse asset-backed borrowing capacity, composed of $3.9 billion of senior revolving credit facilities and $4.5 billion of senior and mezzanine term debt facilities, of which total committed borrowing capacity was $3 billion. As Carrie mentioned, mortgage rates reached 8% in October, their highest level in over 20 years, and up over 100 basis points since we reported second quarter results in August. This increase in rates softened buyer demand, amplifying the typical seasonal decline in market clearance rates. The impact of this is reflected in our outlook for the balance of the year. First, as market clearance rates have slowed, our pace of resales is likewise reduced, impacting projected fourth quarter revenue. Second, we reduced home-level list prices in order to meet our clearance objectives, which flows through to lower revenue and contribution margins. And third, as a result of slower resale clearance rates, some sales from the old book shifted out of the third quarter. We expect the impact of those tail homes will be a drag on the overall fourth quarter contribution margin given their margin profile. Responding to seasonality and market changes is a normal part of our portfolio management process, including balancing the pace of inventory inflows and outflows. With that in mind, we expect fourth quarter revenue to be between $800 million and $850 million; contribution profit between $15 million and $25 million, which implies a contribution margin of 1.9% to 2.9%; adjusted EBITDA loss between $105 million to $95 million; and adjusted operating expenses of approximately $120 million. In line with the expectations outlined back in May, we continue to expect fourth quarter home purchases to be about 3,000 and roughly flat quarter-over-quarter. With less than 150 old book homes not under contract at the quarter-end, we expect to return to more normalized inventory turns of 3.0 to 3.5 times per year. There are other factors that may cause inventory turns to vary quarter to quarter, most notably seasonality, but we believe it's helpful to keep in mind as you model our inventory acquisition and resale pace throughout the year. We continue to manage our business to return to positive adjusted net income, our best proxy for operating cash flow, and believe we have the cost structure and balance sheet in place to do so.

Thank you. Our first question comes from the line of Nick Jones with JMP Securities. Your line is now open.

Great, thanks for taking the questions. I guess I saw the comments on the NAR lawsuit and kind of recent judgment on Missouri. If commissions were to come down and I realize maybe it lowers your cost a little bit, but does that then change the value proposition and the spread dynamic in your go-to market and how you can expect your homes to convert, I guess, if we kind of see this out longer term?

Hey, Nick, it's Carrie. To put it simply, no, it doesn't mean anything. We're focused on assisting those looking to sell their homes with ease and assurance, and that’s the fee we charge currently. As I mentioned earlier, the buyer broker commission is an expense we incur when we resell our homes. If that fee decreases, it would at worst be neutral for our overall margin over time.

Great. And then as we think about, I guess, 2024, how much of an overhang will affordability continue to be? I mean, do we really need to see transaction volumes kind of normalize to semi-historic levels for things to kind of improve and growth to kind of reaccelerate and margins to come through? Is it kind of a longer-term view or do you think the expansion of the buybox that you talked to and those in the shareholder letters enough to kind of continue to grow and navigate the current environment?

We feel very confident in our ability to grow and navigate through the current environment. It's important to differentiate between price stability and volumes. Our primary focus is on maintaining price stability, as it helps us reduce our spreads. Regarding volumes, our addressable market is currently $600 billion, and we only need to capture a small portion of that to return to profitable cash flow breakeven.

Hey Nick, it's Carrie. The only one I want to add on to Dod's good answer is that we have been showing throughout the course of the year that we're gaining share. And we're gaining share against a declining market. And I think that's evidence of the value prop and what we're putting into the market for customers and our focus is continuing to do so.

Our next question comes from the line of Ygal Arounian with Citigroup. Your line is now open.

Hey, good afternoon, guys. I just want to focus on prices and spreads for a little bit. I'm sure you're not surprised about that. So, on the reference call right now, they just talked about seeing some signals of home prices softening and in their view that's a good thing. I know that obviously has an impact on how you think about the world. And so I may have missed some of the comments, Carrie, but just your thoughts on spreads right now as we get through end of this year and into next year and what you're factoring in and thinking about in terms of home prices as we kind of work through what's been a more of a challenging environment than last time we spoke?

Let's take a moment to reflect on the year. In 2023, we are still seeing 4 million homes sold annually in the US. While we have noticed limited supply, resilient buyer demand has helped maintain that balance. As a result, home prices have remained stable. We pay close attention to market clearance or the pace of resales, as it effectively indicates the balance between supply and demand. Our shareholder letter shows that market clearance continues to exceed historical averages. The homes we are acquiring now will be sold during the spring selling season next year. Historically, our fourth-quarter acquisitions have been among our strongest, benefiting from month-over-month price increases that typically begin in mid-February. We will keep monitoring our leading indicators, clearance rates, and remain disciplined in balancing growth, margins, and risk. So far, the housing market has shown stability in prices, which is partly why we have managed to improve our spreads.

I would like to follow up on that. How does the full year we are discussing align with the lower clearance rates you are experiencing and the price reductions? Is this more of a seasonal factor at this point? I want to ensure I understand this connection. Thank you.

Yep, very much a seasonal factor and part of our risk management framework. So we saw that softening and wanted to stay in line with our clearance targets. And so to your point, that is a short-term effect. And if you sort of roll forward the clock another month or two, November and December, is a very, like, you'll see market new listings go down 50% between October and December. And so both supply and demand shift in a significant way for November and December. People don't want to move during the holidays. So it's very much a short-term, near-term phenomenon. And I think if you look again at those charts in the back, from a price perspective, a nominal home price perspective, that continues to show stability, really in line with what we've seen in prior years.

Thank you. Our next question comes from the line of Curtis Nagle with Bank of America. Your line is now open.

Thank you very much. Just to add to Nick's points regarding the setup for 2024, we have high rates and lower clearance rates, which might be somewhat seasonal. It could be wise to reduce buying slightly to mitigate inventory risk, especially given the current volatility and softness in the market. Additionally, could you provide more details on the marketing spend? It sounds like it's intended to prepare for the spring selling season next year. Did this contribute to the shift into the fourth quarter?

Regarding the fourth quarter acquisitions, we mentioned that they would be approximately 3,000, which is flat compared to the previous quarter. As I has highlighted earlier, fourth quarter acquisitions have historically been some of our strongest groups. It's important to keep in mind that the homes we are currently acquiring will be sold early next year during the favorable spring selling season. With that in mind, I'm not entirely sure if your question was about whether we should decrease or increase our buying. From an increasing standpoint, given the rising market volumes, it's challenging to boost our buying due to the significant decline in new listings during months like November and December.

It was decreasing just again on a sort of central inventory this question on a volatile market right, three months is a long time, that's sort of the point.

I think that if you look at the price changes from February and March, they show improvements of 100 to 200 basis points. We are positioning our spread to ensure we can achieve our annual contribution margin target of 5% to 7%, which means we expect our new acquisitions to meet our performance goals.

And Curtis, did you have a follow-on question related to marketing?

Yeah, yeah. Yeah, I did. So it sounds like marketing spend was either increasing or shifting from 3Q, to 4Q. I couldn't quite tell, because the fixed costs are going up a bit, quarter-to-quarter. So just hoping to square that and what type of marketing are we putting in the market?

Hi Curtis, it's Christy. Regarding marketing, our adjusted operating expenses have three main components: marketing, fixed costs, and variable SG&A. These have remained relatively stable between Q3 and our guidance for Q4. In our letter and prepared remarks, I mentioned there was a shift in expenses from Q3 to Q4, with some costs we anticipated in Q3 now occurring in Q4. This isn't specific to marketing. Additionally, the guidance of $120 million in total adjusted operating expenses reflects a familiar pattern we’ve seen before. As we rebuild inventory at a much higher rate compared to sales, the holding costs increase and will eventually contribute to profit once the inventory is sold, affecting adjusted operating expenses as the inventory level rises. This is part of the increase you're observing in Q4. We also plan to increase our paid marketing efforts starting in Q1.

Yeah, I mean, just to add on to that, I mean the consistent motion for us throughout the course of the year, given what Dod said earlier about listing volumes in Q4, is that it's a relatively quiet marketing quarter for us. And we lean into more marketing spend in Q1. We expect to do so next year along with the fact that our spreads are level right now, we can make those investments in a cost-effective way. So that's a pretty natural motion for us.

Thank you. Our next question comes from the line of Dae Lee with JPMorgan. Your line is now open.

Great. Thanks for taking the questions. I'm sorry if this has already been answered. On, is it right to think that if buyer agent commission changes, it'll be contribution, profit dollar neutral for you guys? And then secondly, I know you guys gave some color on your plans for early 2024. I'm just curious what kind of macro environment you guys are embedding in your plans. And if current rate environment kind of holds into 2024, do you still target achieving the stead state $10 billion revenue and net income positive sometime in 2024?

Hey, Dave. Let me get the first part on the NAR stuff and then I’ll hand over to Dod to talk about the macro and maybe Christy will follow up with breakeven. On the first part, which is the NAR part, your question was, would it be margin neutral to us if the buyer broker commission were to come down. And that's our view. Again, that's a cost item for us. It's not a revenue item. And so we think, worst case, it's neutral to us from a margin perspective. That was easier. Dod, do you want to take the macro question?

Regarding your macro question, I think there are a couple of points. From a market clearance perspective or the pace of resales, it remains above historical norms, excluding 2021 and 2022, which were outliers. We are still observing a very healthy pace of resales and a good balance of supply and demand. Our primary focus is on monitoring for any supplier demand shocks that could lead to changes in home prices. We haven't seen those changes yet, but one of the strengths of our business model is our ability to adjust spreads quickly. If we notice a change, we can adapt promptly.

And then just to close things off with A&I breakeven, our framework hasn't changed. The whole organization is focused on returning to cash flow breakeven. The timeline depends on what we're seeing in the housing market, which continues to be dynamic, and we will continue to respond to market signals, and therefore we aren't going to commit to a specific month. As a business, we're always balancing growth, margin, and risk. In 2023, we were focused on risk, which led to reduced growth, but outperformance on new book margins. In 2024, we'll continue to balance growth, margin and risk, and we will track leading real-time metrics. That said, sitting here today, we do believe that doubling volumes from here is achievable, given current spreads, our growing partnership channels, and plans for cost-effective marketing investment in the first half of 2024.

Hi, everyone. Thank you for the questions. Can you provide some specific guidance on the level of operating expenses needed to support a variety of purchase volume expectations for next year? Regarding the $120 million in the fourth quarter, it does not include marketing costs, but as you noted, it is impacted by higher holding costs. What would you consider a reasonable expectation for next year compared to the $120 million in the fourth quarter?

Hi, Ryan. It's Christy. We expect to reach breakeven in A&I at a steady state revenue of $10 billion, which means acquisitions will be about equal to resales. At that $10 billion mark, with adjusted operating expenses between 4% to 5%, that's our goal. As I mentioned earlier, while we're increasing revenue, building inventory can lead to higher operating expenses due to the holding costs incurred when inventory grows faster than revenue.

I think the one other point to add on to that is if you think about our operating costs in sort of 4Q versus 3Q, taking aside those time adjustments, those are basically flat quarters. So we are, I think, trying to continue to be disciplined about cost management. And to your point, the real change will be in marketing spending.

Got it. In addition to the question that Nick posed earlier regarding the commission lawsuits, we are also receiving inquiries about the potential disruption to the MLS system and its effects. On one hand, a diminished value proposition for using the MLS might offer sellers more flexibility to explore alternative innovative models like Opendoor. On the other hand, could a disruption to the MLS pose a risk to any data you depend on from those databases for your pricing models? It’s a complex subject, and I’m trying to clarify all the different factors involved.

Yes. If you consider our business model, our goal is to provide customers with choice. We focus on creating transparency in our processes and allowing them to select the best solution for their needs. Our NPS scores and customer feedback show that they really appreciate our product. Therefore, we are in a strong position to keep offering these products to our customers. On the data side, we have been developing our own data store for ten years, and we believe we are in a very advantageous position to leverage any data components. Overall, we are well positioned across the board, and regardless of how events unfold, as Carrie mentioned, these changes are likely to happen gradually. However, whether it is a slow or fast progression, we feel prepared for it.

Great. Thanks, Dod.

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Carrie Wheeler for closing remarks.

Great. Thank you. First of all, thank you for joining us today. As we exit 2023, I just want to stand proud of the work that the Opendoor team has been doing to be just a stronger, more resilient company. The housing market for sure continues to be challenging, but I am confident the changes we've been working on this year we've implemented will benefit for years to come. Have no doubt about it, we are very focused on getting back to positive cash flow. And we're committed that we're going to manage our cost structure and our balance sheet to ensure that we get there because the option we have in front of us is massive and we're committed to delivering against it. So thank you for listening to us today and we look forward to speaking with you all next quarter.

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