Earnings Call Transcript - OPEN Q2 2025

Michael Judd, Capital Markets and Investor Relations

Thank you, and good afternoon. Details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the Investor Relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion and management objectives for future operations. These statements are neither promises nor guarantees and undue reliance should not be placed on them. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2024, as updated by our quarterly report on Form 10-Q for the quarter ended June 30, 2025, and other filings with the SEC. 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 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.

Carrie A. Wheeler, CEO

Thank you for joining us. At Opendoor, our mission is straightforward but bold: to make selling your home simple, certain and fast. For most people, selling a home is one of the biggest financial transactions of their lives and too often is also one of the most stressful. We believe it doesn't have to be that way. Over the past 10 years, we've built deep infrastructure in real estate, pricing intelligence, operational capabilities and a marketing engine that reaches high-intent sellers. In doing so, we've amassed an unparalleled data set: photos, videos, agent notes and customer interactions from millions of home visits. This proprietary data fuels our AI, and that AI powers our flagship product, the cash offer, which delivers what traditional sales cannot: speed, certainty and control. Our customers understand this. Over the past 4 years, our Net Promoter Score has been near 80, exceptional in any industry. And increasingly, agents understand it, too. In fact, 1 in 4 of our acquisitions already come from an agent bringing us their client for a cash offer. We are now making the most important strategic shift in our history: moving from a single product to a distributed platform with multiple offerings delivered through agents. Agents already come to us every single day for a cash offer. We're simply changing the direction of traffic, putting the power of Opendoor into their hands so they can bring our products straight to the seller. We have 2 things no one else can give an agent: one, unparalleled lead quality. We are not getting agents cold names from a spreadsheet. We're putting them in the home with a motivated seller. Two, a differentiated product suite, more selling options powered by a trusted local adviser. Sellers can choose the certainty of a cash offer, the upside potential of a market listing or a hybrid of both. This means sellers get more choice, more speed and more certainty. Sellers win, agents win and Opendoor wins because we can serve far more sellers, monetize more leads and expand high-margin, capital-light revenue streams. We began piloting this new approach in select markets last quarter. The early proof points were compelling. 2x more customers are reaching a final underwritten cash offer relative to our traditional flow. We're delivering offers faster with streamlined in-home agent assessments. Listing conversion rates are 5x higher, and we're unlocking more capital-light earnings through our share of listing commissions. On the strength of these results, we've gone from pilot to full rollout in record time. Today, partner agents are live in every market we operate. Our next phase is optimization: more agents, better tools, better training and more products. We've launched our Key Agent iOS app so agents can do high-fidelity home assessments right from their phone, enriching our AI and deepening the customer connection. Being in the home gives agents a chance to guide the seller through every option, and we believe that face-to-face trust will be a powerful driver of conversion. We've also launched Cash Plus, a hybrid product designed for sellers who want the convenience of a cash offer, but hope to maximize upside by going to market. Opendoor provides immediate cash to the seller, gets the home list ready and works with a partner agent to list the home. Upon resale, the seller can receive additional proceeds after expenses. For sellers, it's the best of both worlds. For agents, it's another competitive tool and keeps them engaged with the customer throughout the sales process. For Opendoor, it's a better risk-adjusted product that uses less capital, protects our downside and aligns our incentives even more closely with the customers. We are building a vibrant distributed ecosystem. Agents coming to us for cash offers. We're bringing sellers to partner agents. Sellers gain more choice, more speed, more certainty and Opendoor gains more opportunities to monetize leads, serve customers and expand high-margin revenue streams. This is our flywheel. The more agents we enable, the more sellers we serve. The more transactions we handle, the stronger our platform gets. Our marketing dollars become more efficient as we monetize more of the sellers who come to us. And as we grow transactions, we further leverage our cost structure. Value compounds for customers, agents and shareholders alike. We are making these changes amidst a very challenging housing market. The second half of 2025 will reflect lower acquisition and resale volumes due to the macro environment and continued high spreads, seasonality and the fact that we are early in our transition. Our near-term outlook, however, does not reflect what we're building towards: durability, relevance and scale for the next decade. We know exactly where we're going, and we're taking decisive steps to get there. With that, I'll hand it over to Selim for the financials.

Selim Freiha, CFO

Thank you, Carrie. We delivered a strong second quarter. At $1.6 billion in revenue, we achieved our first quarter of adjusted EBITDA profitability in 3 years. This outcome is an indicator of the meaningful operating leverage we have driven and provides a roadmap for what ANI breakeven could look like in the future. Our Q2 performance reflects deliberate choices we've made, including increased marketing spend in Q4 2024 and Q1 2025 to acquire more homes ahead of the spring selling season and widening offer spreads in Q2 2025 to manage risk as we prioritize marketing spend efficiency and disciplined underwriting. On the acquisition side, we purchased 1,757 homes in the second quarter, slightly ahead of our expectations, but down year-over-year, driven by meaningfully wider spreads and accompanying reduced marketing spend. Contribution profit was $69 million in the second quarter, representing a contribution margin of 4.4%. This was down from $95 million and 6.3% in Q2 2024, driven by a higher mix of older inventory in our Q2 resale cohorts. Adjusted EBITDA was $23 million in the second quarter compared to a loss of $5 million in Q2 2024. Turning to our balance sheet. We ended the quarter with 4,538 homes, representing $1.5 billion in net inventory. We also had $1.1 billion in total capital, primarily comprised of $789 million in unrestricted cash and $167 million of equity invested in homes net of inventory valuation adjustments. At quarter end, we had $7.8 billion in nonrecourse asset-backed borrowing capacity, of which total committed borrowing capacity was $2 billion. In May, we issued $325 million of convertible senior notes due in 2030. This transaction allowed us to extend the maturities on $246 million of our existing converts by 4 years and add $75 million in cash to our balance sheet. Turning to our outlook. The housing market has further deteriorated over the course of the last quarter. Persistently high mortgage rates continue to suppress buyer demand, leading to lower clearance and record delistings. Our second half expectations take into account current macro dynamics, typical seasonal patterns in our cash offer business and the early stage nature of our platform evolution, which is not yet a material contributor to our results. Our guidance for the third quarter of 2025 includes the following: approximately 1,200 homes acquired, revenue between $800 million and $875 million, contribution margin of 2.8% to 3.3% adjusted EBITDA between negative $28 million and negative $21 million and stock-based compensation expense between $10 million and $12 million. And while we're not providing full year guidance at this time, I would like to add some additional color for the balance of the year. We expect Q4 revenue to decline sequentially at a similar level to the Q3 sequential decline based on the dynamics I just mentioned. Contribution margin will also be pressured in the second half by an unfavorable mix of older, lower-margin homes given lower acquisition volumes, likely putting our goal of year-on-year contribution margin improvement out of reach.

Carrie A. Wheeler, CEO

Thanks, Selim. I want to acknowledge the great deal of interest in Opendoor lately and that we're grateful for it. We welcome engagement from all of our investors, including the many shareholders who are new to the company. We appreciate your enthusiasm for what we're building, and we're listening intently to your feedback. This increased visibility is an opportunity to tell our story to a broader audience. We intend to make the most of it. We've been laying the groundwork to execute on the strategy we have laid out: to serve every seller possible, to build a profitable business and in doing so to create long-term shareholder value. We look forward to updating you on our progress in the coming quarters. And with that, I will ask the operator to open the line for questions.

Dae K. Lee, Analyst

First one for Selim. Regarding your 3Q guidance, you mentioned that macro conditions worsened throughout 2Q. Is it stable now, or are you still experiencing incremental softness as we move into the second half? You also indicated that the 3Q guidance does not reflect a significant impact from newer initiatives, such as collaboration with agents. How long does that process typically take, and when do you anticipate it will become a more substantial contributor? I have a follow-up as well.

Selim Freiha, CFO

Dae, thanks for the questions. I'll take the first one, and then I'll let Carrie talk a little bit about our new initiatives. Just in terms of the macro and what we see, I would say, yes, I think at the current moment, things seem to have stabilized, definitely well below where things were at the beginning of Q2. We did see sort of ongoing deterioration throughout the quarter, and now things seem to be in a bit of a stable pattern. And so our outlook for both Q3 and Q4 assumes that we stay at or around this sort of overall macro environment, subject to seasonality adjustments that are normal for this time of year.

Carrie A. Wheeler, CEO

Right. On the topic of when can we see the impact of all the changes we're talking about, our new go-to-market, our expanded product suite, I'd say a couple of things. One is we're going to see the impact of that show up in conversion and in contracts long before we see it hit the P&L for a couple of reasons. One is we have been ramping into Key Connection markets throughout the last quarter or so, now live in every single market, but certainly ramping. And our job right now is to optimize, get more agents enrolled, more training and get them live. Two, there's just a natural lag between when we enter into a contract or a listing agreement and then when that home actually gets sold and when we record it with revenue. So if you think about ramping activity, a lag between a contract or listings to when we actually realize it on the P&L, we're going to see the real impact of this kind of show up in 2026. And then last point would be Cash Plus. That's a meaningful growth lever for us, we believe, based on what we're seeing so far in our pilot markets incremental to conversion. But that's in a handful of markets ramping very quickly. Next quarter, when we have this call, it will be in all markets. But again, that's going to take some time to kind of get in the hands of all of our Key Connection agents.

Dae K. Lee, Analyst

Got it. And as a quick follow-up, do these newer initiatives like Key Connections or Cash Plus change your contribution margin profile of the business?

Selim Freiha, CFO

I think with respect to the various outcomes or the product suite that we have, I think Cash Plus enables us to have more confidence in being able to deliver within our target contribution margin range. It's a better risk-adjusted process or a risk-adjusted product for us in addition to the fact that the initial cash outlay is lower than it would be otherwise for a normal cash offer. And then with respect to listing outcomes, that is high-margin revenue for us, but obviously will not show up as much on the revenue line, but should help contribution margin over time.

Ryan Tomasello, Analyst

This is Juan on for Ryan. Regarding the fourth quarter guidance commentary, when the company mentions expecting a sequential decline in fourth quarter revenue similar to the third quarter guidance, will that be in absolute dollar terms or as a percentage? Additionally, would the $50 million operating expenses guidance for the third quarter be a reasonable estimate for the fourth quarter as well?

Selim Freiha, CFO

Thanks for the questions. And sorry that the sequential guidance comment was not clear, but just to clarify, that's sequential on a percentage basis, not on a dollar basis. And then in terms of the $50 million OpEx run rate, I would say, no, that it's going to move from quarter-to-quarter. We've talked about in the past our new marketing strategy, which is heavier in Q1 and Q4 to align with the time of year when spreads are lower and we're acquiring homes in advance of the spring selling season. And so we would expect a heavier marketing load in Q4 and Q1 and a lighter marketing load in Q2 and Q3. And so what you have in Q3 is a lighter marketing load, all else equal. So we would expect OpEx to ramp back up in Q4 and Q1, driven by marketing.

Unidentified Analyst, Analyst

Okay. That's clear. And I have just a quick follow-up. With the shift to more of a buyer's market across parts of the country, are you seeing any notable increases in request volumes from sellers in those markets? And generally, how are you thinking about the potential for more seller demand coming into the platform?

Selim Freiha, CFO

Yes. Our guidance and outlook do not suggest an increase in seller demand at this time. We have not seen a rise in buyer demand that would lead to higher clearance rates. If we do see an increase in buyer demand, we expect more sellers to feel comfortable taking offers and wanting to sell their homes, but currently, that's not happening, and our guidance reflects that expectation. Regarding demand, we are aligning our marketing spending to strategic times of the year when we can acquire homes before the spring selling season, which typically sees higher buyer demand and better prices. Therefore, we are increasing our marketing efforts in Q4 and Q1 to drive more acquisitions during a period when spreads have historically been lower. In the summer months, our focus will shift towards resale rather than actively buying in the market.

Wayne Trinh, Analyst

This is Wayne Trinh on for Ygal. I just wanted to ask about the distributed platform. It seems to be performing well with the twice as many customers reaching a cash offer and getting said offer faster. Can you just walk us through how it's kind of done since you got into rapid expansion? And can you talk about the share economics you'll have there with agents between conversions and lead generation?

Carrie A. Wheeler, CEO

Yes, I'm glad to discuss this. First, I'll share our insights on conversion, which are quite promising, followed by some details on unit economics. The reason we are pursuing this approach, based on our trials over the past quarter, is that pairing our sellers with an agent early in the selling process significantly boosts conversion rates. An agent can engage with a customer early on, offering a variety of options rather than just a single one, and steer the seller towards the best outcome, resulting in better conversions. So far, we have observed that twice as many customers are progressing through our funnel to final underwriting compared to what we experienced historically with our direct-to-consumer model. This increase translates to a greater number of customers we can convert. Our overall conversion to selling outcomes has improved, with five times more individuals transitioning to listings than we would have been able to monetize previously. These are strong indicators of success. We've noticed a slight decline in cash conversion, which we expected and believe is temporary. This can be attributed to two factors: our current wide spreads due to macroeconomic conditions and seasonality, and our agents are still in the training phase for using the cash offer within their routine. Importantly, the data does not yet account for Cash Plus. In the pilot markets where Cash Plus is available, it has positively influenced cash conversion, as more customers are opting for Cash Plus over the standard cash offer, suggesting it will be a reliable tool for converting more sellers than what we currently achieve with cash offers alone. Regarding unit economics, particularly in relation to Cash Plus versus cash offers, our evaluation of home values remains unchanged from our traditional cash offer process. However, we provide less cash upfront. Sellers still have the opportunity to access a significant portion of their equity, allowing them to pack, relocate, and manage their next steps. We will handle repairs and coordinate with partner agents for the listing process. After the resale, sellers receive additional proceeds after accounting for expenses. This approach reduces our upfront capital requirements and enhances our downside protection while still aiming for a contribution margin comparable to our historical cash offer product. We believe we have a higher probability of achieving this target under this model. For agents, they receive their listing commission after the home resells. When we connect a customer with an agent, and that agent lists the home for that customer, a listing commission is generated. The agent earns this commission, and we take a share, which is at the higher end of industry standards due to our strong lead quality and high conversion rates. This arrangement allows us to maintain a capital-light and high-margin revenue stream.

Selim Freiha, CFO

Yes. We are still thinking about it in the same way, obviously, all else equal for the macro environment. As you know, we've been responsive to that, and we've adjusted our pace according to what we see in the macro. But as we currently sit here today, we would expect acquisitions to sequentially scale back up in Q4 relative to Q3, but we're not in a position to guide or give color on how much that could be or what that could look like. It's really dependent on what happens in the macro environment, where we set spreads and the progress that we make on this platform pivot. And so we'll update you on that in 90 days.

Andrew M. Boone, Analyst

I wanted to ask about the new platform and just kind of where is agent and consumer awareness within some of your oldest markets. How are you guys thinking about driving the awareness of newer offerings and changing the consumer perception of what Opendoor is? And then I'd love just something a little bit more tactical as we think about the back half of '25. Can you just talk about the trend in spreads and how we should think about spreads in terms of offers for the back half of the year?

Carrie A. Wheeler, CEO

I'll go first. It's Carrie. Thanks for the question. A couple of things. First of all, how are we going to get the word out about Key Connections to agents? One of the things I think is important to understand is we already have 25% of our business coming to us today from agent partners. Those are agents who fully understand the power and importance of having a cash offer in hand when they're going to a listing appointment, and they're coming to us with their customer asking for a cash offer today. So we already have tons of agent relationships. They understand the power of it. They know that they can rely on it. We don't retrade. We close on time. We make it very easy and seamless for them to extend that offer to their client. This is just us changing the flow of traffic. This is us taking our high-intent seller leads and putting them in the hands of agent partners. My sense of what we're going to see is that this is going to become very symbiotic, right? Agents coming to us, us going to agents. On the news of some of the marketing we've done recently around our Key Agent app, our push on Key Connections, had a ton of inbounds from agents who understand what this could mean for their business. They understand what it means for their next lead. We're solving a problem for them. They're not having to go find their next customer. They understand they get a differentiated suite of products to sell to their clients that they can't get anywhere else. They understand the quality of our leads. We are putting them in the home. That is not a lead you get somewhere else. It's totally differentiated. And so I don't really foresee a lot of problems getting this into the hands of agents and having it kind of stem from there. Consumers, listen, we've been marketing for a long time to consumers. We get lots of sellers that come to us. Our brand awareness has continued to accrete over time. We'll continue to market to consumers. Our #1 job right now is to take more of those many, many sellers that come to us and convert them, monetize those leads through the agent channel. That's what we're excited to do.

Selim Freiha, CFO

In a typical seasonal environment, spreads usually reach their highest point in late spring or early summer and then decrease throughout the second half of the year, before rising again in late winter and early spring. This is how we typically manage the business, and under normal circumstances, that is what we anticipate occurring between now and the end of the year.

Nick McAndrew, Analyst

Maybe just to start, you've noted that spreads have remained elevated and above historical norms, just given weaker clearance rates. And I'm just wondering if you could provide any color or translate some of that to how much cushion you're building into today's pricing environment. And what kind of home price volatility you expect in the back half of the year?

Selim Freiha, CFO

Yes. So generally, we strive to set price to enable us to deliver within our target contribution margin range. And so that's how we set our spreads or approach setting our spreads. The challenge that I sort of referenced in the comments is when we assume a certain macro and then the macro further deteriorates, it starts to eat into any cushion that we have and therefore, makes it more difficult for us to hit the target contribution margin range. But that is generally the approach that we take. And then with respect to home prices, home price appreciation tends to vary sort of depending on the time of year. The spring is when you tend to see the highest or positive home price appreciation. And then as you get into the fall and the winter, home price appreciation tends to go negative. That's no different to what we're planning today. The only difference that we saw, I would say, in Q2 is the positive home price appreciation period of time this year was actually the shortest that it has been in quite a number of years. We provide some charts on that in the back of our shareholder letter that I would refer you to. I think that can be a helpful guide to understand that. Yes. Look, generally speaking, we don't comment on future capital raises. As for the ATM, no, we have not used it yet. We have 1.5 years remaining to use it, and we'll be opportunistic in how we leverage it. And beyond that, I would say there's not much more I can say.

Operator, Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.