Yahoo Finance

Carrie Wheeler

Thanks, everyone, for joining us today. At Opendoor, we remain relentlessly focused on our mission to reinvent residential real estate in the US, making it simpler, more convenient and more customer-centric. The strategy we're executing against is designed to take full advantage of the strengths we've built over the past decade and to position us for long-term success. We continue to operate in an extremely challenging macroeconomic environment with heightened uncertainty on the back of shifting economic policies and the evolving tariff landscape. Home sellers and buyers are taking a pause.
Mortgage rates are back up over 7%, clearance rates are down nearly 25% year-over-year and delistings are up over 30% as sellers continue to exit the market. Despite these headwinds, our focus hasn't changed. We're here to give customers certainty, convenience and choice, especially when they needed most. We enter 2025 with a clear plan to drive towards profitability while strengthening our product experience and leadership position. Our progress is reflected in our first quarter results, where our acquisition volumes, revenue, contribution profit and adjusted EBITDA demonstrate strong execution amidst a challenging macro backdrop.
And while we're focused on driving profitability, we're also investing in our future. Over the past decade, we've built a trusted category-defining platform that gives sellers the certainty of a cash offer. Now we're evolving into a platform where every seller can explore all their selling options, whether that's through a cash offer or listing with an agent.
We are expanding how we go to market, leveraging our unique platform and relationships. Today, a meaningful percentage of our acquisitions come to us through an agent who is bringing their customer to Opendoor and requesting a cash offer. For many listing agents, having a cash offer as part of a complete set of selling solutions is considered table stakes. And we've built a platform that allows them to provide a certain and seamless path by fulfilling a cash offer on behalf of their client. We are taking our existing vibrant partnership with agents and flipping the script, so to speak, by sending Opendoor customer referrals to vetted agent partners.
Those agents are able to talk through the options that a customer has to sell from an Opendoor cash offer to a full listing. In doing so, they're meeting the customer where they are, and they're able to put all options in context relative to that particular seller's needs. We are piloting this experience in select markets and are encouraged by the early indicators we're seeing. Customers are receptive to having a local expert explain their options. Agents benefit from high-intent seller referrals from our marketing engine and are able to bring all options to the table in assessing the smartest move for the customer.
And Opendoor has the opportunity to improve conversion, whether it's higher conversion for cash offers or our participation in the listing, which in turn generates asset-light revenue for us. Moreover, we're able to deliver final underwritten offers faster by allowing agents to do an in-home assessment in their first meeting by leveraging our platform. There will continue to be customers who come to Opendoor directly and want the self-serve experience that we have pioneered, but we expect many customers will benefit from having an adviser help them navigate the selling process. We will see how our pilot evolves, but we believe that this channel will allow us to serve more sellers, monetize a greater portion of our funnel and leverage our platform to drive more asset-light business. In addition to how we've expanded the consumer experience we are continuing to operate the business with 4 core priorities.
First, we're maintaining our pricing discipline. We're monitoring macro conditions closely given an uncertain market and heightened volatility and against that backdrop, have been proactively increasing our spreads. While that does impact acquisition growth, we believe it's the right trade-off to protect contribution margin. Second, we are working on improving conversion. In addition to the channel expansion I just spoke about, we are making enhancements to our pricing models, including refining how we allocate spreads and improving price segmentation with the goal of enhancing our conversion performance.
In Q1, we continue to add new features to our algorithms like school district quality and active competition. Third, we're allocating our marketing investment to better align with seasonal housing dynamics and spreads. As we shared last quarter, we believe this shift in our advertising strategy drives greater spend efficiency. Consistent with our strategy, we expect our marketing spend in Q2 to be meaningfully lower than in Q1. We'll continue to deploy dollars with a focus on efficiency and impact.
And finally, we are highly focused on delivering our product as efficiently as possible. We're building a leaner, more agile organization. Fixed operating expenses in Q1 were $19 million lower or down 33% versus a year ago. These cost efficiencies paired with our margin improvements should position us to reduce adjusted net losses in 2025 as compared to last year. We have built a powerful platform, and now we're working to unlock even more value for customers and agents, all while keeping our sights firmly on profitability.
We look forward to sharing more as we progress throughout the year.
And with that, I will turn it over to Selim for the financial overview.

Selim Freiha

Thank you, Carrie. At the beginning of the year, we shared our commitment to drive towards profitable, sustainable growth. Our first quarter results reflect progress towards that objective. We delivered $1.2 billion of revenue in the first quarter, roughly in line with the same quarter in 2024, representing 2,946 homes sold. On the acquisition side, we purchased 3,609 homes in the first quarter, up 4% versus the same quarter last year.
Growth in acquisitions was enabled by enhancements to our product flow and improvements to our pricing models, which drove better conversion despite higher spreads. Contribution profit was $54 million in the first quarter versus $57 million in Q1 '24 or a contribution margin of 4.7%. Adjusted EBITDA loss was $30 million in the first quarter, down significantly from a loss of $50 million in Q1 '24. This improvement in adjusted EBITDA was primarily driven by reductions in adjusted operating expenses, which were $84 million in the first quarter, down from $107 million in Q1 '24. We continue to be focused on operating with greater efficiency and strong cost discipline.
Turning to our balance sheet. We ended the quarter with 7,080 homes, representing $2.4 billion in net inventory, up 24% from the prior year. We also had $1 billion in total capital, primarily comprised of $559 million in unrestricted cash and $350 million of equity invested in homes net of inventory valuation adjustments. At quarter end, we had $7.9 billion in nonrecourse asset-backed borrowing capacity, of which total committed borrowing capacity was $2.3 billion. In the first quarter, we renewed 3 revolving credit facilities and term debt facility at consistent or improved credit spreads, while both of our mezzanine facilities were extended through at least 2027.
The successful extension of these credit facilities reflects the continued confidence and support of our capital partners. Looking forward, as Carrie mentioned, the housing market has further deteriorated since the beginning of the year. Persistently high mortgage rates continue to suppress buyer demand, and we are seeing more sellers pull out of their contracts than we normally would expect, which speaks to the uncertainty that sellers have at this moment. Our outlook assumes that these headwinds will continue to impact our performance in the near term. Our outlook for the second quarter of 2025 includes the following: revenue is expected to be between $1.45 billion and $1.525 billion; contribution profit between $65 million and $75 million, which implies a contribution margin of 4.5% to 4.9%; adjusted EBITDA between $10 million and $20 million, representing a $20 million year-over-year improvement at the midpoint of our guidance, marking a return to positive quarterly adjusted EBITDA for the first time in 3 years; adjusted operating expenses of approximately $55 million; and noncash stock-based compensation expense between $13 million and $15 million, which represents a decline of over 50% year-over-year.
Looking a bit deeper at our operating expense guidance, we are assuming a significant sequential step down in marketing spend given typical seasonal dynamics and spreads. Additionally, our operating expense includes timing adjustments related to changes in inventory levels. In Q2, we expect resales to outpace acquisitions, which will reduce our inventory balance and result in a favorable adjustment to operating expenses on a quarter-over-quarter basis. Finally, we expect home acquisitions of approximately 1,700 in the second quarter. Our acquisition outlook is informed by 2 key factors: higher spread levels and lower marketing spend.
With respect to spreads, we expect to continue to operate at these elevated levels with the intent of focusing on margin improvement and the reduction in marketing spend will further impact acquisitions. Given our focus on efficiency and current market dynamics, we believe this is a prudent approach to managing our business at this time.
This slowdown in acquisitions is expected to put pressure on our top line in the back half of the year, with revenue expected to decline on a year-over-year basis in the third and fourth quarters, all else equal. However, our goal is to deliver year-over-year contribution margin improvements in those quarters through continued operating efficiencies and wider spreads. And our ongoing cost discipline should result in an improvement in adjusted net losses in 2025 as compared to last year. Finally, the current macro volatility makes it challenging to predict how buyers and sellers will react or how market conditions will unfold. Given the consumer hesitation we're seeing, we feel a more cautious approach is warranted.
That said, we are closely monitoring market signals, and we are prepared to react to more favorable conditions. With that, I will ask the operator to open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Dae Lee, JPMorgan.

Dae Lee

I have two. So first, Selim, on your comments about slowing down acquisition growth to about 1,700 in 2Q, is that kind of the right level to think about as you look into the back half of the year? Or is there some element of rebalancing the inventory to current housing market levels? And is this something that you're doing across all markets or just some markets? So curious if there are any markets that are working better for you right now?
And then secondly, how should we think about contribution margins of these newer homes that you're acquiring given the higher spreads? Is it going to be towards the medium to high end of that 5% to 7% target that you guys normally have?

Selim Freiha

Thanks for the questions, Dae. On the acquisition pace, what I would say is, all else equal, given that we are in a generally uncertain environment with respect to the outlook on the housing market, we would expect the normal seasonal pattern to look like a sort of a barbell similar to our marketing approach, where we are going to acquire more homes in Q1 and Q4 and fewer homes in Q2 and Q3. So on a sequential basis, going forward, we would expect a sequential decline from Q1 to Q2, relatively flat acquisitions from Q2 to Q3 and then a ramp up again in Q4. And based on what we see today and our expectation, again, with what we do know, we would expect a similar pattern for the second half of the year. With respect to contribution margins in Q2 and sort of the newer cohorts, I would first say that our expectation of contribution margin between 4.5% and 4.9% would be 4.7% at the midpoint, fairly consistent with Q1 and down roughly 1.5 points versus the prior year.
And simply put, this is a mix issue. The decline is really driven by older inventory at relatively lower margins, making up a larger share of homes sold in Q2, given the slower acquisition pace of new homes in Q2 that we're seeing. Setting that aside, we do see cohorts that we are acquiring in more recent times performing very well from a contribution margin perspective in the early resale days, but it's not enough to offset the prior year mix impact that I referenced.

Operator

Ygal Arounian, Citigroup.

Ygal Arounian

First, just to follow up on that point on the older homes or maybe for Care also. Is that how you view the overall health of that book of inventory? How much wiggle room, I guess, is there in the valuation of those homes if we might continue to get continuing softness in the housing market and we see home prices start to fall. I think we're starting to see that in some geographies, particularly in the South. So have you factored that in?
Or how do you think about that? And then I have a follow-up.

Selim Freiha

Yes. Thanks for the question, Ygal. Look, our -- generally, what we see when we acquire cohorts is sort of a natural degradation. So the homes that sell sort of earlier tend to have higher margins and the longer we hold homes, obviously, the margins do decay. And that's a pretty typical pattern we've seen historically.
I think the difference is now the homes that we're acquiring more recently are starting at a higher absolute contribution margin level and will decay from there, but that gives us some confidence on sort of year-over-year -- expected year-over-year improvements in contribution margin in the second half. With respect to sort of the valuation expectation, that is factored into our outlook. It's factored into how we set spreads. And obviously, pricing is a lever that we can use, but there's no incremental or additional pressure that we see because we do look out sort of on the resale environment and make an assumption on where we think homes will resell at relative to the current carrying costs that we have on the books.

Ygal Arounian

Okay. All right. And then I want to spend a little bit of time on the expansion of the agent partnership. So this feels maybe like a little bit more of a shift in the asset-light model than the products we've talked about in the past. So first, I just kind of want to understand a little bit more what this product is, how different it is?
Are you -- can you continue to operate with Opendoor and marketplace? Does it become part of this? You've had relationships with other brokerages. Is this a shift where you're working directly with the agents versus the brokerages? And then in terms of mix, what is it today?
Because you talk about moving more in this direction and some people will continue to come direct, but it sounds like this might be at least your goal for it to be the kind of predominant channel. And then -- so what's the overall mix that you intend to get to as well? I know there was a bunch of questions in that, but just trying to understand how this plays out.

Carrie Wheeler

I'll try and hit all of those. And if I don't, Ygal, just feel free to come back at me at the end. If you step back for a second, I think it's important to appreciate that today, a meaningful percentage of our business already comes from agents, right? We have agents coming to us every day who want to bring a cash offer to their client because they want to give their client choice. And they understand the value prop of our cash offer and they're expert at converting it because that client is looking for convenience, certainty and speed.
So those are agents coming to us today, and we understand that motion very, very well. We know who those power listing agents are across the 50 markets we're working in. We're kind of flipping the script now. Instead of agents coming to us with their customer, we are going in 11 markets where we're piloting, we are providing them our customer referrals, and we're doing it earlier in the customer engagement. We think that trusted agent partner then learns more about the sellers' needs.
They can provide more local expertise, and they're also completing an in-home assessment on our behalf. It's a way to improve conversion, speed delivery, more trust, aiding decision-making.
And ultimately, to your point, we believe this is a distribution channel and a partnership that will allow us to drive more asset-light revenue. To your question on mix, I don't know yet. I mean I do think there's a segment of customers that will very much want that direct-to-consumer self-service interaction that we pioneered. People will still come to us and want a cash offer and be very happy to do that on a one-to-one basis.
There are other customer types that we believe will benefit from having that additional agent relationship and advice. And we're going to be able to, I think, over time to figure out how we direct customers in the most optimal way. So it's early, I'd say. As I said, we're piloting, but in a meaningful number of markets. And over time, that will continue to evolve.

Ygal Arounian

Okay. I guess the only thing that you missed, Carrie, just for clarification on List with Opendoor and Marketplace, are those going to continue to operate? Are they going to be separate products? Are you kind of rolling it into this agent partnership thing as --

Carrie Wheeler

Yes. I mean I think about the new partnership as a channel strategy, go-to-market strategy and then it may end up with a listing. So for us, List with Opendoor, think about that as an end-of-funnel referral program really a customer comes to us for a cash offer. They go through the offer process, and we refer them at the end towards the partner agent to explore listing oftentimes with our backstop cash offer as something for them to think about as they test the market.
So those 2 things are not mutually exclusive. We'll continue to have a list with Opendoor product across direct-to-consumer channels, and we will be powering more and more agents with the benefit of our marketing engine and our referrals. And that it may happen with a listing. It may have been a cash offer that's okay.
With respect to Marketplace, what I would say is we're currently today in Dallas, Charlotte, Raleigh, and we're holding there for now. Not a material contributor to revenue or earnings for us today. Given the pause and the pullback we're seeing in the housing market right now, we are going to evaluate the best path forward for Marketplace. I really believe that sitting here today, our new expanded partnership channel is a much more immediate path to allow us to serve more customers, monetize more of that funnel that we have and generate that incremental asset-light revenue we're looking for, and that's where we're going to put more and more of our energy and resources into most likely.

Operator

Nicholas Jones, Citizens JMP Securities.

Luke Meindl

This is Luke on for Nick. Can you just speak on further cost savings opportunities? You've made nice progress over the past few quarters, improving the cost structure. How much more room do you think you have there to gain additional efficiencies, particularly if macro worsens?

Selim Freiha

Yes. I'll take that, Luke. Thanks for the question. Look, we are still focused on optimizing our cost structure to drive durable cost savings beyond the progress we've already made. As a reminder, reflected in our Q1 results is a year-over-year fixed cost reduction of nearly $20 million or roughly 33% and our Q2 guidance implies a similar reduction.
These are durable cost savings that are here to stay. Beyond these, we continue to look at various aspects of our business and our operations to drive more efficiency as we go forward, including infrastructure, including how we go to market and including the overall fixed cost base. At this point, I don't know that we would expect similar reductions beyond this, but we do think that there is more efficiency opportunity as we move forward. And to your question on what does this look like in a slower market, we have rightsized the business for a slower market. That has been the dynamic in which we've been operating for the last year plus.
And as we look forward, the outlook will also inform how we think about the fixed cost base going forward. We do think that there are still opportunities ahead of us.

Operator

(Operator Instructions)
Ryan Tomasello, KBW.

Ryan Tomasello

Following up on the expense topic, can you just clarify how much of the $29 million quarter-over-quarter reduction implied in the OpEx guidance is driven by lower marketing expenses that are more seasonal and intentional based on the pullback you're implying on acquisitions? And how much is more of like a structural reduction?

Selim Freiha

Yes. I would say that the majority of the reduction is in marketing. And the step down in marketing spend is driven by the typical seasonal dynamics that we've discussed before and the spread levels at which we're operating right now. Additionally, our operating expense includes timing adjustments related to changes in inventory levels. In Q2, we expect resales to outpace acquisitions, and that will reduce our inventory balance and result in a favorable adjustment to operating expenses on a quarter-over-quarter basis.
Between the 2 of those things, I would say those are the material contributors to the quarter-over-quarter variance. There will be some amount of further fixed cost reduction, but I would say that's less material in the face of the marketing move.

Ryan Tomasello

Okay. I appreciate that. And then on the agent partnership program, can you just elaborate on what the economics are of this new arrangement where you'll be bringing the agent in early in the process? Is that just simply a referral fee, a success fee? Just trying to understand what that -- what those contribution -- incremental contribution margin look like on these types of partnership acquisitions?

Carrie Wheeler

Sure. I'd say, I mean, we're still piloting. But at a high level, we believe that this partnership channel will allow us to drive better conversion, I mean getting a better chance of getting that customer to a selling outcome that we participate in and generate that asset-light revenue for us. So on a listing, we would earn a share of that commission. On a cash offer, we earn the margin we earn today on that cash offer minus any referral fee that we would plan to pay to that agent.
And our hypothesis is that the incremental conversion benefits are likely to outweigh the cost of that additional referral fee.

Operator

Benjamin Black, Deutsche Bank.

Benjamin Black

Just a quick follow-up on the agent partnership. I mean you spoke about the test markets. What signal are you looking for that would potentially drive a broader rollout of the partnership? And then also curious to hear if you have all the infrastructure, so to speak, to scale up the partnership? Or is there some go-to-market investments that are required going forward?

Carrie Wheeler

Yes, I'll do it in reverse order maybe. Like if you think about what we've built, we have built the brand, the marketing engine, this huge funnel of high-intent sellers, all the pricing capabilities in the transaction platform. And this is just a way for us to leverage all those capabilities via another go-to-market channel. So we have all those things built today. We're just leveraging them vis-a-vis our agent partnership relationships with people, many of whom we're interacting with already every day as they fulfill our cash offer.
So I think it's actually a pretty seamless move. We've built things like creating a platform to do assessments that we do or sometimes agents do on our behalf. So we are very set up and we've been working on that for a while to be able to expand it. So that's one.
To your first part of your question, which was what are we looking for in terms of signal, ultimately, we'll be looking for conversion, whether that's incremental conversion, usually better to a cash offer and also incremental conversion to a listing outcome that we participate in.

Operator

This concludes today's question-and-answer session. Thank you all for your participation on today's call. This does conclude the call. You may now disconnect.