Blend Reports Third Quarter 2021 Financial Results

Blend Labs, Inc. (NYSE:BLND), a leader in cloud banking software, today announced financial results for the third quarter ended September 30, 2021.

Financial and Operating Highlights

• Total revenue of $89.6 million, net of $4.2 million of underwriter commissions related to Title365 (reflecting a change from Title365's predecessor accounting policy, under which the total revenue would have been $93.8 million*);
• Blend Platform segment revenue of $35.1 million, up 26% year-over-year, and up 9% sequentially;
• Total banking transaction volume of over 525,000, up 24% year-over-year;
• Title365 segment revenue of $54.5 million, net of $4.2 million of underwriter commissions (reflecting a change from Title365's predecessor accounting policy, under which the Title365 segment revenue would have been $58.7 million*);
• Company raises full year 2021 revenue guidance midpoint by $13 million.

Customer Growth and Innovation

• Increased our total customer base by 17 accounts, including Prosperity Bank, a large regional bank with approximately $37 billion in assets;
• Drove success for recently-signed fintech customers, including Valon Mortgage, UpEquity, and Accept, Inc.;
• Deepened existing customer relationships through deployments and adoption of additional offerings, including with American Pacific Mortgage, KeyBank, PRMG, Frost Bank, and BMO Harris Bank;
• Launched Blend Income Verification software product, which customers can add on for an incremental fee, with over 50 customers signed to date.

"Our Blend Platform segment achieved record quarterly revenue in the third quarter, and we built on our business momentum by adding new customers across verticals, innovating to expand our existing customer relationships, and launching and selling new products," said Nima Ghamsari, Head of Blend. "On the new product front, we successfully launched our Blend Income Verification product in the third quarter, and to date, we have signed over 50 customers. Overall, we are confident in our progress both on the Blend Platform and integration of the Title365 business, and this confidence is reflected in our improved financial outlook for full year 2021," Mr. Ghamsari continued.

* Included for illustrative purposes only. Please see discussion on change in accounting policy below.

Third Quarter Financial Summary

Third quarter revenue totaled $89.6 million, reflecting a change from Title365's predecessor accounting policy, under which the total revenue would have been $93.8 million*.

Blend Platform segment revenue was $35.1 million, up $7.2 million, or 26%, year-over-year, driven by an increase of $3.4 million, or 110%, in Consumer Banking and Marketplace revenue. In addition, Consumer Banking and Marketplace revenue increased to 19% of the total Blend Platform segment revenue from 11% in the third quarter of the prior year. Blend Platform segment Mortgage Banking revenue grew by $3.4 million, or 14%, year-over-year, as the positive impacts of significant new customer wins and the resulting gains in Blend market share of total U.S. mortgage industry volumes more than offset the negative impacts of lower U.S. mortgage market volumes, which were estimated to be down more than 25% year-over-year.

Title365 segment revenue totaled $54.5 million, net of $4.2 million of underwriter commissions.

Third quarter gross profit totaled $40.3 million. Blend Platform segment gross profit was $22.5 million, up $4.1 million, or 22%, year-over-year. Title365 segment gross profit was $17.8 million.

GAAP loss from operations was $70.5 million for the three months ended September 30, 2021, up $55.2 million, or 360%, year-over-year, primarily due to an increase in stock-based compensation as a result of the vesting of equity awards with performance-based market conditions upon completion of the IPO. Non-GAAP loss from operations was $21.1 million, up $7.0 million, or 49%, year-over-year.

Liquidity and Capital Resources

At September 30, 2021, the Company had cash, cash equivalents, and marketable securities of $593.6 million compared to $151.7 million at December 31, 2020. Total outstanding principal on the Company's debt as of September 30, 2021 was $225.0 million. At September 30, 2021, the Company had available capacity under its revolving credit facility of $25.0 million.

Adoption of Title365 Net Revenue Accounting Policy

Following the closing of the acquisition of Title365 on June 30, 2021, the Company determined to present the going-forward financial results of Title365 on a net revenue basis, in which title premiums revenue is reported net of fees paid to insurance underwriters. Net revenue presentation differs from Title365's predecessor accounting policy, in which title premiums revenue was reported on a gross basis.

The adoption of net revenue accounting policy does not affect gross profit, operating income (loss), or net income (loss). The information below illustrates the impact the adoption of net revenue accounting policy would have had on the unaudited historical pro forma information previously provided by the Company for the full year 2020, the three months ended March 31, 2021, and the six months ended June 30, 2021.

The table below shows the impact of the adoption of net revenue accounting policy for the full year 2020 to certain unaudited pro forma financial information included in the Company's final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on July 15, 2021:

The table below shows the impact of the adoption of net revenue accounting policy for the three months ended March 31, 2021 to certain unaudited pro forma financial information included in the Company's final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on July 15, 2021:

The table below shows the impact of the adoption of net revenue accounting policy for the six months ended June 30, 2021 to certain unaudited pro forma financial information included in the Company's quarterly report on Form 10-Q for the period ended June 30, 2021:

Segment Reporting and Revenue Disaggregation

Following the acquisition of Title365, the Company operates in two segments: Blend Platform and Title365. Commencing in the third quarter of 2021, the Company will also provide Blend Platform segment revenue disaggregated in three designations: Mortgage Banking, Consumer Banking and Marketplace, and Professional Services. Mortgage Banking represents revenue related to mortgage transactions processed through the Company's software platform. Consumer Banking and Marketplace represents revenue that is not directly tied to mortgage transactions, such as consumer banking revenue (home equity, personal loans, deposit accounts, and all other consumer banking products), ancillary product revenue (income verification and close products), and marketplace revenue (title, insurance, and realty products). Professional Services represents revenue related to the deployment of the Company's software platform, premium support services, and consulting services.

Full Year 2021 GAAP Revenue Guidance

Full Year 2021 Pro Forma Revenue Guidance

* Included for illustrative purposes only.

Webcast and Conference Call Information

The Company will host a conference call today at 2:30 p.m. PT / 5:30 pm ET to discuss third quarter 2021 financial results, business highlights, and future outlook. The call will be webcast live from the Company's investor relations website at https://investor.blend.com. The conference call can also be accessed live over the phone by dialing (866) 777-2509, or (412) 317-5413 for international callers. A replay will be available after the call and can be accessed at the same website or by dialing (877) 344-7529, or (412) 317-0088 for international callers, and using the replay access code 10160887. The replay will be available through November 20, 2021.

Blend announces material information to the public through a variety of means, including filings with the Securities and Exchange Commission, the investor relations section of our website, press releases, public conference calls, webcasts, our corporate blog at blend.com/blog, and our Twitter account (@blendlabsinc), as a means of achieving broad, non-exclusionary distribution of material information to the public and for complying with its disclosure obligations under Regulation FD. Information on or that can be accessed through Blend's investor relations website, these other channels, or that is contained in any website to which a hyperlink is provided herein is not part of this press release.

This press release, the financial tables, as well as other supplemental information including the reconciliations of non-GAAP financial measures and certain key metrics to their nearest comparable GAAP financial measures, are also available on Blend's Investor Relations website. Blend also provides investor information, including news and commentary about Blend's business and financial performance, Blend's filings with the Securities and Exchange Commission, notices of investor events and Blend's press and earnings releases, on Blend's Investor Relations website.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may relate to, but are not limited to, quotations of management, outlook for 2021, the "Full Year 2021 GAAP Revenue Guidance" and "Full Year 2021 Pro Forma Revenue Guidance" sections above, expectations of future results of operations or financial performance of Blend Labs, Inc. ("Blend," the "Company," "we," "us," or similar terms), market size and growth opportunities, capital expenditures, plans for future operations, competitive position, technological capabilities, and strategic relationships, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "could," "would," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other comparable terminology that concern Blend's expectations, strategy, plans or intentions. You should not put undue reliance on any forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which such performance or results will be achieved, if at all.

Forward-looking statements are based on information available at the time those statements are made and/or management's good faith beliefs and assumptions as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These risks and uncertainties include the possibility that: we fail to retain our existing customers or to acquire new customers in a cost-effective manner; our customers fail to maintain their utilization of our products and services; our relationships with any of our key customers were to be terminated or the level of business with them significantly reduced over time; we are unable to compete in highly competitive markets; we are unable to manage our growth; we are unable to make accurate predictions about our future performance due to our limited operating history in an evolving industry; we are unable to successfully integrate or realize the benefits of our acquisition of Title365; or changes in market interest rates adversely affect our business. Further information on these risks and other factors that could affect our financial results are set forth in our filings with the Securities and Exchange Commission, including in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 that will be filed following this press release. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this press release may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. These factors could cause actual results, performance, or achievement to differ materially and adversely from those anticipated or implied in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. Except as required by law, Blend does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.

About Non-GAAP Financial Measures and Other Key Metrics

In addition to financial measures prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this press release and the accompanying tables contain, and the conference call will contain, non-GAAP financial measures, including non-GAAP gross profit, non-GAAP operating expenses, non-GAAP loss from operations, and non-GAAP net loss. These non-GAAP financial measures adjust the related GAAP financial measures to exclude non-cash stock-based compensation and warrant amortization expense, amortization of acquired intangible assets, non-recurring acquisition-related costs, and non-recurring income tax expenses or benefits related to acquisitions. Our management uses these non-GAAP financial measures internally in analyzing our financial results and believes they are useful to investors, as a supplement to the corresponding GAAP financial measures, in evaluating our ongoing operational performance and trends, in allowing for greater transparency with respect to measures used by our management in their financial and operational decision making, and in comparing our results of operations with other companies in the same industry, many of which present similar non-GAAP financial measures to help investors understand the operational performance of their businesses. However, it is important to note that the particular items we exclude from, or include in, our non-GAAP financial measures may differ from the items excluded from, or included in, similar non-GAAP financial measures used by other companies in the same industry. In addition, other companies may utilize metrics that are not similar to ours.

The non-GAAP financial information is presented for supplemental informational purposes only and is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. There are material limitations associated with the use of non-GAAP financial measures since they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. Please see the reconciliation tables at the end of this release for the reconciliation of GAAP and non-GAAP results. Management encourages investors and others to review Blend's financial information in its entirety and not rely on a single financial measure.

We adjust the following items from our non-GAAP financial measures:

Stock-based compensation and amortization of warrant. We exclude stock-based compensation and amortization of warrant, which are non-cash expenses, from our non-GAAP financial measures because we believe that excluding these items provides meaningful supplemental information regarding operational performance. In particular, companies calculate stock-based compensation expense using a variety of valuation methodologies and subjective assumptions, and expense related to stock-based awards can vary significantly based on the timing, size and nature of awards granted.

Amortization of acquired intangible assets. We exclude amortization of acquired intangible assets, which is a non-cash expense, from our non-GAAP financial measures. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business.

Acquisition-related costs. We exclude costs related to acquisitions from our non-GAAP financial measures as we do not consider these costs to be related to organic continuing operations of the acquired business or relevant to assessing the long-term performance of the acquired assets. These adjustments allow for more accurate comparisons of the financial results to historical operations and forward looking guidance. These costs include financial advisory, legal, accounting and other transactional costs incurred in connection with acquisition activities, and non-recurring transition and integration costs.

Income taxes related to acquisition. We exclude tax benefits related to acquisitions from our non-GAAP financial measures. These tax benefits realized consist of the change in the valuation allowance resulting from acquisitions.

About Blend

Blend's cloud banking platform is designed to power the end-to-end consumer journey for any banking product, from application to close. Our technology is used by Wells Fargo, U.S. Bank, and over 330 other financial services firms to acquire more customers, increase productivity, and deepen relationships. Through our software, we enable our customers to process an average of more than $5 billion in loans per day, helping consumers get into homes and gain access to the capital they need to lead better lives. To learn more, visit blend.com.