Third Quarter Results Meet Revenue and Operating Loss Targets for Third Consecutive Quarter

Blend Labs, Inc. (NYSE:BLND), a leader in cloud banking software, today announced its third quarter 2023 financial results.

“Blend’s third quarter results demonstrate the continued strength of our business model and the promise of our long-term vision. We delivered $40.6 million in total company revenue, well within the range we provided during our September Investor Day, driven in part by double-digit year-over-year growth in our consumer banking business revenue. Our mortgage business once again outperformed the broader origination market as our customers continue to utilize our cost-saving product add-ons. Finally, we achieved another material reduction in our cash burn as we inflect towards our ultimate goal of non-GAAP profitability,” said Nima Ghamsari, Head of Blend.

“Our third quarter results represent execution on both our revenue and operating loss targets for the third consecutive quarter. We are more focused than ever on delivering for our customers in a way that aligns with our long-term vision, and we believe we are in a strong position to continue our pace of innovation with speed, scale, and efficiency.”

Third Quarter 2023 Financial Highlights

Revenue

• Total company revenue was $40.6 million, composed of Platform revenue of $28.6 million and Title revenue of $11.9 million.
• Within the Platform segment, Mortgage Banking Suite revenue decreased by 11% year-over-year, to $20.3 million, amidst a 14% mortgage market volume decline over the same period as reported by the Mortgage Bankers Association.
• Consumer Banking Suite revenue totaled $6.2 million in 3Q23, an increase of 18% as compared to the prior-year period.
• Professional services revenue increased 18% year-over-year to $2.1 million.

Gross Margin & Profitability

• Blend GAAP gross profit margin was approximately 54%, up from 38% in 3Q22. Blend Non-GAAP gross profit margin was approximately 55%, up from 39% in 3Q22.
• GAAP Platform gross profit was $20.0 million in 3Q23, down from $20.1 million in 3Q22. Non-GAAP Platform gross profit was $20.2 million in 3Q23 and 3Q22.
• GAAP and Non-GAAP Software gross margins were 79%, in 3Q23, up compared to 76% on a GAAP and non-GAAP basis in 3Q22.
• GAAP loss from operations was $36.2 million, compared to $129.9 million in 3Q22. Non-GAAP loss from operations was $15.9 million, compared to $37.1 million in 3Q22.
• GAAP net loss per share attributable to common stockholders was $0.18 compared to $0.57 in 3Q22. Non-GAAP consolidated net loss per share was $0.09 compared to $0.19 in 3Q22.

Liquidity & Capital Resources

• As of September 30, 2023, Blend has cash, cash equivalents, and marketable securities, including restricted cash, totaling $252.3 million with total debt outstanding of $225.0 million in the form of the Company’s five-year term loan.
• Blend’s $25.0 million revolving line of credit remains undrawn as of such date.

Recent Business Highlights

• Deepening Mortgage Relationships: Blend’s mortgage suite economic value per funded loan rose to $86 in 3Q23 from $77 in 3Q22, representing continued adoption of its mortgage add-on products.
• Launched Blend IMB Essentials: Blend released a lower-cost edition of its mortgage suite specifically for retail independent mortgage banks that combines all the features most critical for their success in this challenging market at a highly competitive price point.
• Expanded Blend’s Income Product with MyPay: Blend’s recently added capability gives lenders the ability to pull Leave and Earnings Statements for borrowers with military and federal income. By adding the largest U.S. employer's payroll data source to its income waterfall, Blend has meaningfully improved income coverage for its customers.
• Builder Platform Driving Growth in Consumer Banking: As of 3Q23, more than one third of Blend customers are live or in active deployment with a consumer banking product.

Fourth Quarter 2023 Outlook

Blend is providing guidance for the fourth quarter of 2023 as follows:

Blend’s 4Q23 guidance reflects an estimated 5% year-over-year decline in mortgage volumes from 4Q22 to 4Q23 as projected by the Mortgage Bankers Association.

Note that economic conditions, including those affecting the levels of real estate and mortgage activity, as well as the financial condition of some of our financial customers, remain highly uncertain.

We have not provided the forward-looking GAAP equivalent to our non-GAAP Net Operating Loss outlook or a GAAP reconciliation as a result of the uncertainty regarding, and the potential variability of, stock-based compensation, which is affected by our hiring and retention needs and future prices of our stock, and non-recurring, infrequent or unusual items.

Webcast Information

On Tuesday, November 7, 2023 at 4:30 pm ET, Blend will host a live discussion of its third quarter 2023 financial results. A link to the live discussion will be made available on the Company's investor relations website at https://investor.blend.com. A replay will also be made available following the discussion at the same 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; the “Fourth Quarter 2023 Outlook” section above; Blend’s expectations regarding its financial condition and operating performance, including growth opportunities and plans for future operations and competitive positions; Blend’s products and technologies; Blend’s customers and customer relationships, including the businesses of such customers and their position in the market; Blend’s cost reduction efforts and ability to achieve profitability in the future; projections for in mortgage loan origination volumes, including projections provided by third parties; other macroeconomic and industry conditions; and Blend’s expectations for changes in revenue, 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 risks that: changes in economic conditions, such as mortgage interest rates, credit availability, real estate prices, inflation or consumer confidence, adversely affect our industry, markets and business, 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 and evolving markets; we are unable to successfully integrate or realize the benefits of our acquisition of Title365; our restructuring actions do not result in the desired outcomes or adversely affect our business, or impairment charges on certain assets have an adverse effect on our financial condition and results of operations. 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 Annual Report on Form 10-K for the year ended December 31, 2022, our subsequent Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 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 GAAP, this press release and the accompanying tables contain, and the conference call will contain, non-GAAP financial measures, including non-GAAP gross profit and non-GAAP gross profit margin, non-GAAP software gross margin, non-GAAP Platform gross profit, non-GAAP operating expenses, non-GAAP loss from operations, non-GAAP net operating loss, and non-GAAP consolidated net loss per share. 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.

We adjust the following items from our non-GAAP financial measures as detailed in the reconciliations below:

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.

Compensation realignment costs. We exclude the compensation realignment costs incurred in connection with the change in our compensation strategy from our non-GAAP financial measures. These costs relate to amortization of one-time two-installment cash bonus payment made to certain employees in lieu of previously committed equity-based awards, driven by an organizational initiative to standardize our equity compensation program. We believe that excluding these charges for purposes of calculating the non-GAAP financial measures provides more meaningful period to period comparisons.

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.

Impairment of intangible assets and goodwill. We exclude impairment of intangible assets and goodwill, which are non-cash charges, from our non-GAAP financial measures. These charges are unusual in nature and we do not believe these charges have a direct correlation to the operation of our business.

Restructuring costs. We exclude restructuring costs as these costs primarily include employee severance, executive transition costs and other costs directly associated with resource realignments incurred in connection with changing strategies or business conditions. These costs can vary significantly in amount and frequency based on the nature of the actions as well as the changing needs of our business and we believe that excluding them provides easier comparability of pre- and post-restructuring operating results.

Litigation contingencies. We exclude costs related to litigation contingencies, which represent reserves for legal settlements. These costs are non-recurring in nature and we do not believe they have a direct correlation to the operation of our business.

Foreign currency gains and losses. We exclude unrealized gains and losses resulting from remeasurement of assets and liabilities from foreign currency into the functional currency as we do not believe these gains and losses to be indicative of our business performance and excluding these gains and losses provides information consistent with how we evaluate our operating results.

Transaction-related costs. We exclude costs related to mergers and 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. We exclude non-cash non-recurring tax benefits from our non-GAAP financial measures. These tax benefits consist of the changes in the valuation allowance resulting from acquisitions and from changes in U.S. tax law requiring capitalization and amortization of research and development costs for tax purposes.

In addition, our non-GAAP financial measures include measures related to our liquidity, such as free cash flow, unlevered free cash flow and free cash flow margin. Free cash flow is defined as net cash flow from operating activities less cash spent on additions to property, equipment, internal-use software and intangible assets. Unlevered free cash flow is defined as free cash flow plus cash paid for interest on our outstanding debt. Free cash flow margin is defined as free cash flow divided by total revenue. We believe information regarding free cash flow, free cash flow margin and unlevered free cash flow provide useful information to investors as a basis for comparing our performance with other companies in our industry and as a measurement of the cash generation that is available to invest in our business and meet our financing needs. However, given our debt service obligations (including the existing $225 million term loan under our credit agreement due in June 2026) and other contractual obligations, unlevered free cash flow does not represent residual cash flow available for discretionary expenditures.

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.

About Blend

Blend is the infrastructure powering the future of banking. Financial providers — from large banks, fintechs, and credit unions to community and independent mortgage banks — use Blend’s platform to transform banking experiences for their customers. Blend powers billions of dollars in financial transactions every day. To learn more, visit www.blend.com.

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