Blend Labs, Inc.

Good day and welcome to BLEND's third quarter 2021 earnings release conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Dan Smith, Treasury and Investor Relations Lead. Please go ahead.

Good afternoon, everyone, and thank you for joining us today to discuss Blend's third quarter 21 financial results. I'm joined on this call today by Neema Gamsari, co-founder and head of Blend, Mark Greenberg, head of finance, and Tim Mayopoulos, president. Before we start, I'd like to note that certain statements made during today's conference call regarding BLEND and its operations may be considered forward-looking statements under federal securities laws. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control and could cause actual results, events, or circumstances to differ materially from those described in the statements. Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on the company's website at blends.com under the investor relations section and on the SEC's website at sec.gov. You should not put undue reliance on any forward-looking statements. Also note that any forward-looking statements we make on this call are based on information available to us and assumptions and beliefs as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will be discussing certain non-GAAP financial measures. Information regarding our non-GAAP financial results, including a reconciliation of such non-GAAP results to the most directly comparable GAAP financial measures may be found on our earnings release, which is available on the company's website under the Investor Relations section and included as an exhibit to our Form 8K furnished with the SEC before this call. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. I'd also like to mention there are supplemental slides in the product demo video for your reference available for viewing at investor.blend.com. With that, I'd like to now turn the call over to our co-founder and head of Blend, Nima Gumsari.

Welcome, everyone. Thank you for joining. I want to start with a few highlights for this quarter, starting with our growth. So first, we grew our customer base with 17 net new logos. We expanded our consumer banking and marketplace revenues, which is a new disaggregation we're sharing this quarter, by 110% year over year, showing growth in our emerging businesses. Within mortgage, our market share increased from 8% a year ago to 14% this year. And we increase our quarterly revenues on a year-on-year and sequential basis despite a softening mortgage market. On the new product front, we launched a new product called Blend Income, which is an easy way for lenders to verify the income of their consumers. We have over 50 customers already signed up for that. You'll hear more about that a little later. Third, maybe very importantly to you all, we're starting to share some clarity around how we view our business, the metrics we use to track our business. And so you're going to see that consumer banking and marketplace revenues line item to show our growth in emerging businesses over time. We're also going to share additional metrics on how we think best-in-class software businesses should operate. Things like market share, gross revenue retention, market adjusted, volume adjusted, net retention. That'll help you get a sense of how we think about the growth of our business over time. And lastly, on the Title 365 front, we've made meaningful progress in the integration of Title 365 into our Blend Title solution, and we're excited to share more with you on that. But before I get into it, I just want to quickly reiterate our vision for financial services. Banking is quickly moving to the cloud, and the way consumers are being served is a consumer-first, real-time, proactive experience. Those things, those kinds of experiences are extremely difficult to offer on existing tech stacks. And we're seeing lots of our customers scramble to get modern solutions in place to serve those end consumers across their entire bank in a unified way. And that's where Blend comes in. We're helping build that proactive, personalized, data-driven future. And we're the software platform of choice for these institutions to do so. Another metric we track at Blend is our mortgage market share. And as we sign and roll out customers, we want to continue to grow that over time. We track it in two components. The first is how much is actually being utilized on the Blend platform and being funded through the Blend platform. This is important because we have a success-based business model, and growing that is the way that we make revenue from our customers. You can see that just over two years, we grew from 4.5% market share to 13.5% market share of signed and used units on the Blend platform. We also track the signed and unused volume on the Blend platform. This represents near-term opportunity, essentially growth within our current customer base of additional units that could roll out to drive additional value to our customer and revenue to Blend. And the most recent half year, in addition to the 13.5% that's actually going through our platform, we have another 10% of unused units. That 10% represents significant upside in our current customer base. And on top of that, the remaining 76.5% is completely untapped market for us. meaning that there's still a lot of headroom for us to grow within our customer base and outside of our customer base. I want to talk about our customers. I love talking about our customers. It's what matters most to us at Blend. And let's start with our growth in our customer base. In Q3, we had a really strong quarter. Our total customers are up net 73 net new customers year over year and 17 sequentially. The customer sign in third quarter added capacity for more than 300,000 annual banking transactions, and the total capacity grew 40% year over year. So we're excited about continuing to add to our customer base and lay a foundation for the future in this quarter. Some specific stories. We had a top 25 non-bank lender decide to use us. They were previously on a competitor. They wanted to be on the best platform. They signed with us, and they got live within a matter of months. It was a significant offering for us. They're a very large lender and we're excited to have them on board. In addition, Prosperity Bank, a large Texas-based bank with $37 billion in assets, they decided to partner with Blend across their entire portfolio. And for these diversified financial institutions, using one platform across their entire customers is exactly what we want because we can offer a unique cross-product experience and exactly what they need because they can have a simpler architecture and get deeper relationships with our customers. And so this was a very important win for us We also advanced some existing relationships. KeyBank, which we just announced last quarter, is already live, meaning it reflects real revenue to us, which is great to be live that fast for a bank of such scale. And in addition, we drove meaningful progress with recently won fintech customers, including Valen Mortgage, UpEquity, and Accept Inc. We continue to work with fintechs to give them the software platform that they need and the flexibility they need to reflect their brand, but also the power they need to serve their customers. And lastly, we have customers who've gone from their baseline phase of being live at scale to now growth, which means using new products with us. So BMO Harris, their example of a customer that's been using us for a few years, and now they decided to use us for their wealth management group. And that's very exciting for us because it's a new area for us to use our platform, and they're a marquee client of ours and partner of ours for years. Having them rely on us and come to us for this new solution was a great sign of our partnership. Another set of metrics that we look at at Blend are around our customers, in particular, how we retain and grow with our customers. These are important because we're in an industry-specific software company, which means that we have to be able to retain customers, and we have to be able to get deeper and deeper with them over time. And so gross retention shows our ability to retain those customers. You can see that we hovered above 99% for the last five quarters We sometimes make mistakes, but it's very rare and we retain almost every customer because we care about them. We work with them to make them successful. We've made our entire organizational model around driving success to them, including how we compensate our people. And so retaining customers is very important to us and we'll continue to work on that over time. But retaining customers is not enough in an industry because you can have a really sticky product that's very integrated, which Blend is, but not continue to grow value with those customers. And so we also look at how we grow our customers. And in particular, net retention is how we look at that. One thing that you all told us in the last few months is that net retention is great, but we have to adjust for market volumes. And so we've kind of shared our breakdown of how we look at this, which is a market-adjusted net retention number. And you can see that every quarter for the last seven quarters, our net retention has remained above 140%, ranging from 140% to 180%. And that's because we continue to build software products and other services on top of our platform that can grow with our customers as they roll out more volume with us. And we look at this to make sure that we're creating more and more value for every single customer every year that goes by. So these are the two things that we really care about as a management team, and we make sure we pay a lot of attention to as we continue to grow. The last thing I want to share is our adoption of new products. We realized that our core mortgage product, which we launched years ago, is very successful, but as we've gotten requests from our customers to expand in new areas, the broader home ownership marketplaces, the broader consumer banking suite, we've started to build those things out and we want to track the success of those things and for the first time we're sharing those with you. And you can see that in consumer banking transactions alone, we more than quadrupled year over year, and in consumer banking and marketplace revenues, we more than doubled year over year. We're at the beginning of this industry digitizing not just the industry, but the entire ecosystem around it, the entire marketplaces around them. And for us to be the trusted partner in those things is so important. It means that the size of our ability to serve and transform this industry, the size of our market, our total addressable market, will continue to grow as new adjacent opportunities come our way by working with our customers very closely. And so having a good track record here is exactly what we want to be able to show you and show our customers that we can deliver that value to them. I'm going to shift to the new product front. It's really important for us as Blend to keep adding new products to our suite of services because so much of the industry is still paper today and our ability to add new services, new products to our software suite will mean more value for our customers and more revenue to Blend in the long run. That's how we get deeper and deeper and eventually transform this industry like we aim to do. In this case, in this quarter, we launched Blend Income. which if you've ever gotten a mortgage or a car loan and somebody has needed to verify your income, it probably involves a paper pay stub or a paper tax return that you handed to somebody who then read it, calculated something in a system, came back to you, and sometime after that gave you a lending decision. But there's a new way of doing things, to use data directly from the source and automatically parse that data, provide it into the right systems, do the right calculations to get you that lending decision in real time, which is what consumers want. So we now offer that. It's called Blend Income. It works across different kinds of income, whether it's a simple W-2 income, standard borrower, or over time a gig economy worker or a self-employed borrower. We're going to support the entire suite of types of income. And we just launched this product last quarter, and we already have 50 customers, over 50 customers signed up to work on that. This is the benefit of having an integrated platform. It means that as we create more value, our customers can take advantage of it much more quickly than we could if these were point solutions that we were offering to them. So with blend income verification, banking teams can now in real time verify their customers' income and offer that modern experience that their consumers demand. A quick update on Title 365. Title 365 continues to run modestly ahead of plan for the third quarter and the full year and into next year. And we've been able to retain customers with that team. We know that the goal long term is to turn this into a software business, an integrated business as part of the mortgage process. And so we're very focused on that. We want to transform this thing into a digital data-driven process like every modern industry. And so we've been doing a lot of work on that. And the most critical near-term objective is the migration of Mr. Cooper, the largest mutual customer of these two platforms, Blend and Title 365, onto the Blend platform. We anticipate that going live in the Blend platform next year in the second quarter. In addition, we expect to launch some pilots along the way with smaller customers to continue to prove out how this works together. And now I'll turn it over to Mark to go through the financial results and give you some updates on the company overall.