Blend Labs, Inc.

Welcome to the Glenn Labs fourth quarter 2021 earnings conference call. All participants will be in a 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 a touch-tone 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 Mr. Dan Smith, head of investor relations. Please go ahead.

Good afternoon and welcome to Blend's fourth quarter and full year 21 earnings call. My name is Dan Smith, head of investor relations for the company. With me today are Neema Gamsari, co-founder and head of Blend, Tim Mayopoulos, president, and Mark Greenberg, head of finance. You can find the supplemental slides on our investor relations webpage at investor.blend.com. During the call, we will refer to certain non-GAAP measures which were reconciled to GAAP results in today's earnings release and in the appendix to our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Also, 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 could cause actual results, events, or circumstances to differ materially from those described in these statements. Please see the risk factors we've identified in our most recent 10Q, 10K, and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law. I'll now turn the call over to Nima.

Thank you, Dan, and welcome, everyone. I want to cover four topics today. First, our 2021 results and operating environment. Second, the rapidly changing market dynamics that we've seen this year. Third, the reasons why, in spite of the current headwinds we face, the long-term fundamentals of our business remain strong. And last, an update on our priorities, including adjustments to bring our cost structure in line with current conditions. So first, 2021. In many ways, 2021 was a foundational year for Blend. we took the company public and made a major acquisition. We grew our mortgage banking estimated market share by approximately five percentage points. We delivered and grew flagship products like BlendClose and BlendIncome. And we expanded our footprint in the broader consumer banking space with over 70 new customers. As a result, our revenues grew by 41% in our Blend platform segment on a full year basis, growing through what turned out to be lower volumes in 2021 than 2020. And for the fourth quarter specifically, our platform segment was up 19% year over year, despite mortgage volumes being down approximately 35% in that quarter over the prior year, showing that we're growing through these volume downturns. But 2021 was still a boom year overall. For much of 2021, mortgage volumes were more than many lenders could handle. While this provided us with revenue opportunities, it also became a double-edged sword. As mortgage industry origination volumes boomed, especially refinance volumes, many lenders were focused on managing those volumes and asked us to help them navigate that inundation volume and delay rollouts of new products while doing so. This was a headwind for us, but we're always focused on our customers first. Now shifting to 2022 and the new market dynamics. 2022 presents very different challenges, and we already started seeing this in Q4 of 2021. With rapid changes in US interest rates, rising inflation, and associated reductions in 2022 loan industry forecasts, that commenced in the fourth quarter of last year and has continued into this year, loan originators are now dealing with razor thin margins and trying to adapt to a new normal. In particular, mortgage volume is projected to be down approximately 35% in 2022, and refinance volume is projected to be down 60 to 70% in 2022 as compared to 2021, which particularly affects refi heavy businesses like Legacy Title 365 and Blend Title. The mortgage industry outlook has changed significantly and rapidly. Arguably, the biggest change in over a decade, and Tim will touch on this later. While the customers' challenges that they're facing are acute, they underscore the value of the Blend platform and technology more broadly. Technology is a scalable way to provide great experiences at a lower cost, and our platform will allow them to significantly improve their profitability and advance their competitive position in the industry throughout this downturn in volumes. Now shifting to why Blend is well positioned despite these market headwinds. It is clear that this rapid reversal in industry loan volume expectations has impacted our outlook for 2022 revenue growth. We recognize that the 2022 revenue guidance that we set forth today is much lower than consensus estimates. We have reflected the estimated negative impacts of the lower loan origination environment along with the knock-on effects of the volume-related slowdowns and new product adoption into our 2022 guidance. As a result, we believe that this guidance range represents an achievable baseline revenue expectation for Blend in 2022 that forecasts consistent strong growth in the Blend platform despite these current headwinds. And I want to talk about why we have been able to and will continue to be able to grow through this. This underscores why our long-term growth thesis remains intact, and there are four main reasons. First, the banking industry continues to digitize in order to meet consumers' expectations. the secular trend towards digital banking continues. In fact, the pandemic has only accelerated this trend and we see no signs of it changing. Second, we are successfully winning new customers and gaining market share. We brought in a number of marquee names in 2021 onto the Blend platform and not just for mortgage and look to build on that foundation for years to come. This includes a top 10 bank, a top 25 bank, and some of the largest mortgage originators that we believe will become long-term winners in the market, including Mr. Cooper and PennyMac. During that year, we grew our estimated mortgage market share from 10% to 15%, and that doesn't even include many customers that are still in the process of rolling out Blend. By the end of the year, we expect to continue to grow our market share by a similar amount in 2022. We also signed 70 consumer banking customers in 2021. This underscores the diversification of our platform's product suite and explains why our consumer banking revenues grew materially in 2021 and we expect will continue to grow going forward. We aim to be the platform across all product lines, and we made meaningful progress in that direction last year. I know we've talked about mortgage quite a bit given today's environment, but I don't want to lose sight of the long-term digitization of the banking industry, which is the future of Blend and a key part of what our customers need. Third, after we win customers, we prove that we can keep them and grow with them. our gross retention and market-adjusted net retention remains very high because of our customer-first mindset. And anecdotally, I've heard from a number of our customers, including some of the largest financial providers, that we are their preferred partner for new projects. For example, the head of consumer banking at one large regional bank called me recently to say he thought the Blend Mortgage Rollout was the best technology project they've ever done, and that he would give us a first look at all their key priorities moving forward. This is the reputation we aim to build in the industry as a modern, constantly innovating vertical software platform. And fourth and last, we are continuing to roll out and scale new innovative products. Customers who sign up for one or more products grew from 116 to 225 in 2021, including a good number who are using this for many product lines. On top of that, BlendClose and BlendIncome, which are natural additions to any lending process, have been well received by customers, each having over 100 signed customers and roughly half are live with many more to come. Based on my discussion with customers and our already signed home equity base, we believe that we are well positioned for home equity lending as well, which is increasingly important in a rising rate environment for consumers to be able to tap the untapped equity in their homes. We expect revenue in our consumer bank and marketplace solutions will grow by more than 100% this year, including the transition of approximately $15 million of legacy Title 365 revenue to the new software-enabled Blend Title platform. And on top of that, we have other early stage value creating high revenue projects, products in the pipeline as well. Now shifting to costs and how we're dealing with this new environment. For all the reasons I just discussed, we continue to be excited about the future. We see 2022 as a year of increased transformation in the banking industry. We continue to help our customers deliver a single platform across all products, all channels, and all parts of the transaction. As a result, we expect the Blend platform segment will grow meaningfully in 2022, despite a challenging market environment. Nonetheless, we are well aware of our need to focus on our costs and ultimately our path to profitability. Therefore, we're actively prioritizing areas of investment that we believe are either foundational to our business, such as Blend Builder for consumer banking, or our near-term value creation opportunities for us and our customers, like Blend Income and Blend Close. At the same time, we are taking actions to bring our expenses in line with market realities. This is especially important for the more operational parts of our business, such as our legacy Title 365 business. We've also modified or sunset a few product initiatives that were going to take a longer time to generate meaningful outcomes, such as Blend Realty. Overall, I want to end by saying that we've been building our business for almost a decade and plan to serve customers for decades to come. But doing so means prudently using the capital available to us and reacting appropriately to both opportunities and challenges that arise. This challenging market is one that we're taking very seriously and we are prepared for. Now, I'll turn it over to Mark.

Thanks, Nima. Hopefully, everyone on the call has had a chance to review our release. I'd like to start my discussion with highlights from Q4. Blend continues to capitalize on the secular growth trend in cloud banking software solutions with growth of 14% in our mortgage banking revenues despite an estimated 35% decline in industry mortgage volumes. We also achieved 46% growth in consumer banking and marketplace revenues. Summarizing our performance for the quarter, Blend achieved consolidated revenue of $81 million, driven by Blend platform segment revenue of nearly $37 million, and Title 365 segment revenue of approximately $44 million. Blend platform segment revenue grew 19% year-over-year, highlighted by an increase of 46% in consumer banking and marketplace revenue, owing gains in BlendClose, homeowners insurance, home equity, and consumer banking products. While year-over-year growth was strong, sequential comparisons reflect the conversion of a large customer from a subscription-based contract to a pay-as-you-go relationship. Mortgage banking revenue grew by approximately 14% year-over-year despite declining U.S. mortgage volumes in the quarter, reflecting significant new customer wins and other gains in Blend's market share. Our Title 365 revenues reflect customer attrition and lower mortgage loan refinancing volumes. Overall, the strong revenue growth rates we achieved in the fourth quarter of 2021 indicate both our proven ability to drive counter-cyclical revenue growth and good progress on our path to create intermediate to long-term value as customers continue to adopt the Blend platform. In particular, during 2022, I would expect the consumer banking and marketplace revenue line to benefit meaningfully from the new customer signings and implementations in the verification of income product, along with the transition of title volumes to Blend's software platform. During the fourth quarter, Blend added 10 net new customers, including a top 10 and a top 25 bank, growing our total banking capacity by approximately 25% year over year, Continued wins like these demonstrates Blend's ability to attract leading financial institutions who are well-positioned to weather the current downturn. In addition, as we illustrate in our supplemental slides, we significantly increased our share of U.S. mortgage industry volumes to more than 15% share from approximately 10% a year ago. We also grew our committed but not utilized share of the mortgage market to approximately 25% from approximately 17% a year ago. The 75% remaining market share leaves a lot of headroom for us to grow within the U.S. mortgage industry. Historically, Blend's high gross and net revenue retention rates have enabled us to achieve high market share growth. In the fourth quarter, consistent with prior quarters, gross revenue retention stayed high at 99%, while market-adjusted net retention was 147%. Next, on gross profit, fourth quarter gross profit totaled approximately $35 million, up 60% year-over-year. Blend's platform segment gross profit was $22.4 million, up $.6 million or 3% year-over-year. Title 365 segment gross profit was $12.5 million. Focusing on Blend platform cost to revenue, we saw a significant increase in personnel-related expenses for customer deployments and within homeownership journey marketplace solutions. We also saw higher expenses related to third-party hosting costs and software licenses. In addition, we saw an increase in per-funded loan fees related to accessing consumer credit, banking, and other financial data provided through the Blend platform. These higher per-funded loan expenses resulted from an increase in customer application volume. During 2021, Blend incurred increasing customer deployment and implementation costs associated with rolling out products like LO Toolkit to our growing customer base. Generally, we bill customers for professional services at relatively low gross margins. During fourth quarter 2021, A higher volume of this activity negatively impacted Blend's platform gross margins. In the future, as we achieve greater scale across multiple products in our customer base, this adverse impact of professional services margins should diminish. Fourth quarter 2021 loss from operations was nearly $60 million, compared with the loss from operations of just over $16 million in the fourth quarter of 2020. Operating expenses for the fourth quarter of 2021 were approximately $95 million, compared with just under $38 million in the fourth quarter of 2020. In addition to the aforementioned increase in personnel expense, OpEx also reflects higher stock-based compensation and commissions associated with expanding our teams focused on the development, marketing, and sales of new and existing products. Blend recorded sharply higher G&A expense in the fourth quarter, primarily related to increased headcount, stock-based compensation, and third-party professional services tied to Blend's transition to being a public company. Now turning to our balance sheet. Our cash, cash equivalents, and marketable securities at December 31, 2021 were approximately $547 million, with total debt outstanding of $225 million on our five-year term loan. Our $25 million revolving line of credit remains undrawn. Now turning to our full-year 2022 revenue guidance. We expect that Blend will generate between $230 and $250 million in consolidated revenue in 2022, with between $140 and $150 million in the Blend platform segment and $90 and $100 million in the Title 365 segment. As we noted in our press release this afternoon, Blend's 2022 revenue guidance reflects the following. Continued U.S. economic growth and Federal Reserve interest rate and open market policy actions in the context of current market expectations. U.S. mortgage market volumes declining by approximately 35% from their 2021 level, as reflected by forecasts from industry experts like Fannie Mae and the Mortgage Bankers Association. 2022 full-year mortgage banking revenues slightly lower than full-year 2021 levels, driven by expected market share gains whose revenue benefits are expected to mostly offset the negative impact of lower U.S. mortgage market origination volumes in 2022. 2022 consumer banking and marketplace revenue reflect triple digit growth from full year 2021 levels, which includes the transition of approximately $15 million in revenues from the Title 365 segment to the consumer banking and marketplace revenues in the Blend platform segment, as customers transition to the Blend platform and the Blend title solution. Looking forward to the first quarter of 2022, we anticipate that Blend will generate revenue of approximately $63 to $66 million in total. On a segment basis, we anticipate that the blend platform segment will be modestly lower on a year-over-year revenue basis compared to the first quarter of 2021, with the Title 365 segment declining by about 20% from fourth quarter 2021 levels. The combined effect of ongoing investments in new products, transition to a public company, and slower 2022 revenue growth will lead to a greater expected cash use this year than in full year 2021. As Nima discussed at the outset, We believe that our industry is currently in a secular growth trend in the adoption of new and innovative cloud banking software solutions. Our ongoing investment in R&D is focused on enhancements to our products and overall platform. We have launched a comprehensive review of our cost structure across all aspects of our business, and we are in the process of staging targeted cost actions with an eye towards managing our cost structure prudently through the near term. As in the past, we will provide quarterly updates to our financial outlook and guidance, as the market environment and our internal growth trends merit. With that, I'll turn it over to Tim.

Thank you, Mark. Nima correctly described 2021 as a foundational year for Blend. As we push into 2022, many mortgage originators and investors are understandably focused on the rapidly declining industry forecasts for full year 2022 overall mortgage origination volumes. Higher rates and lower refi volume clearly will have an effect on Blend's business, and our guidance for the year reflects that, among other things. But what I've experienced in this business, going back to my days running Fannie Mae, is that those companies that are clear market leaders going into the downside of the cycle emerge even stronger coming out the other side. Let me describe why I believe that will be the case for Blend. First, we have established ourselves as one of the leading vertical software platform partners in mortgage. One third of the largest banks in the country use Blend, as well as one quarter of the largest independent mortgage originators. Most technology companies struggle to move up the market to win big customers. For Blend, we have done that from the beginning and we continue to win those lenders who are destined to be winners long-term. Our recent successes in winning customers such as PennyMac and Mr. Cooper are proof of that. Second, as Nima noted earlier, Our customers truly value us and the numbers bear that out. We had a gross revenue retention rate of 99% in the fourth quarter with a market adjusted net revenue retention metric of more than 140% year over year. These two metrics demonstrate that historically our customers have consistently stayed with us and that they have expanded their business with us as our relationship has matured. Today our customers continue to look to Blend above other vertical software providers in the mortgage industry to help them tackle difficult problems. Third, many viewed the past year or two when mortgage volume was so high as giving Blend substantial tailwinds. While transaction volume was high and generated revenue for us, the reality is that many of our customers were so overwhelmed that they asked us to postpone their adoption of some of our latest offerings. By contrast, 2022 is a year of relative scarcity and our customers and our prospects are highly motivated to find new ways to win borrowers, improve efficiency, and preserve their margins. In many ways, lenders are fighting for their lives. They know that 2022 will be a year of consolidation in the mortgage industry. If they want to be among the winners, they have to take the steps on the journey of digitizing and streamlining the mortgage origination process. The mortgage industry is currently facing the biggest reset since the second quarter of 2004. In both 2004 and in the current environment, the mortgage industry rapidly moved from peak loan origination levels with historically high refinance volumes to dramatically lower levels as the Federal Reserve entered into a new rising rate environment following a protracted period of very low interest rates. In the 2004 experience, the Fed commenced interest rate hikes following the low interest rate environment following the post 9-11 recession. In the same way, the current expected mortgage origination volume declines are following the Fed's transition to a rising rate environment as the global economy has rebounded from the ultra-low interest rates during the COVID pandemic. One of the really hard things about these abrupt market resets is that for loan originators, they go from an environment of adding incremental capacity and headcount to handle the high volumes to slashing those investments to drive sustained profitability. Over the long term, the winners in the mortgage industry have been those that have continued to invest in new technology and growth enablers through the reset. Historically, this has been the type of environment where a clear market leader like Blend truly thrives. We are a proven winner offering differentiated products that deliver measurable impact for our customers. We don't need to look further than this past fourth quarter of 2021. Our platform revenue was up 19% year over year. To put that in perspective, industry experts estimated that volume was down 30 to 40% during that same period. So in the most significant reset in many years, Blend gained meaningful traction and grew with quality customers. we expect to be the solution that our customers and prospective customers turn to. As a result, we fully expect to outperform the underlying mortgage market and to gain market share through this cycle. That will position us extremely well over the intermediate and long term. Now I'll turn things over to the operator for your questions.

Now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan Tomasello with KBW. Please go ahead.

Good evening, everyone. Thanks for taking the questions. I guess, you know, starting out with the comments around the cost structure alignment, I know I appreciate the prepared remarks, but maybe you can put a finer point around, you know, how those cost structure alignments and the prioritization of your investments is going to translate to the margin trajectory and path to profitability over the next few years. How do you feel about the current level of cash versus the cash burn? And I guess longer term, any guardrails you can provide for what level of mature operating margins you think the business could achieve? Thanks.

Pardon me, speakers, I think your line has been muted.

Operator, can you check the line? Because I, you know, Mark is speaking, but we can't hear him.

Okay, give me one moment.

Can you guys hear me? We can hear you now. Now we can. Can you guys hear me now? Yes. Yes. Oh, good. I don't know what was going on there. My apologies. I've been talking to myself for the last two minutes. So when we think about our cost structure, Ryan, we think about it in two different segments, legacy title and blend platform. There are different dynamics in those two sections. In our legacy title business, the transaction volume is driven heavily by refinance. And then obviously that's been negatively affected in a significant way. Just like our customers, we're looking at dedicating the right level of resources, including the right number of people to that business. On the software platform, we're obviously taking a very hard look at the cost structure, but we don't want to throw the baby out with the bathwater. And we've pulled back very hard on hiring. We've curtailed our expenses and our increases in headcount. We're looking at savings on our tech stack and how we can even faster achieve economies of scale. And we've already looked at several near-term product opportunities. Those product initiatives that are not near-term opportunities, we've cut back. So we're thinking about, and we've already taken some action, but we're undertaking, like I said, a comprehensive review to look at at our overall cost structure, but doing it in a different way between the legacy title business, which is oriented towards refi and the software platform, which is very different.

Thanks for that. And I guess the second question would be nice to see the continued market share gains in the core mortgage banking platform. Maybe you can talk about where utilization rates are running for some of your most tenured clients. And if you think it's reasonable to assume that utilization rates over time will approach 100% essentially bridging that gap that currently exists between the signed but untapped and your utilized market share, how long does it typically take for that to ramp for a signed client? Thanks.

Sure. It does depend on the particular client in a lot of cases, but there's a significant portion, in fact, the majority of our customers are already at what we call full utilization above 90%. So that adoption curve has accelerated over the last 18 months, and we're continuing to find ways to get faster rollouts and drive faster adoption. One of our product initiatives is around, and you saw some of the consulting services hit this quarter, around a loan officer toolkit, a low toolkit. That's one that has really helped us drive faster adoption across our platform.

Thanks for taking the questions.

The next question comes from Michael Turin with Wells Fargo. Please go ahead.

Hey, good afternoon. I appreciate you taking the questions. Part of the blend story has been an ability to diversify away from some of the industry headwinds or volumes you're facing. I think Q4, you still put up growth meaningfully above the industry declines you're seeing. Can you talk about how you're thinking about share and other offsetting factors in the guide you're putting out currently? Because it looks certainly more correlated with the overall industry volume declines. And then just the second part of the question is just, can you talk about, is there still confidence in the success-based business model as the best approach for Blend given you are somewhat just tethered to some of the things you're citing with mortgage and the refi cycle currently?

Sure. Thanks for the question. I'll answer the second question first around the success-based business model. So the success-based business model is one that we put in place years ago, and it goes back to our core principle of being very aligned with our customers, which means they can sign with us in a year in booms. They'll pay us more in years that aren't as much volume. They're going to pay us less, but that allows them to sign with us and not worry about the cyclicality of the market. That's why part of why we've been able to grab so much share is because we're so customer focused. And so going back to your question about share, share is a, and by the way, it's a slightly different dynamic in the consumer banking segment. The consumer banking segment might have a different pricing model that makes sense, just given it's a little bit less of a transaction based business in some ways, although it is still transactional in nature. It's just a little less cyclical and has more predictability. And so in that way, it might make sense for us to take a different approach to pricing and the consumer banking in the longterm. So going back to your question about share, we did grow share about 5% last year, and we would expect to grow at a similar amount this year. And on the share growth specifically, we're guiding up on the revenue for Blend Platform because of the share growth and because of the attach of other products, despite a 35% down market. So while I think that the share growth that's going to happen is going to be similar to last year, The fact the market is down so much is going to make it look like we're offsetting some of that growth. But in reality, on a relative basis compared to the growth, the negative growth of the market, we're growing quite a bit. And so if you compare 2021 to 2022 in particular, you'll see pretty large growth of our blend platform segment.

Thank you. One more, just stock is clearly digesting some of these impacts. Certainly appreciate just the candor, the details around cost controls as well. Can you talk about things you're doing just to shore up employee culture, keep continuity within what you've built at Blend and just manage through the upcoming challenges you're referencing as well?

Part of what has made Blend special over the last decade, or almost a decade, has been the fact that we were able to attract the best talent, the best engineers. I'm a software engineer by background, is that we have a software-first company that is tackling a very large industry, a very large industry that has a huge impact on consumers. We helped millions of consumers find their first home. get their first personal loan, get their first credit card, get their first deposit account last year. And so those are the kinds of things that financial services is a staple in what makes consumers successful in this country. And being able to be part of the modern infrastructure for financial services, it's a really palatable mission for a software engineer who wants to work on something that's really big and an industry that's transforming a lot over a very long time horizon. And so that's how we've been able to retain the talent. Now, granted, we are facing market headwinds, like you mentioned that, you know, the market being down so much this coming year, it's going to make it different. It's going to make it a different environment where not all of our customers are winning every day, like they were in the last two years. And so part of that goes back to making sure two things. One, our customers and our team understands that we're continuing to add value. And our team understands in particular, the real metrics that matter, the underlying core fundamental drivers of our business. That's why I mentioned we keep making new software additions to our mortgage platform to make sure our customers get more value from our platform. We signed over 70 consumer banking customers last year. We're growing market share and mortgage. We're making our product serve every aspect of the home buying process. Those are the kinds of things, those are the fundamental drivers. We can't control the macroeconomic environment. What we can do is make sure that we understand our core metrics. And if our core metrics keep growing, we keep adding customers, we keep helping more and more consumers. Those are the things that get people excited. And so we'll continue to be a company that is software first, engineering first, and make sure we're customer first so that those things will remain true for years and hopefully decades to come.

I appreciate all the detail there. Thank you.

The next question comes from Carl. Here's Seth with UBS. Please go ahead.

Thanks for the question. This is Seth on for Carl. I was just wondering if you could help us understand maybe some of the drivers of the non-mortgage part of the business. Maybe more specifically, you know, how has the growth of this part of the business changed compared to what you were thinking about nine months ago? Is it Customers deferring go lives for various reasons, feature set maybe not ready for prime time, maybe increased competition, or maybe something else?

I would not say it's the last bucket. It's not the increased competition. There is some amount of delayed go-lives, like I mentioned in my prepared remarks, where when volumes are very high, getting go-lives to be something of a priority for customers, it wasn't their number one priority. That was the reality of the situation. But we do have over 100 customers signed for blend close and for blend income. Those are both going live. Even for the non-revenue generating products like Loan Officer Toolkit, really valuable product for our customers where their LOs can do everything that they need to do for the loan in one system. And then on the consumer banking side, there's still more feature functionality we want to build there. We're a couple of years into that journey. It took us a while to get from the mortgage product to be fully, I would say, mature, where anybody could use it on the backs of what had already been built. But it's getting there and something that our customers are already adopting in droves, like I mentioned. Um, so all in all, I would say, I don't, I don't think the growth has slowed there. In fact, the consumer bank and marketplace segment, it is our faster growing segment in the company and it'll continue to grow this year. And we're seeing a lot of adoption and in particular home equity is going to be really very important this year. And it's already a company, a customer, a product line that we have a number of customers on and we'll continue to hopefully get more customers on that and grow market share in that realm as well.

Got it. Thanks for that. And, you know, maybe just one, one follow-up, um, maybe just if you can help us with any more uh color about drivers to profitability uh from here understand you're you know more more so lining some of the expenses but anything else we should keep in mind as we look towards the out years for our models i think we've been focused on on achieving scale and um and near-term profitability by product so um

I mean, we're on a longer path to profitability, but we're confident in our ability to get there. We obviously are in a challenging market at the moment with decline in volumes, but not really any color at the moment. Thanks. Thanks.

The next question comes from Mike Engie with Goldman Sachs. Please go ahead.

Hi. Thank you very much for the question. I was wondering if you could frame the revenue guidance for us. What would result in Blender achieving the high end versus the low end? What are some of the range of outcomes that you're assuming in the broader industry for mortgage originations? And then just as a follow-up, I was just wondering if you could talk a little bit about your pricing strategy for the core mortgage product. Is that something that you'll be taking price on this year in 2022? Or is the industry challenged because of the declines that the pricing may not be the lever to pull this year? Thank you.

Absolutely. So from a from the perspective of the underlying mortgage market, we feel like our forecast is prudent. We feel like it's responsive. And we are using the Mortgage Bankers Association and Fannie Mae's forecast to forecast the underlying volumes. So we've taken an achievable approach to our guidance and to our revenue. So the upside, of course, is in volumes. We're working very hard to make sure that our rollouts, our customers are capitalizing on value associated with our product. So that's the speed to roll out is one that we're really, really focused on. And then I'll kick it to Nima for the talk about pricing.

Sure. Thanks, Mark. Yeah, on the pricing strategy, the way I think about pricing our product is, and I'll go back to something I mentioned about our platform being a software platform. The way I think about pricing our product is it has to be in conjunction with the value that our customers receive. And so one of the beauties of Blend, and maybe this is pretty unique for us in the financial services space, is that we make daily updates to our software. Now, not all of our customers take all those updates every single day, but usually on a monthly basis, they're at the very least taking those updates. And what that means is the platform is appreciating over time. And Loan Officer Toolkit, which is something that Mark mentioned a little bit ago, is a good example of that. We're adding new functionality to our platform that we don't charge for on a sort of an immediate basis for our customers. Now, that means that as our platform gets more valuable and our customers want to access those premium offerings, We might have different pricing strategy where we have a premium offering and a base offering, something like that, that allow our customers to take advantage of the more robust functionality sets that they want to take. I don't think about pricing as, in the traditional sense, as a price hike is the right thing to do on a generic basis, but we want to do those kinds of things in conjunction with our customers and how they achieve value. The other thing I'll say is that The way I think about our revenue on a per mortgage basis is a little different than that, which is we do have add-ons that are separately priced. So blend close and blend income, which are natural add-ons to the mortgage process. Those things are significant revenue per unit on the order of magnitude of what people pay us for mortgage, maybe a little less. But those add-ons, if our customers opt into those, do increase our revenue per unit on a price basis, but not in the core platform, if that makes sense. But to answer your question maybe more directly, it is a tough year for our customers. And so we're mainly focused on getting them through this year, getting more technology adopted. And we've already had some price increases for customers who signed up with us in the early days and are trying to grow their price base with us.

Great. Thanks, Nima. Thanks, Mark.

The next question comes from Josh Beck with KeyBank. Please go ahead.

Hey, guys. This is Maddie Schrag on for Josh. I was just wondering if you could give a little color on what your expectations are for net revenue returns in 2022 and beyond that. Thanks.

I can take that one. I think net revenue retention is a really interesting metric for us in particular because we have to adjust out market factors. Like when there's booms or busts, we try to adjust that out. So you all, the investment community, can see what our net revenue retention is, ignoring all the market factors. And one of the things that helps with that is rolling out customers. So Mark mentioned rolling out customers faster is something that we're thinking a lot about. Getting to that 100% utilization or approximately there with the standardization initiatives we have with our customers, which is something they all want as well. Those kinds of things are really good for net revenue retention. And so while we're not providing specific outlook, we expect net revenue retention to remain strong over the course of the next few years as we roll out additional software offerings on top of our core platform with our existing customers.

Awesome, thanks guys. The next question comes from Joseph Bassey with CannaCore, please go ahead.

Hey guys, good afternoon. Just maybe the first question, kind of fully cognizant of the macro environment here, and going back to some of your prepared comments, I think Nima, do you see Do you see your ability to gain share in the current environment to be – do you think there's a possibility to accelerate share gains in a down year if it's a down year in 2022 versus 2021? And then I'll have a follow-up.

Sure. Yeah. And by the way, we looked at this historically because there have been other down years in the market since we've been in existence. And those down years, when customers are really focused on making sure they have great technology in place, they can drive more efficient operations, tend to be better years for us. And the share gain this year that we're projecting, which is around similar to the magnitude that we gained last year, is a lot of that's actually already spoken for. Those are customers that have already signed with us and are already in the process of rolling out. And so because of the timing of our rollouts and when the deals end up closing, it tends to be a little bit lagged, as you can imagine. But we expect to have, and we've already been having lots of conversations with customers that maybe previously we wouldn't have had conversations with because this is a challenging environment and they want to get better technology in place to lower their cost structures and And so all in, yeah, I think that these kinds of years tend to be good for us, but not in an absolute sense, but in the sense of customers and us are very aligned during these kinds of years on let's get ROI, let's drive real value to the bottom line of our customers and to their consumers. And those things tend to help us grow in the long run.

Right. And then kind of, if you kind of like scan your own mind on, you know, where top 10, top 20 are, mortgage originators are out there, ones that you haven't signed, and you look at the current environment, what are the kind of prospects with the bigger institution versus maybe perhaps some of your smaller customers?

Well, we have some bigger ones that we haven't announced yet, just because we have to work with our customers on the timing of those announcements. But Bigger ones tend to be ones that we've always been successful with because we have a platform that's not only the best in class in the industry from my vantage point, but because of our pricing model, they can sign up with us and it becomes a lower risk endeavor, not just from being the best, but also from being something that's low risk to adopt. And so we've actually tended to do really well with that segment. We're a proven solution that also happens to be the best and has a lower risk to adopt. And so We have a couple we haven't announced yet, but we're having ongoing conversations with a number of others around adopting Blend going forward.

Okay. And then maybe I just sneak one more in on the customers. Is there anything we should be aware of in differentiating between bank customers and independent mortgage originators relative to their criteria to adopt your model or other things we should be aware of? Thanks, guys.

Well, I'll break up the independent mortgage originators into different categories, but there's independent mortgage originators who are distributed in nature and they're sort of branch by branch. Many of those are our customers as well. Some of the biggest ones are our customers already. But Those adopt, those tend to adopt in a different pattern than maybe a bank or a centralized servicer, largely a servicer like Mr. Cooper or a PennyMac. And the reason that they adopt differently is because they have this branch by branch dynamic. And so without getting into all the details of that, we've actually been successful in all these segments, despite the differences in the dynamics. One thing they all want, they want great tools for their customer, the consumer, and they want great tools for their team members, their loan officers. And we offer both. And that's something that we'll continue to invest in in the long-term future.

Thanks very much.

The next question comes from Terry Delman with Truist. Please go ahead.

Hi, guys. This is actually Joe Mirzon for Terry. Thanks for taking the question. Another one about market share. You guys have done a great job of taking share so far, and the guidance for another 5-ish percent is great. Do you think there's a ceiling on how much share you can take overall in the mortgage market?

I don't think there's a ceiling of what we can take. And there's some that have very entrenched technology based companies that already exist. And so those may be hard. Those select few might be harder for us to work with in the sense that, you know, but there's only a handful of those. And so I don't think of a ceiling in terms of, is it 40%? Is it 50% long-term? I just think that over time, if we keep building the platform that adds the most value on a per loan basis for our customers and for the ones that offer multiple products, something they can use across products and channels, that's gonna become a natural adoption curve for them as we continue to create a more valuable platform for them to adopt.

That's helpful. And then just as a follow-up, when I back out the title through 65, $15 million, of revenue from the 2022 guidance it looks like consumer banking and marketplace organic growth is decelerating so is um is what's happening here kind of like last year things were too busy for the lenders to take on these new products and now the market is has gone the other direction so far that they can't take on the new products or am i just is my math just wrong and do you need more of like a goldilocks situation for for those products to really be uh to re-accelerate. Thank you.

Well, I think we saw some delays in the adoption rollout, like we mentioned, because of the back half of the year. As those rollouts start to pick back up, it does take some time for them to achieve revenue reality for us. They have to use it for us to get revenue. That's probably part of what you're seeing. We expect the growth in the consumer banking marketplace to be roughly in line with what we saw in Q4 from Q4 of last year, Q4 of 2020 to Q4 of 2021. We expect to be roughly in line. And we did sign 70 new customers in consumer banking in 2021. And so we don't necessarily see the slowdown in adoption anymore around the add-on products in particular, but we are starting to see that start to pick up going into this first half of the year as things start to normalize for our customers.

Great. Thank you.

The next question is from Matt Stocklow with William Blair. Please go ahead.

Hey, guys. Thanks for taking the question, and sorry in advance for the background noise here in the airport. Just a follow-up question on the consumer banking side to start with. Obviously, it seems like you're having some close conversations with customers that maybe have engaged because they want to adopt those products or push them out because they were busy with other things over the past year. Could you talk a little bit more about your visibility into when you expect those customers to re-engage as you think through that 2022 guidance? Is this ramp in that business now more of a 2023 story or just any sort of commentary on your visibility that would be helpful?

Sure. Yeah. And I think actually many of the customers that you see us that we've incorporated into our guidance are already signed and in the process of rolling out. So I don't think I think we actually one of the benefits, one of the downsides of our business is that we have lengthy deployment cycles. But that also creates a positive side for us, which is we understand and we have good near term visibility into what's coming. And so what that means in practice is that our customers have started to reengage with us. We're starting to deploy them. We feel good about those deployments. As Mark said, getting deployments to happen faster is something that we're very focused on. It's what our customers want. I had a call with the head of a consumer bank at a large regional bank today. And his thought was, how do I continue to grow? How do I continue to roll these products out faster? Because I see a real opportunity in particular in his mind in home equity. But those kinds of things are starting to happen really rapidly in this market right now, as the smart lenders know that this is the time for them to capitalize on growth. And I think it goes back to us building a software platform that people can really use. really use. And so part of that is, you know, we have this great foundation of customers and a product they can trust. And part of that is investing in the future. And so Blend Builder is something that I don't think gets enough airtime. Blend Builder is this drag and drop platform that us and our customers can use to make rapid changes and create new products when new opportunities arrive. Those kinds of things, they haven't existed in this industry ever before. So the fact that we've invested in that to build our own platform to work off of, is going to be incredibly valuable, and we're already seeing the benefits of that. So maybe more directly to answer your question, I think where you'll start to really see that is in the back half of the year, given the timing of the rollouts, but we're already starting to see that.

Got it. This is really helpful. And then just one follow-up on the core or the mortgage side of the business, specifically with share gains. It seems like you're kind of looking at 2022 guidance relative to where models were at heading in. Obviously, there's the lower expectations for origination volumes, but it seems like there's also maybe a little bit lower expected share gains. And so I just wanted to get your thoughts or any you can share in terms of the conversations you're having with prospective customers on the mortgage side, how those are being impacted by the slowdown in originations and I mean, is this something where we have to wait for kind of the macro recovery to start seeing share gains on that side of the business pick up again? Or how should we think about that on a multi-year basis? Thank you.

Sure. And actually, I would say when we talk about our share, we're talking about actual loans flowing through our platform. What that means is that until that customer is fully rolled out and standardized, we don't count that as part of our share. Until the actual loan is on our platform, we don't count that as part of our share. And so what you're seeing is a similar phenomenon around the delays and rollouts where it's not like we've lowered our, we actually grew our share significantly in Q4 as well. We continue to grow our share and some of that may be delays due to rollouts, but overall we feel very good about our market share growth and keep signing new customers every month.

Got it. Thanks again.

As a reminder, if you have a question, please press star then one to be joined into the queue. The next question is a follow-up from Ryan Tomasello with KBW. Please go ahead.

Hey, everyone. Thanks for taking the follow-up. Just wanted to get some color on the material weakness disclosure in the 10-K. It seems like that relates to the intangible accounting around Title 365, but Maybe you can just take the opportunity to provide some color around that and what you're doing to remediate the issue. Thanks.

Thanks, Ryan. Absolutely. So, you're right. That material weakness was limited in scope to the Title 365 acquisition and that related intangible asset valuation. It wasn't core to our operations and no impact on cash, no impact on non-GAAP results. We actually take internal controls very seriously. We're working to harden those controls and implement additional processes around non-routine transactions, which that was, and we feel like we've addressed that going forward.

Great. Thanks. You bet.

As we have no further questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.