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.