Blend Labs, Inc.

Good afternoon and welcome to Blend's fourth quarter 2023 earnings conference call. My name is Winnie Ling and I'm head of legal for the company. Joining us today are Nima Gamsari, co-founder and head of Blend, and Amir Jafari, our head of finance and administration. After Nima and Amir deliver their prepared remarks, we will open up the call for questions moderated by our investor relations lead, Brian Michaleski. You can find the supplemental slides on our investor relations webpage at investor.blend.com. During the call, we'll refer to certain non-GAAP measures, which are 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, in particular its guidance for the first quarter of 2024, 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 10-K, 10-Qs, and other SEC filings. We're not undertaking any commitment to update these statements if conditions change, except as required by law. With that said, I'll now turn the call over to Nima.

Thank you, Winnie, and hello, everyone. Welcome to today's earnings call. The past year was one of focus and execution for Blend, and the fourth quarter proved to be no exception. Let me walk you through some of the highlights first. To start with, on the consumer banking side, we signed several major deals in Q4, including Citizens Bank, a top 20 bank by retail customer base. and we have a solid slate of deployments that give us a high degree of visibility into our expected revenue growth for 2024. At full rollout of all existing customers, including those signed but not yet deployed, we expect our consumer banking suite to be approximately $50 million in annual revenue run rate. 2023 was an expansion year for us, and 2024 has already started strong. Our consumer banking business is well-received by existing and net new customers, driving growth with a robust pipeline of 70 opportunities. On the mortgage side, we welcomed two new top 100 financial institutions by retail customer base to blend in Q4. We maintained our industry-leading market share, and we continued to see adoption of our value-accreted add-on products, expanding our economic value per funded loan and giving us even more leverage for revenue growth independent of the macro environment. And on the cost side, we delivered significant efficiencies across our business, allowing us to report ahead of our guidance for non-GAAP net operating loss and keeping us on track for our profitability target in 2024. Achieving this momentum despite 2023 being one of the worst years on record for mortgage industry origination volumes increases our confidence in our ability to navigate the year ahead as the market looks to stabilize. And the cherry on top, we also signed two multi-year eight-figure deals in Q4, which validates the trend that our large, stable customer base is continuing to expand their relationship with Blend across multiple products. More customers than ever treat us as a critical software powering their enterprise, and we're happy to see this continue into the new year. Before I pass it on to Amir, who will go into more detail on the financial results and 2024 guidance, let me first dive deeper into the progress across these three focus areas. Starting with our consumer banking business, we're seeing growing interest across our entire product suite. This is starting to play out in a huge way for us. By the end of 2023, we had seven of the top 30 depository financial institutions by retail customer base signed up for one or more of our core consumer banking products, excluding our traditional home equity product. And I'm pleased to announce that in Q4, we signed yet another significant consumer banking deal, a multi-year partnership with Citizens Bank, a current mortgage and home equity customer, to help them deliver a more consistent, frictionless application experience to their customers for their other consumer products. Having one of the nation's oldest and largest financial institutions choose Blend as a key part of their digital lending strategy is a strong validation of our consumer banking capabilities, and we are proud to partner with citizens to bring more value to their customers. This adds to our already strong revenue base. As I mentioned earlier, at full rollout of our current signed customer base, we expect our consumer banking suite to be at approximately a $50 million annual revenue run rate. Given that about half of this was signed in 2023, we have quite a number of active deployments. While it takes time for these rollouts to be completed, which has implications as to when we recognize revenue, the market is starting to speak to the necessity of modern technology across all banking originations. And just like in our mortgage suite, our early success starting with the largest financial institutions matches the playbook we applied in the early days of Blend with our mortgage product. We started there, and once we had proven the product could work at scale and for the most demanding institutions in the country, we took it to the rest of the market, leading to our almost 20% market share and mortgage today. This is exactly how we're approaching the consumer suite. We're only just getting started, and 2024 will be the first year we cast a broader net and plan to serve customers of a variety of sizes. and casting that broader net is already working. Our pipeline in consumer banking alone is 70 opportunities, and we're only two months into the year. We're very active in the market and expect 2024 to be another strong year in growth for our consumer banking business. Moving on to mortgage, let's start with the tough news. 8% interest rates in Q4 led to lower mortgage industry volumes than forecasters were expecting. While MBA was projecting 380 billion in volume in Q4, inside mortgage finance and Fannie Mae data leads us to believe the industry was closer to 300 to 330 billion in Q4. Using an approximate loan size estimate, this translates to somewhere between 825,000 to 875,000 units or approximately 15 to 20% below the forecast from the MBA. We expect Q1 will be roughly similar unit volume to Q4 based on trends we've observed to date in the quarter. Despite this, we still achieved our platform guidance range, which we credit to the strength of our customers in this market and the growing unit economics we are seeing even on lower loan volume. We've always said when the industry consolidates, our customers would benefit because they are more efficient compared to the rest of the market. And we're seeing that in practice with many of our customers gaining market share and our overall share remaining very strong. On top of that, as I mentioned earlier, we signed two more of the top 100 financial institutions measured by retail customer base to our mortgage platform, including another top 10 credit union. We're seeing customers use this environment to set up a scalable tech forward foundation for the future. Already this year, we've seen a credit union sign away from a competitor and deploy our solution within 60 days to prepare for the future. Adding to that, we have approximately 30 other opportunities in our mortgage pipeline, including one of the largest financial institutions in the country. Our key add-ons like BlendClose are also driving pipeline growth and improved unit economics, and I'm encouraged that this trend will only continue in 2024 as some of our largest customers are currently in pilots to enable the defaulting of e-closings across their entire loan portfolio. Digital closings have obvious benefits for consumer experience, but shortening the timeline to close a loan has meaningful financial benefits for our customers as well. The growth and adoption of digital closings is helping grow our unit economics and setting the industry standard for a modern closing experience. We're also seeing tailwinds on the adoption from state regulators as well, with California approving out-of-state remote notarizations as of January 1st this year. These are encouraging trends that we believe will propel our mortgage suite's economic value per funded loan even higher than the record $91 we saw in this quarter. These advancements highlight only some of the innovation we had in 2023. We were early integrators of soft credit verifications and deriving asset-based income verification, and also kicked off work on a Spanish language flow. We also added early funnel features to help drive conversion, as well as more features for loan officers to serve their customers better than ever. Layered on top of that was our announcement of Blend Copilot, a generative AI product on our platform designed to turn every loan officer into a super loan officer. In all, our customers expect us to drive innovation in the space, and 2023 was no exception. The combination of all these factors increased our confidence in the embedded leverage of our business to a recovery. Not only do we have customers gaining share, we're signing new customers and they're using more of our products. There is of course some churn in the tough environment as there's consolidation and some customers have gone to lower cost or free options to manage a low margin environment, but this is more than offset by the other vectors of our growth. Lastly, as we prepare for a recovery, we're investing ahead of it, preparing our customers for scalability in what will likely be a very different market in 2025. In particular, we're building a next generation refinance flow during a historically bad time for refinance volumes. Why? Because the longer this high rate environment lasts, the larger the backlog of customers who will benefit by refinancing when rates ultimately come down. To help support this, we want to make sure our customers are set up to do this with their current teams without having to massively scale up resources when rates come down and streamlining timelines for consumers who will desperately need the savings. Achieving this is a monumentally complex task and one that our team and our platform are uniquely positioned to solve. It involves combining existing customer data, all the verified third-party data sources we've worked on for over a decade to integrate with, the ability to quote and approve a loan in real time, and delivering an accurate, actionable loan estimate so the consumer can lock in their improved mortgage rate and savings and prepare for their digital closing. It's the culmination of every aspect of our software suite and is a direct result of our focus on creating simple, proactive, and instant consumer experiences. We believe this will mean our customers can capture a greater share of refinances at a lower cost to them and to consumers during a recovery. It's a win for everyone and something that our customers can use to come out the other side stronger. Shifting gears, lastly, I'd like to give an update on our final priority, which is to manage our business to non-gap profitability this year. This was a huge effort for the company in 2023, and I'm proud of the amount of progress we made. We managed to reduce our operating expenses by over $90 million in 2023 and improved our net operating loss in every quarter of this past year. We've taken out a significant amount of cost, but to be clear, we've done it in a way that strengthens us structurally and sets us up for more efficient growth. That's where our Blend Builder platform becomes such a critical differentiator for us. Because of its built-in functionality and configurability, we believe we'll be able to innovate and scale at an order of magnitude faster and cheaper than before we had Blend Builder deployed. And as the market eventually recovers, we have significantly enhanced our operating leverage for each additional loan or consumer product that funds on our platform. We'll continue to manage our expenses and revenue to ensure we will reach our target of non-GAAP operating profitability by the end of 2024, regardless of the macroeconomic environment for this year, and without sacrificing our commitment to innovation and supporting our customers. Even if the fourth quarter of 2024 were to remain at historically low levels of origination from this past quarter, our profitability target for this year would not change. We're reassured that the continued growth in consumer banking, the improved economics and mortgage, and continuing to drive efficiency give us sufficient insurance to achieve this goal regardless of the macro. Overall, I'm encouraged by Q4 being another period of strong execution. One, we remained on track with our growth plans for our consumer banking business. Two, we've protected the most important parts of our mortgage business and are increasing the value we deliver to customers. And three, we're staying committed to achieving non-GAAP profitability this year.

Now, I'll pass it over to Amir, who will go over our financial results and 2024 outlook. Amir, over to you.