Blend Labs, Inc.

Good afternoon and welcome to Blend's first quarter 2024 earnings conference call. My name is Winnie Ling and I'm the head of legal and people 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'll 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 second 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 good afternoon, everyone. Mir and I have a lot to share today, given the company's recent strategic announcement, as well as several important business highlights since our last earnings call. We'll first discuss the investment we received from Pavelli last week, which involved $150 million capital infusion, as well as the beginning of a partnership that will deliver value across our business, and most importantly, to our customers. This has several strategic outcomes for us, including the elimination of interest costs and the improvement of our balance sheet, which for the first time as a public company is debt-free. With this investment, we've enhanced our financial flexibility and can focus on what we've always done best, which is innovating for our customers in the mortgage and consumer banking space now and for the foreseeable future. We also made progress in some important customer deployments, including the official go-live of Navy Federal Credit Union, new membership and deposits that occurred last month. Early data points indicates that was a very successful launch and our financial results for the rest of the year will be inclusive of the Navy Federal Credit Union partnership. Beyond them, we're also working on a robust pipeline of other deployments that is active and growing, including another top 10 credit union that's in the process of the mortgage rollout. On top of that, I'm happy to announce that the team signed a new seven-digit contract with a credit union last week, and Blend is going to help them streamline their deposit account opening experience. We've been thinking them through how to tailor our solutions to better fit the needs of specific segments, in particular credit unions, that come in different sizes yet collectively serve a large swath of customers. This deal is a direct result of focusing on the unique needs of this specific customer segment. And lastly, as far as our financials go, I'm excited to report that our unlevered free cash flow was negative 1.3 million in the first quarter, which is a huge improvement from last quarter. And on top of that, that includes cash outflows exceeding this amount relating to certain non-operational items like settlements of litigation contingencies and restructuring actions. And so in aggregate, we see this as a testament to our execution and a reminder that we are on the cusp of achieving our positive cash generation goal. Before I pass it on to Amir, who will go into more detail on the first quarter's financial results and our Q2 guidance, let me dive deeper into these highlights. Let's start with a Heveli investment. We started a new chapter with our announcement last week, a $150 million strategic investment from the Valley. They're a technology investor with meaningful FinTech experience and a strong track record of helping companies like Blend scale and achieve long-term success. They invested in the form of convertible preferred equity with the conversion price representing a 44% premium to the closing share price on the date of the announcement. This is a big deal for our company. by recapitalizing our balance sheet, we've taken the pressure off of any near-term capital obligations and can focus, without distraction, on what's most important to us, serving our customers and building for the long-term through modern solutions that enable our customers, the mortgage companies, and consumer banks to better serve their customers. And no debt for us means no outgoing interest expense. We anticipate saving approximately $18 million in annualized interest expense, which we expect will help us achieve our goal of positive cash flow generation sooner than we'd previously planned. And it's important to emphasize that this investment has no coupon. The Valley team is making a long-term bet on the company's technical, financial, and customer success. We are fully aligned on growing the business. This investment is also important because of the strength of the team we're partnering with. They have a history of working with technology companies and serving financial services in particular and making them industry leading and industry changing companies. They're going to be a strong partner for us in supporting our innovation efforts across the business. And alongside this, as we announced last week, Brian Sheff, Aveli's founder and chief investment officer, has joined our board. He has nearly 25 years of experience investing technology companies, and more than 20 of those were spent at Vista Equity Partners, where Brian served as president. He's made or advised of investments valued at over $100 billion and has served on the board chairman for dozens of companies. Brian and his team are already working with me and providing value across our business and helping us to continue to drive the operational and financial best practices, as well as helping us grow the business. This deal signifies a boat of confidence in Blend's journey to this point and our vision ahead. And it should leave our customers and shareholders as excited as we are about what's possible. Now, shifting over to mortgage. Let's start with some new wins. Among this group, there are a couple that I want to call out. In Q1, there was a competitive takeaway in mortgage that had to get live in 30 days. We signed them, got them live within that timeframe, and they are now actively originating on Blend. We also have another top-end credit union that has been in the process of rolling out during Q1 and should be live in the next two weeks. These two data points are important to me because the only way to achieve something like that is with a modern integrated platform and a prescriptive approach. Our customers want to execute quickly and with high quality, and we can help them deliver that. Looking ahead, our pipeline now has 35 opportunities for new mortgage customers, up from 30 last quarter, including a couple of the largest financial institutions in the country. Our growing pipeline is an encouraging sign. As more mortgage companies and banks and credit unions prepare for the next cycle, they're increasingly evaluating incorporating technology like ours to power their businesses and emerge stronger. but new customers are only part of the story. We serve hundreds of customers today who rely on our technology to better drive operational outcomes for their businesses. The benefit of using a single platform to serve this is that as we invest and improve our solution, we create incremental value that attracts new business while simultaneously enhancing our offering for existing customers. This is a testament to what strengthening our balance sheet allows us to do. And we've already executed on some significant improvements. This includes connecting to major fee providers and mortgage insurance providers, as well as being early entrance into the Fannie Mae and Freddie Mac verification pilots to drive more automation, and other early funnel tools to help first-time homebuyers see what they can afford in a tough market. These kinds of things are the things that we'll continue to invest in during the downturn to ensure our customers can benefit for years to come. This focused investment has resulted in one of our highest ROI solutions for our customers, the closing process, powered by Blend Close. Today, the closing process in a mortgage still consists of paper being mailed, manual document reviews, long post-closing cycle times, and ultimately cost and potential errors to our customers. And all that, not to mention a terrible consumer experience in the age of everything being digital. We invested in this solution at the peak of COVID out of necessity, making the process more digital. But since then, it's become a core part of our business and one of the fastest growing parts of our business because customers are demanding a digital first experience and regulations are now catching up to allow just this. With Blend, our customers can have all the documents presented and signed digitally by the consumer. On the surface, this means a better experience, of course, but that's just the tip of the iceberg. Because signatures are digital, there are far fewer errors that need to be corrected after signing. The documents are delivered digitally, which means they can be received by third parties instantly, and the funding of those can happen faster. All of these things lead to a better and more efficient process that reflects the digital age that we're in today. What's the numbers behind this? We estimate our closed solution reduces funding cycle times by almost six days. This translates to more than $150 save per loan on hedge and carry costs for our customers. And at a time where every dollar counts, that savings presents our customers with an improved experience, improved cycle times.

These are all benefits of the technology.