Blend Labs, Inc. (NYSE:BLND) Q1 2024 Earnings Call Transcript

David Unger: Okay, thanks. And just to follow-up for me, I know you’re not giving the full year guidance, but can you – it’s obviously difficult to forecast for us in the Street, but can you just step through the potential shape for the rest of the year just based on your internal forecasts volumes, market share? Thank you.

Amir Jafari: Yes, absolutely. I think to your point, you probably said it better than I will. One, there’s very little visibility when you think about the full year, and we see a lot of this volatility back and forth. And so what we do is we try to stay focused on the things that we can control. I’ll speak to market share in just one second. I think what’s really important for us as we share this is the following, though. Putting aside what’s happening on a macro basis, which again, what we control is what we deliver for our customers, you’re seeing that come to fruition with our economic value per funded loan, you’re seeing what the progress has been on the RPO side, which is really how were in essence able to sign new logos and really expand on the historical practices that we’ve had from a contract standardization perspective.

And then from a consumer banking, to be able to see an uptick in terms of just the overall pipeline that we spoke to about a quarter ago. And really what Nima referenced this quarter, that is how we’re seeing this year kind of come together, we’re seeing strong execution so far. We want to continue down this path. And then, David, to your point, though, about macro, we see this kind of band of events that can happen. We see a lot of data points coming into us. We always say to you that we’re not economists. What we try to really just become very focused on is what’s happening at our customers, the data that we have visibility to with regards to applications, where they’re continuing to win, and how we help them do so, so that we can be balanced in market share.

But then really again, just take advantage of the unit economics, which again come across and things like our economic value for funded loan.

Bryan Michaleski: Our next question comes from Ryan Tomasello with KBW. Ryan, you can please unmute and go ahead.

Ryan Tomasello: Hi, everyone. Thanks for taking the questions. Just on consumer banking, if you can elaborate more, Nima, on the go-to-market strategy there. In your prepared remarks, you talked about broadening the reach of that product beyond the top tier of FIs that you originally were focused on. What additional opportunities does that open up in terms of other categories of customer sets that you think this might resonate more with. And also how you might look to lean more on systems integrators to expand the reach there. Thanks.

Nima Ghamsari: Yes. So on the topic of consumer banking, in the last probably two years, as we’ve been getting that product suite off the ground, just to give a little historical context, our entry point into mortgage, we started at the top of the market, and you kind of see that in the numbers with, like we mentioned, more than half of the top ten credit unions by assets as customers of ours, a number of the large net regional and super regional banks, as well as some of the largest mortgage – independent mortgage banks as being customers. And once we did that, once we had the success there, we turned that into a repeatable practice that we took to the rest of the market, because we want to make sure that this technology can be in any consumers hands, in any lenders hands.

And so we’re taking the same playbook here the last couple of years, we spent a lot of time with the top 20, 30, 40 financial institutions on the consumer banking side to make sure that we could build a product that would scale to the very top of the market. I think one thing that you cover a lot of companies, you probably noticed that a lot of them don’t. When they offer fintech solutions to these customers, they very rarely touch the top five or six banks. There’s probably one or two examples. But we have a solution where a top bank in the country can use our platform and that same platform in a more prescriptive way, less configured way, can be used by the number 1000 financial institution in the country. And so let’s put some numbers around that, probably last year, we were focused on the top 30 or 40 financial institutions, and now we’re thinking more about the top 1000 financial institutions.

The one I mentioned that signed a pretty good sized contract with us in the last week here wasn’t a top 100 credit institution — sorry, credit union or bank it just — or sorry, financial institution. But they have a lot of needs and it’s an underserved part of the market that is desperate for new technology. And we think we can give it to them in a way that’s beneficial to them financially, helps them grow their deposits, grow their lending book, but also beneficial to us financially.

Ryan Tomasello: Great, thanks for that color. And then just continuing on the topic of consumer banking, if you can just provide additional color around the type of deal that you’re typically executing on here, in terms of – if this is a rip and replace of a legacy competitor, replacing an in house solution, just any color on how that typically looks for new clients that you signed so far in consumer banking. And then at your Investor Day last fall, you talked about some aspirations optionality of expanding into commercial banking, also international. If there’s just any update you can provide on those initiatives as well. Thanks.

Amir Jafari: Yes. Let me start with the last one, because I think you asked about system integrators. I think those are areas in particular international where the SIS [ph] could be particularly helpful. And on the commercial side, no update there. But it is an area of opportunity and we see a lot of demand from our customers around that. And we just want to make sure we’re measured and focused in what we do. And when we deliver something, it’s the best in the market. We’re not going to deliver something that we think just average or above average. So when the time is right, we’ll explore that solution and go-to-market with that solution. And then on the first part of your question, on what kinds of solutions are we replacing when we go in the door here, it is – oftentimes, it is some sort of rip and replace in the sense that they had something in place.

It’s typically very lightweight. So for example, if you go to your local regional bank or community bank or community credit union, you might go to their website and have a few fields you can fill out to open a new account. And then they’ll tell you to walk into a branch or to get a personal loan, you’ll fill out a lead form or a credit card, maybe they’ll have a little bit more technology in place, but they won’t issue you their credit card digitally. And so it’ll typically be a lighter weight approach to these products. And they lean a lot on people internally, which I think is good from a relationship aspect, but not great from a reach of what customers want – consumers want, and not great from an efficiency standpoint for the bank or credit union.

So a lot of times it’s replacing a solution like that. Now also, we’re starting to see, we launched a customer in Q1 that was a rip and replace of a more modern competitor, because investing in these products is an ongoing effort. It takes a lot of energy. And I think our platform, the Blend Builder Platform makes it possible for us to be not just in these markets, but like I said earlier about Commercial Banking, we want to be the best in these markets and every one of these product areas over time. And so we got to take that measured approach. But we’re starting to see some of that as well.

Bryan Michaleski: Our next question comes from Joseph Vafi with Canaccord Genuity. Joe, you can please unmute and go ahead.

Joseph Vafi: Thanks, Bryan, and congrats to the whole team here on good progress operationally and on the balance sheet as well great progress. Just one, just listening to your prepared remarks, Nima, I mean, there was a lot of credit union in there both on mortgage and deposits. And I think you might have actually stated that maybe you’ve tailored those solutions a little more to the credit union market, but maybe without giving away any secret sauce or anything, is – why are we hearing so much about the credit union channel right now? I know that there’s a war for deposits and credit unions have kind of been losing ground compared to other financial institutions, but this was kind of maybe less discussed back, I guess, when you did your IPO. Now all of a sudden there’s a lot of credit union action. Just be helpful to get a view of this particular market and then I’ll have a follow-up.

Nima Ghamsari: Yes, I think some of this comes down to timing, Joe. We have four of the top 10 banks buy assets as customers too, and many more of the top 50. So I don’t want to say that our solutions only work for credit unions. But maybe the reason why now with credit unions is one, it is a historically underserved space by technology providers. And I do believe that they want to continue to grow and they’re member owned organizations. So they want to continue to serve their members in the best way possible. And one nice thing that’s common among every credit union I’ve talked to is they are all very focused on member experience. And so some of these questions, they come down to prioritization and so they prioritize member experience first, whereas we have also a number of the top 10 independent mortgage banks as customers as well.

And so you layer all these things together and they’ll have differing priorities sometimes. And right now, the credit unions all have priorities around that member experience. And so that’s really good for us, good for our product suite. And we’re going to make sure we make them aware that we have this amazing solution that can change their business. And so we’re excited to work with a lot of them and take a leadership position in that industry.

Bryan Michaleski: Joe, I know you mentioned you had a follow-up question just to see if you got one.

Joseph Vafi: Yes, I do. Thanks, Bryan. Maybe just on the closed product, I know it sounds like it’s doing really well and you mentioned that you got an attach on one of your largest customers. It would just be interesting to know kind of where close is on a penetration basis across your mortgage customer base and then just maybe drilldown a bit into how the regulatory environment is helping this to go electronic. Are we fully there like in all states? Is this a process or is it kind of a done deal already in terms of electronic close? Thanks, guys.

Nima Ghamsari: Well, there’s good questions. It’s still – it’s a decent chunk of our customer base of the applications flowing through our product or closed loans flowing through our product that are now getting digital closings. But it’s not even close to the majority. We don’t want to share specific numbers on this, but it’s a very fast growing part of our business. And so I guess on the regulatory side, we track what percent are eligible for fully digital closings and about call it 90% of loans that we do through our platform are eligible for a fully digital closing. And even greater percentages than that are eligible for what is just a digital note, which allows for what’s called a hybrid closing. And so there’s a lot of opportunity there.

And its big savings for our customers. I mean, its big savings. There are so – these things are so operationally complex that things such as being having one signature be slightly off center by the consumer, off the line by the consumer, needs to go back to the consumer and be resigned after the closing. Those kinds of things cost money to handle and are a terrible experience on top of that. And so it’s a really important part of our product. And so we’re investing in things like that to make sure our customers get the benefit on one platform and then we’re investing in things like [indiscernible] press release, we updated the Spanish language intake form because one thing our customers were trying to do is grow their business. And to grow your business, you want to serve a broader set of consumers.

And so that Spanish language intake form is super helpful to our customers in this time. We’re also building more tools for loan officers on their mobile app. We added new capabilities in the last quarter as well there to make sure that loan officers could serve customers on the go even more than they could. And that’s something a lot of our customers, in particular independent mortgage banks appreciate. And so I think in aggregate, all these things we just take the lens of there are still so much to do and some of the things well offer as an additional fee, like the Blend Close product because there’s so much complexity to it. And some of the things will be baked into the current per unit fees we have with our customers, like the digital closing or the mobile app for loan officers.

Bryan Michaleski: All right. Our next question comes from Seth Gilbert with UBS. Seth, you can go ahead and unmute.

Seth Gilbert: Hey, thanks guys for taking the question. Maybe just one for me, the free cash flow improvement was nice to see, and I’m wondering if you can talk about the upfront pre-purchase agreements that you mentioned that led to the strong free cash flow results. It’s still a very hard macro environment. And so I’m wondering if discounting plays at all into this or if maybe there was a different strategy there. Thank you.