Blend Labs, Inc. (NYSE:BLND) Q3 2023 Earnings Call Transcript November 7, 2023
Blend Labs, Inc. misses on earnings expectations. Reported EPS is $-0.17537 EPS, expectations were $-0.09.
Winnie Ling: Good afternoon, and welcome to Blend’s Third Quarter 2023 Earnings Conference Call. My name is Winnie Ling, and I’m Head of Legal for the company. Joining us today are Nima Ghamsari, 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, Bryan Michaleski. You can find the supplemental slides on our Investor Relations web page at investor.blend.com. During the call, we will 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 fourth quarter and fiscal year 2023 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 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.
Nima Ghamsari : Thank you, Winnie, and good afternoon everyone. Many of you joined us for our inaugural Investor Day in September, during which we shared a deeper look into our growth trajectory and the significant upside that exists, as we continue scaling our Builder Platform to more customers and into more markets. As we stand today, we have a market-leading platform, an incredibly loyal and resilient customer base and an efficient business model that we believe has set our company up for success now and in the long-term. For today’s discussion, I want to emphasize how we’ve leveraged this foundation in our third quarter to better serve our customers and to do so with greater efficiency. Starting with our third quarter highlights, I’m pleased to share that we achieved another strong quarter amidst a very challenging environment.
We delivered $40.6 million in total company revenue well within the narrowed guidance range, we provided at our Investor Day. We credit this to double-digit year-over-year revenue growth in Consumer Banking, as we continue deployments and ramp-ups on our Builder Platform. In fact as of Q3, over one-third of our customers are now live or in active deployment with Builder enabled consumer banking products. In addition to these active deployments, we expanded our pipeline to 60 opportunities up from the 40 we reported last quarter representing opportunities in both our mortgage suite and our consumer banking suite. On the mortgage side specifically, our business once again outperformed the broader origination market declines driven by the continued utilization growth of our mortgage product add-ons, including verification of income and our closing product.
In Q3 alone, we deployed a dozen revenue-generating mortgage products or feature enhancements, which we expect to continue to benefit the economic value we receive per loan. Our continued market outperformance in the loan origination market underscores the impact of Blend’s technology and improving efficiency and cost savings across the entire mortgage process. And this also remains a key focus for us. On top of that, we’ve also made significant strides in enhancing our operating efficiency this quarter. We saw strong resilience in our non-GAAP gross margins even amidst the declining mortgage market and achieved another quarter of sequential reduction in our cash spend. Balancing our growth, while making our business more efficient has been a crucial undertaking for us and it’s something that we will continue to focus heavily on over the next year.
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With Builder now as our primary internal development tool, we believe we are in a much stronger position to continue the pace of innovation with greater speed, scale, and efficiency. All of this represents continued execution on both the revenue and operating loss targets. As we stated at the beginning of the year we are more focused than ever on delivering to our customers and doing so in a profitable way for our business. With that, we are paying attention to the interest rate environment. We’ve seen the 10-year treasury yield at 5% for the first time in over a decade and that has had a real impact on our customers and on us in the short-term. Despite that, we are optimistic that we’re executing well within the areas of our control. What that means is, we’ll continue to focus on growing our customer base, our consumer banking business and expanding the value we received for mortgage funding and maintain the high quality of service for all of our customers.
Altogether, these actions will ensure we are best positioned in the short-term and add incremental leverage to our business as market conditions improve. We remain on track to achieve our profitability goals for next year as well as the medium-term outlook that we shared with you during our Investor Day. Now, shifting gears to talk about our mortgage suite of service. It’s evident that the mortgage industry is navigating significant challenges, which is continuing to create heightened cost sensitivity and especially among non-depository institutions. As a response to these challenges, we’re taking action to support this segment of the market, specifically the independent mortgage banks, who are more cost conscious than ever with a streamlined version of our mortgage product called IMB Essentials.
We believe IMB Essentials is calibrated to exactly what the independent mortgage banks need most in today’s market. It allows for these IMBs to get started with Blend at a low cost with many of the critical benefits of Blend and for us is a low lift out-of-the-box offering that is quick for our team to deploy. As the market recovers these new customer relationships represent an opportunity to expand our offering into more advanced feature sets and more add-ons which will drive incremental value for them something that we’ve already proven and have a strong track record of executing on. We’re encouraged by the early traction year and already in several active conversations on this offering with new prospects. One important thing to note is that the cost pressures on the market are what is driving the adoption and utilization of our product add-ons like close and income, which drive tangible efficiencies and savings for our customers.
Since this time last year, our add-on products have increased the economic value received per loan by $5 and our total value received per loan has increased by $9. This places us well on track to reach the over $90 per loan by next year, which we shared with you as a target during our Investor Day. We also remain focused on enhancing our existing products that deliver lenders even more value and a more seamless experience in the time when they need the most. For example, we recently expanded our Blend Income product with MyPay, which adds more support for borrowers and military income. And by focusing on this, the largest US employers payroll data source on our income waterfall, we’ve meaningfully improved coverage for all our customers. Investing in add-on products is a strategy we’ll continue with.
These are low lift, low upfront opportunities for our customers that don’t require signing a net new customer undertaking a very complicated deployment. It’s just about helping our existing customers, get the full benefit of our feature set that result in tangible improvements in ROI and revenue capture per transaction. On the topic of ROI, MarketWise Advisors conducted another annual independent study across more than 100 customers of Blends, and it showed a tangible and increasing contribution to that ROI.Blend’s mortgage products increased transaction speed by over 44% in 2023, driving a significant increase in loan closing rates. And overall the study showed that using our technology resulted in the average impact of $914 per loan, a $274 increase over the 2022 levels, amidst ongoing compression in customer margins these savings are driving benefits to our customers at the time they really needed the most.
