Blend Labs, Inc. (NYSE:BLND) Q4 2023 Earnings Call Transcript March 19, 2024
Blend Labs, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Winnie Ling: 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 Ghamsari, Co-Founder and Head of Blend; and Amir Jafari our Head of Finance and Administration. After Amir and Nima delivered 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 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-Q 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.
Nima Ghamsari: 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 had a solid slate of deployments that give us a high degree of visibility into our expected revenue growth for 2024. As 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 welcome two new top 100 financial institutions by retail customer base to Blend in Q4. We maintained our industry-leading market shares, and we continue to see adoption of our value accretive 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 multiyear eight-figure deals in Q4, which validates the trend that our large stable customer base has continued to expand their relationship with Blend across multiple products. More customers than ever treated 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 equity products.
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Q&A Session
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And I’m pleased to announce that in Q4 we signed yet another significant inter-banking deal and multiyear 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, as 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 have 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 in 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 the customers of a variety of sizes. And cast a 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 billion 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 have 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. All we 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 Blend Close 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 time line to close a loan has a 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 1 this year. These are encouraging trends that we believe will propel our mortgage suites 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 driving 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.
Flared on top of that was our announcement of Blend Copilot, a generated AI product on our platform designed to turn every loan officer into a super loan officer. And 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 a 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 are for recovery, we’re investing ahead of it, preparing our customers for scalability in what will likely be a very different market in 2025.
