Good day, and welcome to Blend’s Third Quarter 2021 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dan Smith, Treasury and Investor Relations Lead. Please go ahead.

Good afternoon, everyone, and thank you for joining us today to discuss Blend’s third quarter 2021 financial results. I’m joined on the call today by Nima Ghamsari, Co-Founder and Head of Blend; Marc Greenberg, Head of Finance; and Tim Mayopoulos, President. Before we start, I’d like to note that certain statements made during today’s conference call regarding Blend and its operations 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, and could cause actual results, events or circumstances to differ materially from those described in the statements. Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on the company’s website at blend.com under the Investor Relations section and on the SEC’s website at sec.gov. You should not put undue reliance on any forward-looking statements. Also note that any forward-looking statements we make on this call are based on information available to us and assumptions and beliefs as of today’s date. We disclaim any obligation to update any forward-looking statements, except as required by law. During this call, we will be discussing certain non-GAAP financial measures. Information regarding our non-GAAP financial results, including a reconciliation of such non-GAAP results to the most directly comparable GAAP financial measures may be found on our earnings release, which is available on the company’s website under the Investor Relations section and included as an exhibit to our Form 8-K furnished with the SEC before this call. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. I’d also like to mention there are supplemental slides in the product demo video for your reference available for viewing at investor.blend.com. With that, I’d like to now turn the call over to our Co-Founder and Head of Blend, Nima Ghamsari.

Welcome, everyone. Thank you for joining. I want to start with a few highlights for this quarter, starting with our growth. So first, we grew our customer base with 17 net new logos. We expanded our Consumer Banking and Marketplace revenues, which is a new disaggregation we’re sharing this quarter, by 110% year-over-year, showing growth in our emerging businesses. Within mortgage, our market share increased from 8% a year ago to 14% this year. And we increased our quarterly revenues on a year-on-year and sequential basis despite a softening mortgage market. On the new product front, we launched a new product called Blend Income, which is an easy way for lenders to verify the income of their consumers. We have over 50 customers already signed up for that. You’ll hear more about that a little later. Third, maybe very importantly to you all, we’re starting to share some clarity on how we view our business, the metrics we use to track our business. And so you’re going to see that Consumer Banking and Marketplace revenues line item to show our growth in emerging businesses over time. We’re also going to share additional metrics on how we think best-in-class software businesses should operate, things like market share, gross revenue retention, market-adjusted volume, adjusted net retention. That will help you get a sense of how we think about the growth of our business over time. And lastly, on the Title365 front, we made meaningful progress in the integration of Title365 into our Blend Title solution, and we’re excited to share more with you on that. But before I get into it, I just want to quickly reiterate our vision for financial services. Banking is quickly moving to the cloud, and the way consumers are being served is a consumer-first, real-time proactive experience.…

Thanks, Nima. Before I dive in, I have a few housekeeping items. First, with respect to our acquisition of Title365, our reported results for the third quarter include the financial results of Title365 on an actual basis. For ease of comparison, we’ve included the pro forma presentation of Blend’s financial results for the third quarter, the first six months of 2020 as well as for the first six months of 2021 in the supplement to today’s release. Second, during the third quarter close process, we determined that we will present Title365 title revenue and related underwriting commissions on a net revenue basis, rather than on a gross revenue basis for those underwriting commissions, as Title365 had historically reported prior to the closing of our acquisition in June of this year. We have provided supplemental information regarding revenue and costs for Title365 historical periods, and we have updated our financial guidance for the full year 2021 to account for the Title365 title revenue being recognized net of those underwriting commissions. The change in presentation affects a portion of Title365’s revenue and cost of revenue only with no effect on gross profit or net income or loss for either Title365 or the total company. In addition, following the acquisition of Title365, the company now operates in two reportable segments, Blend Platform and Title365. Having heard from many of the investors and analysts who follow Blend, we’ve expanded our revenue and volume disclosures for the Blend Platform segment to reflect results from mortgage banking separately from Consumer Banking and Marketplace and separately from professional services. This new banking revenue and transaction volume disclosure is included in the appendix of the supplement of today’s earnings release. We have also included specific definitions and a historical time series on these metrics. But at a high…

[Operator Instructions] Management will be beginning our question-and-answer session with two pre-submitted question and then we will move to questions from the phone line.

Thank you and welcome everyone. I’ll start off with two questions from the platform that we opened prior to the earnings release. First question, any future plans to diversify into digital assets.

Thanks, Marc. As more and more consumers around the United States invest in digital assets and hold digital assets, we’ve talked to our customers, banks, FinTechs credit unions, and started to see there’s an increased interest in potentially helping those consumers hold those assets. So we’re looking at it, we’re not actively doing anything, but as we start to pay attention to this space, if it continues to grow, we’ll consider building some of the software that helps power that for the institutions that we work with.

Excellent. Thanks, Nima. Second question. Do you have any expansion plans for overseas or international markets?

In terms of international, our primary focus is the United States. There’s still a lot of paper in the United States. We’re in the beginning of a very large digital transformation of financial services. And so our immediate focus and probably the next year focus is on the United States. That being said, there’s a need for similar technology abroad. And we have a lot of customers we’ve talked to – potential customers we’ve talked to over time that might open us up to those other markets. Once our platform – we feel our platform is ready and we feel like we have a really good pace in the United States. But for now we’re focused in the United States.

Great. Now I think we’ll open it up to questions. I think the first question is from Bhavan Suri [William Blair]. Hey, Bhavan.

Thanks for taking my questions.

Sure.

I appreciate it and nice job. It’s really good to see the growth. I know we don’t have all of it fleshed out but in some of the nonmortgage segment. I guess maybe I’ll start there. I guess I’d love to think through about whose customers – hello?

Yes, we can hear you, Bhavan.

Great. Yes. So when you see customers looking at the business, are you seeing them still primarily start mortgage? I understand it’s the largest part of the business, but you had a really healthy growth on the consumer banking offerings. I guess the initial deals, are they still mortgages, an expansion to consumer banking? Or you’re starting to see actually adoption of consumer banking as the first initial foray as a Blend customer?

So some interesting statistics as we looked at our customers and our product sales. Two-thirds of our customers now have more than one product. And what we’re seeing is a bundling, mortgage plus close, mortgage plus insurance, mortgage plus now the new product that Nima mentioned, Blend Income Verification. And so we’re seeing more and more of our customers buy multiple products and then quickly follow with additional products.

Got it. Got it. I guess them landing with which one they land first, I guess, we’ll get some clarity on that. Nima...

Just one other quick note on that. This most recent quarter, Bhavan, was the first quarter where we signed a greater capacity of nonmortgage consumer banking products than mortgage products. So this quarter, it was a little bit of a flip on the script from what it used to be.

Got it. Got it. That’s super helpful, actually. Thanks. And then you mentioned something about you’ve got sort of a 10% unused share kind of a capacity within the existing installed base. I guess how do you access that unused share? Is it simply a matter of more broadly rolling out the platform? Or are there specific investments you need to make to access that sort of using “unused capacity”?

No, those are customers who have signed with us and volume that signed with us that could use our existing products as it is today. So you can see between H2 last year and H1 this year we grew our market share within mortgage by 6%, but then the rollout doesn’t happen overnight. And so it’s just more of us going through the motions of rolling out our customers, getting them standardized on the product over time and working with us to expand it beyond the initial rollout and pilot phases that they might go through. And so the KeyBank example is a great one, where it happened really fast. Within a quarter, they were already live and doing real volume on our platform, but they’re still not fully rolled out. We’re still in the process of continuing to roll them out as we get more and more of their business on our platform.

Got it. Got it. It’s almost like a captive market. Got it. Appreciate it, guys. Thanks for taking my questions. And nice job on the growth rates there.

Thank you. The second question is from Michael, Michael Turrin from Wells.

Thanks for bearing with me while I got the mute function off of my phone. I wanted to stick with the consumer banking for a moment because I think the added disclosure is certainly helpful and appreciated. We see the increase in transactions and what that looks like from a mix perspective, trending towards 20% of platform revenue. Are there expectations you can share for how that could trend going forward over time? Is there either an optimal mix you see or anything you can add just around your existing customer base that, that mix could shift towards between consumer and mortgage over time?

I think there’s a massive opportunity in consumer. About one-third of our customers have at least one consumer banking product today. And what we’re seeing is an uptick on both marketplace and additional consumer banking products, very differently from what happened even in 2020 or 2019. So it’s – I mean, for me, it’s – I don’t know that I could say if there’s an optical – there’s an optimal mix. I just think that consumer banking is a huge opportunity. And the component parts that we built over the last nine years are very much applicable to our forays into consumer banking.

That’s helpful. And Nima, you mentioned the new Income Verification product and 50 customers signed. Anything else you can add on how much of the base that could attach to or address relative to the 300-plus customer logos you currently have and maybe what that does from a price perspective for the overall model? Thank you.

Sure. So we priced the product, it’s a similar order of magnitude price to our base mortgage platform in terms of the added price per unit that you would expect to see as we get it rolled out. And it applies to pretty much everyone. I think almost every consumer who gets a loan, a mortgage, car loan, personal loan, some of them don’t need proof of verified income, but almost every mortgage does. And so that’s a good example of a natural add-on where we create more platform value and our customers want that platform value. Actually, it’s over 50 customers. And I think that helps explain how our growth in our nonmortgage businesses are growing, expanding so quickly. And so yes, so I think we’ll continue to see that grow and expand over time and probably – I would say it’s probably our fastest-growing product that we launched here at Blend.

And there’s only – a public announcement was only in October – was actually the third week of October.

Now it seems like a natural extension. Thank you. I appreciate the color.

You bet. The third question is from Terry Tillman at Truist. Hey, Terry.

This is actually Joe on for Terry. Thanks for taking the question. So how has the progress been with the low-code journey builder? Just wanted to confirm how that’s been trending. I’m not sure if there were any comments on it in the prepared remarks.

We think of that as our base consumer banking platform. And so that is the thing that’s helping us grow. We have live customers in production on that. And we just had our executive forum we call Blend Forum, where we had a bunch of our customers here together with us the last two days, and it was a hit of the shelf. The idea of being able to have all the power of the Blend Platform and the flexibility of being able to make it your own journey over time, it’s something that can apply across their entire businesses, and they love that. And it helps us also work with the CIOs who want to have that control but also have the flexibility as well as all the things that we’ve been able to invest in over the past two years. So it’s an incredibly powerful product, and we’re getting a lot of uptake from our customers in wanting that.

That’s super helpful. And then just around Blend close, is that like a material percentage of the mortgage revenue right now? Is it like 5% or 10%? Or is it much less than that right now? And what do you think that can become over time?

Just for clarity, Joe, the Blend closed product is in Consumer Banking and Marketplace. So mortgage is purely the mortgage times the number of funded mortgage loans. And so all of our other ancillary products are included in that second line. So that’s part of the reason you’re seeing the growth is because of the uptake of those ancillary products.

But to answer your question about where we see that growing, it’s still early days, but it’s also a very fast-growing product, and we expect it to be – continue to grow into a material part of our revenue going into next year.

Thank you.

Fantastic. Karl from UBS.

Great. Thanks very much. Maybe two for me. Marc, you mentioned that you think the mortgage revenue stream will remain in terms of a positive growth territory for the foreseeable future. That’s encouraging. We, for one, were in the spirit of mortgage volumes being down, modeling your mortgage revenues down in 4Q, 1Q. So it’s encouraging that you’re not envisioning that. I just wanted to press a little bit on why. Is it because the decline in mortgage volumes is turning out to be a little bit less than you expected? Or is it that you’re having more success on new logos and share gains? Or maybe it’s a little bit of both.

I think it’s a little bit of both. I mean we have had a lot of success in continuing the rollout that captured market share. Customers are on the adoption curve and just having a lot of success with Blend, a high ROI with Blend. So they’re motivated to roll it out, and we’re motivated to help them. The markets are also – the refi volume has not declined as much as many people predicted.

Yes. And just as a point of reference, the markets were down. We estimate the market was down over 25% year-over-year, and our revenues were up in the Blend Platform segment over 25%. And – so we – that’s the kind of trend that we want to be able to show is that we can continue our growth rate, and that shows a pretty high growth rate normalized for volumes.

Got it. Okay. And then my second question, just in terms of the core Blend Platform, was there any positive impact from any Title365 migrations? Or was it pretty clean? And when – is it 2Q next year? I think you mentioned, Nima, that we should see some of the migration boost such that Blend Platform might start to see a bump from those migrations. Maybe you could update us on the timing of that.

Hi. This is Tim. Thanks for the question. So I think it’s fair to say that the numbers that you saw for this quarter were not the result of migrations. The single biggest mutual customer between Blend and Title365 is Mr. Cooper. I think, as Nima mentioned in his opening remarks, we expect them to go live on the Blend Platform in Q2 of next year. We do have some pilots that we’re running with other customers over the coming months, but I think it will be next year when you start to see real migration. And this quarter didn’t reflect much of that. We’re building the integrations. That’s going to find that the technology integrations. The rest of the integration process is coming along just as we had expected. So it’s all going as we thought it would. But I think you’ll start to see the migration from Title365 to the Blend software platform in 2022.

Wonderful. Thanks for the clarity.

Great. Next, we have Josh from KeyBanc.

Thank you team for taking the question. A lot of good data that you’ve shared, so I just wanted to say I appreciate that. I wanted to talk a little bit about the market share statistics that you provided. And it’s very helpful, obviously, to see kind of the untapped opportunity there. Just curious, like when you think about maybe the pipeline and the conversations that you’re having with customers, obviously, you have some nice wins as well, just how you see that evolving over time? Just curious if there’s some type of limit maybe to the market share or if you just feel like, based on the pipeline, you’re just going to continue to add customers and there’s just going to be a lot more untapped opportunity in that chart.

Well, if you saw H2 of last year to H1 of this year, we grew market share by more than 6%, almost 7%, which was pretty significant gains for such a short amount of time. We signed some really big customers. We expect that there’s additional – that was our best half year ever, I think, if I look back at history, and we expect that we have still a lot of headroom beyond that. So we’ll have probably some more wins we’ll announce over time. And then on top of that, the near-term opportunity is great. I mean a 10% that’s untapped within our current customer base, it’s like the most short-term pipeline. It’s already signed. They want to work with us to roll it out. They’re already working with us to roll out. It’s a matter of execution. And so continued good execution, we’ll get that rolled out onto our platform. But now we don’t see any short-term headwinds in terms of overall market share possibility.

Okay. That’s very helpful. And then I wanted to also ask about the market adjusted net retention. Obviously, these are very good metrics in the 140% to 180% range. I’m just curious, as we go into next year, what type of visibility does that provide you from effectively growth from existing customers versus the dependence on new bookings? So just kind of curious how that translates into visibility as we start to think about 2022.

There’s so much opportunity in our existing installed base that we believe in really strong net retention numbers. There’s – we’re not seeing any declines. We’ve tried to extract the market impact from our net retention numbers so that we make it as clear as possible to everybody that we’re seeing this underlying core growth in our customers, and they’re adding products and they’re adding value and then we’re partnering with them in that way.

Very helpful. Thanks, team.

Operator, I think there aren’t any other questions in the queue. You can go ahead and close the call.

This will conclude our question-and-answer session as well as today’s conference call. Thank you for attending today’s presentation. You may now disconnect.