Good afternoon. And welcome to Blend's Fourth Quarter 2022 Earnings Conference Call. My name is Winnie Ling and I'm Head of Legal for the company. Leading today's call are Nima Ghamsari, Co-Founder and Head of Blend; and Amir Jafari, our new incoming Head of Finance and Administration. Our outgoing Head of Finance, Marc Greenberg is also with us. After Nima and Amir deliver their prepared remarks, our team will take questions. You can find the supplemental slides on our Investor Relations webpage 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 2023 maybe 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 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.

Thank you, Winnie. 2022 was an extremely challenging year for our industry as we continue to see a sharp uptick in mortgage rates and margin compression for our customers. We have learned we're not immune to the industry volume declines, which naturally impacted our financial performance. While the results are disappointing in the absolute sense, our total revenue was within the original guidance we laid out last March when no one knew quite how historic the mortgage origination downturn would be. It's important to note that despite these challenges, we continue to outperform the broader mortgage origination market in 2022, which points to the significant value we deliver through any part of the market cycle. The technology that powered our customer and drove productivity during the high volume pandemic boom is the same technology that is helping our customers improve their speed, efficiency and ultimately, their margins today. Outside of mortgage, we've also continued to see traction with our Builder enabled Consumer Banking products, which grew by mid double digits in Q4 versus the same period last year. I'm also proud to share that in Q4 2022 Credit One Bank signed deposit accounts that takes advantage of the drag and drop capabilities of our Builder platform. We're also pleased to expand our relationship with Compeer Financial in Q4 2022, who is rolling out with the our Builder enabled personal loans, credit cards and specialty products. We believe the power of our Builder platform could accelerate this growth rate in 2023 as we focus on putting the power of composable origination in the hands of our customers. Even with all this momentum, we remain realistic about the challenging and uncertain macro environment, and you'll hear us talk more about some of our ongoing cost management efforts, which are intended to align…

Thank you, Nima, and good afternoon, everyone. On today's call, I will cover our financial results for the fourth quarter and full year 2022. I will also provide an update on our progress to optimize our cost structure and accelerate our path to profitability. I will discuss the changes we expect to make to our disclosures in order to align our financial discussion as we continue our evolution as a platform company. I will conclude with our outlook for Q1, including a few insights on cost actions you saw from us in January. Please note that all figures referenced in our results are on a non-GAAP basis unless otherwise stated. We provide a reconciliation to comparable GAAP metrics alongside the earnings release we posted to our Web site prior to this call. As Nima explained, the industry we operate in has been facing incredible challenges. In 2022, interest rates increased at a faster pace than any time in the recent history. Stickier than expected inflation and the threat of a looming recession worked in combination to dampen confidence, delaying decisions regarding borrowing and home ownership for any consumers. Between Q4 2021 and Q4 2022, industry wide refinance volume declined by nearly 90% as the rate environment worsened. Total mortgage origination in Q4 was less than a third of the volume we saw in the same period last year. This represents a truly remarkable decline in activity. Against this market backdrop, our business continue to make investments in our lending products to improve experience, efficiency and access to financing, all while giving the lender the right set of solutions to enhance their own productivity and reach as many borrowers as possible. In January, we announced additional cost reductions and efficiency initiatives that combined with the swift actions we already took in…

Thank you, Amir. Clearly, our near term market environment will remain challenging. But this is an important and exciting moment for Blend. The launch of the Blend Builder platform with our industry's first composable origination capability is the culmination of several years of investment in careful planning and is central to our vision of transforming how the modern day industry drives productivity, efficiency and service delivery to their customers. Importantly, we're putting the right business structure behind our vision. We are significantly streamlining our cost structure and we have leaders in place who know how to drive a migration to a platform as a service model. We're excited by our early momentum but we also know we have a lot of work to do. With that in mind, we are heads down on our execution in 2023. With that, thank you again for joining. Winnie, we are now ready for questions.

Thank you Nima and Amir for your remarks. We'll now turn to Q&A. Our first question comes from Ryan Tomasello from KBW.

I think obviously macro is in focus right now. So it'd be helpful to understand beyond what you've said in the prepared remarks, how you're thinking about the puts and takes in terms of macro drivers from here. Specifically, any parameters around your exposure to the regional bank space and more broadly how that situation there realizing it as fluid, including just recent announcements over the last few hours, how that could impact the land in terms of demand and attrition this year? And then second as it relates to mortgage rates. If those continue to be very volatile, obviously, but to the extent we get more significant relief here with rates declining. At what point do you think that ends up being a more meaningful impact for Blend in terms of direct volume exposure on the revenue base, are there limitations there based on the dynamics around refi and what could actually move the needle? So I'll leave it there with that macro question.

I think on the -- so on the regional bank side, we're paying close attention on the regional bank side. We have some of them as our customers, not all of them obviously. We didn't have exposure to Silicon Valley Bank, which we put out some information on. But yes, we're paying attention. Sometimes industry consolidation is a good thing for us. But we looked at our overall revenue that's a risk in that segment and we deemed it not material. So we're feeling pretty good about it. We're here to support our customers in this time and we're making sure that they have everything they need from us. But at the moment, it doesn't look like it's -- we're obviously monitoring the situation. At the current moment, we don't feel it's a major area that we need to be doing anything on. On the mortgage market, we did see -- we have been filing application volumes and mortgage rates are coming down a little bit as a result of recent news. It does affect application volumes. As soon as mortgage rates come down, we will see application volumes go up. It does take time, people have to find homes or forget the refinance done, so it does take time for that to hit. Think about it as like a 60 to 90 day lag for our numbers from the time the mortgage rates come down. So that's kind of how we think about the time that those things hit the numbers. Amir, if you want to add anything there.

Just a few comments to complement what Nima was saying. With regards to the exposure for SVB, we also just want to confirm we don't have any exposure to Signature Bank. And I think on top of that from a macro lens and to your question with regards to risk exposure, we believe strongly and we follow what Treasury Secretary Yellen mentioned, which was the US banking industry is sound, it's well capitalized and so we remain optimistic. And like Nima said, we're just going to support our customers.

The next question comes from Terrell Tillman from Truist.

I guess, so I think what you all said, you're not guiding to the full year, but I thought I did hear something about potentially, sequentially, there could start to be some uplift from first quarter revenue levels, maybe on the platform side. But I don't know if you can like either confirm or help me on that. Maybe I was just confused. But you definitely have some sort of internal assumptions that are informing this idea of that kind of $20 million or lower loss by the end of the fourth quarter. So if you're not going to be able to give us some of those planning parameters more formally. Anything you can share maybe on the consumer banking side or how low, does it go to zero on title 365. Just trying to understand anything more, though, you could share for the full year that informs that EBIT loss kind of target. And then secondly, after that long winded first part of the question is, how do we think about free cash flow? Because I think people are also looking at your free cash flow, just given kind of the balance sheet and how do we think about free cash flow in relationship to maybe EBIT losses? And then I had a follow-up.

On the title side, we don't expect that to go to zero. We have migrated the major customers that we think we're going to migrate, there's certain parts of the title business like default and home equity that won't migrate to the platform that are not part of the refinance business that’s tied to our platform, the software enabled title. And then I'll turn to Amir for the remainder of the question.

Terry, there was just a few items to unpack there. Let me just start with one of the pieces. With regards to free cash flow, just for us, as it pertains to our overall cash position, we feel strongly, we have analyzed it, we understand it. We feel strongly that we are in a great position from a cash perspective. As to the generation of free cash flow, given builder and our execution on cost, I think we believe strongly that we can deliver on free cash flow generation early, but it's not something that we are going to comment on today. If I missed any part, but I think you had one more with regards to net operating losses. Point us back to what we shared, which is we feel that there is just good momentum with regards to the actions that were taken on January 10th. And as I mentioned in the prepared remarks, we are making great progress on those front. Although last [Technical Difficulty] you asked one more, just one more piece that you asked for and then let's get your follow-up, which was you asked with regards to just our overall macro and indications from a guidance perspective. You are correct, we are not guiding to the full year today. As you can expect, it's really just driven by the overall uncertainty. We follow Fannie Mae and MBA and I think what we would point you to is that as we follow their forecast, they are pointing to Q1 being the low point. And from there, the ability to show sequential growth. Last comment too, Terry, and then I will pause for yours is, remember, just we noted that none of the new Builder deals are in our forecast. And so as we continue to stay focused on our mortgage customers and the rollout of builder, that's where we feel optimistic.

And then sorry for that, like, 15 part question, and this is the final question, and it's a one parter. It does seem like going forward, the model could have less volatility, particularly with platform fees. And I know it's early, but could you give us kind of a guidepost how a typical deal would look like in terms of how much of the deal would be those more recurring platform fees and then how much would be activity, if I think of like a percentage of a dollar between the two or something? Just some sort of balance of the two.

We’re not going to share that right now, Terry, because its still evolving. But its a newer concept that we said we introduced late last year, early this year. And so we are vetting out with some customers as we get more color there. We plan to spend more time with you all later this year and we will walk you through that model in detail. I just want to to say one other thing on the sequential growth. One thing that we look at is applications and we have -- for example, we looked at applications in Q1, which are an early indicator for closings, not always, but seem to be an early indicator. And that's what gives us more confidence that the outlook is a little better than every quarter -- the quarter forward than it is today if that makes sense.

Our next question comes from Michael Ng from Goldman Sachs.

First, I just wanted to ask about the the cadence of non-GAAP operating expenses for 2023. Anyway you could help us with how we should think about that for the first quarter and how that will progress throughout the year. Certainly, appreciate there is some macro uncertainty. But this feels like it's more directly in your control. And then second, it's encouraging to hear about the expectation for per funded loan rates to increase overtime. When should we expect those feature sets to expand to help that funded loan rate number, is this something that's more meaningful this year or was that a longer term comment?

Michael, let me start with what you asked with regards to non-GAAP operating expenses. As you heard in our guidance, we don't give specific feedback or guidance as it pertains to operating expenses for our outlook. What I would point you to is what we've shared with regards to our net operating losses. And what we highlighted was a great progress with regards to the actions that we took, not just in 2022 but also in January 10th. We're on track as we reported and [Technical Difficulty] very focused on the thing that we know we need to take and the [clear path to] profitability that we've kind of paid for ourselves [Technical Difficulty] just indicative of the work that [Technical Difficulty] with regards [Technical Difficulty] to provide [Technical Difficulty] customers through the add-ons solutions [Technical Difficulty] and products that carry us throughout the [Technical Difficulty] allow us to provide more value to our customers. It's not something that we're going to speak to today as it pertains to forward looking, but we will come back to it in the future. And what we shared with you is just where we are right now.

Our next question comes from Joe Vafi from Canaccord.

Just on Builder, just you know it's very early. But you can give us a feel for the types of customers or financial institutions you're engaging with there, is there any change in size or I guess perhaps entry point with those financial institutions kind of versus your, I guess, kind of some of your historical products? And then I have a quick follow-up.

Was that a question of Blend Builder, Joe, just so I…

Yes, it was on Builder.

Yes, think of Builder as it has two major things that it does for us. One is it accelerates our ability to build solutions. So when we go into new markets, like deposit accounts, like we announced is on the platform, instant home equity was built in a few months by configuring on Builder. So that allows us to create solutions, which is very important. And then the second thing that allows is allows our customers like some of the ones we mentioned on the call today to take advantage of those things and so -- and take advantage of that flexibility. And so Credit One is a good example of one Compeer is a good example of one. So it doesn't necessarily change the size of customer, although, typically, it's larger institutions who will want that level of flexibility and power and be willing to pay a premium for it. What it really does it expands the accessible market for us, because it allows us to get into solutions that historically would not have been possible without the box, very rigid solutions. And so it really expands the opportunity size for us and the total spend that we could target with a customer over time, because we'll be able to create a lot more value for them and speed really matters for them and it matters for us.

And then just I know you're guiding by the quarter based on -- obviously, the macro is a big input. But seems like you're continuing to gain share. Is there anything we should look at in terms of -- or extra color you can provide on what you could potentially do on share gains in 2023, the macros kind of out of our control?

That's a really hard one, Joe, because there's a lot of change happening in the mortgage industry as we speak. So I don't want to comment on it right now but it is something we're paying close attention to. First and foremost, our primary goal this year is make sure our mortgage customers are happy and the existing ones are successful, because it's a tough macro for mortgage companies right now and we want to make sure whether they're part of a bank or they're independent, but they're getting the value from Blend so they can thrive and come out the other side and gain share on the other side, that’s what’s really important.

Our next question is a follow-up from Ryan Tomasello from KBW.

I guess, realizing that the macro is clearly out of your control, it’d be helpful to understand additional levers you have to pull from here depending on how ultimately that that shakes out flexibility around the cost structure from here if there's any more room? And then just regarding balance sheet and liquidity, are there certain options you could explore? I think you alluded to being opportunistic. What exactly does that mean, for example, because you exit the title business, the legacy title business, address some sort of restructuring of the term loan, just trying to understand all these different levers that are in your control, notwithstanding macro?

Let me start with second part of the question, Ryan, which is just with our balance sheet. I think what we shared for the most part is we feel great with regards to the cash runway we have. We feel strong with regards to our path to profitability. And so outside of going into more detail with regards to just the options or the actions that we take, it's not something that we are going to speak to her right now. Of course, it's our -- just as a management team, it's our duty, it's our responsibility as it is for the board for us to, A, always be prudent in terms of what we review and make sure that in areas that we can strengthen our balance sheet, of course, that's an area that we will monitor, we will review and if needed to, we will take an action that benefits the company. You also asked -- Ryan, you also asked about shares. I think what's important with regards to shares for us to highlight is we shared with you the perspective. And albeit a lagging metric from -- I think what we're focused on is that in the short term -- short and maybe some oscillations with regard to market share where we feel strongly is that the customers that we serve from a long term perspective, what we're seeing is our customers win. And when they win we gain market share and in the long term, we believe that that's a trend that will continue.

Our next question comes from Matt Stotler from William Blair.

This is Alex on Matt tonight, thanks for taking our questions. Just a couple of from me. One, can you -- just building on the macro dynamic. Can you give us an update on your observations regarding the impacts of the current macro that it's having on your business? Specifically regarding the pace of rollouts at newer customers’ buying patterns of existing customers and overall demand environment?

I think definitely on the mortgage side, there are some customers or prospects that are saying, hey, we're lowering our mortgage budgets this year, because the market’s not great. They do see as long term important part of their business but -- and they've turned their focus elsewhere to their business. We spend time across many product lines with customers now and digital transformation, I mean, I will tell you, it's never been more top of mind for our customers. They understand the necessity to serve the consumer across multiple asset classes and that is where Blend can help them. And especially with Blend Builder, we can offer them a lot more capabilities than we could historically and do it a lot faster. And so we're hearing requests from things all, ranging from things like credit cards, to personal loans, to deposit accounts, to even small business, which is an area we've only lightly played in historically but is top of mind and we're spending so much time with our customers on those things. And I'll just end with this. Always the number one thing for us is maintain our existing customer base and manage that and make sure they are successful. And that is the most important thing in tough times, because on the on the other side, the ones that come through, we will have more market share, because it'll be a smaller subset of players that make it to the other side. And so we want to make sure we're there for our customers and we make them more successful, so they are winners in the long run.

Our next question comes from David Unger from Wells Fargo Securities.

Just one from me at this point. So anything coming out of the last week that would change your go-to-market approach with the financial institution community and their receptivity to embrace technology investment at this point?

Can you elaborate on and sort of…

Certain banks spend differently through potential contractions and expansions and just trying to understand if -- I mean, a lot of your customers are focused on risk management right now and obviously you have a great solution. So just trying to get a sense for if your go to market approach could change overtime in the way that banks think about technology investment and partnering with you.

Actually, I think you you said it right, which is I feel like our value proposition actually really marries up well to this where a lot of the banks that are being affected had really a high concentration in commercial business, but not as much consumer business. And so a lot of them are trying to figure out how to build that consumer muscle, which is exactly in the direction that we play. That's how we help our customers win, that's how we help our customers continue to grow, their customer base have better lifetime value with those customers, better economics on a per customer basis, or diversification within their customer base. And so if anything, I think that some of this -- in the long run, again, we don't want to be part of any sort of macro situation like what we are going through now. I think it's -- while we do have good faith in the Fed, we are definitely -- we don't want to see Silicon Valley Bank going under, that's been a stable in the tech world for a long time, even without our exposure. But in the long run, it's going to allow companies who use systems like us to be even better and even stronger and we are excited and we are a premier software partner for them going forward, not for Silicon Valley Bank but in general, I should say, for the banking industry.

Up next is a follow-up question from Terry Tillman from Truist Securities.

This will be a easy one, I promise. I think you all talked about the gross retention was at about 97% in 4Q. Should we expect that maybe that could drift a little bit lower on a gross basis, because of maybe some of the fallout in the non-bank mortgage provider side? Or just anything more you can share about how you are thinking about gross written retention in the near term?

We are not sharing any forward numbers there, but you're exactly right where we are seeing independent mortgage banks sometimes get consolidated. And so because gross retention is calculated based on the total customer base, even if that customer gets acquired by another customer or the LOs at that customer go to another one of our customers, if doesn't -- we don't get the uptick on the gross retentions from going to another customer. So even if the consolidation is good for us, gross retention could in theory go down. We don't have forward looking numbers on that. We are reacting as we see things. And so a lot of the retention, a lot of the times when we churn our customers, because they -- like we said, they go out of business with some consolidation. So that's where we are paying attention. And I think, generally, we think consolidation is good for us.

Thank you, everyone. That concludes our Q&A and today's earnings conference call. Thank you, everyone again for joining us.

Yes. Just a quick closing remark. Yes, thanks for everyone to join us. I know there's a lot going on in the banking world. Like I said, we're paying close attention to it. And I just want to clarify, when I said earlier that there's no material risk, we're monitoring very closely. We don't foresee anything but we're reacting in real time. So as we see things, we're paying attention. And obviously, the banking sector is very dynamic right now. So I just wanted to clarify that point where there's a lot of unforeseen things that have happened in the past few weeks that we don't want to overstate what's happened or not. But [Call Ends Abruptly]