Good afternoon, and welcome to Blend's First Quarter 2023 Earnings Conference Call. My name is Winnie Ling and I'm the Head of Legal for the company. Leading today's call 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, the 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.

Hello, everyone and thank you for joining. I want to start by briefly summarizing the quarter. The headline is, we came in well ahead of our revenue and cost saving targets and closed one of our largest platform deals in Q1, which was also one of our highest revenue deals in our history. We are focused, we have a sense of urgency and we are getting leaner and stronger. We've been building the muscles necessary to execute and this quarter is a testament to the work we have done and we will continue to do. To elaborate on our results, our platform revenue came in at $27.9 million based on our prior segment structure on which our guidance was based. Amir will walk through our new presentation that better aligns with our business focus moving forward, but the headline for Q1 is that our performance is well ahead of our expectations, largely driven by the strength of our mortgage customer base. We expect Q2 platform revenue to be even better than Q1. We've always said our customers will be best positioned in a downturn given their position in the market and the cost saving benefits of our technology, and we're seeing that play out in practice. Our mortgage market share grew to 23.2% in the second half of 2022, up from 14.5% in the second half of 2021 based on third-party market origination data. In addition to that, we signed one of our largest consumer banking suite deals ever, which we believe is a major validation of our Blend Builder platform and now have close to 20 active customer projects going live on Blend Builder Solutions. This part of our business is growing and Blend Builder will be the foundation platform for all aspects of our business over time, including…

Thank you, Nima, and good afternoon, everyone. I’m pleased to be joining you today to discuss our financial results for the first quarter. The results we’re reporting today are a testament to the resiliency of our business model, amidst an exceptionally low volume environment for industry mortgage originations. We owe our performance to the commitment of our employees and our customers who are critical partners in helping us build a more simple transparent banking future. As I walk through the financials, I will provide context surrounding the outperformance relative to our Q1 guidance, along with an update on our outlook for Q2. Before getting started, as we previewed in our last quarter call, we are changing the way we present our financial results effective Q1. We’ve made these revisions to give you better clarity on the progress we’re making on our strategic objectives that Nima recapped in his remarks. The constitution of these new reporting lines in comparison to our old ones can be found in our supplemental update. I’ll briefly touch on how we are thinking about them here. Our two segments consist of platform, which comprises our Software businesses and Professional Services and Title, which now also includes our software-enabled title offering in addition to Title365. Within our Software business, our Mortgage Suite revenue line now includes our marketplace activities as well as value-add products like income and close that attached to the same loan we charge for our mortgage product. As you recall, these were formerly reported in our Consumer Banking and Marketplace revenue line. Our Consumer Banking Suite reflects the lending, deposit and broader banking technology products that are powered by our Builder platform. We understand that historically it has been challenging to follow along with this growth, and I’m optimistic that as we continue to…

Thanks, Amir. I’m encouraged by our results for this first quarter and optimistic about our outlook for the balance of the year. We are executing with renewed focus, driving toward our goal of profitability while growing market share as we deliver superior value to our customers. We now have clear line of sight to positive operating income and believe we are positioned to manage all future liabilities, while continuing to invest in our business. As I’ve said in the beginning of my prepared remarks, we are a different Blend today. We’re more focused and have a greater sense of urgency across the company. I appreciate the level of execution we’re seeing by our team in these critical times. 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 Matt Stotler from William Blair. Matt, please feel free to unmute and go ahead.

Thank you for taking the questions. Maybe just want to start off, taking a look at the – I guess, the formerly known Consumer Banking and Marketplace segment. Been growing very quickly, but still somewhat limited in terms of contribution to the overall business. Any thoughts on how you can accelerate adoption of these products? I mean, at this point, is it basically contingent on the role of Blend Builder? And if that’s the case, how does that impact the monetization strategy for these products?

Yes. Thanks for the question, Matt. This is Nima. A couple things. One, we did just announce – it’s not right yet in our revenue, we announced a really great partnership with Navy Federal expansion with them around deposit accounts and new membership. We’re seeing a lot of focus around deposits given the current situation with regional banks and the broader banking system. So we expect to see more demand on that front. We also mentioned in almost 20 projects in progress right now on Blend Builder as we speak. So I think the way to get that to grow is to continue to go out there and sell it and work with customers who want to get that value across the bank. We have a great customer base who relies on us and we’re in active conversations with a number of them on opportunities to continue to grow with them.

Thanks, Nima. Our next question comes from Ryan Tomasello from KBW. Ryan, please feel free to go ahead.

Hi, everyone, thanks for taking the questions and congrats on the continued progress. Appreciate the updated financial target for positive operating income in 4Q 2024. Was hoping Amir, you could put a finer point around the drivers there. Maybe the assumptions you’re making for top line growth between now and then where gross margins go by product? And I guess the final piece would be where you think non-GAAP OpEx is exiting this year. Often you get through the run rate benefit of the expense efficiencies we’ve worked on. Thanks.

Thanks, Ryan. Several items to unpack there, so let me make sure I go through them. One, with regards to where we’re seeing, we’re seeing an acceleration in our just the prior targets that we’ve set and that’s contributing both from what you saw on the revenue basis, it’s tied to that. The improvements that you’ve seen on the gross margin basis and those are triggering, not just the beat that we’ve had this quarter, but also part of the benefit as we proceed further. As I mentioned in the prepared remarks, beyond that, just as a company with the renewed focus that we have on executing to this path of profitability, we’ve been looking at other parts of the business. You can see this in the revenue desegregation and our breakouts where we will manage to hire levels of profitability that is a contributor by itself. You also asked with regards to just our overall OpEx, I think for us the point that what I want to make sure we get across is that we are in essence, again, not only ahead, but also that we would reaffirm and will surpass the $20 million operating income – below the $20 million operating income loss that we had previously shared for 4Q 2023.

Thanks Amir. Our next question comes from David Unger from Wells Fargo. David, would you like to unmute?

Yes, thanks very much. Just one for me. Nima, big picture question. Can you talk about AI and how that can play a role in your business? Just transforming the banking industry in general, what opportunities do you see? What do you think could be potential for starts and stops in the industry? Thank you.

Yes. I think the place that we’re seeing the most traction for AI and enterprise right now is what I’ll call co-pilot space. And one benefit that Blend has that I think is a unique benefit is because we have so much market share already flowing through our platform and so many loan officers and branch bankers and employees of these institutions already using Blend, we can help them. I believe we can help them materially over time. We have so many interactions happening on our platform already that we can use to help make their lives a lot easier and a lot better. It is a space that we’re looking into with a couple of our customers to ensure that we can get something off the ground, but still too early to tell exactly how it plays out over time.

Thank you. Next we have a follow-up from Ryan Tomasello, KBW. Ryan, would you like to go ahead?

Yes. Thanks for taking the follow-up guys. I guess, in terms of the sales environment, particularly in mortgage, have you seen any green shoots there in terms of demand or winning attrition as we seem to have passed through trough fundamentals in the fourth quarter and first quarter here? How are you thinking about, just the lagging impacts going forward, just particularly around industry headcount given that capacity still needs to come down? And then quick unrelated follow up here would be you called out, I think some benefit from revenue recognized on multi-year contracts in the quarter, just to be helpful to understand how much of the revenue that drove in 1Q. Thanks.

Yes, let me take the first question and thanks for the question. Let me take the first question on the sales cycles and mortgage and what we're seeing on in terms of our outlook there. Sales cycle – anytime there's a downturn like this and people are really trying to find as much savings as they can, mortgage margins are as bad as they've ever been. Q1 was the lowest volume quarter on record that we've seen at least. And so there's – on top of that, you layer in low margins, there's going to be some lengthening of sales cycles, but as you saw in our numbers, we were also growing market share. And I think part of that is there's consolidation, which we often benefit from because our customers are the ones who are already using technology to get the benefits and have higher margins. Anecdotally, I've had a couple customers of mine tell me that they were, again, maybe bucking the trend to the market and profitable in Q1 despite the headwinds. And I think they're – a lot of that is just benefits of using automation and technology broadly in their business. And so we're looking at this as a time of consolidation and we're looking at a time for us to continue to invest in our customer base. And I think if we do the right things and the market headwinds continue to be what they are, long-term it's I don't love it. Our customer base is feeling a lot of pain from it, but I think we're going to come out stronger collectively as a customer base together. And I think on the flip side, we're also not only we're investing on a mortgage customer base, we're also diversifying in these other areas. And I mentioned the Navy federal deal. They did a press release with us, we saw some customers on the mortgage side who did come back to us after going to lower cost products. And so I think that's a really good, those are really good indicators for us, but we know we have a lot more work to do. And let me turn to Amir to answer your question about the one-time revenue considerations,

Ryan, I think the key piece to focus on, are the following for us where we saw the benefits are very specific to what you called out and what's driving that is as we're seeing upticks in the forecast from our customers, we're now able to recognize more of that revenue. So that's part one of it. The way to think about how much that was of relative to just the overall base. It was not a material mover of the overall base.

Thank you, Nima and Amir. That concludes our Q&A today and – sorry, I'm just seeing, Ryan, I think you have a follow up question, so if you want to unmute, please go ahead.

Hey guys, I'll just continue to squeeze in one or two here just for the sake of using people's time. I guess, the focus on the software enabled titled product, is that a key piece of the business going forward, relative to the storyline you've pitched there in the past. Conversely is that a business you would consider exiting to free up some capital and reduce the liability associated with that business? And then another follow up would be just on the revenue per loan growth on the mortgage side that still is pretty strong excluding some of these benefits, where do you think that could go over time? What type of adoption are you seeing of the marketplace products and the add-on products like close? Just trying to understand where that, call it 80s or so revenue per loan that Amir talked about on a normalized basis could theoretically go over the next few years if adoption trends in line with how you're thinking it should. Thanks.

Yes, so to talk about title briefly. So for example, title in our instant home equity product, it's a key software enabled part of that product, and that's a really important product to us. That was a major announcement. Our home equity volumes are materially higher than we even expected they would be. And that's driving some of our consumer banking growth. So title is definitely part of our core thesis. A big part of the reason that we broke it out is when I talk to investors, when I talk to you all, sometimes I think people don't fully understand the gross margins of our business. So, we reported for the first time ever our software gross margins which excludes professional services and title revenue. And it was in the mid 70s and going up. And so we wanted to make sure people could see that in the market that our core platform does have really high margins. And as we continue to build out new solutions and involve title, we'll of course share those with you as well. On the revenue per loan front, I want to share just a little bit of anecdotal things, which is for the reason that revenue per loan is going up, is these add-ons as we – A, as we create more value in our core platform. Often that comes with some price increases in our core product, but really the value comes from our add-ons, which the blend income product, for example, is an income verification product that is a cost saver for our customers. And when margins are tight, they need to be able to save money. And so we're seeing those things gain market share with our customer base or gain wallet share within our customer base, which is important. Blend Close, getting digital closings, utilizing e-notes. Those also drive adoption of that product. And so, I don't know, we're not going to guide exactly where the total revenue per unit will be, but as a general trend, we're seeing it go up over time as you noted.

Thank you, Nima. I believe that concludes our Q&A for today, and that's a wrap for our conference call for today.