Good afternoon, and welcome to Blend's Second Quarter 2024 Earnings Conference Call. My name is Winnie Ling, and I'm the Head of Legal and People 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'll 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 investors.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 third 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-Qs and other SEC filings. We are 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.

Thank you, Winnie. Good afternoon, everyone. Welcome to our second quarter earnings call. The results we're sharing with you today reflect continued execution against the objectives we set out to achieve late last year, and I'm encouraged that our ongoing commitment to serving our customers through innovation and technology is paying off. We signed a number of important new deals this quarter. We brought more customers live on our platform, and we saw a record high economic value per funded loan, all of which showcase the applicability of our platform to the challenges facing origination broadly today. Before we get in the details of our progress, I want to spend a moment to share our latest perspective on the environment that we're operating in. Since we last spoke, there's been a meaningful shift in the tides in the lending environment across the U.S. and see in the bond market, the bond market seems to be signaling that the Fed's target rate could end the year potentially more than 100 basis points lower than where we've been for the last year. Mortgage rates hit their lowest level since April 2023 earlier this week. And we're already starting to see this show up in our business through application activity levels. And while I'd say it's too early for us to tell how this is going to convert into fundings or revenue or what lies ahead going forward in mortgage rates because things shift seemingly day to day. It's an encouraging signal as we look into the second half of the year. Even more importantly though, I'm hearing from our customers, the market that there's now a greater sense of urgency to get ready for the new market environment. In particular, while profitability has been low for mortgage companies in recent periods, that's…

Thank you, Nima, and good afternoon, everyone. I'm pleased to be joining you today to discuss our financial results for the second quarter. Our second quarter marks another period of strong execution. We welcome several new customers to our platform. We increased the pace of growth in consumer banking. We've reached a new high for our economic value per funded loan, and we took one step closer to reaching our goal of fourth quarter non-GAAP operating profitability. Before I jump into the results, let me just remind you that unless otherwise stated, all results are non-GAAP. Total company revenues in the second quarter were $40.5 million, ahead of the midpoint and near the high-end of our guidance. We reported platform revenue of $28.7 million, which was also ahead of the midpoint of our guidance. Our mortgage suite revenue was $18.5 million, in line with our expectations for a decrease in aggregate industry originations in the quarter. As Nima shared, we brought in a number of new mortgage customers this year and put together a strong pipeline to fuel growth in the future quarters. We do believe aggregate industry originations will likely be up in the third quarter as compared to Q2. And if the market is right and predicting multiple rate cuts this year, the volume increase should persist into next year, assuming affordability increases for homebuyers. Turning to another highlight. Our mortgage suite economic value for funded loan rose by more than $5 compared to last quarter and by approximately $11 compared to the same period last year, reaching $97. The step-up in our per funded loan rates continue to be primarily driven by higher attach rates of our value accretive add-on products. Shifting to the other key part of our platform. Consumer banking products continue to drive expansion…

Thank you, Nima, Amir and Winnie for your remarks. With that, we'll now ship to the Q&A portion of the call. [Operator Instructions]. Our first question comes from Dylan Becker with William Blair. Dylan, you can mute and please go ahead.

Gentlemen, nice job here. Maybe Nima, starting for you. Obviously, some recent news on the rate dynamic here throughout the balance of the year. I wonder, obviously, that has an impact on affordability, but supply has been a big constraint as well. You kind of called out some of the home equity piece. But can we start to shift away from some of that lock in that incentivizes more sellers into the market here, kind of getting a push from both the supply side and the demand side to help fuel some of that recovery.

Yes. It's a good question, Dylan. Thanks for the question. I think it's interesting -- everyone understands that refinance are very interest rate-sensitive because you have to be in the money unless you're taking cash out, but you have to be in the money to refinance otherwise. But actually, purchase tends to be relatively sensitive to interest rates as well. So, I think it will unlock new supply, new demand. And I also think the general macro that we're seeing where consumers have sort of been waiting for a long time. We might start to see some of those who felt locked in when rates start having a 5 handle on them. Start feel like it's, okay, it's going to move and think rates are moving in the right direction. So, I can move homes and refinance that new home that I buy in a year or 2 in the for handle and not feel like it's a big difference because, yes, people have been waiting on the sidelines for a long time and only wait so long.

Sure. Okay. That makes perfect sense. And maybe obviously, great to see the consumer strength as well here and what sounds like healthy pipeline commentary. I know it's a bit of an earlier initiative too, but it sounds like there's been some notable go-lives. So, kind of help us get a sense of the referenceability, some of the value that's been tied and realized from some of those early customers that's helping kind of fuel the later-stage pipeline activity that seems to be growing pretty nicely?

Yes. Actually, I love the idea of reference ability as a key tenant because it's the same word we use internally. We want every customer to be referenceable. We want them to be that happy to get the solution. And when we did the Langley Federal Credit Unit case study, I was, frankly, even surprised by how good it turned out. Obviously, we believe in our solutions, but the numbers were so good, the 37% growth in accounts going down from 32% requiring contact center intervention now to 7%. That's almost 3 quarters drop, maybe more than 3 quarter drop in how many contact interventions they needed. So, things like that become really critical. Actually, another anecdote from a customer today that I saw that their -- they had a new feature that they rolled out and almost doubled the number of people who are getting to the flow without that contact center intervention. It was a different customer. And then so I think those kinds of things that we do because it's building more capabilities into our platform, every future product that we offer, not even for that same product, not just for deposit account opening, but every future product we build or capability rollout is going to have that benefit built into it. So, it becomes this sort of self-fulfilling prophecy over time if we can keep executing on making these flows better and having a good true north for our customers.

Our next question comes from Joe Vafi with Canaccord Genuity. Joe?

Guys, good afternoon, and really nice to see really nice progress in the business. I guess, Nima following up when -- on the commentary that customers kind of now know it's time to get ready for a rebound. Can they get ready quickly here? Or is it going to take them a whole another budget cycle to get ready if they want to be in a position to, I guess, be positioned for a rebound in mortgage volumes. And then I'll have a quick follow-up.

Yes. It's a good -- I mean, another great question. One, I think it is something where they see it as a critical part of their business going forward, being able to help customers if they want to lower their monthly payments, if the macro on mortgage does shift. And so, we are seeing some customers who were kind of standing on the sidelines in terms of deploying new technology. They suddenly came to the table in the last month or 2, wanting to move really quickly. And by really quickly, I mean, abnormally quickly for organizations of their size. And so, it turns out that these organizations can move quickly if it's important enough at the very top of the house. Now, that won't be true to all of them, but we're definitely seeing it a sizable institution as well as smaller, more nimble ones. And so, I think it just sort of goes to show how important this is going to become for their long-term ability to serve their customers, getting something in place. And we're excited that we can build a solution like that. Having a solution where a consumer can go through and get through the process of refinancing a loan and locking their rate mostly in the first few minutes, I mean, it's pretty -- it's going to be pretty -- should it all work out how we hope and how we think it's going to work out. It should be pretty powerful for the market and help lots of consumers, hopefully, millions of consumers long-term.

Sure. That's pretty exciting. And then kind of on that same note, I think you called the refinance product, I think, refinance flow or something like that. And I know you mentioned that you were in beta with one customer there. Just wondering if there's a time line on getting that out to general production because it does feel like it's a great product. And I definitely know that sometimes the refinance process is even more arduous than a purchase mortgage. So, just wanted to get a little more color on that next-generation refinance product.

Yes. And I mean, it's the same question a lot of our customers are asking us right now, Joe. They're sort of a growing interest list, and there's only so much capacity we can handle at once to roll that out. But we have -- like I said, we have the next 2 already lined up. I mean, we plan to make this available as soon as we can because we realize the timeliness of it, we just want to be able to do it in a really, let's call it, highly impactful way. I'll say there's 2 things working in our favor in terms of be it in this case. One is we're using existing capabilities in our platform that have already existed for a long-time. Think about the things you need to do to do a refinance, you need to run credit, you need to check the new price of the loan, what the new interest rate will be and you compare your old payments to your new one, you need to calculate the fees, bake in those fees to make sure that, that is encapsulated in the loan capture. You need to do income verification in some cases, an asset verification in some cases, if you're on underwriting steps, if it generates documents and then get what's called intent to proceed in order to lock the rate. Those steps, those have already existed in our platform. It's really about how we bring it together in a seamless way. I mean, it's unique to have all those steps in a platform that a consumer accesses, but how we bring it together is very important. And so, we already -- it's bringing together something we've already been doing for about 8 months. And so, we feel good about the state of our product. And the reason I think we'll be able to roll out our customers effectively is that it's going to reuse a lot of the same integrations to their middle and back-office systems that we already have in place with them. So, I think we'll benefit from those things. I would say, in aggregate, it's too soon to tell how long it will take for us to get broad adoption in the market with something like this because sometimes these are as regulated institutions, they want to take extra measures to make sure they do the right things. But we're going to move as fast as seemingly possible.

Our next question comes from Ryan Tomasello with KBW.

In terms of the add-on products and mortgage, you've called out nice traction with the closed solution Nima. It'd be helpful if you could quantify where those attach rates are today, where you think they can go? And just generally, what you find is the biggest hurdle to overcome for getting customers to adopt that solution? And then as a follow-up on the same topic, income verification seems like a pretty interesting opportunity for the company given the competitive dynamics in that space with some of the higher cost incumbents. Have you seen any notable traction in that product? And just generally, how are you thinking about that opportunity for income verification?

Yes. We don't share specific attach rates on either of these 2 products. I can say we've done great traction in the Blend closed product, but we still have a lot of white space ahead of us. There's a lot of opportunity still within our current customer base. And we also are seeing -- actually, it's interesting because we see a lot of benefit for our customers to doing digital close, I called some of this out during the call, where digital closings can help them close loans faster, have less errors on the loan files and the signature documents, things like that. And so, it ends up being a win-win. It just sometimes takes time to answer a question, why is it not 100% today? It seems obvious that 100% of people want to -- not have to -- even if they go in person, not have to go and sign on 50 different pieces of paper, it seems pretty natural not want to have that as part of your process. It just takes time and there's a lot of myth in this industry around digital closing. I even hear today from some of our customers well, there's a lot of states where you can't do digital closings. And that's not entirely true. I mean, there are certain parts of the country and certain counties even that make it more difficult than others. But those are very rare. It's a small, call it, less than 10% or around 10% of the volume in the country that's not eligible for a fully digital closing. And in which case, you can even do a hybrid digital closing, which is an offering we have to do the note digitally, but do the D electronically. And so, the short answer is we have…

And just a follow-up for Amir. It sounds like this is the case, but just to clarify, the 4Q operating income profitability for the fourth quarter, that's still something you think is achievable? And I guess, given 4Q is typically, has negative seasonality. Maybe that's more muted this year in light of rate cuts. But just help us understand the bridge from the second quarter that gets you there or the leverage you have to pull on the expense side, better remaining? And then also, if you'd expect operating income to be sustainably profitable after that fourth quarter inflection?

Thanks for the question, Ryan. Yes, I think, first and foremost, just to confirm for everybody, although we've stated this, yes, we're definitely confirming our path to breakeven in Q4, and we still have line of sight to that. So, we feel great, including just how we're stepping with regards to our operating expenses, and ultimately, what you saw in our net operating loss results. Second, you're right, Q4 definitely has an aspect of negative seasonality and putting aside maybe what you're seeing from the overall kind of movements in the news and in the macro, it will still take a little bit of time. And so, for us to be able to achieve this whole notion of being breakeven in Q4, it's important to us because it is at a seasonally low point, which is, I think, an important point of emphasis to us. That takes us to maybe also wear your head, which is, is this going to be something sustainable? And so, although we haven't given forward guidance outside of Q4, our intentions are quite consistent with what we shared at our Investor Day, which is in the foreseeable future, we will shift to becoming much more free cash flow oriented in how we speak. And as I stated on this earnings call, we do have line of sight and our plans are to be able to move to just that in the foreseeable future. And then lastly, this notion of just kind of where do we have levers. Our levers are not just expenses maybe the way that we've looked at them historically. The way that we operate today, again, through the lens of operational excellence is to dissect every process to ensure that it's just operating not just with the velocity, but in terms of its maximum efficiency. And Builder, by the way, is one aspect that's helping us kind of find more and more ways to be efficient. And we're kind of using the momentum, not necessarily Builder directly, but across the rest of the organization to do just that, you're seeing a trickle to what we shared in results this quarter.

Our next question comes from David Unger with Wells Fargo.

So, just building on the breakeven comments, as you work towards achieving profitable free cash flow in the somewhat near future with the support of a strategic partner, how should we think about the balance between improving cash flow versus investing for growth, especially as you think through buying back stock?

David, I'd say the best answer for us is just -- it's been what we've been consistently saying around the following notions. One, we plan to remain extremely balanced. And by that, I mean, we never kind of let this pendulum swing too far when there was a negative sentiment nor will we let it swing too far when maybe things are happening quite quickly in the short-term. The reason that we stay balanced is because, again, the mindset that we've created in Phase 2 of Blend is everything is very ROI-centric. And so, we have a high level of conviction in some of the initiatives. A few of them you've heard Nima speak to, our next-gen refi flows, elements of home equity as an example. And so, that conviction exists in either scenario, and it's part of kind of this balanced approach followed by ROI. And then lastly, I'd take just a notion of free cash flow. The approach that we've taken is -- as we build up the customer base and as you hear the sentiment of what we're sharing with you, some of what you can see in things like RPO, over time, as we continue to land more and more of these customers and drive our renewals, you'll see that build, which is what is going to get us to this path to free cash flow positive.

Maybe I'll just add a quick note there, David, too. On one of the prior calls, I think it was 3 or 4 quarters ago, I talked about innovation per dollar going up as it relates to building new things because we have our own platform that we built from the ground up, and we spend a lot of time and money doing. And that platform is very powerful. It has so many built-in capabilities. Those capabilities are like building -- they are like LEGO blocks, so you can drag and drop for different flows. And just to give you a very practical example, this next-gen refi flow is the most integrated, most complex products. We probably -- I have to think through all the examples of things we've built, but that we've ever had to build, and we built it for a fraction of what we built our first mortgage product, a small fraction. And it's because when you like we've invested so much in this underlying platform that allows us to innovate at extremely high level of efficiency and almost like allow us to innovate too fast for the market to even, in some cases, absorb that innovation. And so, it's a little bit on us for making sure that we continue to innovate. But I want to make that clear. We have our foot to the gas and innovation, and we're still managing to hit these great operating loss targets and hopefully operating profit here soon, like we've guided to targets and a longer-term free cash flow positivity despite all those things. So, I'm pretty excited about our path forward and the innovation side.

I Very much appreciate all the detail. And just a follow-up for me. So, in terms of the 3Q guide, sorry if I missed this, so it's based off your internal forecast, but I'm just wondering the timing of when you came up with that guide, given how much the market's moved in the past couple of weeks.

The movements that you're seeing for the last 2 weeks per se, David, they're not necessarily in those numbers. It takes time as you think about the conclusion of a funded loan to go through a start and submit. And so, I'd say to the gist of your question, it's -- we are seeing some early indicators that are very positive, as Nimo alluded to, but our guidance was built just off of what we're seeing with our customers, that was really built off before what you're seeing in the last few weeks.

Seeing no further questions. This concludes today's earnings call. Thank you all for joining. Have a nice rest of your day.