Blend Labs, Inc. Q1 FY2024 earnings

Blend Labs posted first quarter 2024 revenue of $34.9 million, down 6% from $37.3 million in the prior-year quarter. The decline came as management pointed to lower mortgage banking transaction volume and lower title orders. Mortgage transactions on the company's platform decreased 14.1% year over year. The company also said it will stop reporting mortgage banking transactions and title originations closed orders in future periods. Gross profit rose to $18.1 million from $15.9 million, and gross margin expanded to 51.9% from 42.5%. GAAP operating loss narrowed to $21.2 million from $61.4 million. Net loss attributable to Blend Labs was $20.7 million compared with $65.4 million. Diluted EPS was a loss of $0.09 compared with a loss of $0.28. Operating cash flow was negative $3.9 million compared with negative $46.7 million. Capital expenditures were $1.96 million compared with $0.30 million.

The top line pressure did not prevent sharp improvement on profitability and cash. Non-GAAP loss from operations was $11.2 million compared with $30.7 million a year earlier. Non-GAAP consolidated net loss per share was $0.06 compared with $0.15. Free cash flow was negative $5.8 million compared with negative $47.0 million. Unlevered free cash flow was negative $1.3 million, compared with negative $40.0 million in the prior-year quarter and negative $14.4 million in the previous quarter. Blend says it remains on track to achieve non-GAAP profitability within the year. The balance sheet also changed after the quarter closed. In April, the company received a $150 million investment from Haveli Investments in the form of convertible preferred equity and used the proceeds to repay its term loan in full. Management said the company is now debt-free.

Operationally, Blend highlighted new customer wins and product expansion. It said it executed large-scale deployments, including two of the top 10 credit unions in the United States. One of those, Michigan Schools and Government Credit Union, selected Blend to automate its entire origination process with instant verifications across assets, income, and employment in under four weeks. In May, Blend signed a new seven-figure contract with another credit union for deposit account opening. The sales pipeline now includes two more of the largest financial institutions in the country. On the product side, the company added an automated Loan Estimate, an updated Spanish language intake form, more deposit account funding methods, and expanded real-time income verification. Deferred revenue rose 65.1% to $21.5 million. Remaining performance obligations rose 112% to $93.0 million. The company also noted a shift away from subscription arrangements toward prepaid multi-year usage-based arrangements in its customer contracts.

Guidance for the second quarter of 2024 sets ranges for revenue at the Blend Platform segment, the Title segment and the consolidated company. The company guided to a non-GAAP net operating loss of $10.5 million to $7.5 million. The outlook reflects an internally estimated 935,000 to 1,025,000 U.S. aggregate industry mortgage originations in the second quarter. Risks remain concentrated in the mortgage market. Management expects mortgage interest rates to remain relatively high in the near term, which it says will continue to drive down transaction volume, especially refinance transactions, and adversely affect both Blend Platform and Title revenue. The Title segment faces significant headwinds to growth until mortgage origination volumes increase. Other named risks include changes in economic conditions, customer retention and utilization, competition, integration of Title365, restructuring outcomes, impairment charges, the Haveli investment's governance and dilution terms, and liquidity. Blend believes current cash, cash equivalents, and marketable securities will be sufficient to fund operations for at least the next 12 months.