Summary
Blend Labs shrank again in the quarter ended June 30, 2023. Total revenue was $42.8 million, down 34.7% from $65.5 million in the prior-year quarter. Year-to-date revenue of $80.2 million was down 41.5% from $137.1 million. The Title segment did most of the damage. Title revenue fell 61% to $12.5 million, while Blend Platform revenue slipped 10% to $30.3 million. Inside the platform, Mortgage Suite revenue dropped 17% to $22.3 million and Consumer Banking Suite revenue rose 27% to $5.8 million. Professional services revenue rose 10% to $2.2 million. Management tied the decline to a 37% drop in mortgage market volume reported by the Mortgage Bankers Association and a 31% decline in mortgage transactions on the platform. There was one offset. Management said customers are adopting more add-on products and renewing contracts, which lifted revenue per mortgage transaction compared with the prior-year period.
Margins and losses both moved in the right direction. Gross profit was $23.5 million, down 7.0% from $25.3 million a year earlier, yet gross margin climbed to 54.9% from 38.5%. The release attributed that gain mainly to expansion in Blend Platform gross profit margin, where GAAP software gross margin reached 80% against 73% in the prior-year period. The operating loss narrowed to $36.7 million from an operating loss of $471.4 million, and operating margin improved to -85.8% from -719.3%. The prior-year quarter carried a $391.8 million impairment of intangible assets and goodwill on the Title365 reporting unit, a charge that did not repeat. Net loss attributable to Blend was $41.2 million, or -$0.18 per diluted share, against a net loss of $441.4 million and diluted EPS of -$2.06 a year earlier. For the six months, net loss was $106.6 million and diluted EPS was -$0.45, compared with $513.5 million and -$2.38.
Cash generation improved. Operating cash flow was negative $34.4 million for the quarter, up 26.5% from negative $46.8 million in the prior-year quarter. Year-to-date operating cash flow was negative $81.0 million, up 12.5% from negative $92.6 million. Capital expenditures were $0.17 million in the quarter, down 81.0% from $0.90 million. Blend ended June 30, 2023 with $277.9 million in cash, cash equivalents and marketable securities including restricted cash, alongside $225.0 million of debt outstanding on a five-year term loan. The $25.0 million revolving line of credit was undrawn. Non-GAAP loss from operations was $17.9 million versus $39.5 million, and non-GAAP consolidated net loss per share was $0.09 versus $0.19.
Backlog looks steadier than the income statement. Remaining performance obligations were $53.19 million, up 4.9% from $50.69 million a year earlier. Deferred revenue, current portion only, was $11.97 million, down 0.6% from $12.05 million.
Guidance is for the third quarter of 2023 rather than the full fiscal year. Blend guides to a non-GAAP net operating loss of $17.5 million to $15.5 million. Management also gave revenue guidance for both the Blend Platform and Title segments for the third quarter, and said the outlook assumes an estimated 6% year-over-year decline in mortgage volumes from the third quarter of 2022 to the third quarter of 2023, as projected by the Mortgage Bankers Association. No forward-looking GAAP equivalent to the non-GAAP net operating loss outlook was provided, citing uncertainty around stock-based compensation.
Two risks dominate. Mortgage origination volumes have fallen for two years, and the Mortgage Bankers Association expects them to keep declining in 2023 before recovering in 2024, which pressures both segments. The contract mix is also shifting toward usage-based arrangements, which represented 60% of Blend Platform segment revenue in the first six months of 2023, up from 52% a year earlier, and those arrangements generally can be terminated at any time by the customer. On August 9, 2023, the company committed to a fifth workforce reduction plan covering roughly 150 current positions, or about 19% of its onshore workforce, plus about 20 vacancies, with estimated charges of $7.2 million and annualized compensation savings of about $33.0 million. Blend also reported an accumulated deficit of $1,269.6 million, said it may require additional capital, and carries a minimum liquidity covenant on its credit facility. New minimum purchase commitments of $17.5 million for cloud computing services through June 2026 add to the fixed cost base.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $42.8M | $37.3M | +14.7% | $65.5M | -34.7% |
| Gross profit | $23.5M | $15.9M | +48.2% | $25.3M | -7.0% |
| Gross margin | 54.9% | 42.5% | +12.4 pp | 38.5% | +16.3 pp |
| Research & development | $22.1M | $26.3M | -15.9% | $35.5M | -37.8% |
| Sales & marketing | $16.1M | $17.6M | -8.2% | $22.4M | -28.1% |
| General & administrative | $19.6M | $20.7M | -5.0% | $36.5M | -46.1% |
| Total operating expenses | $60.2M | $77.3M | -22.1% | $496.7M | -87.9% |
| Operating income (loss) | -$36.7M | -$61.4M | +40.2% | -$471.4M | +92.2% |
| Operating margin | -85.8% | -164.6% | +78.8 pp | -719.3% | +633.5 pp |
| Net income (loss) | -$41.5M | -$66.2M | +37.3% | -$477.2M | +91.3% |
| Net margin | -96.9% | -177.3% | +80.4 pp | -728.1% | +631.2 pp |
| Diluted EPS | -$0.18 | -$0.28 | +$0.10 | -$2.06 | +$1.88 |
Risks
Substantial revenue depends on mortgage and financial services transaction volumes. Rising interest rates and declining mortgage origination activity drove mortgage banking transactions down 31% for the quarter ended June 30, 2023 versus the prior-year quarter, and total revenue down 34.7% for the same quarter per the reported figures.
Revenue is concentrated in a small number of customers, especially in the Title segment where the top five customers accounted for 79.7% of 2022 segment revenue and Mr. Cooper accounted for 57.0%. Loss or reduction of these relationships would disproportionately harm results.
Total revenue declined 34.7% for the quarter ended June 30, 2023 and 41.5% for the six months ended June 30, 2023 compared with the prior-year periods. The company expects title insurance and other services revenue to continue facing significant headwinds and decline due to mortgage industry origination volume declines.
The credit facility has a floating SOFR-based rate, and the Term Loan effective interest rate rose to approximately 14.51% as of June 30, 2023 from 10.44% as of June 30, 2022. Interest expense increased 39% for the quarter and 38% year to date, and covenants and a minimum liquidity threshold restrict operating flexibility.
The company had an accumulated deficit of $1,269.6 million as of June 30, 2023 and expects continued operating losses due to investments and revenue decline. It may require additional capital resources, and failure to raise capital when desired at reasonable rates would adversely affect the business.
The company has implemented several workforce reduction plans and committed to the August 2023 Plan, eliminating approximately 150 current positions, or about 19% of its current onshore workforce, with estimated charges of $7.2 million. Risks include higher-than-expected charges, failure to achieve projected cost savings, and unintended consequences.
Ongoing integration of Title365 has resulted in greater than anticipated costs and management attention, and the company may not achieve anticipated benefits. Prior impairments fully wrote off goodwill and customer relationship intangible assets for the Title reporting unit.
The company received NYSE notice on April 28, 2023 that it was not in compliance with the $1.00 average closing price requirement and regained compliance as of July 31, 2023. If the average closing price again falls below $1.00 over a consecutive 30 trading-day period, it could face delisting.
The company previously identified a material weakness in internal control over financial reporting, which it believes was remediated as of December 31, 2022, but additional weaknesses may be discovered. Failure to maintain effective controls could lead to restatements or missed reporting obligations.
The market is intensely competitive, with point solution vendors, back office software providers, and internally developed systems. Competitors may have greater resources, more aggressive pricing, and may develop features that make Blend's platform less attractive.
The success-based model often relies on customer self-reporting of completed transactions, which can make it difficult to estimate and forecast revenue. Inaccurate or untimely reporting could impact revenue estimates, actual results, and stock price.
Customers and the company are subject to federal, state, and local laws related to consumer protection and financial services. Regulators may require customers to terminate or limit business with the company, and compliance burdens may increase.
SaaS KPIs
All quarters →Non-GAAP Loss from Operations
Non-GAAP gross margin
Summary, forecast, risks and KPIs are extracted from Blend Labs, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.