Summary
Blend Labs reported third quarter 2021 revenue of $89.6 million, up 221% year over year. The total includes Title365, which the company acquired on June 30, 2021 and now reports on a net revenue basis. Blend Platform revenue growth, new customer wins, and the Title365 acquisition drove the increase. Total banking transaction volume exceeded 525,000, up 24% year over year. For the first nine months of 2021, transactions on the software platform increased 63% compared with the same period in 2020. Gross profit was $40.3 million, up 119% year over year. Gross margin fell 21.0 percentage points to 45.0%. The company added 17 accounts, including Prosperity Bank, and signed more than 50 customers to its new Blend Income Verification product. It also deepened relationships with American Pacific Mortgage, KeyBank, PRMG, Frost Bank, and BMO Harris Bank. The top line is expanding quickly, but profitability moved in the opposite direction.
Operating loss was $70.5 million, and the loss widened. Net loss attributable to Blend Labs was $76.9 million, and that loss also widened. Diluted EPS was negative $0.38, flat year over year. The GAAP loss from operations widened year over year, primarily because stock-based compensation increased after equity awards with performance-based market conditions vested when the IPO closed. Non-GAAP loss from operations was $21.1 million, up $7.0 million, or 49%, year over year. The gap between the two measures is large, but even the adjusted loss widened. Operating margin was negative 78.8%, down 23.7 percentage points year over year.
Cash use remains heavy. Operating cash flow was negative $31.3 million in the quarter, down 118.6% year over year, and negative $84.4 million for the first nine months, down 56.1%. Capital expenditures were $0.56 million in the quarter, up 173.2% year over year, and $1.08 million year to date, up 45.4%. Deferred revenue was $10.03 million at September 30, 2021, and remaining performance obligations were $74.98 million. The company says current cash, cash equivalents, and marketable securities will be sufficient to fund operations for at least the next 12 months, but it still expects operating losses for the foreseeable future and may need more capital if investments outpace cash generation. Its credit facility includes a minimum liquidity threshold tested quarterly.
The company raised its full year 2021 revenue guidance midpoint by $13 million. Revised full year 2021 GAAP revenue guidance is $229 million to $239 million on a net revenue basis. Revised full year 2021 pro forma revenue guidance is $358 million to $368 million. The guidance reflects the adoption of net revenue accounting for Title365, which does not affect gross profit, operating income (loss), or net income (loss). Management expects total revenue to increase significantly in dollar amounts and the revenue growth rate to increase in the near term because of Title365, but to decline in periods after the next twelve months. It also expects cost of revenue to increase significantly in dollar amounts and as a percentage of revenue in the near term. That outlook depends on integrating Title365 and retaining the customers that use the combined platform.
Risks are broad. The company cites the possibility that it fails to retain existing customers or add new ones in a cost-effective manner, that customers reduce their use of its products and services, that key customer relationships are terminated or reduced, that it cannot compete in highly competitive markets, that it cannot manage growth, and that its limited operating history makes future performance hard to predict. It also cites integration risk from the Title365 acquisition and changes in market interest rates. Lower U.S. mortgage market volumes, estimated to be down more than 25% year over year, remain a headwind for the mortgage business. COVID-19 disruptions continue to add uncertainty, though the company says demand for its software platform and its results of operations have not been adversely affected by the pandemic so far.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $89.6M | $32.1M | +179.4% | — | — |
| Gross profit | $40.3M | $19.7M | +104.7% | — | — |
| Gross margin | 45.0% | 61.5% | -16.4 pp | — | — |
| Research & development | $25.5M | $20.9M | +22.2% | — | — |
| Sales & marketing | $22.0M | $18.3M | +20.2% | — | — |
| General & administrative | $59.0M | $20.2M | +192.5% | — | — |
| Total operating expenses | $110.9M | $59.3M | +86.8% | — | — |
| Operating income (loss) | -$70.5M | -$39.6M | -78.0% | — | — |
| Operating margin | -78.8% | -123.6% | +44.9 pp | — | — |
| Net income (loss) | -$76.9M | $5.8M | -1434.1% | — | — |
| Net margin | -85.9% | 18.0% | -103.9 pp | — | — |
| Diluted EPS | -$0.38 | $0.00 | -$0.38 | — | — |
| Customers | 18 | 18 | ±0.0% | — | — |
Risks
The company has incurred net losses since inception and expects losses to continue. Net loss attributable to the company widened to $98.2 million for the nine months ended September 30, 2021 from $58.6 million in the prior-year period, and operating loss widened to $137.4 million from $59.2 million.
The June 30, 2021 acquisition of 90.1% of Title365 added significant revenue but also drove cost and margin pressure. Quarterly gross margin fell to 45.0% from 66.0% a year earlier, and MD&A says cost of revenue and operating expenses increased significantly due to Title365 and related integration.
For 2020, the top five customers accounted for 34% of revenue, and 18 customers generating more than $1 million in annual revenue represented 53% of revenue. Many customers have no long-term contractual financial commitments and may reduce or cease use of the platform at any time without penalty.
A substantial majority of transactions enabled through the platform are mortgage loans and refinances. Increased interest rates may reduce consumer borrowing and loan volume, which could lower transaction volume and revenue.
The multi-class structure concentrates voting power with Nima Ghamsari, who held approximately 71% of total voting power as of July 20, 2021, and could hold approximately 89% if all equity awards were exercised. This limits other stockholders' ability to influence corporate matters.
Operating cash flow was negative $84.4 million for the nine months ended September 30, 2021, down from negative $54.1 million in the prior-year period. The company expects operating losses for the foreseeable future and may need additional capital, and its credit facility has covenants and a minimum liquidity threshold.
Sales cycles generally range from six to nine months for smaller financial services firms and twelve to eighteen months or more for larger firms. Prolonged evaluations and unpredictable timing could raise costs and reduce revenue predictability.
The business depends on Nima Ghamsari and other senior management and highly skilled employees, and all U.S. employees are at-will. Competition for talent is intense in the San Francisco Bay Area, and volatile equity values may weaken retention and recruiting.
The success-based model relies on customer self-reporting of completed transactions for usage and overage fees. If reporting is not timely or accurate, revenue estimation and forecasts may be affected.
The company expects its revenue growth rate to decline in future periods. MD&A says Title365 will increase the growth rate in the near term but expects growth to decline after the next twelve months.
Customers, and in some cases the company, are subject to federal, state, and local laws including consumer protection and financial services rules. Regulators may require customers to terminate or limit their business with the company.
The lock-up period with respect to all shares of common stock is expected to end on November 16, 2021. Sales of a large number of Class A shares after lock-up expiration could depress the market price.
Summary, forecast, risks and KPIs are extracted from Blend Labs, Inc.'s SEC filings for Q3 FY2021 (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.