Summary
Blend Labs posted a rough third quarter. Consolidated revenue fell 38.2% to $55.4 million for the quarter ended September 30, 2022, from $89.6 million a year earlier. Gross profit dropped 47.7% to $21.1 million, and gross margin slid to 38.1% from 45.0%. The GAAP operating loss widened to $129.9 million from $70.5 million. Net loss attributable to Blend widened to $126.1 million from $76.9 million, and diluted loss per share was $0.57 against $0.38. A $57.9 million non-cash impairment against Title365 intangible assets and goodwill drove most of that operating loss, and the company wrote those assets off entirely as of September 30, 2022.
The nine-month picture is worse on the bottom line. Revenue for the first nine months of fiscal 2022 rose 25.3% to $192.4 million, but gross profit slipped 7.2% to $75.2 million, and gross margin fell to 39.1% from 52.8%. The operating loss for the nine months widened to $671.0 million from $137.4 million. Impairment and restructuring charges drove the gap, with $449.7 million of impairment on intangible assets and goodwill recorded in the period.
Segments explain the pressure. Blend Platform revenue reached $36.1 million, up about 3% year over year. Title365 revenue fell 65% to $19.3 million. The Mortgage Bankers Association measured a 63% decline in mortgage market volume over the same stretch, so Blend gained share even as its own volumes fell. Inside Blend Platform, Mortgage Banking revenue dropped 27% to $19.9 million, while Consumer Banking and Marketplace revenue jumped 132% to $15.3 million. That consumer gain leans on $6.1 million of software-enabled title revenue shifted out of Title365 after the June 2022 migration of the company's largest title customer. Professional Services revenue was $0.9 million, down from $1.2 million.
Cost control is the main lever management is pulling. Cost of revenue fell 30% to $34.2 million, tracking lower title volume. General and administrative expense fell 46% to $32.1 million, helped by a $25.2 million drop in stock-based compensation against a prior-year quarter carrying a $29.7 million IPO-related stock option charge. Research and development expense rose 34% to $34.2 million. Restructuring added $5.9 million in the quarter. Blend has cut more than 500 positions across three rounds: about 200 under the April Plan, about 140 under the August Plan, and roughly 100 more under a November Plan announced after quarter end. Those roles carry annualized compensation expense of roughly $35.4 million, $27.3 million and $7.1 million. Savings from the August Plan start in the fourth quarter of 2022 and from the November Plan in the first quarter of 2023.
Liquidity and backlog need watching. Blend held $400.8 million in cash, cash equivalents and marketable securities as of September 30, 2022, against $225.0 million of term debt and an undrawn $25.0 million revolver. Operating cash flow was negative $50.5 million for the quarter, against negative $31.3 million a year earlier, and negative $143.1 million for the nine months. Capital expenditures were $0.45 million, down from $0.56 million. Deferred revenue slipped 0.7% to $9.96 million, and remaining performance obligations dropped 47.0% to $39.7 million, reflecting the title migration and the mortgage downturn.
Guidance frames the rest of the year. Full year 2022 consolidated revenue guidance sits at $235 million to $240 million, with Blend Platform at $134 million to $136 million and Title365 at $101 million to $104 million. The narrowed range assumes a 56% decline in full year mortgage volumes from 2021 to 2022, steeper than the 41% decline projected last quarter. Market adjusted net revenue retention rose to 190%, and 75% of the customer base now uses two or more products, up from 62% a year earlier. Consumer banking transactions grew by 145,000 year over year to roughly 229,000. The accumulated deficit reached $1,082.4 million as of September 30, 2022. Rising rates, shrinking refinance volume, and customer concentration remain the core risks, and management still expects Title365 title insurance and other services revenue to face significant headwinds.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $55.4M | $65.5M | -15.5% | $89.6M | -38.2% |
| Gross profit | $21.1M | $25.3M | -16.4% | $40.3M | -47.7% |
| Gross margin | 38.1% | 38.5% | -0.4 pp | 45.0% | -6.9 pp |
| Research & development | $34.2M | $35.5M | -3.5% | $25.5M | +34.2% |
| Sales & marketing | $20.5M | $22.4M | -8.6% | $22.0M | -6.6% |
| General & administrative | $32.1M | $36.5M | -11.9% | $59.0M | -45.5% |
| Total operating expenses | $151.0M | $496.7M | -69.6% | $110.9M | +36.2% |
| Operating income (loss) | -$129.9M | -$471.4M | +72.5% | -$70.5M | -84.1% |
| Operating margin | -234.6% | -719.3% | +484.7 pp | -78.8% | -155.8 pp |
| Net income (loss) | -$132.7M | -$477.2M | +72.2% | -$76.9M | -72.6% |
| Net margin | -239.8% | -728.1% | +488.3 pp | -85.9% | -153.9 pp |
| Diluted EPS | -$0.57 | -$2.06 | +$1.49 | -$0.38 | -$0.19 |
Risks
The U.S. Federal Reserve raised rates in 2022 for an aggregate 3.75% increase and indicated further increases. For FY2022 Q3, revenue decreased 38.2% to $55.35M and gross profit decreased 47.7% versus the prior-year quarter; MD&A reported a 35.7% decrease in mortgage transactions and a 3.0% decrease in total banking transactions for the three months ended September 30, 2022 compared with the prior-year period, and the MBA expects overall mortgage originations to decline in Q4 2022 and 2023.
For the six months from the Title365 acquisition through December 31, 2021, top five Title365 customers accounted for 83.1% of segment revenue, with Mr. Cooper accounting for 58.8%. The filing notes lower than anticipated title transaction volume since the acquisition and Title365 revenue decreased 65% for FY2022 Q3 versus the prior-year quarter.
In FY2022 Q3, the company recorded a $47.1M goodwill write-down and a $10.7M customer relationship intangible write-down, resulting in the full write-off of goodwill and customer relationship intangible assets after Q2 2022 write-downs of $240.1M and $151.7M, respectively. For the nine months ended September 30, 2022, impairment charges were $287.2M for goodwill and $162.5M for customer relationship intangible assets.
The company identified a material weakness in its internal control over financial reporting. The filing states failure to maintain effective internal control could result in material misstatements, restatement of financial statements, or failure to meet periodic reporting obligations.
As of September 30, 2022, accumulated deficit was $1,082.4 million; operating cash flow was negative $143.1 million for the nine months ended September 30, 2022, down 69.6% from negative $84.4 million in the prior-year period. The company expects operating losses for the foreseeable future and may require additional capital.
Workforce Reduction Plans eliminated approximately 200 positions under the April Plan, 140 under the August Plan, and 100 under the November Plan. The company expects charges of $6.4M, $5.9M, and $2.8M, respectively, and the filing states it may not achieve projected cost savings or may incur higher than anticipated charges or unintended consequences.
The filing says revenue growth rate has declined and may decline further, and historical growth rates should not be considered indicative of future performance. Many customers do not have long-term contractual financial commitments, and usage-based arrangements represented 51% of Blend Platform segment revenue for the nine months ended September 30, 2022 versus 26% for the prior-year period.
In June 2022, the company completed migration of its largest Title365 customer from traditional title to its software-enabled title solution and changed reporting segments. The filing expects Title365 closed orders within the Title365 segment to decrease in future periods and software-enabled title, escrow, and settlement orders within Blend Platform to increase.
Summary, forecast, risks and KPIs are extracted from Blend Labs, Inc.'s SEC filings for Q3 FY2022 (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.