Summary
Blend Labs reported third quarter 2023 revenue of $40.6 million, down 26.7% from the prior-year quarter. Gross profit rose 4.5% to $22.1 million, and gross margin expanded to 54.4% from 38.1%. The company narrowed its operating loss to $36.2 million from $129.9 million a year earlier. Net loss attributable to Blend Labs was $41.8 million, or -$0.18 per diluted share, and the diluted loss per share narrowed from the prior-year quarter. On a non-GAAP basis, loss from operations was $15.9 million, an improvement from $37.1 million, and non-GAAP consolidated net loss per share was $0.09 versus $0.19.
For the first nine months of 2023, revenue was $120.7 million, down 37.2% from $192.4 million in the same period of 2022. The nine-month operating loss narrowed to $134.4 million from $671.0 million, and the nine-month net loss attributable to Blend was $148.4 million, improved from $639.6 million. A large share of that improvement came from a lower cost base. Stock-based compensation and restructuring costs dropped as headcount came down, and the prior year carried impairment charges on intangible assets and goodwill tied to the Title365 reporting unit. Research and development, sales and marketing, and general and administrative spending all fell by double-digit percentages year over year.
The quarter reflects a mortgage market that remains under pressure. The Mortgage Bankers Association reported a 14% decline in mortgage market volume, and Blend saw a 26% decrease in mortgage transactions on its software platform compared with the prior-year period, mostly in refinance activity. The company still pointed to double-digit year-over-year growth in its consumer banking business revenue and an 18% increase in professional services revenue. Blend's mortgage suite economic value per funded loan rose to $86 from $77, a sign that add-on products are getting traction. Blend also launched IMB Essentials, a lower-cost edition of its mortgage suite built for retail independent mortgage banks, and expanded its income product with MyPay to pull Leave and Earnings Statements for borrowers with military and federal income. More than one third of Blend customers are now live or in active deployment with a consumer banking product.
Blend continued to cut costs. In August 2023 it committed to a fifth workforce reduction plan that eliminated roughly 150 positions, or 19% of its onshore workforce, and about 20 vacancies. The plan is expected to be substantially complete in the first quarter of 2024. Cash burn improved. Operating cash flow was -$25.9 million in the quarter, compared with -$50.5 million in the prior-year quarter. For the first nine months of 2023, operating cash flow was -$106.9 million, compared with -$143.1 million in the same period of 2022. Capital expenditures were $0.03 million in the quarter, down from $0.45 million. Remaining performance obligations were $58.9 million as of September 30, 2023, up 48.2% from $39.7 million a year earlier, and deferred revenue, current portion, was $10.06 million, up 1.0% from $9.96 million.
Guidance for the fourth quarter of 2023 calls for consolidated revenue between $34.5 million and $40.5 million and a non-GAAP net operating loss between $14.0 million and $17.0 million. The outlook assumes an estimated 5% year-over-year decline in mortgage volumes from the fourth quarter of 2022 to the fourth quarter of 2023, as projected by the Mortgage Bankers Association. Blend did not provide a forward-looking GAAP equivalent for the non-GAAP net operating loss figure because of uncertainty around stock-based compensation. Risks include economic conditions, mortgage interest rates, real estate activity, the financial condition of some customers, competition in a rapidly changing market, customer retention, the integration of Title365, and the possibility that restructuring actions do not produce the expected savings. The mortgage market remains highly uncertain.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $40.6M | $42.8M | -5.2% | $55.4M | -26.7% |
| Gross profit | $22.1M | $23.5M | -6.1% | $21.1M | +4.5% |
| Gross margin | 54.4% | 54.9% | -0.5 pp | 38.1% | +16.2 pp |
| Research & development | $18.8M | $22.1M | -14.8% | $34.2M | -45.0% |
| Sales & marketing | $14.5M | $16.1M | -10.1% | $20.5M | -29.4% |
| General & administrative | $15.8M | $19.6M | -19.5% | $32.1M | -50.8% |
| Total operating expenses | $58.3M | $60.2M | -3.2% | $151.0M | -61.4% |
| Operating income (loss) | -$36.2M | -$36.7M | +1.4% | -$129.9M | +72.1% |
| Operating margin | -89.2% | -85.8% | -3.4 pp | -234.6% | +145.4 pp |
| Net income (loss) | -$41.8M | -$41.5M | -0.8% | -$132.7M | +68.5% |
| Net margin | -103.0% | -96.9% | -6.1 pp | -239.8% | +136.8 pp |
| Diluted EPS | -$0.18 | -$0.18 | ±$0.00 | -$0.57 | +$0.39 |
Risks
A substantial majority of transactions and title orders relate to mortgage loans and refinances, leaving the company exposed to mortgage industry conditions. Since March 2023, SVB, Signature Bank, Silvergate Capital and First Republic Bank have gone into receivership and Credit Suisse was acquired, creating systemic uncertainty; the Mortgage Bankers Association expects overall mortgage originations, including refinancing loans, to decline further in 2023 before recovering in 2024.
The company states increases in market interest rates have and will likely continue to adversely affect its business, financial condition and results of operations. The Federal Reserve raised rates an aggregate of 4.25% in 2022 and 1.0% in 2023, and the company says revenue from transactions may decline faster than its ability to reduce expenses.
Title segment revenue is highly concentrated. For 2022, the top five Title segment customers accounted for 79.7% of segment revenue, with Mr. Cooper accounting for 57.0%, and the company has experienced lower than anticipated title transaction volume since closing the Title365 acquisition.
Total revenue decreased 26.7% in FY2023 Q3 versus FY2022 Q3 and decreased 37.2% for FY2023 year to date versus the prior-year period, driven by lower title orders and mortgage banking transactions. MD&A reports a 26% decrease in mortgage transactions on the platform for the three months ended September 30, 2023 compared with the same period in 2022.
The August 2023 Plan eliminated approximately 150 current positions, or 19% of the onshore workforce, and approximately 20 vacancies, with about $9.1 million in charges incurred. The company cautions that actual charges may be higher, projected cost savings may not be achieved, and unintended consequences from workforce reductions could impact the business.
The credit facility includes a $225.0 million term loan priced at adjusted Term SOFR plus 7.50% or base rate plus 6.50%, and the effective interest rate was approximately 14.68% as of September 30, 2023 versus 11.76% as of September 30, 2022. Interest expense increased 33% for the three months ended September 30, 2023 compared with the same period in 2022, and the facility has covenants and a minimum liquidity threshold.
The company received NYSE notice on April 28, 2023 that it was not in compliance because the average closing price of its Class A common stock was less than $1.00 over a consecutive 30 trading-day period, and it regained compliance as of July 31, 2023. Since April 28, 2023, the closing price has varied from a low of $0.55 to a high of $1.50, and another sub-$1.00 period could trigger delisting proceedings.
The ongoing integration of Title365 has resulted in greater than anticipated costs and management attention, and the company may not achieve expected benefits, cost savings or synergies. Prior impairment charges included a $240.1 million goodwill write-down and a $151.7 million customer relationship write-down in 2022, and further declines in market capitalization could require additional impairments.
The company operates under a success-based model and often relies on customer self-reporting of completed transactions, which can make it difficult to estimate and forecast revenue. Usage-based arrangements generally can be terminated at any time by the customer, and revenue from usage-based arrangements represented 60% of Blend Platform segment revenue for the nine months ended September 30, 2023.
The market is intensely competitive, with point solution vendors, back office software providers and internally developed systems, and some competitors have greater financial, technical and marketing resources. Increased competition could reduce revenue through lower demand or pricing pressures and force the company to make pricing concessions.
SaaS KPIs
All quarters →Free cash flow margin
Non-GAAP gross profit margin
Summary, forecast, risks and KPIs are extracted from Blend Labs, Inc.'s SEC filings for Q3 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.