Q2 2024 Blend Labs Inc Earnings Call
[inaudible]
www.blendlabs.com
David Unger, David Unger,
Speaker Change: The company cautions you that forward looking statements involve substantial risks and uncertainties and a number of factors many of which are beyond the company's control could cause actual results events or circumstances to differ materially from those described in these statements. Please see the risk factors with identified in our most recent 10-K 10, Qs and other SEC file.
Demos: We're not undertaking any commitment to update these statements if conditions change except as required by law with that said I'll now turn the call over to demos.
Demos: Thank you Whitney good afternoon, everyone.
Demos: Because of our second quarter earnings call.
Demos: We're sharing with you today reflect continued execution against the objectives, we set out to achieve late last year.
Demos: And I'm encouraged that our ongoing commitment to serving our customers through innovation and technology is paying off.
Demos: We signed a number of important new deals this quarter, we brought more customers live on our platform and we saw record high economic value per funded loan all of which showcased the applicability of our platform to the challenges faced in origination broadly today.
Demos: Before going to details of our progress I want to spend a moment to share our latest perspective on the environment. We're operating in.
Demos: Since we last spoke there has been a meaningful shift in the tide in the lending environment across the U S and she and the bond market. The bond market seems to be signaling that the feds target rates could end the year potentially more than 100 basis points lower than where we've been for the last year.
Demos: Mortgage rates hit their lowest level since April 2023 earlier this week and we're already starting to see that show up in our business through application activity levels.
Speaker Change: Well I would say, it's too early for us to tell how this is going to convert into fundings or revenue or what lies ahead going forward and mortgage rates because things shipped seemingly day to day, it's an encouraging signal as you look into the second half of the year.
Demos: Even more importantly, though I'm hearing from our customers the market that there's now a greater sense of urgency to get ready for the new market environment.
Speaker Change: In particular, while profitability has been low for mortgage companies in recent periods, that's kind of led to an appetite for investment being low but as they see the light at the end of the tunnel and they see rates coming down on the horizon, there growing more optimistic.
Demos: That means that they are willing to have the conversation of how technology can move them forward.
Speaker Change: Shifting away from the macro our business is wrapping up we had several new customer wins across mortgage and consumer banking as well as a pipeline that is a strong as it's been for quite some time, particularly.
Demos: Particularly strong in mortgage and home equity.
Demos: As a reminder, our strongest periods of bookings typically are in the third and fourth quarters, because our customers were mostly banks and credit unions, they budget for the upcoming year and that in those quarters and so over the past six months as we've been building our pipeline we've been seeing a mature in the past few months and I feel confident that we're well positioned to execute some key partnerships. During this important time.
Speaker Change: On the product front, we continue to be a leader in digital origination of innovation and we're investing across our platform.
Speaker Change: Now amongst the newer additions to our portfolio our product focus focused on helping consumers refinance in an automated streamlined ways.
Speaker Change: As well as a real time home equity product, allowing borrowers quickly tap the equity in their homes.
Speaker Change: As well as new features in our platform to leverage the recent advancements in AI.
Speaker Change: And this is timely because with so much money on untapped home equity and more loans, becoming in the money as rates come down. We're confident these products will be at the forefront of helping people access this enormous opportunity.
Speaker Change: We also made a lot of progress towards our fourth quarter non-GAAP operating profitability goal.
Chimera: Chimera will talk a little bit about later in the work is done in that area and how we're continuing to pace towards that goal, but before we get to that let me share. Some more details on these highlights starting with our platform.
Speaker Change: When we launched blend builder, we intended to create an ecosystem in which blend our customers and our partners could all innovate on a single platform.
Speaker Change: And we already have capabilities built into the platform that spans credit bureaus income verification automated underwriting digital closing already integrated in the platform and every quarter, we're adding to this list. So I want to start highlighting some of the things that we're doing.
Speaker Change: This quarter, we're excited announce some new functionality of the platform starting with account funding. So for digital account opening debit card funding is a critical piece of that and we launched a new partnership with Astra.
Speaker Change: This unlocks a better deposit gap funding experience without the friction and costs are typically takes both for consumers. The friction to go through that process and the cost. It typically takes for a bank or credit Union, a turn on that functionality.
Speaker Change: And so in the end and now our customers can access this integration by being on the platform and offer more options than consumers to be able to drive deposits their institution.
Speaker Change: Here about how language federal credit Union already benefiting from this later.
Speaker Change: We're also incorporating some new advancements with AI and our platform.
Speaker Change: We've integrated some of the latest large language models and are applying them to some very practical use workflows, which is very important to me for it to be a very practical use case.
Speaker Change: And given the rate of improvement and I were now and additional leverage it to automatically for example process documents provided during the workflows are still documents collected during most of the lending and origination workflows and so for example, if you need to verify a birth certificate to open a new account our platform can in real time read and confirmed a birth certificate name and date masks a day.
Speaker Change: It provided by the consumer and if there is an issue or a difference prompt the consumer to make a correction if there isn't a match and a simple examples like this are important because they happen all the time, but it also illustrates the ability for AI to streamline things that people otherwise wouldn't have.
Speaker Change: Cheap economical real time way to solve.
Speaker Change: And this.
Speaker Change: Application of AI is still in early stage of improving area, but we expect we can apply broadly to all sorts of documents that come in the process to simplify and lower the cost of lending and account opening and that could be spanning from income documentation bank statements or other types of things that are needed throughout the process.
Speaker Change: We're also bringing together these capabilities.
Speaker Change: Income verification the assets the <unk> all the things that I mentioned earlier.
Speaker Change: For our customers to create end to end solutions that apply to the market more broadly.
Speaker Change: Our deposit account solution in our consumer loan solutions are great. Examples of this.
Speaker Change: And we've been expanding our product suite as time goes on and two new areas that I'm excited to share with you today are one around our next generation refinance flow and the second is a next generation home equity flow.
Speaker Change: And pick up I'll talk to the breadth of <unk>, because it's so timely.
Speaker Change: Important because as rates looks come down in an ideal world a consumer can see the rates come down a few taps to get approved locking their new rate and savings and then close of that institution in a matter of a week or two.
Speaker Change: Unfortunately today, it's a very arduous process that takes weeks to complete for the consumer if not in some cases months and thousands of dollars in cost and requires quite a bit of elbow grease from the institution, that's offering that loan.
Speaker Change: Credit reports out to be reviewed and cannot be verified the filings to be underwritten.
Speaker Change: Our new flow takes a lot of the capabilities that I talked about earlier to create a brand new flow around refinancing these loans.
Speaker Change: Automated streamlined way to offer a great experience for consumers quick savings and a much lower cost faster way for the institution to produce those refinance loans.
Speaker Change: And while this is still in the early stages, we've already had one customer data and we have a couple of other projects that we're starting with us to deploy and as you can imagine it has broad interest in the rest of our customer base and it's an example of something where everyone wins with technological innovation.
Speaker Change: Consumers get help with their finances, which they might need in this environment lenders get to be able to serve a greater number of them in at a lower cost and.
Speaker Change: And if solutions like this can be broadly deployed in the market, which is obviously our goal more people will lower their payments and lenders are able to serve them, which is more profitable for them and consumers will be more financially well off.
Speaker Change: So if you saw our business highlights for the quarter. Our continued focus on delivering leading mortgage capabilities is helping us land, new customers and expand with our new <unk> customers.
Speaker Change: Last month Horizon Bank any billion financial institution, basically Midwest selected blend as a mortgage partner <unk>.
Speaker Change: Horizon was looking for technology provider with highly automated workflows in advance loan officer tools that can help them significantly improve operational efficiency and loan officer productivity.
Speaker Change: All while delivering a great consumer experience.
Speaker Change: A pretty competitive process and we're excited horizon chose to power their consumers home buying journey.
Speaker Change: We also create another competitive takeaway with a large regional bank, which it was a customer kind of up for renewal and they were frustrated with our existing technology.
Speaker Change: Wanted a solution that is more than just an application intake tool and had the automation in place. So loan officers didnt have to spend a lot of time manually in putting data into the loan origination system are chasing down documents.
Speaker Change: They were impressed with her and integrations in the systems and the automation spills into origination flows including for example, the automatic generation delivery of conditions and documents to borrowers.
Speaker Change: We're able to get the customer live in only a few weeks and since then they've already added home equity lending to their mix.
Speaker Change: Before I turn to financial highlights in mortgage I want to also talk about some investments we made to our product and specifically around the needs of independent mortgage banks, who have been particularly been hurt a lot in this environment and.
Speaker Change: And so we've taken a refresh look at our product strategy within the customer segments to make sure. We remain ahead of the curve.
Speaker Change: And that's resulted in a handful of new features in development that we're making good progress on I'll share a couple of them.
Speaker Change: The first relates to loan officer and branch configure building improvements.
Speaker Change: When you talk to a top performing loan officers many of them prefer to manage their own workflows.
Speaker Change: Rather than be constrained by a very broad standard. So for example, a loan officer might prefer to have a conversation before they pull a consumer's credit while others may prioritize getting that consumer to get as much done before they get on the phone with them. So they can have a more detailed conversation and so we want to help loan officers have more autonomy or how they manage those workflows and to help them manage their costs and theirs.
Speaker Change: Sales motion.
Speaker Change: As a result, we're investing in the ability for loan officers to be able to configure their buying experience to better fit the preferences of our workflow.
Speaker Change: The second upgrade around the cost of rolling out for these independent mortgage banks is a more automated disclosures flow, which is particularly important around the refinance experience.
Speaker Change: Because the automation is required.
Speaker Change: So we're working on the ability to automatically generate the documents officers required to provided borrowers such as alone estimate and put in place. The guardrails such that these disclosure delivered ideally in real time accurately in a regulatory compliant way.
Speaker Change: Okay.
Speaker Change: They are just two of the many upgrades in our development pipeline to empower loan officers independent mortgage banks to provide a more tailored experience to their customers and given the potential for an uptick in.
Speaker Change: <unk> based on what we're seeing with lower rates are coming in and the timing couldn't be better.
Speaker Change: Now turning to some financial highlights our economic value per funded loan increased by nearly $5 this quarter.
Speaker Change: Customers are recognizing the benefit of applying our technology throughout the home buying process and we're delivering more value as adoption and utilization of our attach products continue to rise. So for example blend close we're seeing more customers adopt our solution and deploy it more broadly across their loan books.
Speaker Change: One particular area of strength, but I'm excited about and we're seeing this within our remote online <unk> solution, which offers borrowers the flexibility to sign all the real estate documents when online notary through electronic signatures from the comfort of their home making.
Speaker Change: Making the whole mortgage loan application process faster more secure and fully digital from start to finish.
Speaker Change: Our customers are already completing one hundreds of these high value because of each month.
Speaker Change: This may not seem like a lot given the scale of our business and the scale of the mortgage industry. We're just getting started and we expect these volumes to ramp up as a solution gets rather more elbow eligible loans and more customers.
Speaker Change: This is a big deal both for consumers, who want that digital closing experienced but also for us because the price per unit on that is even greater than our mortgage software priced at something that our customers love as well because it saves them time.
Speaker Change: And some of the early data we have received that shows that has been incredible.
Speaker Change: Our solution has taken defect rates on signatures down to nearly zero in a couple of the cases.
Speaker Change: Nearly a day and a half off of the typical origination time.
Speaker Change: And so our solution is transformative with diesel just highlighting why we think digital first and standardizing around that for closings in the industry is very important.
Speaker Change: And data points, such as these add momentum to our sales strategy and service proof points that the power of the technology can drive better business results.
Speaker Change: Our customers trust that we will be able to continue to innovate in order to serve their bottom line and are increasingly coming back to us for more ways to apply our latest technology to their current problems.
Speaker Change: One example of this is one of our oldest and largest anchor customers on our mortgage solution. We've already expressed interest in embedding the digital closings and their mortgage experience ahead of their renewal next year and that momentum exemplifies our growing confidence in continuing to expand the value to both deliver and earn on every loan that blend touches.
Speaker Change: Further on this point it was just last year that we shared our expectation to achieve an economic value per funded loan of $90 sometime in 2024.
Speaker Change: Traction we've seen year to date, we feel like this achievement is behind us already and as we've heard more from our customers about their latest plan to deploy our add on solutions in more meaningful ways. It made sense to reset our expectations for this growth Avenue.
Speaker Change: Our latest outlook is that the economic value per funded loan will exceed to $100 exiting 2024, and nearly $10 improvement just a year's time.
Speaker Change: We remain focused on enhancing these products in a way that simplifies the deployment as well as breaking out limitations to make as many loans eligible to utilize these accretive solutions.
Speaker Change: Okay.
Speaker Change: Turning over to consumer banking.
Speaker Change: Q2 marks the first time this business generate $8 million revenue in the quarter, representing 37% year over year growth.
Speaker Change: And we've shared our near term expectations for this business of $50 million run rate and 35% compounded annual growth from 2026, 'twenty 'twenty four to 'twenty 'twenty six.
Speaker Change: We're now pacing ahead of that 35% growth rate, a testament to the speed and execution of our implementation teams, who have been able to get customers up and running quickly as well as our go to market teams, who have done a great job of sharing our consumer banking value proposition to new and existing customers.
Speaker Change: Last week, we shared some compelling statistics on the recent implementation of language Federal credit Union one of the top 100 largest credit union and the United States with more than 5 billion in assets.
Speaker Change: Language selected blends deposit account opening solution and since going live in March they have reported significant improvements across several key areas.
Speaker Change: Starting with they've seen a staggering 37% increase in new digital account openings since going live with blend.
Speaker Change: And July represented the highest month on record for digital account openings ever for that on the backend the rate at which they approved applications that come in required any contact center intervention decreased from 32% of applications to just 7% of applications after implementing blend.
Speaker Change: The combination of driving new business, while also improving operational efficiency Clinton unique competitive edge for our customers and this is why many of our customers who are originally launch with one or two products on blend and are expanding with us over time.
Speaker Change: And you can see that quantified in our pipeline coming to the second half of the year, we have a 40 cross sell opportunities in our pipeline across our full suite of consumer banking products.
Speaker Change: Per year Theres been this trend of consumers wanting to have a simple single interface that they can understand everything the bank or credit Union can do for them.
Speaker Change: And we've talked about this for some time, but we knew would take time to evolve.
Speaker Change: Which makes sense when you have an institution billions of dollars in assets and numerous product lines operating different systems in different silos. It does take time.
Speaker Change: It does feel like we've reached that inflection point.
Speaker Change: The signs are all there we have some large deals with very large financial institutions like Navy federal credit Union and citizens Bank.
Speaker Change: We have a growing interest from large credit unions for us to power their entire platform and we have a pipeline of cross sells that's accelerating growth.
Speaker Change: These are all signs that we've turned the corner and are making meaningful progress towards division a frictionless all encompassing banking.
Speaker Change: Shifting gears the home equity lending home equity makes up a large portion of our current cross sell opportunities and these prospects are often ones that I've seen firsthand how much of a differentiated blend solutions are in other areas and they're ready to expand the partnership into this area of the business, particularly given the macro trend around how much equity has been built up in health.
Speaker Change: <unk>.
Speaker Change: Consumers have benefited from that home prices appreciate appreciation over the past few years and they may find tune find themselves owning a large amount of equity in homes that as the rate environment comes down they can tap into very low right way.
Speaker Change: And so it may be common again to starter home remodeling project renovation project or pay down some more expensive debt that they have that they can consolidate into one place.
Speaker Change: And so as a result, it's become a very natural area for our customers to want to serve their consumers in this environment.
Speaker Change: Before I hand off to Amir to help that as well.
Amir: Translate this into our quarter and the results we've seen her upcoming guidance.
Amir: Let me take a moment to reiterate some of the key areas of momentum that I see for Glenn in the second half of the year.
Speaker Change: To start the data we observed in just the past week tells me we may be on the cusp of a shift in lending landscape.
Speaker Change: Encouraging signal of activity underpins our business is nearing returned to growth.
Speaker Change: Even more importantly, our business could be poised the benefit we have more customers. We have a lot of loans going through the system, we have good market share.
Speaker Change: And every incremental in that we do we're creating a lot more value and we're getting a lot more revenue from it and.
Speaker Change: And so the work we've done to optimize our expense structure on top of that we will just give us a lot of financial leverage as the overall macro rebounds.
Speaker Change: Second our investment in our platform is maturing at just the right moment.
Speaker Change: Modern experiences such as the AI integrations or the real time home equity experience or the.
Speaker Change: The refinanced flow that creates a much faster and much simpler refinance for consumers who need it.
Speaker Change: This has all been work that's come together after years of working on this platform from the ground up.
Speaker Change: This new evolution of the way, we build our technology is resonating and our customers are bringing more ideas of the applicability of our solution to their own businesses and new and compelling ways.
Speaker Change: And we haven't let up on Arqiva and innovate in the way that serve each of our various customer segments.
Speaker Change: The great aspects of welbilt technologies that can be flexible enough to solve some of the broadest and most unique challenges facing the industry we serve.
Speaker Change: And our eyes, there are almost no limits to the applicability of our solution and we're continuing to evolve to the needs of our customer base that result in more value for them and us.
Speaker Change: And lastly, I'm excited to share with you that our pipeline of opportunities.
Speaker Change: Just can apply to is as healthy as ive seen it for a long time and I think a lot of it has to do with the macro as well as the maturation of our solutions our sales team, including myself were busy on the road listening to customers the ground wishlist from prospects as well as even existing customers who are using our products and it's clear that blend is top of mind and a top choice for.
Speaker Change: Them to deliver best in class modern origination experiences.
Speaker Change: And as more of our focus on our customers spoke shift focus to what's ahead, our phones are saying incredibly busy.
Speaker Change: I look forward to sharing some of the new innovative partnerships that were set to establish in the next few months do you all very soon and with that let me turn it over to Amir to discuss our second quarter results Amir overdue.
Amir: Thank you Neil and good afternoon, everyone I'm pleased to be joining you today to discuss our financial results for the second quarter are.
Amir: Our second quarter marks another period of strong execution.
Amir: We welcome several new customers to our platform, we increase the pace of growth in consumer banking, we have reached a new high for our economic value per funded loan and we took one step closer to reaching our goal of fourth quarter non-GAAP operating profitability.
Amir: Before I jump into the results. Let me just remind you that unless otherwise stated all results are non-GAAP.
Amir: Total company revenues in the second quarter were $40 5 million ahead of the midpoint and near the high end of our guidance.
Amir: We reported platform revenue of $28 7 million, which was also ahead of the midpoint of our guidance on.
Amir: Our mortgage suite revenue was $18 5 million.
Amir: In line with our expectations for a decrease in aggregate industry originations in the quarter.
Speaker Change: His name assured we brought in a number of new mortgage customers. This year and put together a strong pipeline to fuel growth in the future quarters. We do believe aggregate industry originations will likely be up in the third quarter as compared to Q2 and if the market is right and predicting multiple rate cuts. This year the volume increase should persist into next year assuming afford.
Speaker Change: <unk> increases for homebuyers.
Amir: Turning to another highlight our.
Amir: Our mortgage suite economic value for funded loan rose by more than $5 compared to last quarter and by approximately $11 compared to the same period last year, reaching $97.
Speaker Change: The step up in our per funded loan rates continue to be primarily driven by higher attach rates of our value accretive add on products.
Speaker Change: Shifting to the other key part of our platform.
Speaker Change: Tumor banking products continuing to drive expansion of our footprint with customers with revenue for those products growing 37% year over year to a total of $8 million.
Speaker Change: Our pace of growth is accelerating as we launched new deployments that add incremental platform fees as well as more adoption of our full suite of solutions.
Speaker Change: With 37% year over year growth just two quarters into the three year guidance, we provided at our Investor day, we are on the right track to exceed the 35% CAGR target.
Amir: We also generated $2 2 million of professional services revenue, which was consistent with the same period last year.
Amir: We reported title revenue of $11 8 million exceeding the high end of our guidance range.
Speaker Change: Moving on to gross profit total company non-GAAP gross profit was $21 8 million.
Speaker Change: Our non-GAAP blend platform segment gross margins were 71% compared with 74% a year prior.
Speaker Change: Our software, we reported non-GAAP software gross margins of 79% compared with 81% a year prior.
Speaker Change: Our non-GAAP title margins came in at 11% for the second quarter, which was consistent with the same period last year.
Speaker Change: non-GAAP operating costs for the second quarter totaled $27 4 million.
Speaker Change: Compared with $41 6 million in the previous year.
Speaker Change: As we invest in our platform and go to market functions, we continue to boost efficiency to balance out our investments. This is also leading to a business that is more durable and resilient than ever.
Speaker Change: Our non-GAAP loss from operations was $5 6 million in Q2 coming in well ahead of the high end of our guidance range. We expect more improvement in Q3, as we pace towards our target of non-GAAP operating profitability in Q4.
Speaker Change: For the second quarter, our remaining performance obligations landed at $87 4 million, which represents an increase of $34 2 million compared to the second quarter of 2023, when our appeal was $53 $2 million.
Speaker Change: This marks the fifth consecutive quarter, where our pure balance increased year over year with Q2 growing by 64% year over year.
Speaker Change: <unk> in the second quarter decreased by $5 6 million compared to Q1 of 2024.
Speaker Change: Given the pace of go lives to ramp for our customers.
Speaker Change: Now that we're in the second half of the year, we are starting to negotiate a number of renewals and new deals, which should bring us back to a quarterly growth along with year over year outperformance.
Speaker Change: Free cash flow for the quarter was negative $8 5 million, which compares to a negative $34 6 million in the same quarter last year.
Speaker Change: Free cash flow for the quarter did include approximately one month's worth of interest expense from our term loan, which we paid down in full at the end of April with the capital received from these investments.
Speaker Change: Our unlevered free cash flow, which includes which excludes the impact of interest expense was negative $6 9 million in the second quarter.
Speaker Change: Despite the decrease in Q2, the momentum that we've created and pushing towards positive free cash flow isn't slowing down.
Speaker Change: Many of our customers time their renewals at the end of their fiscal year. So Q1 seasonally tends to have a larger influx of prepayment cash inflows.
Speaker Change: Company is debt free and we're operating a high level of efficiency the expectations that we will still generate positive quarterly cash flow sometime shortly after reaching non-GAAP operating profitability.
Speaker Change: Beyond this we are also seeing additional leverage from our partnership with her belly.
Speaker Change: We ended the quarter with approximately $120 million of cash cash equivalents marketable securities inclusive of restricted cash.
Speaker Change: In light of the visibility that we have towards profitable growth combined with our strong balance sheet and significantly reduced cash needs. We are excited to share that our board has authorized our first share repurchase program of up to $25 million.
Speaker Change: We continue to believe that our current valuation does not properly reflect the market opportunity our comprehensive product offerings and the expense discipline that we've instilled in our business. Additionally.
Speaker Change: Additionally, this decision was contemplated in conjunction with all of the planned investment we are making into the next generation of origination technology. Let me Michelle with you. We are confident our balance sheet is in a position of strength to achieve our current set of investment objectives and provide shareholder return.
Michelle: Lastly, let me move on to our outlook for the third quarter of 2024.
Speaker Change: We expect platform revenue to be between $28 million and $31 million in Q3 of 2024.
Speaker Change: We expect our title business revenue to be between $11 5 million and $12 $5 million.
Speaker Change: Our total company revenue outlook is expected to be $39 5 million and $43 5 million for Q3.
Speaker Change: Our guidance is based on an internal assessment of customer level growth as well as our own outlook of Q3 origination activity based on application volume observed to date through the customer base.
Speaker Change: Our total non-GAAP net operating loss is expected to be between $4 million and 7 million for Q3 with the midpoint, representing a 65% improvement year over year.
Speaker Change: And with that I. Thank you again for joining Brian we're now ready for questions.
Speaker Change: Thank you would never Amir and waiting for your remarks with that I will now shift to the Q&A portion of the call.
Speaker Change: As a reminder, if you wish to ask a question. Please raise your hand and the portal.
Finland Becker: Our first question comes from Finland, Becker with William Blair.
Felicia Becker: Selling you can impute. Please go ahead.
Finland Becker: Hey, gentlemen, nice job here, maybe NEMA starting for you. Obviously you have some some recent news on the rate dynamic here throughout the balance of the year.
Speaker Change: Wonder obviously that has an impact on affordability, but.
Speaker Change: <unk> has been a big constraint as well you kind of called out some of the home equity piece.
Speaker Change: Can we start to shift away from some of that lock in that incentivize as more sellers into the market here kind of getting a push from both the supply side and the demand side to help fuel some of that recovery.
Speaker Change: Yeah. Two question Don Thanks for the question Yeah, I think it's interesting I think everyone understands and refinance are very interest rate sensitive because you have to be in the money unless you are taking cash out, but you have to be in the money to refinanced otherwise.
Speaker Change: But actually purchased tends to be relatively sensitive to interest rates as well. So I think it will unlock new supply.
Speaker Change: New demand and I also think the general macro that we're seeing where.
Finland Becker: Consumers have sort of been waiting for a long time.
Finland Becker: We might start to see some of those who felt locked in when rates start having a five handle on them.
Finland Becker: I feel like it's okay, it's going to move in thinking rates are moving the right direction. So I can move homes and refinanced that new home that are buying a year or two in the fore handle and not feel like it's a big big difference because yes people have been waiting on the sidelines for a long time and only wait for so long.
Speaker Change: Sure, Okay that makes perfect sense maybe.
Speaker Change: Obviously, great to see the consumer strength as well here and it sounds like healthy pipeline commentary I know, it's a bit of an earlier initiative to but it sounds like there's been some notable go lives so kind of help us get a sense of the reference ability some of the value that's been tied in realized from some of those early customers, that's helping kind of fuel.
Speaker Change: The later stage pipeline activity that seems to be growing pretty nicely.
Speaker Change: Yeah actually I I love the idea of reference ability as a key tenant because it's the same more views internally, we want every customer to your reference of all.
Speaker Change: We want to meet that happy with the solution and when we did the length of the Langley Federal credit Union case study.
Speaker Change: I was frankly, even surprised by how good it turned out obviously, we believe in our solutions because the numbers were so good to 37% growth in accounts.
Speaker Change: Going down from 32% requiring contact center intervention down to 7%, that's almost three quarters drop maybe more than three quarters drop and how many contact center you mentioned they needed so things like that become really critical.
Speaker Change: I actually had another anecdote from a customer today that I saw that there they had a new feature that they rolled out and it almost doubled the number of people who are getting the flow without that contact center interventional is a different customer.
Speaker Change: And then I.
Speaker Change: Those kinds of things that we do because it's building more capabilities into our platform every future product that we offer now even for that same product not just for deposit account opening but every future products. We build are capability rollout is going to have that benefit built into it. So it becomes this sort of self fulfilling prophecy overtime.
Speaker Change: If we can keep executing on making these flows better and having a good true north for our customers.
Speaker Change: Okay, great. Thank you Matt.
Joe <unk>: Our next question comes from Joe <unk> with Canaccord Genuity, Joe go ahead.
Joe: Hey, guys. Good afternoon, and really nice to see really nice progress from the business I guess Nemo.
Joe: Going up when on the commentary that.
Joe: Customers kind of know no. It's time to get ready for rebound is there you know can they can they get ready quickly here or is it going to take them a whole another budget cycle to get ready if if if they want to be in a position to.
Speaker Change: To I guess be positioned for a rebound in mortgage volumes and then I'll have a quick follow up.
Speaker Change: Yes, it's a great. Another great question, one I think it is something where they see it as a critical part of their business going forward being able to.
Speaker Change: Help customers, if they want to lower their monthly payments.
Speaker Change: The macro on mortgage does shift.
Speaker Change: And so we are seeing some customers who are kind of standing on the sidelines in terms of deploying new technology. They suddenly came to the table in the last month or two wanting to move really quickly and by really quickly I mean abnormally quickly for organizations of our size.
Speaker Change: And so it turns out that these organizations can move quickly if it's important enough at the very top of the house now that won't be true of all of them, but we're definitely seeing it sizable institutions as well as smaller more nimble ones and so I think it just goes to show how important this is going to become for their their long term ability to serve their customers getting something in place.
Speaker Change: I mean, we're excited that we can build a solution like that having a solution where a consumer can go through and get through the process of refinancing alone and locking their rates, mostly in the first few minutes I mean, it's pretty it's going to be pretty.
Speaker Change: Should all work out how we hope in how we think it's going to work out it should be pretty powerful for the market and help lots of consumers hopefully millions of consumers long term.
Speaker Change: Sure, it's pretty exciting and then kind of on that same note I. Thank you Hugh.
Speaker Change: Called the new refinanced, Florida, the refinance product I think refinanced flow or something like that and I know you mentioned that you were.
Speaker Change: You were you were in beta with one customer there just wondering if there's a timeline on getting that out to general production because it.
Speaker Change: It does feel like it's a great product in and I definitely know that sometimes a refinance processes even more arduous.
Speaker Change: Purchase mortgage so.
Speaker Change: Just wanted to get a little more color on that the next generation refinance product. Thanks.
Speaker Change: Yes.
Speaker Change: Same question a lot of our customers are asking us right now Joe.
Speaker Change: Are there sort of a growing interest list and you know theres only so much capacity, we can handle it wants to roll that out.
Speaker Change: But we have you know like I said, we have the next two already lined up and we plan to make this available as soon as we can because we realized the timeliness of it we just want to be able to do it in a really.
Speaker Change: Let's call it highly impactful way.
Speaker Change: So there's two things working in our favor in terms of speed in this case.
Speaker Change: One is we're using existing capabilities in our platform that have already existed for a long time to think about the things you need to do a refinance you need to.
Speaker Change: To run credit checks.
Speaker Change: The new price of alone with the new interest rate will be and to compare your old payments. Your new one you need to calculate the fees Bacon those fees to make sure that that is encapsulated in the and alone capture you need to do it income verification in some cases, an asset verification in some cases through on underwriting steps you could generate some documents and then get what's called intent to proceed in order to lock.
Speaker Change: The rate those steps those are already existed in our platform.
Speaker Change: It's really about how we bring it together in a seamless way I mean, where do you need to have all those steps and a platform that a consumer access is but how we bring it together is very important and so we already it's bringing it together and we've already been doing for about eight months and so we feel good about the state of our products.
Speaker Change: And the reason I think we'll be able to rollout our customers effectively is that its going to reuse a lot of the same integrations to their middle and back office system. So we already have in place with them. So I think we'll benefit from those things.
Speaker Change: In aggregate, it's too soon to tell how long it will take for us to get broad adoption in the market with something like this because sometimes.
Speaker Change: Sometimes these are as regulated institutions, they want to take extra measures to make sure. They do the right things, but we're going to move as fast as humanly possible.
Speaker Change: Okay.
Speaker Change: Our next question comes from Ryan Tomasello with <unk>, Brian you can go ahead of mute.
Ryan Tomasello: Hey, guys. Thanks for taking the questions.
Ryan Tomasello: In terms of the add on products in mortgage.
Ryan Tomasello: Called out nice traction with the close solution Nemo.
Ryan Tomasello: It would be helpful. If you could quantify where those attach rates are today, where you can go and just generally what you find is the biggest hurdle for us.
Speaker Change: Overcome for getting customers to adopt that solution and then as a follow up on the same topic income verification seems like a pretty interesting opportunity for the company given the competitive dynamics in that space with some of the higher cost incumbents have you seen any notable traction in that product and just generally how are you thinking about that opportunity for income.
Speaker Change: Acquisition.
Speaker Change: Yes, I mean, while we don't share specific attach rates on either of these two products.
Speaker Change: Can say, we've gotten great traction in the blend closed product, but we still have.
Speaker Change: A lot of white space ahead of us, there's a lot of opportunities still within our current customer base.
Speaker Change: And we also are seeing actually its interesting as we see a lot of benefit for our customers to doing the digital closings I called some of this out during the call potential closings can help them close loans faster.
Speaker Change: Has less errors on there.
Speaker Change: The loan files and the signature documents things like that and so it ends up being a win win it's just sometimes it takes time to answer your question. How can we do you know why why is it not a 100% today. It seems obvious that 100% of people want to not have to even if they go on person and I'll have to go and sign on.
Speaker Change: 50 different piece of paper it seems pretty natural not want to have that as part of your process.
Speaker Change: It just takes time and there's a lot of missed in this industry around digital closings, but I even here today from some of our customers well, there's a lot of phase III cancer digital closings.
Speaker Change: And that's not entirely true I mean, there are certain certain parts of the country and certain counties, even that make it more difficult than others.
Speaker Change: But those are very rare, it's a small call less than 10% or around 10% of the volume in the country. There is not eligible for a fully digital closing and wishes and which gets you can even do a hybrid digital closing, which is an offering we have to do the note digitally but do the deed electronically and so.
Speaker Change: The short answer is.
Speaker Change: We have a good attach rate, but a lot of runway ahead of us to close and we're excited to keep building on that solution and we want to make that the market standard for how all the closings of the mortgage industry happen.
Speaker Change: On the income piece I am excited about the income piece interestingly income pieces, it's not about one vendor or one solution if you're a customer of ours. What you want is provider that can bring together all those solutions and all the necessary pieces.
Speaker Change: So that a consumer you can see you can help them with a consumer who is self employed you can help them with a consumer who is.
Speaker Change: The traditional payroll provider you can help them with the consumer who wants upload their documents and you want to read the data from the documents using AI in real time, and so I think a blend will bring to that space is the best in class orchestration of what I'll call. The broader income set of things that have to happen to the broader income waterfall I think that's the real opportunity for Glenn long term.
Speaker Change: But we're definitely seeing interest from our customers they want to find a way to make income verification automated and faster and cheaper and so.
Speaker Change: While we won't share specific numbers around that that's another area of the business, we find very interesting.
Speaker Change: And just a follow up for Amir.
Speaker Change: It sounds like this is the case, but just to clarify.
Speaker Change: Sure.
Amir: The <unk> income operating income profitability for the fourth quarter, that's still something that you think is achievable.
Speaker Change: And I guess given.
Speaker Change: <unk> is typically.
Speaker Change: Typically guys negative seasonality, maybe thats more muted this year in light of rate cuts, but just help us understand the bridge.
Speaker Change: In the second quarter.
Speaker Change: See there are the levers you have to pull on the expense side better remaining.
Speaker Change: And then also if you'd expect.
Speaker Change: Operating income to be sustainably profitable after that fourth quarter inflection. Thanks.
Speaker Change: Thanks for the question Ryan, Yes, I think first and foremost just to confirm for everybody. Although we've stated this yes, we're definitely confirming our path to breakeven in Q4, and we still have line of sight to that so feel great, including just how we're stepping with regards to our.
Speaker Change: Our operating expenses and ultimately what you saw in our net operating loss results.
Speaker Change: Second you're right Q4, definitely has an aspect of negative seasonality and putting aside maybe where youre seeing from the overall kind of move ins.
Speaker Change: And then the macro it'll still take a little bit of time, and so for us to be able to achieve that is this whole notion of being.
Speaker Change: Being breakeven in Q4, it is important to us because it is at a seasonally low point, which is I think an important point of emphasis for us that takes us to maybe you can also where you're headed which is is this going to be something sustainable and so although we haven't given forward guidance outside of Q4, our intentions are quite consistent with what we shared at our Investor day, which is in the foreseeable future, we will shift to becoming much more.
Speaker Change: Free cash flow oriented and how we speak and as I stated on this earnings call. We do have line of sight and our plans are to be able to move to just that in the foreseeable future.
Speaker Change: And then lastly, this notion of just kind of where do we have levers or levers are not just expenses, maybe the way that we've looked at them historically the way that we operate today again through the lens of operational excellence is to dissect every process to ensure that it is just operating.
Speaker Change: Not just with velocity, but in terms of its maximum efficiency and builder by the way is one aspect that is helping us kind of find more and more ways to be efficient and we're kind of using the momentum not necessarily rebuilder directly but across the rest of the organization to do just that youre seeing a trickle to what we shared in our results this quarter.
David <unk>: Our next question comes from David <unk> with Wells Fargo. David You can go ahead and.
David: Hey, thanks for taking the questions.
David <unk>: So just building on the breakeven comments as you work towards achieving profitable free cash flow in the somewhat near future.
Speaker Change: With the support of a strategic partner, how should we think about the balance between improving cash flow versus investing for growth, especially as we think through buying back stock.
Speaker Change: David I would say the best answer for US is just it's been what we've been consistently saying around the following notions one we plan to remain extremely balanced and by that I mean, we never kind of let this pendulum swing to par when there was a negative sentiment nor where we let it swing to par when maybe things are happening quite quickly on the short term the reason that we saw.
Speaker Change: Pay balances because again the mindset that we've created in phase two a blend as everything is very ROI centric and so we have a high level of conviction in some of the initiatives a few of them you heard numerous speak to our Nextgen refi flows elements of home equity as an example, and so that that conviction exist in either scenario and that's part of kind of this balanced approach followed by ROI and then.
Speaker Change: Lastly, I would say to you just this notion of free cash flow the approach that we've taken as it.
Speaker Change: As we build up the customer base and as you hear the sentiment of what we're sharing with you. Some of what you can see in things like our P. O overtime as we continue to land more and more of these customers and drive our renewals you'll see that build which is what is going to get us to this type of free cash flow positive.
Speaker Change: Yes.
Speaker Change: Maybe I'll just add a quick quick note there David.
Speaker Change: Yeah.
Speaker Change: One on one of the prior calls I think it was three or four quarters ago, I talked about innovation per dollar going up.
Speaker Change: As it relates to building new things because we have our own platform that we built from the ground up and we spent a lot of time and money doing.
Speaker Change: And that platform is very powerful as so many built in capabilities.
Speaker Change: Capabilities that are like building like Lego blocks, you can drag and drop for different flows just to give you a very practical example.
Speaker Change: This next Gen Refis slow.
Speaker Change: <unk> is the most integrated most complex products.
Speaker Change: Probably I have to think through all of the examples of things you bill, but that we've ever had to build and we built it for a fraction of what we built our first mortgage product a small fraction and because when you play like we've invested so much in this underlying platform that allows us to innovate at extremely high level of efficiency and almost like allows us to innovate too fast for them.
Speaker Change: <unk> to even in some cases.
Speaker Change: Absorbed on innovation and so it's a little bit is on us for making sure that we continue to innovate, but I want to make that clear we are we ever.
Speaker Change: Foot to the gas and innovation and we're still managing to hit these great operating loss targets and hopefully operating profit year soon like we've guided to.
Speaker Change: Targets and our longer term free cash flow positivity.
Speaker Change: Despite all of those things so I'm pretty excited about our path forward in innovation side.
Speaker Change: Very much appreciate all that detail and just just a follow up from me. So in terms of the <unk> you guys sorry, if I missed this so it's based on your internal forecast, but I'm just wondering the timing of when you came up with that guide given how much the markets.
Speaker Change: Thanks.
Speaker Change: The moment that you're seeing for the last two weeks per se, David Theyre not necessarily in those numbers. It takes time as you think about the conclusion of our funded loan to go through a star in our submit and so I think I played to the Gist of your question is we are seeing some.
Speaker Change: Early indicators that are very positive as Nemo alluded too, but our guidance was built off of what we're seeing with our customers that was really built off.
Speaker Change: Before where you are seeing in the last few weeks.
Speaker Change: Thank you.
Speaker Change: Seeing no further questions. This concludes today's earnings call. Thank you all for joining our nice growth through that.