Q4 2024 Blend Labs Inc Earnings Call

Good afternoon, and welcome to <unk> fourth quarter and full year 'twenty 'twenty four earnings Conference call. My name is Winnie Lang and I'm, the head of legal and people for the company.

Speaker Change: Joining us today, I mean, Mike I'm, sorry, cofounder and had a blend and a major fight I'll head of finance and administration.

Speaker Change: After NEMA and amused to live in our prepared remarks, well open up the call for questions. You can find the supplemental slides on our Investor relations webpage at Investor thought blend dot com during.

Speaker Change: During the call more about southern non-GAAP measures, which are reconciled to GAAP results in today's earnings release and in the appendix to our supplemental slides.

Speaker Change: non-GAAP results are not intended to be a substitute for GAAP results.

Speaker Change: Otherwise stated all financial measures, we discuss today, including our profitability referred as non-GAAP.

Speaker Change: Certain statements made during today's conference call regarding blend on its operations in particular its guidance for the third quarter of 2025, and full year 2025 and expectations about our market maybe considered forward looking statements under federal Securities laws. The company cautions you that forward looking statements involve substantial risks.

Speaker Change: And uncertainties and a number of factors many of which are beyond the company's control could cause actual results events or circumstances.

Speaker Change: Really from those described in these statements. Please see the risk factors we've identified in our most recent 10-K 10, Qs and other SEC filings, 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 Nemo.

Nemo: Good afternoon, everyone. Thank you for joining our earnings call.

Nemo: For the quarter was a pivotal year for Glenn what are we sharpened our focus to deliver greater value to customers and accelerated our path to sustained profitability as a leaner more software driven company.

Nemo: In Q4, we continue to strengthen that business.

Nemo: We welcome several new customers, most notably a top 10 U S banks by asset size and PHH mortgage one of the nation's largest home mortgage servicers, who both signed multiyear agreements across our mortgage and home equity.

Nemo: Our consumer banking business grew 42% in 2024 surpassed 35% CAGR target as discussed at our 2023 Investor day with Q4 revenue growing 48% year over year further establishing consumer banking as a key growth driver for Glenn and essential for financial institutions modernizing account openings in consumer lending.

Nemo: Our solid revenue performance, coupled with disciplined expense management is delivering tangible results now and generating momentum for the future.

Nemo: In Q4, we achieved 15% year over year total revenue growth, despite a challenging macroeconomic environment.

Nemo: We had our strongest quarter, yet and posted its second consecutive quarter of non-GAAP operating income profitability with $5 2 million in Q4.

We're just getting started.

Nemo: We see several strong tailwind, we believe will allow us to stay on offense and accelerate our plans as the market rebounds.

Nemo: As rates stabilize demand for blended solutions increase.

Nemo: <unk> invest in technology to capture opportunities like refinance and home equity more efficiently.

Nemo: This momentum firsthand our pipeline is 50% larger than it was this time last year, giving us even more confidence in sustained growth.

Nemo: And with positive free cash flow expected in Q1, we have the flexibility to invest in our focus on driving more cost effective innovation and attract even more customers expands our reach and generate long term value for shareholders.

Nemo: With that.

Nemo: Highlights of our progress and simplified Glenn and evolving to a software centric platform.

Nemo: A big part of the shift is moving from building amazing everything in house to partnering with specialized technology and operational providers external.

Nemo: Historically, we've taken out the complexity of developing and operating products ourselves.

Nemo: With the launch of successive builder and our desire to drive scale will recognize the best way to drive high impact efficient innovation. This focus on our core origination platform well partner with best in class technology and operational providers, who are already years in their fields.

Nemo: By extending our partner ecosystem, we're able to deliver superior solutions quickly to our customers on a single flexible platform, while also improving our financial efficiency and greatly simplifying our business model.

Nemo: A great example is our Hooters insurance partnership with covered insurance solutions in just one quarter and shifting the homeowners insurance business from in house business to a partnership model, we have reduced our operational expenses more than the lost revenue impact illustrating the benefits that the strategy you can have here.

Nemo: Another example of extending our partner ecosystem is our strategic partnership with true work for verification of income.

Nemo: And then managing it ourselves we're partnering with best in class providers to deliver a solution with better verification covers that drives higher success rates for our customers and that means our customers still get seamless income verification through blend, but now powered by <unk> expertise and scale, while we get the benefit of greater efficiency and a revenue sharing model is another move towards our platform for strategy.

Nemo: <unk> ecosystem driving stronger contribution profit per funded loan.

Nemo: We plan to continue to open the platform to a wider network of partners with the aim to accelerate innovation and fueling our ecosystems growth.

Nemo: As part of our ongoing simplification efforts. We've recently signed an agreement with Mr. Cooper that extinguishing the put option they hold in connection with a prior acquisition inside of 65 and extended our partnership through 2028 with a meaningful commitment to each other.

Nemo: This agreement strengthens our relationship with our long term partner incorporate new features and drive simplification of our business.

Nemo: Moving to our mortgage business. This remains a core part of our strategy and a key revenue driver.

Nemo: Macroeconomic uncertainty in 2024, we continue to strengthen our position by deepening relationships with existing customers and expanding our reach to more institutions.

Nemo: In Q4, we welcomed another major industry player with a top 10 largest USA in the nation by asset size.

Nemo: One lives and blended under 25 days demonstrate the flexibility and scalability of our platform.

Nemo: We also signed seven new customers renewed key contracts with existing clients and expanding our product offerings of major institutions. These.

Nemo: These wins reinforce blends ability to drive long term value for financial institutions of all sizes.

We also recognized the unique trials independent mortgage banks days from operational pressures to the need for greater branch level of flexibility and that's why we're investing in providing access to the same great technology with top tier institutions rely on to the smaller institutions.

This quarter, we launched a dedicated business unit focused on delivering tailored technology to support diabetes.

Speaker Change: Justin Van Heusen of mortgage industry veteran and former Chief operating officer at Columbus mortgage.

Nemo: One of our customers to lead this effort.

Nemo: With over 12 years of experience Justin brings firsthand insight as to what the <unk> need to succeed.

Nemo: As part of this initiative to better serve Isps. We're also proud to offer new features including bracelet will configuration increased disclosure functionality for loan officers and enhanced hybrid clothing offerings.

Nemo: These features along with our core mortgage products that are being packaged varieties, we expanded our relationship with cross country mortgage the nation's largest retail mortgage lender and are excited to collaborate on these new solutions.

Nemo: Democratizing access to the powerful solution used by top tier lenders, we're leveling the playing field, helping ind's compete more effectively and deliver exceptional service to our customers. So I.

Nemo: I wanted to take a moment to talk about competition.

Nemo: Usually talk about competition publicly because I believe blends as a standalone merits.

Nemo: This quarter was a turning point.

Nemo: We're seeing our competition Volta <unk>.

Nemo: Succeeding in this industry is all grid.

Nemo: Takes a decade of ongoing focus passion and perseverance to truly succeed and it doesn't stop there.

Nemo: We weathered the hydro lows and we're still here continuing to invest innovate and expand our position and that resilience is driving some results.

Nemo: While we've seen some churn in the past quarters, which we discussed during our 2020 earnings calls when there's significant turmoil in the market. We also signed several large mortgage lenders in Q4.

Nemo: As these customers ramp up and start originally on our platform. We will expect the offset that churn further strengthening our market position.

Nemo: Our grip is why we continue to win and Thats part of why blood was successful in Q4, and why I believe will continue to be successful in the future.

Nemo: Speaking of innovation I want to highlight a rapid refinance solution, which became generally available yesterday.

Nemo: This launch is well time with our customers trying to capture refinance volume in the market with greater speed and flexibility the.

Nemo: In mid 2020 for declining rates triggered a surge in refinance volume, revealing significant pent up demand.

Nemo: While our forecast suggests that the rate environment will remain largely flat with slight rate improvements there can be success in many of those with each rate cut as we saw in 2024.

Nemo: Critical in this environment that our customers retain borrowers and capture market share quickly there are $7 2 million borrowers with rates above five 5%. According to ice mortgage monetary report with purchase activity in 2025 expected to increase we expect demand for Refis. The future we will continue to grow.

Nemo: We currently have three customers using the rapid revised solution. The first refinanced ice have been released to general availability and as adoption accelerates throughout the year, we anticipate a positive impact on our economic value per funded loan.

Nemo: While our mortgage we there has been a cornerstone of our business our consumer banking suite has emerged as a transformative growth engine.

Nemo: This area has been growing and outpacing our original projections.

Nemo: This represents a significant opportunity for Glenn to deliver even more value to our customers and their end users.

Nemo: In consumer banking, we're providing institutions with solutions that go beyond mortgage lending, including both consumer deposit account opening as well as tailored lending solutions. When we've seen these solutions deepening customer relationships to help institutions create seamless modern banking experiences.

Nemo: Our efforts in this space are centered around innovation and scalability by extreme institutions of all sizes of extra robust capabilities, we're enabling them to compete effectively and grow alongside their customers.

Nemo: So deposit offering along with our ability to offer tailored consumer lending modules within the same platform experience provides our customers a differentiated experience. We believe the market opportunity is there and we have the tools and team needed to win.

Nemo: A part of our consumer banking suite revenue line is our home equity business.

Nemo: The success of our flagship home equity product, we have developed a new rapid home equity solution and incorporating next generation speeds into the home equity lending workflow.

Nemo: We moved this to general availability and are thrilled about the potential this product can offer our customers.

Nemo: With nearly 100 total customers using our flagship on equity solution, including seven of the top 10 home equity originators in the country. We believe this upgrade represents a tangible or opportunity for our customers.

Nemo: Early results are showing $1 five X pull through advantage and decreasing application to funding cycle times by at least 20% as well as enhancing utilization of home equity lines by consumers for debt consolidation.

Nemo: At <unk>, our customers are at the heart of everything we do.

Nemo: Whether through our mortgage sweet markets their bank suite, we work to enable our customers to meet that evolving needs that the consumer has with confidence and agility.

Nemo: Our approach is rooted in listening to our customers and understand their unique challenges. We are committed to developing solutions that our customers and prospective customers provides seamless intuitive and personalized experience for their end users.

From streamline loan processes to enhancing consumer banking transactions.

Nemo: Our platform is designed to empower institutions to stand in the back the deals we close in the fourth quarter and our national expansion of product adoption within our customer base are setting us up for a strong year.

Nemo: We also feel great about the health of our pipeline, which is now 50% larger than this time last year and we expect to invest in our sales and marketing function during the year to continue our momentum and capitalize on our pipeline.

Nemo: As we look at the 2025, we're continuing to embrace the opportunity to shape, the future of blended with clarity and discipline.

Nemo: While we remain focused on balancing innovation with financial discipline, we acknowledge the path forward requires to be both agile and intentional and addressing the challenges and opportunities ahead.

Nemo: We expect to continue to make progress in all areas of our business, but a new initiative that I'm excited to talk about is how we plan to incorporate AI into our platform and solutions.

Nemo: Right now mortgage origination is expensive and a very manual process, causing lenders around $12000 per loan.

Nemo: And that's largely because many steps still require human input reading documents taken data often documents and doing simple calculations, but that's starting to change.

Nemo: He is already making a big difference, helping streamline key steps like identity verification cutting down on the manual checks and making product mentioned stronger and more efficient.

We estimate that AI can automate up to 90% of the process of what banks and credit unions do today to serve their customers.

Nemo: We can obviously to help lenders take advantage of this opportunity and we're already doing that by embedding AI into our core banking proxy.

Nemo: One example of our Doc AI solution, which is transforming post closing operations for lenders by automating docking validation blagging discrepancies in streamlining verification not only improved accuracy, but also significantly reduces manual workloads.

Nemo: This means lower operational cost faster loan processing, and ultimately more scalable and efficient lending model key drivers of long term value for customers.

Nemo: As we continue to scale, our focus on delivering immediate efficiencies for our customers while laying the foundation for more personalized intelligent experiences in the future.

Rami: To lead this effort <unk> Rami joined Us in Q4 drive safe.

Rami: Bailable AI across all our products.

Rami: We're excited to keep pushing AI for it and we'll have more updates to share throughout the year.

Rami: During that time, we will continue to double down on our core growth areas, such as mortgage and consumer banking and a rapid products.

Rami: We believe these represent transformative opportunities for blend and our customers and at the same time, we're committed to refining our operations to ensure sustained profitability and build a foundation for long term success.

Rami: While we believe our near term guidance reflects a measured approach in light of the current macroeconomic environment. We remain confident in the strength of our strategy and the value we are creating for our customers and our shareholders.

Rami: We expect to achieve our next major financial milestone of becoming free cash flow positive in the first quarter, which we expect will enable us to invest back into the business expand our sales and marketing organization to capitalize on the growing pipeline and continue to develop new products.

Rami: We plan to do this while maintaining profitability in the face of these challenging macroeconomic conditions.

Rami: From here, we'll talk about this more we're paying close attention to our rule of 40 for our platform business. We define this as our year over year revenue growth plus our non-GAAP operating margin.

Rami: Our vision is bold, but its route and the proven success of our platform strategy and the trust, we build with our customers.

Rami: Together, we are creating a future where financial services are not just more accessible the truly transformative for the institutions and individuals we serve.

Rami: With that I'll turn it over to him here to walk through the financials.

Speaker Change: Thank you Neil and good afternoon, everyone.

Speaker Change: I'm pleased to be joining you today to discuss our financial results for the fourth quarter of 2024.

Speaker Change: Our fourth quarter marks another period of strong execution and you can see it in our results. We've continued with another quarter of year over year revenue growth our consumer banking business continues its acceleration we made significant progress on our mission to simplify Brian when we set new records for <unk> and operating profitability.

Speaker Change: There's a lot to discuss so let me just remind you that unless otherwise stated, including our references to profitability all results are non-GAAP.

Speaker Change: We made another announcement around the simplification of blend that I'd like to dive into first.

Speaker Change: As we continue to simplify Blaine, we have partnered with true work, which Nemo mentioned earlier.

Speaker Change: We expect this partnership to provide greater verification of income capabilities for our customers and allows us to further simplify blaine by moving certain operations to our partner.

Speaker Change: Thereby freeing up internal resources that can be directed elsewhere in the business.

Speaker Change: The partnership will enable us to expand the product scope, while still participating in a portion of the revenue stream, but with the expanded profitability.

Speaker Change: Going into 2025, we are focused we have conviction in our short and long term goals and plan to continue to execute.

Speaker Change: We are taking strategic actions as a way to maintain and improve the profitability of our business and deliver scale for the future.

Speaker Change: We continue to execute toward our mission of becoming a platform for all financial institutions.

Speaker Change: Now, let's get into the numbers.

Speaker Change: Total company revenues in the fourth quarter were $41 $4 million ahead of the midpoint of our guidance and representing 15% year over year growth.

Speaker Change: We reported platform revenue of $30 $1 million ahead of the midpoint of our guidance and representing 16% year over year group.

Speaker Change: Our mortgage suite revenue was $18 $2 million, representing 6% year over year growth.

Speaker Change: We were cautious with our guidance as the mortgage industry last quarter and expect this volatility and are happy with our results in the face of this challenging macroeconomic environment.

Speaker Change: Our views on our core growth in Q4 is at or above the mid twenty's year over year as measured by price times units.

Speaker Change: As a comparison, our recurring customer growth, which normalizes for churn grew in the mid thirties as measured in units.

Speaker Change: These customers have historically grown in line or faster than the market. This implies the market grew somewhere in the mid <unk> year over year.

Speaker Change: The discrepancy between our core growth and Thats imply market growth is primarily a function of the churn notices we received in 2023 now were realized in 2024, which we talked about in past earnings calls during the market turmoil in 2023.

Speaker Change: However, as the market stabilized our notice of churn in 2024 was down significantly and the logos, we have announced in Q3 and Q4 of 2024 have yet to meaningfully contribute to volume.

Speaker Change: Our pipeline going forward continues to be strong these factors give us confidence in the future of our mortgage business.

Speaker Change: In consumer banking revenue grew 48% from Q4 2023 to a total of $9 $5 million.

Speaker Change: For the full year revenue grew 42% ahead of the 35% compounded annual growth rate target, we shared at our Investor day in 2023.

Speaker Change: We also generated $2 $5 million and professional services revenue up slightly from the $2 $3 million, we generated during the same period last year.

Speaker Change: We reported title revenue of $11 $3 million ahead of the midpoint and near the high end of our guidance for the quarter.

Speaker Change: Moving onto gross profit total company non-GAAP gross profit was $25 1 million up 26% from the same period last year.

Speaker Change: Our non-GAAP blend platform segment gross margin was 75% compared with 71% for the same period last year.

Speaker Change: We reported non-GAAP software gross margin was 79% in line with the same period last year.

Speaker Change: Over the long term, we maintain our expectation that the software business will be generating at least 80% margins.

Speaker Change: Our non-GAAP title margin came in at 21% for the fourth quarter compared with 15% that we reported the year prior.

Speaker Change: non-GAAP operating costs for the fourth quarter totaled $19 $9 million compared with $33 million in the previous year.

Speaker Change: We continue to benefit from the efficiency programs implemented over the past year and our commitment to simplifying the business as part of our platform for our strategy.

Speaker Change: We improved our efficiency as we continue to simplify our business and focus on increasing our margins along with continuing year over year revenue growth, we expanded our non-GAAP operating profitability in the fourth quarter we.

Speaker Change: We reported non-GAAP operating profitability of $5 2 million significantly, beating the high end of our guidance improving by $18 3 million from the same period last year and setting a new record for Blaine.

Speaker Change: With an operating margin of 13%, we are well on our way to achieving our investor day target range of 15% to 25%.

Speaker Change: We believe this is an important turning point for Blaine. We are focused on building a sustainable growth business that allows us to reinvest and generate significant shareholder value.

Speaker Change: Even in the midst of a very challenging macroeconomic environment. We are very proud of our accomplishments in the fundamentals of our business.

Speaker Change: Free cash flow for the quarter was negative $7 2 million, which compares to negative $28 million in the same quarter last year, an improvement of $13 6 million.

Speaker Change: We ended the quarter with approximately $106 million of cash cash equivalents and marketable securities inclusive of restricted cash and no debt. We believe the strength of our balance sheet is also a differentiator and allowing us to focus on achieving our strategic initiatives and continue to innovate across the financial industry.

Speaker Change: Shifting gears to some of our key metrics in the fourth quarter, our remaining performance obligations landed at $123 million.

Speaker Change: This is another record for blend it represents an increase of $28 million or 30% compared to the same period last year. When <unk> was $95 million. This marks the seventh consecutive quarter, where our pure balance increase year over year.

Speaker Change: <unk> in the fourth quarter also grew sequentially with the balance increasing by $16 million or 15% compared to the third quarter of 2024, as we've closed a number of important renewals and new deals.

Speaker Change: As part of our simplified blend strategy and software first initiative, we are expanding our focus from solely measuring economic value per fund alone to begin measuring the contribution profit per fund alone.

Speaker Change: Contribution profit per funded loan is the gross profit of alone less the direct expenses.

Speaker Change: Our announcements today are made through the lens of increasing contribution profit per funded loan.

Speaker Change: As we turn to our discussion of economic value per funded loan we will start describing the impact of the decisions on contribution profit per funded loan and our business.

Speaker Change: Our mortgage suite economic value per funded loan declined sequentially to $96 compared to $99 in the third quarter.

Speaker Change: This decline was expected and driven by the sale and partnership of our homeowner insurance business referred to as our HOA business the sale and partnership of our <unk> business. As an example of a declining contribution to economic value per funded loan while drastically improving our HOA business contribution profit per funded loan by one seven times.

Speaker Change: This aligns with our strategy to monetize our platform and focus on pure software centric applications.

Speaker Change: We've launched a dedicated line of business focus on the independent mortgage banks. We built several new features that continue to differentiate our solution and more importantly have already been adopted by <unk> customers.

Speaker Change: This initiative requires catering our solution specifically to <unk> across the country, which come with a different product package and price point as we target. This customer base, we are focusing on winning logos and getting these customers in the door. These new relationships typically begin with a single product SKU and expanded product scope overtime as.

Speaker Change: As such this results in a lower economic value per funded loan.

However, we anticipate significant market share growth in this area increased logo wins and ultimately will drive a higher contribution profit per funded loan over time.

Speaker Change: Our strategic partnership with <unk>, who work for income verification will also have an impact and lower economic value per funded loan over the year as our customers transition to using the platform feature.

Speaker Change: This partnership will improve efficiency by moving the operational workloads to work, while also providing automation in our verification of income process.

Speaker Change: Ultimately this will lead to a higher contribution profit per funded loan overtime.

Speaker Change: As we continue to simplify Blaine, we want to provide a very clear outlook for our economic value per funded loan over the year, starting with a new baseline.

Speaker Change: The new baseline for our economic value per funded loan will be $94 starting in Q1 2025.

Speaker Change: The decline is attributed to the island the customer base that we're targeting and moving our operations to a partnership model with true work.

Speaker Change: Despite the decline these are changes to the business that we view positively as it underscores our focus on simplicity and we believe it will lead to a more profitable business.

Speaker Change: We expect this metric to return to the high Ninety's to exit the year as we expect to see an additional uptick of our overall close attach rate with a shift of more hybrid and remote online <unk> as well as the ramp of rapid refined throughout the year.

Speaker Change: We reaffirm our long term economic value per funded loan of 170 that we shared with you at our Investor day in 2023.

Speaker Change: Currently our top five customers by economic value per fund alone have a weighted average economic value per funded loan of $177 showing a path to achieve this target is our customers fully utilize our platform and we expand with new products.

Speaker Change: This is a positive point and blends journey.

Speaker Change: We've demonstrated our ability to generate leverage as we have simplified blend and executed on our partner ecosystem and platform first business model.

Speaker Change: We will continue to execute against our goals cross sell our products and drive operating profit, which we expect to result in further improvement to our business.

Speaker Change: We are accomplishing these actions in a very low level of activity in the mortgage market and are setting up the business for success at scale.

Let me move on to our outlook for the first quarter of 2025.

Speaker Change: Our guidance is based on the internal assessment of customer level growth as well as our own outlook of Q1 origination activity based on application volume observed to date through our customer base.

Speaker Change: Quite the fed's rate cuts to date and expected future cuts mortgage rates Havent gone down they have in fact gone up.

Speaker Change: Since we last met Fannie Mae and MBA agency forecast for mortgage originations have come down on average 20% for the first quarter of 2025.

Speaker Change: We do not solely based on our forecast off of these projections. This is an external resource that shows the magnitude of change in a short period of time and indicates why we are cautious about the overall macroeconomic environment.

Speaker Change: However, we find these third party forecasts to be lagging and we believe that the market will be below the range. They provided.

Speaker Change: Since we report our share of originations based on 100 data as discussed in our last earnings call. We believe that the Honda market size is going to be between 800000 and 900000 units in Q1.

Speaker Change: We expect platform revenue to be between $25 million and $27 million in the first quarter of 2025 with the midpoint, representing 9% growth year over year.

Speaker Change: As with every year Q1 will be a seasonally high point for expenses, but we continue to manage these expenses very tightly.

Speaker Change: Our billing platform only non-GAAP net operating income is expected to be between negative $1 million and $1 million for the first quarter of 2025, as we expect to offset the macroeconomic pressure in our revenue with diligent expense management.

Speaker Change: We are continuing to execute in our next goal is positive free cash flow margin, we expect our first quarter free cash flow margin to exceed our market normalized rate of 18% of shared at our Investor day. In 2023, we are doing this at a dramatically different point in the cycle when compared to that expectation and it is enabling us to invest back into the business.

Speaker Change: We also want to provide some updates on how we're thinking about the full year 2025.

Speaker Change: As anticipated the mortgage market remains subdued so far in Q1 looking ahead, we project moderate origination growth for the year, though uncertainty remains.

Speaker Change: Q2 outlook anticipates mid 30% sequential growth compared to the agency projections of 40%. We believe their full year outlook of 12%, 13%, maybe overly optimistic and internally we are taking a more cautious approach for annual planning.

Speaker Change: We'll continue to monitor market conditions, very closely and we anticipate any stronger than expected recovery will be beneficial to our performance.

Speaker Change: Due to the annual revenue growth performance in our consumer banking suite for 2024, we are increasing our projected compounded annual growth rate of 40% from 35% target. We gave at our analyst day in 2023.

Speaker Change: As a reminder, this is based off of our 2023 financial results growing through 2026.

Speaker Change: As we entered the year, we want to provide an overview of our investment thesis and non-GAAP operating expenses.

Speaker Change: We believe our product roadmap is well defined and we expect to continue to invest in innovation with the pipeline of opportunity ahead of US you will see us increase our investments in sales and marketing functions. We believe that tightly managing our investments in these areas will continue to optimize our overhead cost structure to set ourselves up for success.

Speaker Change: Finally, we expect to exit the year with a positive rule of 40 for our platform segment based on the macroeconomic outlook for the year.

Speaker Change: This will be a big milestone for us as we focus on driving top line results and profitability.

NEMA: With that I want to thank you again for joining and hand, it back to NEMA for closing remarks.

NEMA: Thanks, Amir to wrap things up I want to emphasize the blend is not just surviving in this environment forthright it.

NEMA: We're becoming a largely software only goodness laser focus on what we do best building incredible technology to power financial institutions across the country.

NEMA: We're doing this by first simplifying and streamlining our operations and focusing on our core strengths.

NEMA: At partnering and building a powerful ecosystem that extends our reach in delivering even more value to our customers.

NEMA: And third enabling leading the charge with AI and other cutting edge technologies that drive real results for our customers.

NEMA: With a strong pipeline and building momentum for the year to exit with a positive rule of 40, we are setting up the business to succeed at scale regardless of environment.

NEMA: We believe the future of financial software, driven and blended heating the way.

NEMA: Thank you and let's open it up for questions.

NEMA: We will now begin the question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again, thank you.

Dylan Becker: And your first question comes from the line of Dylan Becker with William Blair. Please go ahead.

Dylan Becker: Hey, guys I appreciate the question here.

Dylan Becker: To digest there, maybe just starting with you from a high level, we've talked in the past about the customer economics, improving kind of driving an increased propensity to spend.

Dylan Becker: Especially leaning into automation RPM is very strong you called out some significant tangible ROI components of customers looking at this I guess, just how should we think about kind of the budget setup in this constrained macro and kind of what customers are asking the board how they're leaning in to you guys maybe for more in this period of uncertainty.

Speaker Change: Yes, Thanks John.

Speaker Change: Good question I think the customers are.

Speaker Change: You can see this from a closing the closed deals in Q3 and Q4, including the top 10 banks that we announced.

And also our pipeline being good I think they are willing to spend more now and they are largely stabilized our businesses in 2024. So I think that's a positive but theyre, taking an approach in the future that it's one that's meant to be focused on how do I build a scalable business I think that's the most common theme I hear from our customers. They want to build a scalable business themselves. They don't want to be riding.

Speaker Change: Highs and lows and hiring thousands of people and then having to let them go and when the market crashes again, and so and that's across the board across all product lines and so a lot of what I think about it is kind of twofold first I'm really glad we made the investment in blend builder because it allows us to get greater innovation per dollar.

Speaker Change: It allows us to be efficient in how we build things and so we can build more rapid home equity solution that we announced some of the early results from is one that we.

Speaker Change: We built with a small fraction of the typical team that would've been required to build such a complex solution that integrates all aspects of a home equity loan.

Speaker Change: And it's something that we wouldn't have been able to do without something like without our platform a blend builder.

Speaker Change: So that's the first thing the second thing I'll say is a lot of where our customers are leaning into is AI a lot of the work. They do is very manual reviewing documents extracting information from documents manually comparing documents comparing screens doing work in excel and as things that AI can do natively can do natively today, and so I hear a lot from our <unk>.

Speaker Change: Customers, but how do I make it so that I can use these new technologies I had the CLO fairly large.

Speaker Change: Mortgage customer of ours called me and say how do I get started with AI is a good question because it's there's so much going on it's hard to keep up and that's I think where we come in we have a platform. That's already ingesting all the documents that consumers are uploading that are working to get the aggregated loan file getting all the components of the process that need to happen before closing and so we have a natural entry.

Speaker Change: To help them make their operations materially more efficient and more to come on that but they are definitely leaning in and they see the opportunity. They want to build more scalable business says and I think we're the right partner for them for those things.

Speaker Change: Okay, Great very helpful. There and then maybe switching over to Amir here, obviously, the mortgage backdrop kind of remains what it is we have seen rates come down a little bit here, but you just called out rolling out the rapid refi and home equity we've talked about cross selling other solutions, maybe kind of any general sense of how the growth algorithm shifts.

Speaker Change: Between kind of volume and take rate expansion now that you have kind of more products and market, maybe some being higher skews higher attach things like that towards I think your comments around our long term target as kind of being maintained here. Thanks.

Speaker Change: Thank you.

Speaker Change: Let's use an example to answer so to your point and to the point that you had mentioned there are two products that we're excited about both on the rapid category or for rapid on lending on rapid refi, it's going to be a product as you see it in essence for what we've seen from a pilot customer studies. So far the contributions from an IRR perspective as always as we take a portion of that in our own success rates.

Speaker Change: You'll see that start to drive meaningful increases in the economic value per funded loan. It's an example of what we've seen historically and that's an example of what we'll continue to deliver was rapid refi similar.

Speaker Change: Similarly on rapid home equity, obviously, a different bucket between the economic value targets that we set for $1 seven which are specific to the mortgage suite, but the same phenomena will contribute which means that we will continue to have more modern solutions built on Glen builder, which not only gives us the flexibility, but also increases our customer ROI as that happens youre going to see that become accretive and positive.

Speaker Change: In essence from a tailwind perspective for blend.

Speaker Change: Great. Thanks, guys I appreciate it.

Seth Gilbert: And your next question comes from the line of Seth Gilbert with UBS. Please go ahead.

Seth Gilbert: Thanks for taking the questions maybe two if I can.

Seth Gilbert: First one on the consumer banking side, an increase in the 2023 to 2026 Sky news, you're guiding to acceleration here from that 42% in 2024. So I was wondering if you could talk to the drivers is it macro improving thats embedded in this acceleration more time in the market for some of the products signing larger customers, maybe kind of talk through.

In rank order some of the drivers.

Seth Gilbert: That's something that one I'll start and then Mark can give you an overlay as well for the most part what we're seeing on the consumer banking side that gave us the conviction to increase that 35% compounded annual growth rate that CAGR to 40% is actually much more tied to our own execution the execution for what we've been able to achieve across deposits.

Seth Gilbert: Some of the other solutions that we've shared with you, including what we have historically had in that base for personal loans and things like home equity. It's much more again, it's much more the execution elements and what we're seeing is the overall opportunity size and we've spoken to the opportunity multiple times, we've talked about how consumer banking over time has a greater opportunity pool and that's an area that we are not just excited about.

Seth Gilbert: What we're focused on continuing to execute on.

Seth Gilbert: Got it and then just as a follow up can you talk about the non-GAAP net operating income guidance have you guys given our historical breakout of.

Seth Gilbert: The non-GAAP operating income for specifically the blend platform, maybe I might have missed it.

Seth Gilbert: No you have it I missed it. This is our first time being very specific about the guy from the non <unk>.

Seth Gilbert: non-GAAP perspective tied to blend platform, it's where we're comfortable guiding to and hence the numbers, we were able to share today.

Seth Gilbert: Makes sense and what's the best way for investors to look at it I don't know if we have exactly.

Seth Gilbert: I don't think I have in my model like a way to look at that in the past and kind of see negative one to 1 million.

Seth Gilbert: Million dollars guide and have a good a good handle on it.

Seth Gilbert: Victory numbers that the there's two things there's both a qualitative aspect on a quantitative aspect that we've historically shared with title. We are sure that from a title perspective, there's elements of that business that we've gotten close to for example to be breakeven theres seasonality aspects to be consider it up as you think about the overall title business and so although right now again, we're not guiding to it.

Seth Gilbert: A specific number I think there are certain data points that you can we can kind of refer you to to help with just the GAAP that you're referencing.

Speaker Change: Got it thank you.

Aaron: And your next question comes from the lineup Aaron comes down with JMP.

Speaker Change: Please go ahead.

Speaker Change: Thanks for the questions guys.

Speaker Change: Competitors made a tuck in acquisition earlier this month that essentially provides connectors in the legacy core banking applications.

Speaker Change: Can you talk a little bit about the time and resources that went into building your multiple origination functionality how important that functionality is one going after larger financial position.

Speaker Change: Yes, good question.

Speaker Change: It's interesting because I think a lot of what larger financial institutions, where I think we're pretty dominant.

Speaker Change: They really need is a platform that is both.

Speaker Change: Scalable.

Speaker Change: <unk> regulated all the things that are required to work with somebody that large, which obviously, we do in multiple areas of the business today.

Speaker Change: But also something that is sufficiently flexible without creating customization. So there's a little convoluted to explain all of that but the simple version is.

Speaker Change: The beautiful thing about blend builder is that we moved a lot of the business logic and the workflow into a configuration layer, so that it's drag and drop and it means that if we need to make a change to support a slightly different workflow for a very large financial institution like I gave a couple of examples last quarter about customers that are thinking of adding other kinds of loans that we don't support on our plan.

Speaker Change: Form today, they can actually do that with one builder and so and a lot of them and I was supposed to get in the door with ones any flexibility in the core product lines that we offer but also the.

Speaker Change: Ability to expand in other areas of the banks that maybe would have been much more difficult to do and so it wasn't it was such an important investment for us not only for the reasons that I just mentioned working with a top 10 institution, but.

Speaker Change: Creating the most innovative platform at scale is so important for us to be able to build these things internally in a very efficient way and so we.

Speaker Change: We want to be at the cutting edge of innovation, we need to be at the cutting edge of innovation, but we have to do that and we cannot do that in a way with bond builder.

Speaker Change: I mean in order of magnitude cheaper for us than it used to be and probably an order of magnitude and then it would be for anybody else than any competitor in the market and so it allows us to get a lot more operational leverage out of our team and make sure. Our customers are really happy I mean, some of the things that we're able to implement quickly because we have a platform like that would have taken months for our competitors do and we can do in a week or weekend.

Speaker Change: I think that's really special and you're starting to see that in the consumer banking growth numbers are starting to see that as we take even are out of the box package solutions down market to some of us consumer banking customers and there is still so much more to come there and the rapid products are another example of where we're going to use that as a really really big area of strength.

Speaker Change: That's really helpful. Thank you and then just as a follow up for the launch of the <unk> specific unit is interesting given some of the challenges that market is currently facing can you help us think about the strategic rationale there and whether you're trying to solidify your positioning with larger AMB or trying to pursue AMB is more down market versus where you are.

Speaker Change: We have historically.

Speaker Change: I think.

Speaker Change: Largely where we've been the most dominant the biggest part of our revenue has been the banks and credit unions.

Speaker Change: And we're very happy with that we're going to keep investing in that and making sure they're successful but.

Speaker Change: And these are slightly different animal.

Speaker Change: Loan officer driven.

Speaker Change: <unk> focused a lot more on things like branch level capabilities in our branches can add some more entrepreneurial <unk>.

Speaker Change: Impact on the platform.

Speaker Change: And what we wanted to make sure we're serving them as an independent matters not to us that we're going to have independently of the rest of our business and treat that is truly a separate business unit, which allows us to create focus in both parts of the business the banking credit Union area as well as the IMD business and they have special and different needs. It's a huge part of the market.

Speaker Change: It's one that we've while we've served for a long time with this additional level of focus I think we can really take the next level and it's not necessarily going after tiny.

Speaker Change: 10, 20 unit amongst shops are broker shops. It's about there is that there is a whole middle part of the IB segment, that's pretty large that we want to make sure I understand that we have the best technology that we continue to cater to them. We've already worked with some of the biggest if not the biggest ones in the country. We want to make sure that our technology is being used across the board and so without without this separation I think of it is much harder.

Speaker Change: Additionally, <unk> create a level of focus on both sides.

Speaker Change: Got it thanks, so much.

Speaker Change: And your next question comes from the line of Joseph <unk> with Canaccord Genuity. Joseph Please go ahead.

Joseph: Hey, guys. Good afternoon. Thanks for the opportunity to ask couple of questions here I joined a little late hopefully these didn't got asked but just wondering.

Joseph: Given the kind of current environment on rates et cetera has there been any change in the cadence of.

Speaker Change: Discussions with.

Speaker Change: Potential new logos and then secondly.

Speaker Change: Would you expect a rapid product to be.

Speaker Change: When should we.

Speaker Change: Kind of really look for some real revenue contribution from our rapid product could be as early as Q2 or how are you seeing the rollout there. Thanks a lot.

Speaker Change: Yes, I'll take the second question first the rapid products, we announced yesterday to the world.

Speaker Change: My guess is that I think we said.

Speaker Change: With three customers live on the rapid refi products.

Speaker Change: And one on the rapid home equity product and the rapid home equity products.

Speaker Change: <unk> results are our stark and the comparison between the rapid rapid solution in our flagship solution, which is one that has live for years and so we're already generating revenue from the rapid product. It's still early though it takes time to as you know sell implement get these customers live and ramped up throughout the year, you should see that start to ramp.

Up.

Speaker Change: With the rapid products.

Speaker Change: And then going back to your first question.

Speaker Change: The macro I would actually say the macro while there is a tick up maybe in Q4.

Speaker Change: If anything I.

Speaker Change: The customers really stabilized last year.

Speaker Change: The pipeline seems to have really settled in nicely and we mentioned this in the prepared remarks, but we're up sort of 50% year over year and our pipeline I think a lot of that is due to the strength of the mortgage pipeline coming back.

Speaker Change: And most of 'twenty three in the first part of 'twenty four it was very difficult to have conversations but now those competitions.

Speaker Change: A number of really great new logos in Q4 have more we have more that we're working on that right now in Q1, and I think one of the things that.

Speaker Change: I'm proud of the team of blend is the grit that I mentioned earlier, which is we had to go through a lot in the ups and downs to get to the point, where we still have a flagship the flagship product in this space and we are that the name that they want to work with they were just may be worried about but there was the macro or other things in 'twenty three and their own issues internally in 'twenty three in early 'twenty four and the fact that those things have kind of gone.

Speaker Change: The way to open the door to so many new institutions, which I'm very excited about.

Speaker Change: Sure. Thanks.

Speaker Change: Thanks, a lot.

Yeah.

And your next question comes from the line of David <unk> with Wells Fargo. David. Please go ahead.

David: Hi, Thanks for taking the questions just a couple of high level ones from us.

Speaker Change: First can you just talk through some some of your head count plans in your embedded macro assumptions. In addition to what was mentioned in your prepared remarks, I'll start with that one first.

Speaker Change: Hey, David David from a head count perspective, obviously, the numbers arent what will speak to what we're focused on right now is making sure that as a company blended efficient that we execute our plans are to make sure that we leverage in essence, we're a company built on the backbone of our people to make sure we.

Speaker Change: We invest resources in the right places that just tied to the very small kind of set of strategic actions and outcomes that we have but we always do it in the end.

Speaker Change: And the lines of the customer ROI and making sure that we deliver value that has stayed true candidly and all children 24th so it stays true today, and it's likely going to be what states true next year as well in terms of how we decided to make investments from a head count perspective.

Speaker Change: Okay, Great and then just the double click a little bit obviously, great commentary on pipeline growth of 50%.

Speaker Change: You got to know like what you are just seeing the most strength and then just talking about.

Speaker Change: The investment in the business and sales and marketing how should we think about the pace of hiring just doubleclick in that thank you.

Speaker Change: Well this is an area of excitement for us and our sensors were just mentioned.

Speaker Change: And this ties into what Nemo was also sharing as you are seeing the opportunity to increase more than one of the areas that we've obviously said in our prepared remarks, but I'll double down here is in the world of sales and marketing is the area that we want to actually be able to continue to invest in and actually increase our investment. We do this with obviously a level of diligence we are a fairly methodical in terms of the way that we operate so we make sure we we monitor.

Speaker Change: Again levels of efficiency for example, things like our magic number, but more and more so what we want to make sure is that there's clear awareness for what blend does across the entire ecosystem that is not just the <unk>, but across what we do as a platform consumer banking mortgage and really even some of the future innovations, which as Noel mentioned will include AI.

Speaker Change: But beyond awareness thing, we will make sure that there's the right coverage and that we serve each of the segments properly. So that we can help every single one of our customers and our prospects really just unlock value whether thats, a net new land for blend or an expansion opportunity that is going to be an area of investment for us.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: And your final question comes from the line of Ryan Tomasello with gave me W. Brian. Please go ahead.

Speaker Change: Hi, everyone. Thanks for taking the questions.

Speaker Change: On the next Gen refi product I know you've already had a few questions on this but any way to contextualize what the revenue per funded loan uplift could look like there relative to the core solution.

Speaker Change: How material of a ramp might we expect.

Speaker Change: We expect in 2025 there.

Speaker Change: Yeah.

Speaker Change: Well, it's too early to say final numbers on that.

Speaker Change: How much it's going to increase the overall revenue per funded loan it is materially higher.

Speaker Change: Revenue per funded loan because it's so much more of an automated integrated solution and drives consumers to that intend to proceed moment all in an integrated way.

Speaker Change: So and similar on the rapid home equity product.

Speaker Change: The one client this live it's a materially higher price point, but the rois there for them.

Speaker Change: Actually the other thing that that one drives as an example, as it drives higher utilization of that credit line, because it's helping consolidate higher interest debts, which is good for them. Good for the consumer for the credit Union and obviously those things are good. There then the ROI is a no brainer for them to pay more for these solutions, but it is materially higher we will share more about that in future quarters, but it is something.

Speaker Change: We want to make these more integrated higher ROI for solutions for our customers and in exchange you want to share in some of that upside with them.

Speaker Change: And then on consumer banking I think last year earlier this year you talked about expanding.

Speaker Change: The go to market to a broader set of customers beyond.

Speaker Change: The top 40.

Any updates on how that is.

Speaker Change: He is going down market with the consumer banking strategy and then.

Speaker Change: It sounds like with this RMB.

Speaker Change: In mortgage that that also plays into that so just curious how you're approaching.

Speaker Change: The push down market.

Speaker Change: What type of investments that might require from a salesforce perspective. Thanks.

Speaker Change: Yeah, and actually it's interesting because it is a very different motion to go beyond the top 40 or 50 as you mentioned.

Speaker Change: A very different motion, it's even a different packaging of the product and how you implement.

Speaker Change: It's sort of different across the board because what they want is a turnkey platform across all of our product lines.

Speaker Change: Want to make some absolutely just works it works quickly.

Speaker Change: Drives value quickly increasing their deposits or decreases our consumer lending turn times or increases or consumer lending take rates.

Speaker Change: And it's just it's a very different motion. We started working on that late last year mid last year and we've been pushing hard on it. So it's an area that where we're very focused on still early pipeline is good we're going to keep executing on it and make sure that we deliver throughout the course of the year, but it's something that it does take a different approach and it <unk>.

Speaker Change: Even in <unk>.

Speaker Change: Things like partnerships with some of the major <unk>.

Speaker Change: <unk> in this space because it allows us to get a bigger footprint without having to necessarily have feet inside the door of every single institution, they're already talking to major technology providers every single day and a lot of those guys want to work with us because we are the name brand. We are a product. They know is going to work with their customers and so again, while it's early we're looked.

Speaker Change: At this sort of in a completely different lens and sang from the ground up how would we build this if we had to build this from scratch.

Speaker Change: Okay.

Speaker Change: Alright, thanks for taking the questions.

Speaker Change: There are no further question how does this time that includes today's conference call you may now disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Hmm.

Speaker Change: Okay.

Speaker Change: Yeah.