Blend Labs, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Blend provides cloud-based software for financial-services firms and also operates Title365, a title and settlement-services business.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $55.4 million | $89.6 million | $192.4 million | $153.5 million |
| Gross profit / margin | $21.1 million / 38% | $40.3 million / 45% | $75.2 million / 39% | $81.0 million / 53% |
| Operating loss | $129.9 million | $70.5 million | $671.0 million | $137.4 million |
| Net loss | $132.7 million | $76.3 million | $682.4 million | $97.6 million |
| Net loss per share, basic and diluted | $(0.57) | $(0.38) | $(2.95) | $(0.99) |
| Cash used in operating activities | Not provided for quarter | $143.1 million | $84.4 million |
Balance sheet and liquidity: At September 30, cash and cash equivalents were $114.4 million, marketable securities $286.4 million, and restricted cash $5.4 million. Cash, cash equivalents, and marketable securities totaled $400.8 million; management also cited an undrawn $25 million revolving facility. Current assets were $453.8 million and current liabilities $44.1 million. Total liabilities were $277.7 million. Term-loan principal was $225 million (carrying value, net of discounts and costs, $216.0 million); the loan’s effective interest rate was 11.76%, and the reported applicable rate was 10.03%. The loan matures June 30, 2026, with principal due at maturity.
Material changes and unusual items
- Q3 revenue fell 38% year over year, mainly as Title365 revenue declined 65% to $19.3 million. Blend Platform revenue rose 3% to $36.1 million. For the nine-month period, revenue rose 25%, largely because 2022 included Title365 for the full period while 2021 included it only after its June 2021 acquisition.
- Mortgage transaction volume declined 35.7% year over year in Q3; total Blend Platform banking transactions declined 3.0%. Management attributed the mortgage slowdown principally to rising interest rates and reduced refinance activity. Consumer banking and marketplace revenue grew, while some software-enabled title activity was reclassified into Blend Platform following a customer migration.
- Blend recorded $449.7 million of goodwill and intangible-asset impairment in the first nine months, including $57.9 million in Q3. The charges fully wrote off Title365 goodwill and acquired customer-relationship intangibles and reflected weaker market conditions and projected Title365 results.
- Gross margin contracted, while operating expenses included impairment and $12.3 million of nine-month restructuring charges. Stock-based compensation was $81.5 million for the first nine months.
- Q3 net loss attributable to Blend common stockholders was $134.0 million, including $7.8 million of accretion of redeemable noncontrolling interest. Nine-month accretion was $46.3 million; the Title365 put option’s stated redemption amount, if currently redeemable, was $52.6 million.
- Management reported a $2.9 million Q3 gain from an observable price change in a non-marketable equity investment; this contributed to $3.3 million of Q3 other income, net.
Outlook, risks, and contingencies
Management expected mortgage origination activity to decline further in late 2022 and 2023, weighing on mortgage and title-related revenue. It expected Blend Platform to continue positive overall growth, but anticipated significant headwinds and decline in Title365 services. Management said available cash, marketable securities, and revolver capacity should fund operations for at least 12 months; it also expected continued operating losses for the foreseeable future. No specific revenue or earnings guidance was provided in the filing.
Blend implemented April and August workforce reductions affecting approximately 200 and 140 positions, respectively, with annualized compensation savings estimated at $35.4 million and $27.3 million. In November, after quarter-end, it announced a further reduction of approximately 100 positions, estimated to generate $7.1 million in annualized compensation savings and incur $2.8 million of charges. Savings depend on execution and may not be achieved as projected.
Key risks include mortgage-market sensitivity, customer concentration (one customer represented 26% of Q3 revenue and 31% of nine-month revenue), ongoing losses and cash burn, floating-rate debt, Title365 performance, and potential further impairment or restructuring. The company reported no material pending legal matters as of September 30, 2022, but disclosed potentially uncapped indemnification obligations and contingent responsibility for customer escrow and trust funds. Its minimum-liquidity debt covenant was met at quarter-end.
Disclosure controls were deemed ineffective because of an unremediated material weakness related to review and documentation supporting the Title365 acquisition valuation. Management described remediation steps but gave no assurance as to when remediation would be complete. The filing also notes that Title365 title-policy fees were underwritten by two insurers, accounting for 56% and 44% of fees in the first nine months.
Important facts for investors to verify
- Whether mortgage and title transaction volumes, especially refinance activity and Title365 orders, stabilize or decline further.
- Whether workforce actions deliver the estimated savings, and how their costs affect cash and operations.
- Cash-burn trajectory, usable liquidity, covenant headroom, and sensitivity to floating interest rates.
- Progress remediating the material weakness and whether any additional control deficiencies emerge.
- Title365’s operating performance, the put-option redemption terms and timing, and any further impairment indicators.
- Customer and underwriter concentration, including whether major relationships or volumes change.