Blend Labs, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Blend provides cloud-based software for financial-services firms. Results include Title365, in which Blend acquired a 90.1% interest in June 2021; therefore, reported year-over-year growth includes a substantial acquisition-related contribution.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $71.5 million | $31.9 million |
| Gross profit / margin | $28.9 million / 40% | $21.0 million / 66% |
| Operating loss | $69.7 million | $27.2 million |
| Net loss | $72.4 million | $27.1 million |
| Operating cash flow | $(45.8) million | $(20.4) million |
- Revenue increased 124%, but Blend Platform revenue grew only 3% to $32.8 million. Title365 contributed $38.7 million of Q1 2022 revenue and reported a $3.2 million net loss.
- Cash and cash equivalents were $167.7 million and marketable securities $331.7 million at March 31, totaling $499.4 million. The company also had an undrawn $25 million revolving facility. Management said these resources should fund operations for at least 12 months.
- Term-loan principal was $225 million; carrying value, net of discounts and issuance costs, was $214.5 million. The floating-rate loan matures June 30, 2026, and has no scheduled principal amortization. Q1 interest expense was $5.6 million; effective interest rate was approximately 10.2%.
- Accumulated deficit was $514.9 million. Stock-based compensation expense was $24.3 million, versus $4.0 million a year earlier.
Material changes and operating trends
- Title365 accounted for most of the reported revenue increase. Within Blend Platform, mortgage banking revenue fell 7% to $24.5 million, while consumer banking and marketplace revenue rose 55% to $7.2 million.
- Total Blend Platform banking transactions increased 7% to 531,000: mortgage transactions declined 16% to 376,000, while consumer banking transactions rose to 155,000 from 48,000. Title365 closed 27,000 orders.
- Blend Platform gross profit declined 12% to $18.6 million. Consolidated gross margin fell to 40% from 66%, reflecting the addition of lower-margin Title365 activity and increased Blend Platform costs.
- Operating expenses more than doubled to $98.6 million, including higher personnel and stock-based compensation, public-company costs, Title365 expenses, and $4.1 million of acquired-intangible amortization.
- Cash, cash equivalents, and restricted cash declined $45.4 million during the quarter. Operating cash use increased from $20.4 million in Q1 2021; the prior-year period included substantial preferred-stock financing proceeds.
Outlook, risks, and unusual items
- No specific quarterly or annual revenue or earnings guidance is provided. Management expects operating losses to continue for the foreseeable future and expects rising mortgage rates to reduce transaction volumes and adversely affect both Blend Platform and Title365 revenue. It expects Blend Platform to continue positive growth, while Title365 faces significant headwinds.
- In April 2022, Blend announced a workforce reduction of approximately 200 positions, or 10% of its workforce. Estimated charges are $6.7 million, including $6.5 million in cash costs; the affected positions represent approximately $35.4 million in annualized compensation expense. The company expected implementation to be substantially complete in Q2 and savings to begin in Q3 2022. These are post-quarter developments.
- Interest-rate exposure includes both mortgage-volume sensitivity and floating-rate debt. The company reported the loan rate increased from 8.50% to 8.74% in April 2022; a further 100-basis-point increase would add approximately $2.3 million to annual interest expense.
- Disclosure controls were deemed ineffective due to an unremediated material weakness related to the Title365 acquisition accounting and review of the acquired customer-relationship valuation. Management described remediation actions, but said effectiveness requires future testing.
- Customer concentration is notable: one customer represented 36% of Q1 2022 revenue; no customer exceeded 10% in Q1 2021 except one at 13%. The filing also cites Title365 customer concentration and dependence on two title underwriters. No material legal proceedings were reported as of March 31, 2022.
Important facts for investors to verify
- How much of future revenue and growth comes from the core Blend Platform versus Title365, and whether Title365 integration and migration to the software platform progress as expected.
- Mortgage and title transaction trends as interest rates rise, including customer concentration and Title365 order volumes.
- Cash burn, liquidity runway, debt interest expense, and compliance with the credit agreement’s minimum-liquidity covenant.
- Whether workforce-reduction savings materialize as planned and how they compare with implementation costs or operational effects.
- Remediation and testing of the material weakness, and any changes to acquisition-related valuation estimates or financial reporting controls.