Blend Labs, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are primarily with FY2020. Blend provides cloud-based software for financial institutions’ consumer banking and lending journeys. Its two reportable segments are Blend Platform and Title365.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $234.5 million | $96.0 million |
| Gross profit / gross margin | $116.0 million / 49% | $61.7 million / 64% |
| Operating loss | $197.2 million | $75.3 million |
| Net loss attributable to Blend | $169.9 million | $74.6 million |
| Cash used in operating activities | $127.5 million | $65.0 million |
- Revenue grew 144%, principally reflecting $98.9 million of Title365 revenue consolidated from its June 30, 2021 acquisition, plus 41% growth in Blend Platform revenue to $135.6 million. Title365 contributed $30.3 million of segment gross profit on $98.9 million of recognized revenue.
- Blend Platform processed 2.111 million banking transactions, up 50% from 1.403 million in 2020. Mortgage Banking revenue rose 35% to $108.3 million; Consumer Banking and Marketplace revenue rose 83% to $23.1 million.
- Gross margin fell from 64% to 49%, while operating expenses increased 129% to $313.2 million. FY2021 included $70.8 million of stock-based compensation, versus $10.1 million in FY2020; $38.8 million related to the founder/CEO’s stock option award.
- FY2021 net loss includes a $38.9 million income tax benefit, primarily from a valuation-allowance release associated with the Title365 acquisition. The filing also reports $169.1 million consolidated net loss before attribution to noncontrolling interests.
- At December 31, 2021, cash and cash equivalents were $213.1 million and marketable securities were $334.1 million, totaling $547.2 million. The company said available liquidity, including its undrawn $25 million revolving facility, was expected to fund operations for at least 12 months.
- Debt included a $225 million term loan, with $213.8 million net carrying value after discounts and issuance costs; the facility matures June 30, 2026, with principal due at maturity. The reported effective interest rate was approximately 10.2%. The company was in compliance with its covenants at year-end.
- Cash used in investing activities was $633.9 million, including $400.0 million for the Title365 acquisition. Financing activities provided $933.6 million, including IPO net proceeds of $366.8 million, preferred-stock proceeds of $309.7 million, and debt proceeds of $218.8 million.
Material changes, outlook, and risks
- Blend acquired 90.1% of Title365 for a finalized purchase price of $417.7 million. Title365 generated $98.9 million of consolidated revenue and approximately $7.8 million of net income from acquisition through year-end. The remaining 9.9% interest is subject to call and put options; its year-end redemption amount, if currently redeemable, was $50.7 million.
- Management identified weakening mortgage-market conditions: industry estimates showed mortgage transaction volume down more than 30% year over year in late 2021, with further declines forecast over the following 12–24 months. The MBA forecast declining originations in 2022 and 2023, and the Federal Reserve raised rates in March 2022. Blend expected near-term mortgage volume declines to pressure both segments, particularly Title365; it provided no specific numerical revenue or earnings guidance.
- Management expects continued investment in product development, sales, marketing, public-company operations, and Title365 integration. It expects operating losses to continue for the foreseeable future. It also anticipates moving Title365 legacy activity onto Blend’s software platform over time.
- Customer and segment concentration are notable: the top five Blend Platform customers generated 29.9% of that segment’s FY2021 revenue. For the six months after acquisition, the top five Title365 customers represented 83.1% of segment revenue, including 58.8% from Mr. Cooper. Management disclosed lower-than-anticipated Title365 transaction volume after closing.
- Management identified a material weakness in internal control over financial reporting related to valuation of Title365 customer-relationship intangibles. Disclosure controls were deemed ineffective at year-end. Remediation efforts include additional finance staff and stronger review procedures; remediation was not yet established as complete. The financial statement audit opinion was unqualified, but the auditor did not opine on internal-control effectiveness.
- Other key exposures include continued losses and negative operating cash flow, sensitivity to mortgage activity and interest rates, cyber and service-availability risks, complex financial-services and privacy regulation, acquisition integration, and floating-rate debt. No material litigation was reported as pending at year-end.
Important facts for investors to verify
- Whether Blend Platform transaction growth and customer expansion can offset mortgage-volume declines, and how materially those declines affect revenue and margins.
- Title365 customer concentration, post-acquisition order volumes, integration progress, and potential cash cost of the 9.9% noncontrolling-interest put/call provisions.
- Progress in remediating the material weakness and whether subsequent filings report effective controls.
- Cash burn, liquidity relative to the $225 million term-loan maturity, interest-rate exposure, and covenant headroom.
- The sustainability of reported results after considering acquisition-related effects, the tax benefit, and elevated stock-based compensation.