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Blend focuses on tech, cost reduction as it reports $769M loss

Blend reports $82M net loss in Q4 2022, up 13% from 12 months ago

California mortgage tech firm Blend Labs is focused on cutting costs and courting more users to its Blend Builder platform. The goal is to bring the firm to profitability after posting a net loss of $768.6 million in 2022. 

Blend’s net loss last year is more than four times the $171.3 million loss it incurred in 2021. The mortgage tech company reported an $82.1 million loss in the fourth quarter of last year, an increase of 13% compared to the fourth quarter of 2021, when the company posted a net loss of $73.1 million, according to the company’s financial earnings report.

“[The year] 2022 was an extremely challenging year for our industry, as we continued to see a sharp uptick in mortgage rates and margin compression for our customers,” Nima Ghamsari told analysts in its earnings call on Thursday.

The company – whose white-label technology powers mortgage applications on the websites of major lenders such as Wells Fargo and U.S. Bank – is now betting on its technology and is focused on cost reductions for 2023. Blend has not been profitable since going public in July 2021.

Its eyes are now set on driving users’ adoption of its Blend Builder platform, and the company launched “composable origination” technology this week, which will enable clients to build their own origination products. 

Blend’s partners can take full advantage of composable origination through the Builder Platform, which provides pre-built integrations with all of the major tech stacks used in the financial services industry — including core banking systems, loan originations systems, customer relationship management and online banking platforms

“We’re also working to make our mortgage offering available on the platform in all of our future offerings so that we can become the platform as a service company that we aim to be,” Ghamsari said. 

The adoption for LOs’ toolkit grew across all 10 features in the fourth quarter of last year, and Blend sees that trend continuing in the first quarter of 2023, Ghamsari explained. 

In the first quarter, Blend will see the full benefit of the cost-cutting actions it took last year and in January. 

After the company’s net loss of $133.98 million in the third quarter of 2022, Blend slashed about 28% of its workforce, — or roughly 340 jobs — in January. Since April 2022, the firm has eliminated more than 780 positions. 

The company expects to reduce the annual cost of revenue and operating expenses by more than $100 million on a non-GAAP basis by the year-end, Amir Jafari, Blend’s new CFO, told analysts.

“We expect to see sequential improvement in our operating loss and believe our Q1 operating loss outlook has us on track to surpass our net operating loss reduction targets for the year. I’m also happy to share that I expect Q1 will be the last quarter of our net operating loss carrying a 3-handle,” Jafari said.

Blend’s financials 

Of the $42.8 million fourth-quarter revenue, Blend’s platform segment revenue came in at $29.5 million, down 19% year-over-year. 

“Our platform performance reflected a steeper than expected decline in mortgage origination activity compared to our prior expectations. We expect this to carry forward into Q1 2023 given the timing between lower Q4 application activity and the time of the loan funding when we recognize revenue,” Jafari told analysts.

The Title365 segment revenue posted $13.3 million, down 70% year over year. 

The decline in revenue reflected the continued decline of the refinance volume and migration of software-enabled title revenue from the Title365 segment to the Blend Platform segment, the firm noted.

In 2022, Blend’s platform segment revenue totaled $132.0 million, a decrease of 3% compared to the year ending on December 31, 2021. Title365 segment revenue totaled $103.2 million, an increase of 4% compared to the year ending on December 31, 2021.

Despite the staggering net loss, Jafari noted the firm’s “ample” liquidity.

As of December 31, 2022, Blend had cash, cash equivalents, and marketable securities totaling $354.1 million, with total debt outstanding of $225 million in the form of Blend’s five-year term loan. Blend’s $25 million revolving line of credit remains undrawn.

Blend expects its first-quarter revenue to be between $33 million and $35 million — and platform revenue will post between $24.5 million and $25.5 million. Its title business revenueis expected to post between $8.5 million and $9.5 million.

This forecast reflects Blend’s expectation that the first quarter of 2023 will be the mortgage origination low point for the year. 

Starting in the first quarter of 2023, Blend will modify its revenue presentations.

The mortgage tech firm will include all of its consumer banking products — such as deposits, home equity, credit cards, personal loans, and platform subscription access — in a single consumer suite lineup. 

For its mortgage business, the firm will consolidate revenues from its marketplaces and add-on products, like income and close, into a single mortgage suite lineup, which reflects its focus on expanding relationships with mortgage customers. 

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