Blend Labs, Inc. (BLND)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2024 and 2023 items and year-to-year comparisons between fiscal years 2024 and 2023. Discussions of fiscal year 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 14, 2024.

Overview

Blend Labs, Inc. was founded in 2012, with a vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform and suite of products for financial services firms that is designed to power the end-to-end consumer journey for any banking product. Our software platform was built in an extensible, modular, and configurable fashion to support continued product expansion. We have technology, data, and service providers on our software platform, including access to an extensive marketplace of insurance carriers and settlement agencies. Our products and marketplaces provide multiple opportunities for us to serve financial services firms and consumers and drive revenue growth.

The development of our business reflects continued product innovation as we continue to attract financial services firms to our software platform and grow with them as they serve consumers. Financial services firms have been shifting for years to a digital-first approach to acquiring consumers, delivering products, and deepening existing consumer relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. We believe there is a large, untapped opportunity to provide additional product offerings and drive increased transaction volume for financial institutions and consumers using our software platform.

We are continually seeking to enhance the end-to-end banking journeys we power through our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, on June 30, 2021 we acquired 90.1% ownership of Title365, a leading title insurance agency that offers title, escrow and other trustee services.

Our platform also includes Blend Builder, which gives our customers the ability to easily configure or build custom workflows from a pre-built set of components, all while leveraging existing infrastructure. Financial services firms can create custom solutions with Blend Builder, or choose from pre-built solutions for Mortgage and Consumer Banking, including Home Equity, Deposit Accounts, Credit Cards, Personal Lending, Auto Lending and more.

As we navigate through a challenging economic environment, we are focused on customer acquisition, maximizing existing partnerships and product expansion as well as efficient investment and disciplined cost management. We see opportunities for expansion into new markets, including markets outside the United States.

Our Business Model

Our success-based business model is designed to align our growth with the interests of our customers. We offer our products through software-as-a-service agreements where fees are assessed based on completed transactions, such as a funded loan, new account opening, or API call. For those products that involve a loan or deposit account application, we do not charge for abandoned applications or rejected applications, even though they cause us to incur costs. We provide the platform, including Blend Builder, under (a) subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, (b) usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at a specified price, (c) a fixed price fee, which provides stand-ready access to one or more of our products and services, or (d) consumption-based arrangements, in which customers commit to a certain amount of consumption at specified prices and prepay a fixed amount in advance of their consumption. Completed transaction fees are

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determined by the number and type of software platform components that are needed to support each product offering. Completed transaction fees are not impacted by the dollar size of transactions; however, we provide volume-based discounts to customers as they complete a higher volume of transactions on our software platform. Customers also have the opportunity to secure volume-based discounts determined by the size and length of contractual commitments. We may earn additional overage fees if the number of completed transactions exceeds contractual minimums or commitments for customers who elect to enter into subscription or consumption-based agreements, respectively. Other than our usage-based arrangements pursuant to which customers pay for a variable amount of completed transactions, our subscription and consumption-based agreements are generally non-cancelable during the contract term. Our usage-based arrangements generally can be terminated at any time by the customer. With our success-based business model, we are focused on driving revenue growth by enabling our customers to more efficiently process and complete transactions using our software platform.

We focus on customer success to drive transaction volumes and opportunities for follow-on sales. Our products are sold through a direct sales force that continues to manage customer relationships on an ongoing basis post-sale. Customers often complete an initial deployment for one or two products and may then add more products over time. The length of the sales cycle for our products generally declines for the second and subsequent products we sell to customers, highlighting our high customer satisfaction.

We also earn revenue through a combination of fixed and/or variable license fees when consumers use our Blend Platform integrated marketplaces, such as when they select a property and casualty insurance carrier. These license fees are typically generated from third-party providers that pay to access our platform and are incremental to what we earn from our financial services firm customers on completed transactions. Our marketplaces are intended to provide greater consumer choice and flexibility and to help financial services firms by providing them with a more complete offering in partnership with Blend. As we drive adoption of our software platform, we expect these license fees to comprise a larger part of our revenue.

The acquisition of Title365 has enabled us to provide our customers with a streamlined title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans, and we plan to continue to invest in improving and integrating settlement services into those banking products. In performing title search services, Title365 serves as an agent to place and bind title insurance policies with third-party underwriters. Title365 escrow, closing and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Title365 also provides title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans.

Recent Developments

Industry Trends

The mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and the general economic environment, typically impacts the demand for mortgage and mortgage related products. Since 2022, increases in interest rates due to efforts by the Federal Reserve to manage rising inflation, combined with ongoing supply constraints, have resulted in a relative decline in mortgage origination activity, followed by a slight increase in 2024 as compared to 2023, based on the estimates of industry forecasters.

In 2024, we saw a decrease in total mortgage transactions on our software platform compared to 2023, which can be attributed to normal customer churn amidst continued high interest rates, decreased housing affordability, and uncertain worldwide political and economic conditions. We expect that the aggregate industry mortgage originations will be lower in 1Q25 relative to 4Q24 based on application volume observed to date through our customer base and our analysis of the latest relevant macroeconomic data. While industry forecasters currently project that mortgage origination activity will expand throughout 2025, we anticipate a more moderate growth rate in 2025.

Mortgage origination activity depends on many factors, such as changes in the Federal Reserve’s policies or pressures in the macroeconomic environment, all of which are uncertain and out of our control. We expect the Federal Reserve's decision-making to continue to have impacts on mortgage origination activity. As a large portion of our revenue is driven by mortgage and mortgage-related transaction volumes, changes in mortgage origination volumes have had, and are likely to continue to have, material effects on our business.

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Strategic Initiatives

We have taken actions to manage our operating expenses and focus our investments on initiatives critical to achieving our broader strategy. As part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities and the current market, since 2022, we implemented several workforce reduction actions and in 2024, we entered into an agreement to fully terminate one of our leases and abandoned another leased facility. Refer to Note 13, Restructuring, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information regarding our workforce reduction actions and leases optimization.

Additionally, in April 2024, we paid off all of our outstanding debt into connection with the Haveli transaction. Further, in September 2024, we entered into a strategic partnership agreement with Covered whereby we granted Covered a five-year term license allowing Covered to integrate their insurance solutions into our platform for an annual license fee plus variable charges and sold our insurance business to Covered for cash proceeds of $10.1 million and a warrant to purchase up to 177,516 of Covered’s Class B Units, at a purchase price of $0.001 per unit (the “Covered Warrant”). Refer to Note 10, Redeemable Convertible Stock, and Note 16, Strategic Partnership and Sale of Insurance Business, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information regarding these strategic transactions.

Components of Results of Operations

Revenue

Blend Platform

In our Blend Platform segment, we generate revenue from fees paid by customers to access our software platform and complete the transactions. Fees are assessed based on completed transactions, such as a funded loan, new account opening, closing transaction or API call. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. We do not charge for abandoned or rejected applications, even though they cause us to incur costs related to these applications. Arrangements with our customers do not provide the contractual right to take possession of our software at any point in time. Revenue is recognized when access to our platform is provisioned to our customers or as transactions are completed, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We also generate revenue from providing access to Blend Builder, professional services related to the deployment of our platform, premier support services, and consulting services. We also earn revenue from third-party providers which integrate their marketplaces into our platform for services such as property and casualty insurance. We typically charge third-party providers a combination of fixed and variable license fees.

Our customers have the ability to access our platform under subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, or under usage-based arrangements, in which customers prepay a fixed amount in advance, typically annually or semi-annually, based on their anticipated consumption of specified products at specified prices or pay monthly in arrears a variable amount for completed transactions at specified prices. Our subscription and prepaid usage-based arrangements are generally noncancelable, and we may also earn additional overage fees if the number of completed transactions exceeds the contractual amounts. Our usage-based arrangements paid in arrears can generally be terminated at any time by the customer. We recognize revenue ratably for our subscription arrangements because the customer receives and consumes the benefits of our platform throughout the contract period. We recognize fees for usage-based arrangements as the completed transactions are processed using our platform. Over the last year, we have seen a shift away from subscription arrangements towards prepaid multi-year usage-based arrangements in our customer contracts. Revenue from third-party providers for access to our platform is recognized ratably over the term of the contract.

Title

In our Title segment, we earn revenue from title search services for title insurance policies, escrow, and other closing and settlement services. In performing title search services, we act as an agent to place and bind title insurance policies with third-party underwriters that ultimately provide the title insurance policy to our customers. Revenue related to title insurance is recognized net of the amount of consideration paid to the third-party insurance underwriters. Our revenues from escrow, closing, and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Revenue related to these services is recognized at the closing of the underlying real estate transaction. We also offer title services in connection with a borrower default and with the issuance of

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home equity lines of credit and home equity loans. Revenue for default title services and home equity services is recognized at the time of delivery of the title report.

We expect mortgage interest rates will continue to impact the demand for mortgage and mortgage related products, including refinance transactions. In most cases, higher interest rates have led to higher loan rates charged to consumers, which has adversely affected the ability of our customers to generate refinance transaction volumes. Refinance activity was strong in 2020 and 2021 relative to historical averages over the preceding decade; however, an increase in interest rates due to efforts by the Federal Reserve to manage rising inflation resulted in a decline in refinance transactions volume in both 2022 and 2023, resulting in lower title insurance and other services revenue within the Title segment. Since September 2024, the Federal Reserve lowered the federal funds rate by 100 basis points, easing monetary policy for the first time in four years. Should the Federal Reserve continue to ease monetary policy and further lower its interest rate target, we expect refinance transaction volumes may increase, which in turn may have a positive impact on Title revenue.

Cost of Revenue

Blend Platform

In our Blend Platform segment, cost of revenue consists primarily of software-related costs, which include costs of subscribed hosting and support, costs of premier support services, and the costs of delivering professional services.

Software-related costs of subscribed hosting services and support consist primarily of expenses related to hosting our services, third-party fees related to platform connectivity services, which include verification of income, assets, and employment, software licenses and expenses related to providing support to our customers.

Costs of premier support and professional services consist primarily of personnel-related expenses, including stock-based compensation expense, expenses associated with delivering implementation and other services, travel expenses, and allocated overhead costs.

For each application submission, we incur third-party costs as described above, including costs for incomplete transactions for which we do not charge fees to our customers. The timing of those costs may not be aligned with the revenue recognized. We expect our cost of revenue to continue to increase in dollar amounts as we grow our business and revenue and decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period.

Title

In our Title segment, cost of revenue consists of costs of title, escrow and other trustee services, which represent primarily personnel-related expenses of our Title segment as well as title abstractor, notary, and the cost of recording services provided by external vendors.

Since the cost of revenue for our Title segment is largely variable in nature, we expect that the cost of revenue for this segment will be impacted by the fluctuations in the segment’s revenue and the number of title orders we receive in each period.

Operating Expenses

We have taken actions to manage our operating expenses and focus our investments on initiatives critical to achieving our broader strategy. We expect to see our expenses remain relatively flat in 2025 as compared to 2024.

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense, associated with our engineering personnel responsible for the design, development, and testing of new products and features, professional and outside services fees, software and hosting costs, facilities costs, and allocated overhead costs. Research and development costs are expensed as incurred, unless they qualify as capitalizable internal-use software development costs.

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Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expense, costs of general marketing activities, advertising and promotional activities, travel-related expenses, facilities costs, and allocated overhead costs. Sales commissions that are incremental costs of acquiring a contract with a customer as well as associated payroll taxes, are deferred and amortized on a straight-line basis over the estimated period of benefit. Sales commissions that are not incremental costs of acquiring a contract with a customer are expensed in the period incurred.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expense for our finance, accounting, legal and compliance, human resources, and other administrative teams, certain executives, stock-based compensation expense related to the stand-alone stock option award granted to our Co-Founder and Head of Blend in 2021, professional services fees, including audit, legal and compliance, facilities costs, software and hosting costs, external consulting expenses, and insurance expenses.

Restructuring

Restructuring charges relate to our workforce reduction plans and facilities restructuring actions. Charges related to workforce reduction plans are comprised of cash expenditures for compensation and severance payments, executive transition costs, employee benefits, payroll taxes and related facilitation costs. Charges related to facilities restructuring actions are comprised of costs related to early termination of the lease agreement and impairment of the right-of-use asset in connection with the abandonment of the property. Refer to Note 13, Restructuring, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned from our investment portfolio. For the year ended December 31, 2024, other income (expense), net also includes a gain on sale of insurance business in connection with strategic partnership, an adjustment to the carrying value of investment in non-marketable equity securities, a loss on extinguishment of debt, and a loss on transfer of our subsidiary in India.

Interest Expense

Interest expense relates primarily to debt financing used to fund our acquisition of Title365 and includes interest payable under the terms of the Credit Agreement entered into in connection with the closing of the acquisition of Title365 and amortization of debt discounts and debt issuance costs. In connection with the full repayment of the Term Loan and termination of the Credit Agreement, the final interest payment under the Credit Agreement was fully paid in the quarter ended June 30, 2024.

Provision for Income Taxes

Provision for income taxes consists primarily of U.S. state and foreign income taxes. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that such net deferred tax assets will be realized.

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Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

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(2) Net of $2.5 million of additions to capitalized internal-use software for the year ended December 31, 2024, and none for the years ended December 31, 2023 and 2022.

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*Certain percentages may not foot due to rounding.

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue and Cost of Revenue

Revenue increased $5.2 million, or 3%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, driven by an increase in Blend Platform revenue of $6.2 million, or 6%, offset by a decrease in Title segment revenue of $1.0 million, or 2%, which was primarily due to the lower volume of title orders. Within Blend Platform revenue, Mortgage Suite revenue decreased $4.3 million, or 6%, primarily due to the lower volume of mortgage banking transactions with our customers, the Consumer Banking Suite revenue increased $10.0 million, or 42%, primarily due to an increase in home equity transactions and incremental platform fees, an increase in attach rates of our digital closing solution, higher volume of deposit account openings, offset by lower consumer lending transactions with our customers. Professional Services revenue increased by $0.5 million, or 6%, primarily due to an increase in professional services associated with the support of our platform.

Cost of revenue decreased $4.2 million, or 6%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, driven by a decrease of $3.7 million, or 9% within the Title segment, primarily due to a decrease in personnel related expenses, attributable to a decrease in headcount related to our restructuring actions, as well as the lower volume of title orders, and a decrease in Blend Platform cost of revenue of $0.5 million, or 2%, primarily due to the lower volume of mortgage banking transactions.

Gross profit increased $9.4 million, or 12% for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Gross margin was 56% for the year ended December 31, 2024 compared to 52% for the year ended December 31, 2023. Within Blend Platform segment, gross profit increased by $6.8 million, while gross margin increased to 72% for the year ended December 31, 2024 as compared to 70% for the year ended December 31, 2023. The increase in gross profit was primarily due to expanding Consumer Banking Suite revenue and lower cost of revenue as the Company continues to focus on operational efficiency. Within the Title segment, gross profit increased by $2.6 million while gross margin increased to 16% for the year ended December 31, 2024 as compared to 10% for the year ended December 31, 2023 due to ongoing cost optimizations, such as rationalization of headcount and facilities footprint.

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Operating Expenses

Research and Development

Research and development expenses decreased $35.5 million, or 44%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to a $14.9 million decrease in personnel related expenses and a $6.7 million decrease in stock-based compensation expense attributable to a decrease in headcount, in each case, related to our restructuring actions, a $12.0 million decrease due to the capitalization of internal-use software development costs, a $1.3 million decrease in software and hosting costs and a $0.4 million decrease in facilities costs.

Sales and Marketing

Sales and marketing expenses decreased $24.1 million, or 40%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to a $11.7 million decrease in personnel related expenses and a $3.6 million decrease in stock-based compensation expense attributable to a decrease in headcount, in each case, related to our restructuring actions, a $4.4 million decrease in commissions, a $1.4 million decrease in advertising and promotion expenses, a $1.3 million decrease in software and hosting costs, a $0.9 million decrease in trade shows and conference costs and a $0.6 million decrease in facilities costs.

General and Administrative

General and administrative expenses decreased $20.1 million, or 28%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to a $7.0 million decrease in personnel related expenses, a $4.6 million decrease in stock-based compensation expense, primarily attributable to vesting of the second tranche of Head of Blend options in 2023 and a decrease in headcount related to our restructuring actions, a $2.1 million decrease in external consulting expenses, a $1.9 million decrease in insurance expenses, a $1.7 million decrease in professional and outside services costs, a $1.7 million decrease in software and hosting costs and a $0.3 million decrease in facilities costs.

Restructuring

Restructuring expenses decreased $17.5 million, or 70%, for the year ended December 31, 2024 compared to the year ended December 31, 2023 due to the 2023 workforce reduction plans being larger than the 2024 workforce reduction plans. This decrease in workforce-related restructuring expenses was partially offset by an increase in facilities-related restructuring charges incurred for the year ended December 31, 2024. The costs related to each workforce reduction plan included cash expenditures for compensation and severance payments, executive transition costs, employee benefits, payroll taxes and related facilitation costs.

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Interest Expense

Interest expense decreased $24.1 million, or 78%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the optional prepayment of the outstanding Term Loan under the Credit Agreement in an aggregate principal amount of $85.0 million on November 27, 2023 and repayment of all remaining amounts outstanding and payable under the Credit Agreement in an aggregate amount of $146.1 million on April 29, 2024. The borrowings under the Credit Agreement accrued interest at a floating rate which could be, at our option, either (i) an adjusted Term SOFR rate for a specified interest period plus an applicable margin of 7.50% or (ii) a base rate plus an applicable margin of 6.50%. The effective interest rate on our Term Loan was approximately 14.55% as of April 29, 2024, the date of its termination.

Other Income (Expense), net

Other income (expense), net increased $5.8 million, or 80%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to an $9.2 million gain on sale of insurance business in connection with the strategic partnership, a $4.4 million gain on investment on non-marketable equity securities due to an observable price change, offset by a $5.5 million loss on extinguishment of debt recognized in the year ended December 31, 2024 compared to a $4.0 million loss on the partial extinguishment of debt recognized in the year ended December 31, 2023, a $5.9 million decrease in interest income on our investment portfolio due to a smaller investment balance in 2024 as compared to 2023, and a $0.6 million loss on transfer of our subsidiary in India.

Income Tax Expense

The decrease in income tax expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 was immaterial.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through proceeds from the issuance of our stock and warrants and cash generated from the sale of our product offerings, as well as debt financing. As of December 31, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $98.5 million. Cash and cash equivalents are comprised of bank deposits and money market funds. Marketable securities are comprised of U.S. treasury and agency securities, commercial paper, and corporate debt securities. Most of our cash and cash equivalents are held in the United States.

We have generated significant losses from operations and negative cash flows from operating activities in the past as reflected in our accumulated deficit of $1,385.0 million as of December 31, 2024. We may incur operating losses in the future due to the investments that we intend to make in our business and pressures on revenue growth due to the recent macroeconomic environment, and as a result, we may require additional capital resources to grow our business.

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Share Repurchase Program

In August 2024, we announced the authorization of a share repurchase program for the repurchase of shares of our Class A common stock, in an aggregate amount up to $25 million. Repurchases may be made at out discretion from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements, and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 of the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our Class A common stock under this authorization. The share repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of our Class A common stock. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. During the year ended December 31, 2024, we did not repurchase any of our Class A common stock under our share repurchase program. As of December 31, 2024, approximately $25 million remained authorized and available under our share repurchase program for future share repurchases. Refer to Note 11, Stockholder’s Equity, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information.

Preferred Stock Investment

On April 29, 2024, we entered into the Investment Agreement with Haveli and issued 150,000 shares of the Company’s Series A Preferred Stock for an aggregate purchase price of $150.0 million. In connection with the issuance of the Series A Preferred Stock, we issued the Haveli Warrant to purchase up to 11,111,112 shares of Class A common stock, at a purchase price of $4.50 per share of Class A common stock. The Haveli Warrant is exercisable for a period of 24 months from issuance.

Credit Agreement Termination

In connection with our acquisition of Title365, on June 30, 2021, we entered into a credit agreement (as amended from time to time, the “Credit Agreement”) that provided for a $225.0 million term facility and a $25.0 million revolving facility. The term facility was funded on July 1, 2021 and was fully drawn upon to provide, in part, the acquisition consideration being paid in connection with the purchase of a 90.1% interest in Title365. On November 27, 2023, we entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which, among other things, terminated the revolving facility and amended the maturity date of the term facility to provide for a springing maturity extension to June 30, 2027, in the event that certain conditions are satisfied. These conditions were not met as of the termination date of the Credit Agreement. In connection with the Second Amendment, we opted to prepay the outstanding term facility under the Credit Agreement in an aggregate principal amount of $85.0 million. In connection with the issuance of the Series A Preferred Stock, on April 29, 2024, we paid approximately $146.1 million to repay all amounts outstanding and payable under the Credit Agreement in full, and terminated the Credit Agreement.

Material Cash Requirements

After the termination of the Credit Agreement, our material cash requirements arising from known contractual and other obligations primarily relate to lease obligations for our office locations and purchase commitments.

We believe that current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on continued growth in our customer base, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, the continuing market adoption of Blend’s software platform, and the effectiveness of our efforts to improve cost efficiency. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights; additionally, we may repurchase shares of our Class A common stock from time to time under our share repurchase program. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled “Risk Factors—Risks Related to Our Business—Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.”

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Cash Flows

The following table summarizes our cash flows for the periods indicated:

Cash Used in Operating Activities

Our largest source of operating cash is cash collections from our customers, and our primary uses of cash in operations are for employee-related expenditures, sales and marketing expenses, and third-party hosting costs.

Net cash used in operating activities for the years ended December 31, 2024 and 2023 was $13.0 million and $127.6 million, respectively. The decrease in cash used in operations reflects our net loss adjusted for noncash items, such as charges associated with stock-based compensation, depreciation and amortization, gain on investment in equity securities, amortization of deferred contract costs, amortization of operating lease right-of-use assets, and amortization of debt discount and issuance costs on our long-term debt, loss on debt extinguishment, gain on sale of insurance business, and changes in operating assets and liabilities. Fluctuations in operating assets and liabilities are affected primarily by changes in trade and other receivables, prepaid expenses and other current assets, accrued compensation, deferred revenue, accounts payable and other liabilities.

Cash Provided by Investing Activities

Net cash provided by investing activities during the year ended December 31, 2024 was $45.4 million, which was primarily due to sales of marketable securities of $100.3 million and maturities of marketable securities of $53.2 million, $9.1 million proceeds from sale of insurance business, offset by $102.0 million used in the purchase of marketable securities, an investment via issuance of note receivable of $5.0 million and $9.8 million in additions of property and equipment, primarily related to capitalized internal-use software development costs.

Net cash provided by investing activities during the year ended December 31, 2023 was $127.3 million, which was primarily due to maturities of marketable securities of $310.5 million, sale of marketable securities of $56.0 million, partially offset by $236.1 million used in purchases of marketable securities, an investment via issuance of note receivable of $2.5 million, and property and equipment purchases of $0.6 million.

Cash Used in Financing Activities

Net cash used in financing activities for the year ended December 31, 2024 was $21.1 million, primarily consisting of $144.5 million repayment of long-term debt, $9.5 million payment of issuance costs related to the Series A Preferred Stock and the Haveli Warrant, payment of taxes related to net share settlement of equity awards of $18.1 million, offset by $149.4 million proceeds from the issuance of Series A Preferred Stock and the Haveli Warrant, and proceeds from the exercises of stock options of $1.7 million.

Net cash used in financing activities for the year ended December 31, 2023 was $91.0 million, primarily consisting of partial repayment of long-term debt principal of $85.1 million and payment of taxes related to net share settlement of equity awards of $6.2 million.

Contingent Obligations

We administer escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and/or undisbursed amounts received for settlement of mortgage and home equity loans. Cash held for these purposes was approximately $6.1 million, net of outstanding checks in transit of $33.8 million as of December 31, 2024. These funds are not considered assets of ours and, therefore, are not included in our consolidated balance sheet; however, we are contingently liable for the disposition of these funds on behalf of consumers.

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As of December 31, 2024, we did not have any other relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.

Critical Accounting Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows could be affected.

We believe that of our significant accounting policies, which are described further in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, the following accounting estimates involve a greater degree of judgment and complexity. Accordingly, these are the estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

In our Blend Platform segment, we generate revenue from fees paid by our customers to access our platform, to complete mortgage and consumer banking transactions on our software platform, access Blend Builder, and, to a lesser extent, from professional services and premier support. In our Title segment, we generate revenue from digitally-enabled and traditional title insurance services, where we earn fees for placing and binding title insurance policies with third-party underwriters, and from escrow and other trustee services where we earn fees from managing the closing of real estate transactions.

In the Blend Platform segment, our customers have the ability to access our platform under subscription arrangements, consumption arrangements, or usage-based arrangements. We recognize fees for subscription arrangements ratably over the non-cancelable contract term and for consumption and usage-based arrangements as the completed transactions are processed using our platform.

In our subscription arrangements, the customers commit to a minimum number of completed transactions at specified prices over the contract term. We believe the area we apply the most critical judgment in our revenue recognition relates to determination of the transaction price, and specifically, the estimation of variable consideration in our subscription arrangements. The variable consideration relates to the estimated overage fees we expect to earn over the non-cancelable contract term, which is included in the transaction price at contract inception to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In estimating overage fees in subscription arrangements, we consider our historical experience and other external factors that may impact the expectation of future completed transactions beyond a customer’s contracted minimum number of completed transactions.

The estimated variable consideration is sensitive to the inputs, judgements, and assumptions made by us. Although we believe that our approach to developing estimates of variable consideration is reasonable, actual results could differ, and we may be exposed to increases or decreases in revenue that could be material.

Stock-Based Compensation

We measure and recognize our stock-based compensation based on estimated fair values for all stock awards, which include stock options, RSUs and PSUs. We recognize stock-based compensation expense for stock options and RSUs that vest only based upon the satisfaction of a service condition on a straight-line basis over the requisite service period, which is generally the vesting period. We recognize stock-based compensation expense for PSUs that vest based upon the satisfaction of a market condition on a straight-line basis over the derived service period. We account for forfeitures as they occur.

We believe the area we apply the most critical judgment in recognition of our stock-based compensation relates to the valuation of stock option awards and PSUs. We use the Black-Scholes-Merton option pricing model to determine the grant date fair value of the stock options and the Monte Carlo simulation to determine the grant date fair value of the PSUs. The assumptions used to

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determine the fair value of these awards, such as the risk-free interest rate, expected volatility of our stock price, and expected life of the award, represent our estimates, which involve inherent uncertainties and the application of management’s judgment.

Certain stock options granted to our Co-Founder and Head of Blend vest upon the satisfaction of a service condition, liquidity event-related performance condition and performance-based market conditions. The first tranche of the award, which vested upon completion of the IPO, was valued using the Black-Scholes-Merton option pricing model. The remaining tranches were valued using a Monte Carlo simulation model, and will vest upon achievement of performance goals tied to our stock price hurdles with specified expiration dates for each tranche.

Recent Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2023 and 2022 items and year-to-year comparisons between fiscal years 2023 and 2022. Discussions of fiscal year 2021 items and year-to-year comparisons between fiscal years 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 16, 2023.

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Overview

Blend Labs, Inc. was founded in 2012, with a vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform and suite of products for financial services firms that is designed to power the end-to-end consumer journey for any banking product. Our software platform was built in an extensible, modular, and configurable fashion to support continued product expansion. We have technology, data, and service providers on our software platform, including an extensive marketplace of insurance carriers, real estate agents, and settlement agencies. Our products and marketplaces provide multiple opportunities for us to serve financial services firms and consumers and drive revenue growth.

The development of our business reflects continued product innovation as we continue to attract financial services firms to our software platform and grow with them as they serve consumers. Financial services firms have been shifting for years to a digital-first approach to acquiring consumers, delivering products, and deepening existing consumer relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. We believe there is a large, untapped opportunity to provide additional product offerings and drive increased transaction volume for financial institutions and consumers using our software platform.

We are continually seeking to enhance the end-to-end banking journeys we power through our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, on June 30, 2021 we acquired 90.1% ownership of Title365, a leading title insurance agency that offers title, escrow and other trustee services.

We recently introduced Composable Origination, which gives our customers the ability to easily configure or build custom workflows from a pre-built set of components, all while leveraging existing infrastructure. Financial services firms can experience Composable Origination by building custom solutions using our Blend Builder Platform, or with pre-built solutions such as Instant Home Equity, Deposit Accounts, Credit Cards and more.

As we navigate through a challenging economic environment, we are focused on customer acquisition, maximizing existing partnerships and product expansion as well as efficient investment and disciplined cost management. We see opportunities for expansion into new markets, including markets outside the United States.

Our Business Model

Our success-based business model is designed to align our growth with the interests of our customers. We offer our products through software-as-a-service agreements where fees are assessed based on completed transactions, such as a funded loan, new account opening, or API call. For those products that involve a loan or deposit account application, we do not charge for abandoned applications or rejected applications, even though they cause us to incur costs. We provide the platform, including Blend Builder, our configurable platform, under (a) subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, (b) usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at a specified price, (c) a fixed price platform fee, allowing the use of multiple products and services, or (d) consumption-based arrangements, in which customers commit to a certain amount of consumption at specified prices and prepay a fixed amount in advance of their consumption. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. Completed transaction fees are not impacted by the dollar size of transactions; however, we provide volume-based discounts to customers as they complete a higher volume of transactions on our software platform. Customers also have the opportunity to secure discounts by agreeing to contractual minimums. We may earn additional overage fees if the number of completed transactions exceeds contractual minimums for customers who elect to enter into subscription or consumption-based agreements in which a minimum number of transactions are completed at specified prices. Other than our usage-based arrangements pursuant to which customers pay for a variable amount of completed transactions, our subscription and consumption-based agreements are generally non-cancelable during the contract term. Our usage-based arrangements generally can be terminated at any time by the customer. With our success-based business model, we are focused on driving revenue growth by enabling our customers to more efficiently process and complete transactions using our software platform.

We focus on customer success to drive transaction volumes and opportunities for follow-on sales. Our products are sold through a direct sales force that continues to manage customer relationships on an ongoing basis post-sale. Customers often complete an initial deployment for one or two products and then add more products over time. The length of the sales cycle for our products generally declines for the second and subsequent products we sell to a financial services firm, highlighting our high customer satisfaction.

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We also earn revenue through commissions or service fees when consumers use our integrated marketplaces to select a real estate agent, property and casualty insurance carrier. These commissions or service fees are generated from consumers and are incremental to what we earn from our financial services firm customers on completed transactions. Our marketplaces are intended to provide greater consumer choice and flexibility and to help financial services firms by providing them with a more complete offering in partnership with Blend. As we drive adoption of our software platform, we expect these commissions and service fees to comprise a larger part of our revenue.

The acquisition of Title365 has enabled our customers to streamline the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans, and we plan to continue to invest in improving and integrating settlement services into those banking products. In performing title search services, Title365 serves as an agent to place and bind title insurance policies with third-party underwriters. Title365 escrow, closing and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Title365 also provides title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans.

Recent Developments

Industry Trends

The mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and the general economic environment, typically impacts the demand for mortgage and mortgage related products. Recent changes in these areas have impacted our results of operations. Purchase volume and refinance activity were strong in 2020 and 2021 relative to historical averages over the preceding decade; however, an increase in interest rates due to efforts by the Federal Reserve to manage rising inflation, combined with ongoing supply constraints, resulted in a decline in mortgage origination activity in both 2022 and 2023.

For the year ended December 31, 2022, we saw a 31.9% decrease in mortgage transactions, particularly refinance transactions, on our software platform compared to the year ended December 31, 2021. For the year ended December 31, 2023, we have seen a further decrease of 34.7% in mortgage transactions compared to the year ended December 31, 2022. We attribute the majority of this decrease to relatively high interest rates, decreased housing affordability, and uncertain worldwide political and economic conditions.

Industry forecasters indicate that overall mortgage originations, including refinancing loans, are expected to increase in 2024. As a large portion of our revenue is driven by mortgage and mortgage related transaction volumes, changes in the mortgage origination volumes have had, and are likely to continue to have, material effects on our business.

Credit Agreement Amendment

On November 27, 2023, we entered into a Second Amendment to the Credit Agreement, which amends the Credit Agreement to, among other things, (i) terminate the revolving loan commitments under the Credit Agreement and (ii) amend the maturity date of the term loans under the Credit Agreement to provide for a springing maturity extension to June 30, 2027, in the event that certain conditions are satisfied. These conditions had not been met as of December 31, 2023. In connection with the Amendment, we optionally prepaid outstanding term loans under the Credit Agreement in an aggregate principal amount of $85.0 million in order to reduce outstanding indebtedness and interest expense under the Credit Agreement.

Workforce Reduction Plans

Since 2022, we have implemented several workforce reduction actions as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities and the current market. Refer to Note 14, Restructuring, for additional information.

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In 2023, we executed two workforce reduction initiatives. In January 2023, we committed to a workforce reduction plan (the “January Plan”), which eliminated approximately 340 positions, or 28% of our then-current workforce. In August 2023, we committed to an additional workforce reduction plan (the “August 2023 Plan”), which eliminated approximately 150 positions, or 19% of our then-current workforce. We incurred approximately $24.9 million in charges in connection with these plans for the year ended December 31, 2023, consisting primarily of cash expenditures for compensation, severance, and transition payments, employee benefits, payroll taxes and related facilitation costs.

We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of our workforce reduction plans and we may undertake additional workforce reductions. Our implementation of any workforce reduction plans is subject to risks and uncertainties, including the possibility that the actual charges in implementing the plans or related initiatives are higher than anticipated, we are unable to achieve our projected cost savings in connection with any workforce reduction plans or related initiatives, or there are unintended consequences from any workforce reduction plans or related initiatives that impact our business.

Key Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

Blend Platform - Mortgage Banking Transactions

Our success in the Blend Platform segment depends in part on increasing the volume of mortgage and consumer banking transactions that take place on our software platform. This occurs as we add new customers and complete more transactions with existing customers, including when our existing customers adopt additional products. Our software platform is built to be extensible, modular, and configurable, so that our customers can easily utilize our pre-built workflow technology, our marketplaces, and our integrations with technology, data, and service providers. We design our new offerings to be highly complementary to existing ones in order to increase the speed of adoption and efficiently scale our revenue. We believe this increasing attachment will increase our revenue.

Title - Originations Closed Orders

In our Title segment, originations closed orders represent the number of originations orders for title insurance or escrow services that were successfully fulfilled in each period with the issuance of a title insurance policy or provision of escrow services. The volume of closed orders is affected by the overall level of real estate activity, which is cyclical in nature and is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, interest rate volatility, consumer confidence, employment and family income levels, and general economic conditions.

Starting in 2023, the Title segment includes the digitally-enabled title component. This change reflects a corresponding change in how our CODM reviews financial information in order to allocate resources and assess performance. Refer to Note 17, Segments, for additional information.

The following table sets forth our key business metrics:

Components of Results of Operations

Revenue

Blend Platform

In our Blend Platform segment, we generate revenue from fees paid by customers to access our software platform and complete the transactions. Fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. Completed transaction fees are determined by the number and type of software platform components that are

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needed to support each product offering. We do not charge for abandoned or rejected applications, even though they cause us to incur costs related to these applications. Arrangements with our customers do not provide the contractual right to take possession of our software at any point in time. Revenue is recognized when access to our platform is provisioned to our customers or as transactions are completed, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. To a lesser extent, we generate revenue from professional services related to the deployment of our platform, premier support services, and consulting services. We also earn revenue through commissions or service fees when consumers use our Blend Platform integrated marketplaces to select a property and casualty insurance carrier, or real estate agent.

Our customers have the ability to access our platform under subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, under usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at specified prices, or under consumption-based arrangements in which customers commit to a certain amount of consumption at specified prices and prepay a fixed amount in advance of their consumption. Our subscription and consumption arrangements are generally noncancelable, and we may also earn additional overage fees if the number of completed transactions exceeds the contractual amounts. Our usage-based arrangements generally can be terminated at any time by the customer. We recognize revenue ratably for our subscription arrangements because the customer receives and consumes the benefits of our platform throughout the contract period. We recognize fees for usage-based and consumption arrangements as the completed transactions are processed using our platform. Over the last several quarters, we have seen a shift towards usage-based arrangements in our customer contracts. Revenue from usage-based arrangements represented 58%, 55% and 29% of our Blend Platform segment revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

Starting in 2023, the revenue in the Blend Platform segment excludes revenue from our digitally-enabled title solution, which is now reported as part of the Title segment. Prior period amounts have been reclassified to conform to current period presentation. Refer to Note 17, Segments, for additional information.

Title

In our Title segment, we earn revenue from title search services for title insurance policies, escrow and other closing and settlement services. In performing title search services, we act as an agent to place and bind title insurance policies with third-party underwriters that ultimately provide the title insurance policy to our customers. Revenue related to title insurance is recognized net of the amount of consideration paid to the third-party insurance underwriters. Our revenues from escrow, closing and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Revenue related to these services is recognized at the closing of the underlying real estate transaction. We also offer title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans. Revenue for default title services and home equity services is recognized at the time of delivery of the title report.

Starting in 2023, the revenue in the Title segment includes revenue from our digitally-enabled title solution, which was previously reported as part of the Blend Platform segment. Prior period amounts have been reclassified to conform to current period presentation. Refer to Note 17, Segments, for additional information.

We expect mortgage interest rates to remain relatively high in the near term, which will continue to drive down transaction volume, especially refinance transactions volume, adversely affecting both Blend Platform and Title revenue. While we believe that the Blend Platform segment will deliver positive growth in the long-term, we expect that the title insurance and other services revenue within the Title segment will continue to face significant headwinds to growth until mortgage origination volumes increase. We are continuing to evaluate the changes within the mortgage industry and the impact to our segments and their projected operating results.

Cost of Revenue

Blend Platform

In our Blend Platform segment, cost of revenue consists primarily of software-related costs, which include costs of subscribed hosting and support, costs of premier support services, and the costs of delivering professional services. Starting in 2023, the cost of revenue in the Blend Platform segment excludes cost of revenue related to our digitally-enabled title solution.

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Software-related costs of subscribed hosting services and support consist primarily of expenses related to hosting our services, third-party fees related to platform connectivity services, which include verification of income, assets, and employment, software licenses and expenses related to providing support to our customers.

Costs of premier support and professional services consist primarily of personnel-related expenses, including stock-based compensation expense, expenses associated with delivering implementation and other services, travel expenses, and allocated overhead costs.

For each application submission, we incur third-party costs as described above, including costs for incomplete transactions for which we do not charge fees to our customers. The timing of those costs may not be aligned with the revenue recognized. We expect our cost of revenue to continue to increase in dollar amounts as we grow our business and revenue and decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period.

Title

In our Title segment, cost of revenue consists of costs of traditional title, escrow and other trustee services, which represent primarily personnel-related expenses of our Title segment as well as title abstractor, notary, and the cost of recording services provided by external vendors. Starting in 2023, the cost of revenue in the Title segment includes cost of revenue related to our digitally-enabled title solution.

In future periods, we expect that cost of revenue as a percentage of revenue will increase in the near term primarily due to the anticipated decline in revenue driven by the decrease in projected mortgage industry origination volume caused by increased interest rates.

Operating Expenses

We have taken actions to manage our operating expenses and focus our investments on initiatives critical to achieving our broader strategy. We expect to see ongoing improvements to our expenses from these actions in 2024.

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense, associated with our engineering personnel responsible for the design, development, and testing of new products and features, professional and outside services fees, software and hosting costs, and allocated overhead costs. Research and development costs are expensed as incurred.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expense, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead costs. Sales commissions that are incremental costs of acquiring a contract with a customer as well as associated payroll taxes, are deferred and amortized on a straight-line basis over the estimated period of benefit. Sales commissions that are not incremental costs of acquiring a contract with a customer are expensed in the period incurred.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expense for our finance, accounting, legal and compliance, human resources, and other administrative teams, certain executives, as well as stock-based compensation expense related to the stand-alone stock option award granted to our Co-Founder and Head of Blend in March 2021, and professional fees, including audit, legal and compliance, and recruiting services. In addition, general and administrative expenses include expenses related to the integration of Title365, which we expect to continue to decrease over time.

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Amortization of acquired intangible assets and impairment of goodwill and acquired intangible assets

Amortization of acquired intangible assets relates to customer relationships acquired in connection with the Title365 business combination, which were amortized over the estimated useful life on a straight-line basis. No amortization was recorded in 2023 due to the full write off of the customer relationship intangible assets resulting from an impairment charge recognized in the year ended December 31, 2022. In connection with the impairment reviews, we also recorded an impairment charge against the goodwill, representing the full write off of the carrying amount in the year ended December 31, 2022.

Restructuring

Restructuring charges relate to our workforce reduction plans and are comprised of cash expenditures for compensation and severance payments, executive transition costs, employee benefits, payroll taxes and related facilitation costs. Refer to Note 14, Restructuring, for additional information.

Other Income (Expense), Net

Other income (expense), net consists primarily of income earned from our investment portfolio. For the year ended December 31, 2023, other income (expense), net also includes a loss on the partial extinguishment of debt. For the year ended December 31, 2022, other income (expense), net also includes an adjustment to the carrying value of investment in non-marketable equity securities.

Interest Expense

Interest expense relates primarily to debt financing used to fund our acquisition of Title365 and includes interest payable under the terms of the Credit Agreement entered into in connection with the closing of the acquisition of Title365 and amortization of debt discounts and debt issuance costs.

Provision for Income Taxes

Provision for income taxes consists primarily of U.S. state and foreign income taxes. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that such net deferred tax assets will be realized.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

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(1)Includes stock-based compensation as follows:

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*Certain percentages may not foot due to rounding

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Comparison of the Years Ended December 31, 2023 and 2022

Revenue and Cost of Revenue

Revenue decreased $78.4 million, or 33%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by a decrease in Title segment revenue of $66.5 million, or 58%, primarily due to the lower volume of title orders, and a decrease in Blend Platform revenue of $11.9 million, or 10%. Within Blend Platform revenue, Mortgage Suite revenue decreased $16.7 million, or 18%, primarily due to the lower volume of mortgage banking transactions, particularly refinance transactions, with our customers, partially offset by an increase in revenue from homeowner's insurance and close transactions, Consumer Banking Suite revenue increased $4.3 million, or 22%, primarily due to the increase in home equity, deposit accounts, close and personal loan transactions, and Professional Services revenue increased by $0.5 million, or 7%, primarily due to an increase in professional services associated with the deployment and support of our platform.

Cost of revenue decreased $69.8 million, or 48%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by a decrease of $56.7 million, or 57% within the Title segment, primarily due to the lower volume of title orders, and a decrease in Blend Platform cost of revenue of $13.1 million, or 28%, primarily due to the lower volume of mortgage banking transactions.

Gross profit decreased $8.5 million, or 9% for the year ended December 31, 2023 compared to the year ended December 31, 2022. Gross margin was 52% for the year ended December 31, 2023 compared to 38% for the year ended December 31, 2022. Within Blend Platform segment, gross profit increased by $1.2 million, or 2%, while gross margin increased to 70% in 2023 as compared to 62% in 2022, driven by growing adoption of our product add-ons within the Mortgage Suite, such as close and income verification, faster deployments of our higher margin Consumer banking products due to utilization of Blend Builder platform, as well as our operating efficiencies and cost optimizations. Within the Title segment, gross profit decreased by $9.8 million, or 68%, while gross margin decreased to 10% in 2023 as compared to 13% in 2022 due to continued headwinds in the economic environment.

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Operating Expenses

Research and Development

Research and development expenses decreased $56.5 million, or 41%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a $28.2 million decrease in stock-based compensation expense and a $24.2 million decrease in personnel related expenses attributable to a decrease in headcount, in each case, related to our restructuring actions, and a $3.2 million decrease in professional and outside services.

Sales and Marketing

Sales and marketing expenses decreased $25.1 million, or 29%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a $12.9 million decrease in personnel related expenses, a $4.6 million decrease in stock-based compensation expense, and a $4.6 million decrease in commissions, attributable to a decrease in headcount, in each case, related to our restructuring actions, and a $1.4 million decrease in advertising and promotion expenses.

General and Administrative

General and administrative expenses decreased $68.4 million, or 49% for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a $29.9 million decrease in stock-based compensation and a $22.7 million decrease in personnel related expenses attributable to a decrease in headcount, in each case, related to our restructuring actions, as well as a $4.7 million decrease in insurance, a $3.4 million decrease in software and hosting costs, a $1.9 million decrease in professional services, a $1.5 million decrease in expenses related to title and escrow loss reserve, and a $0.8 million decrease in facilities costs.

Amortization of acquired intangible assets

Amortization of acquired intangible assets decreased $8.4 million, or 100% for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to the full write off of the customer relationship intangible assets from the Title365 acquisition resulting from an impairment charge recognized in 2022.

Impairment of intangible assets and goodwill

Impairment of intangible assets and goodwill decreased $449.7 million, or 100% for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to the impairment charges recorded in connection with the interim quantitative impairment reviews of the intangible assets and goodwill within the Title365 reporting unit performed in 2022.

Restructuring

Restructuring expenses increased $9.7 million, or 63% for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the execution of the 2023 restructuring plans, which were larger than the 2022 restructuring plans. The restructuring charges included cash expenditures for compensation and severance payments, executive transition costs, employee benefits, payroll taxes and related facilitation costs.

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Interest Expense

Interest expense increased $6.0 million, or 24%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the increase in interest rate on the Term Loan under the Credit Agreement. The borrowings under the Credit Agreement accrue interest at a floating rate which can be, at our option, either (i) an adjusted Term SOFR rate for a specified interest period plus an applicable margin of 7.50% or (ii) a base rate plus an applicable margin of 6.50%. The effective interest rate on the Term Loan was approximately 14.57% and 13.43% at December 31, 2023 and 2022, respectively.

Other Income (Expense), net

Other income (expense), net increased $2.3 million, or 47%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase of $9.0 million in income from our investment portfolio, partially offset by a $4.0 million loss on extinguishment of debt recognized in 2023 and a $2.9 million gain on investment in equity securities without readily determinable fair value recognized in 2022.

Income Taxes

Income taxes increased $2.3 million, or 104%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an adjustment to the valuation allowance resulting from changes in U.S. tax law requiring capitalization and amortization of research and development costs for tax purposes recorded in 2022.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through proceeds from the issuance of our stock and warrants and cash generated from the sale of our product offerings, as well as debt financing. As of December 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $136.9 million. Cash and cash equivalents are comprised of bank deposits and money market funds. Marketable securities are comprised of U.S. treasury and agency securities, commercial paper, and corporate debt securities. Most of our cash and cash equivalents are held in the United States.

We have generated significant losses from operations and negative cash flows from operating activities in the past as reflected in our accumulated deficit of $1,341.6 million as of December 31, 2023. We expect to continue to incur operating losses for the foreseeable future due to the investments that we intend to make in our business and the pressures on revenue growth due to the current macroeconomic environment and, as a result, we may require additional capital resources to grow our business.

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Credit Agreement

In connection with our acquisition of Title365, on June 30, 2021, we entered into a credit agreement that provides for a $225.0 million term facility and a $25.0 million revolving facility. The term facility was funded on July 1, 2021 and was fully drawn upon to provide, in part, the acquisition consideration being paid in connection with the purchase of a 90.1% interest in Title365. On November 27, 2023, we entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which, among other things, terminated the revolving facility and amended the maturity date of the Term Loan to provide for a springing maturity extension to June 30, 2027, in the event that certain conditions are satisfied. These conditions have not been met as of December 31, 2023. In connection with the Second Amendment, we opted to prepay the outstanding Term Loan under the Credit Agreement in an aggregate principal amount of $85.0 million.

The Term Loan will mature on June 30, 2026, and the full principal amount is due at maturity. No amortization payments are required with respect to the Term Loan.

The obligations under our credit facility are guaranteed by all of our domestic subsidiaries (other than Title365 and its direct and indirect subsidiaries, and subject to certain thresholds and other exceptions), and secured by a lien on substantially all of our and our subsidiaries’ assets (other than the equity issued by, and the assets of, Title365 and its direct and indirect subsidiaries and subject to certain thresholds and other exceptions).

Our credit facility subjects us to certain affirmative and negative covenants, financial reporting obligations, and a minimum liquidity threshold that is tested quarterly. It also requires mandatory prepayment of all or a portion of the outstanding debt thereunder in certain circumstances.

Material Cash Requirements

Our material cash requirements arising from known contractual and other obligations primarily relate to our obligations under our Credit Agreement, leases for our office locations, and purchase commitments. As of December 31, 2023, our principal contractual cash obligations consisted of the following:

In 2023,we executed two workforce reduction initiatives. In January 2023, we committed to a workforce reduction plan (the “January Plan”), which eliminated approximately 340 positions, or 28% of our then-current workforce. In August 2023, we committed to an additional workforce reduction plan (the “August 2023 Plan”). The August 2023 Plan eliminated approximately 150 positions, or 19% of our then-current workforce. We incurred approximately $24.9 million in charges in connection with these plans for the year ended December 31, 2023, consisting primarily of cash expenditures for compensation, severance, and transition payments, employee benefits, payroll taxes and related facilitation costs.

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We believe that current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on continued growth in our customer base, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, the continuing market adoption of Blend’s software platform, and the effectiveness of our efforts to improve cost efficiency. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled “Risk Factors—Risks Related to Our Business—Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.”

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Cash Used in Operating Activities

Our largest source of operating cash is cash collections from our customers, and our primary uses of cash in operations are for employee-related expenditures, sales and marketing expenses, and third-party hosting costs.

Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $127.6 million and $190.4 million, respectively. The decrease in cash used in operations reflects a decrease in our net loss adjusted for noncash items, including charges associated with the impairments of goodwill and intangible assets, stock-based compensation, loss on extinguishment of debt, depreciation and amortization, change in deferred taxes, amortization of deferred contract costs, amortization of operating lease right-of-use assets, and amortization of debt discount and issuance costs on our long-term debt, and changes in operating assets and liabilities. Fluctuations in operating assets and liabilities are affected primarily by changes in trade and other receivables, prepaid expenses and other current assets, accrued compensation, deferred revenue, accounts payable, and other liabilities.

Cash Provided by Investing Activities

Net cash provided by investing activities during the year ended December 31, 2023 was $127.3 million, which was primarily due to maturities of marketable securities of $310.5 million, sale of marketable securities of $56.0 million, partially offset by $236.1 million used in purchases of marketable securities, an investment via issuance of note receivable of $2.5 million, and property and equipment purchases of $0.6 million.

Net cash provided by investing activities during the year ended December 31, 2022 was $99.4 million, which was primarily due to maturities of marketable securities of $247.0 million, partially offset by $145.5 million used in purchases of marketable securities, and property and equipment purchases of $2.1 million.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities for the year ended December 31, 2023 was $91.0 million, primarily consisting of partial repayment of long-term debt principal of $85.0 million and payment of taxes related to net share settlement of equity awards of $6.2 million.

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Net cash provided by financing activities for the year ended December 31, 2022 was $2.2 million, primarily reflecting proceeds from the exercises of stock options, net of repurchases, of $2.6 million.

Contingent Obligations

We administer escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and/or undisbursed amounts received for settlement of mortgage and home equity loans. Cash held for these purposes was approximately $3.2 million, net of outstanding checks in transit of $27.8 million, as of December 31, 2023. These funds are not considered assets of ours and, therefore, are not included in our consolidated balance sheet; however, we are contingently liable for the disposition of these funds on behalf of consumers.

As of December 31, 2023, we did not have any other relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.

Critical Accounting Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with the U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows could be affected.

We believe that of our significant accounting policies, which are described further in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, the following accounting estimates involve a greater degree of judgment and complexity. Accordingly, these are the estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

In our Blend Platform segment, we generate revenue from fees paid by our customers to access our platform, to complete mortgage banking and consumer banking transactions on our software platform, and, to a lesser extent, from professional services. In our Title segment, we generate revenue from digitally-enabled and traditional title insurance services, where we earn fees for placing and binding title insurance policies with third-party underwriters, and from escrow and other trustee services where we earn fees from managing the closing of real estate transactions.

In the Blend Platform segment, our customers have the ability to access our platform under subscription arrangements, consumption arrangements, or usage-based arrangements. We recognize fees for subscription arrangements ratably over the non-cancelable contract term and for consumption and usage-based arrangements as the completed transactions are processed using our platform.

In our subscription arrangements, the customers commit to a minimum number of completed transactions at specified prices over the contract term. We believe the area we apply the most critical judgment in our revenue recognition relates to determination of the transaction price, and specifically, the estimation of variable consideration in our subscription arrangements. The variable consideration relates to the estimated overage fees we expect to earn over the non-cancelable contract term, which is included in the transaction price at contract inception to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In estimating overage fees in subscription arrangements, we consider our historical experience and other external factors that may impact the expectation of future completed transactions beyond a customer’s contracted minimum number of completed transactions.

The estimated variable consideration is sensitive to the inputs, judgements, and assumptions made by us. Although we believe that our approach to developing estimates of variable consideration is reasonable, actual results could differ, and we may be exposed to increases or decreases in revenue that could be material.

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Stock-Based Compensation

We measure and recognize our stock-based compensation based on estimated fair values for all stock awards, which include stock options, RSUs and PSUs. We recognize stock-based compensation expense for stock options and RSUs that vest only based upon the satisfaction of a service condition on a straight-line basis over the requisite service period, which is generally the vesting period. We recognize stock-based compensation expense for PSUs that vest based upon the satisfaction of a market condition on a straight-line basis over the derived service period. We account for forfeitures as they occur.

We believe the area we apply the most critical judgment in recognition of our stock-based compensation relates to the valuation of stock option awards and PSUs. We use the Black-Scholes-Merton option pricing model to determine the grant date fair value of the stock options and the Monte Carlo simulation to determine the grant date fair value of the PSUs. The assumptions used to determine the fair value of these awards, such as the risk-free interest rate, expected volatility of our stock price, and expected life of the award, represent our estimates, which involve inherent uncertainties and the application of management’s judgment.

Certain stock options granted to our Co-Founder and Head of Blend vest upon the satisfaction of a service condition, liquidity event-related performance condition and performance-based market conditions. The first tranche of the award, which vested upon completion of the IPO, was valued using the Black-Scholes-Merton option pricing model. The remaining tranches were valued using a Monte Carlo simulation model, and will vest upon achievement of performance goals tied to our stock price hurdles with specified expiration dates for each tranche.

Recent Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based upon current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2022 and 2021 items and year-to-year comparisons between fiscal years 2022 and 2021. Discussions of fiscal year 2021 items and year-to-year comparisons between fiscal years 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 31, 2022.

Overview

Blend Labs, Inc. was founded in 2012, with a vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform and suite of products for financial services firms that is designed to power the end-to-end consumer journey for any banking product. Our software platform was built in an extensible, modular, and configurable fashion to support continued product expansion. We have technology, data, and service providers on our software platform, including an extensive marketplace of insurance carriers, realtors, and settlement agencies. Our products and marketplaces provide multiple opportunities for us to serve financial services firms and consumers and drive revenue growth.

The development of our business reflects continued product innovation as we continue to attract financial services firms to our software platform and grow with them as they serve consumers. Financial services firms have been shifting for years to a digital-first approach to acquiring consumers, delivering products, and deepening existing consumer relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. We believe there is a large, untapped opportunity to provide additional product offerings and drive increased transaction volume for financial institutions and consumers using our software platform.

We are continually seeking to enhance the end-to-end banking journeys we power through our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, on June 30, 2021 we acquired 90.1% ownership of Title365, a leading title insurance agency that offers title, escrow and other trustee services.

We recently introduced Composable Origination, which gives our customers the ability to easily configure or build custom workflows from a pre-built set of components, all while leveraging existing infrastructure. Financial services firms can experience Composable Origination by building custom solutions using our Blend Builder Platform, or with pre-built solutions such as Instant Home Equity, Deposit Accounts, Credit Cards and more.

Our Business Model

Our success-based business model is designed to align our growth with the interests of our customers. We offer our products through software-as-a-service agreements where fees are assessed based on completed transactions, such as a funded loan, new account opening, or API call. For those products that involve a loan or deposit account application, we do not charge for abandoned applications or rejected applications, even though they cause us to incur costs. Our customers have the ability to access our platform, including Blend Builder Platform, our configurable platform, under subscription arrangements in which customers commit to (a) a minimum number of completed transactions at specified prices over the contract term, (b) usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at a specified price, or (c) a fixed price platform fee, allowing the use of multiple products and services. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. Completed transaction fees are not impacted by the dollar size of transactions; however, we provide volume-based discounts to customers as they complete a higher volume of transactions on our software platform. Customers also have the opportunity to secure discounts by agreeing to contractual minimums. We may earn additional overage fees if the number of completed transactions exceeds contractual minimums for customers who elect to enter into subscription agreements in which a minimum number of transactions are

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completed at specified prices. Other than our usage-based arrangements pursuant to which customers pay for a variable amount of completed transactions, our subscription agreements are generally non-cancelable during the contract term. Our usage-based arrangements generally can be terminated at any time by the customer. With our success-based business model, we are focused on driving revenue growth by enabling our customers to more efficiently process and complete transactions using our software platform.

We focus on customer success to drive transaction volumes and opportunities for follow-on sales. Our products are sold through a direct sales force that continues to manage customer relationships on an ongoing basis post-sale. Customers often complete an initial deployment for one or two products and then add more products over time. The length of the sales cycle for our products generally declines for the second and subsequent products we sell to a financial services firm, highlighting our high customer satisfaction.

We also earn revenue through commissions or service fees when consumers use our integrated marketplaces to select a real estate agent, property and casualty insurance carrier, or our software-enabled title and settlement services entity, which excludes traditional title revenue from Title365. These commissions or service fees are generated from consumers and are incremental to what we earn from our financial services firm customers on completed transactions. Our marketplaces are intended to provide greater consumer choice and flexibility and to help financial services firms by providing them with a more complete offering in partnership with Blend. As we drive adoption of our software platform, we expect these commissions and service fees to comprise a larger part of our revenue.

The acquisition of Title365 has enabled our customers to streamline the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans, and we plan to continue to invest in improving and integrating settlement services into those banking products. In performing title search services, Title365 serves as an agent to place and bind title insurance policies with third-party underwriters. Title365 escrow, closing and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Title365 also provides title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans.

Recent Developments

Industry Trends

The mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and the general economic environment, typically impact the demand for mortgage and mortgage related products. Recent changes in these areas have impacted our results of operations. Purchase volume and refinance activity were strong in 2021 and 2020 relative to historical averages over the preceding decade; however, an increase in interest rates due to efforts by the Federal Reserve to manage rising inflation, combined with ongoing supply constraints, have resulted in a decline in mortgage origination activity for 2022 and could bring further reductions in future periods. In their latest published update, the Mortgage Bankers Association (“MBA”) indicated that overall mortgage originations, including refinancing loans, are expected to continue declining in 2023 before recovering in 2024. As a large portion of our revenue is driven by mortgage and mortgage related transaction volumes, declines in the mortgage origination volumes have had, and are likely to continue to have, adverse effects on our business.

For the year ended December 31, 2022, we have seen a 3.9% decrease in total reported banking transactions and a 31.9% decrease in mortgage transactions, particularly refinance transactions, on our software platform compared to the year ended December 31, 2021. We attribute the majority of this decrease to rapidly rising interest rates, decreased housing affordability, and uncertain worldwide political and economic conditions. Overall industry origination volumes, as reported by the MBA, have decreased by 56% over the same period.

Workforce Reduction Plans

We have implemented certain workforce actions as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities. The focus of such workforce actions is on streamlining our title operations as well as our general and administrative functions.

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In 2022, we executed the 2022 Workforce Reduction Plans, which eliminated an aggregate of approximately 440 positions across the Company. The charges incurred in connection with such workforce actions amounted to approximately $15.3 million for the year ended December 31, 2022, and consisted primarily of cash expenditures for compensation and severance payments, employee benefits, payroll taxes and related facilitation costs.

In January 2023, we committed to the January Plan, which was in addition to the 2022 Workforce Reduction Plans. The January Plan further streamlines our title operations, as well as our corporate operations in R&D, sales and marketing, and general and administrative functions. The January Plan eliminated approximately 340 positions across the Company. We have incurred approximately $11.0 million in charges in the first quarter of 2023 in connection with the January Plan and expect to incur additional charges of approximately $3.0 million in the upcoming months. We expect that the execution of the January Plan, including cash payments, will be substantially complete in the first half of 2023. The eliminated positions represent annualized compensation expenses of approximately $43.4 million.

We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of any of the Workforce Reduction Plans described above. Our implementation of the plans and related initiatives is subject to risks and uncertainties, including the possibility that there are impediments to our ability to execute the plans or related initiatives as currently contemplated, the actual charges in implementing the plans or related initiatives are higher than anticipated, there are changes to the assumptions on which the estimated charges associated with the plans or related initiatives are based, we are unable to achieve our projected cost savings in connection with the plans or related initiatives, or there are unintended consequences from the Plans or related initiatives that impact our business.

Impairment of Intangible Assets and Goodwill

Due to a continued decline in economic and market conditions, including a decline in our market capitalization and current and projected declines in the operating results of the Title365 segment, we determined that triggering events that indicate the assets should be evaluated for impairment existed as of June 30, 2022 and performed an interim quantitative impairment analysis, which resulted in a partial impairment of goodwill and customer relationship intangible assets. Subsequently, based on further deterioration in market conditions in the third quarter of 2022, such as continued increases in interest rates, we determined that triggering events also existed as of September 30, 2022, and performed another interim quantitative impairment analysis, which resulted in a full impairment of the remaining goodwill and customer relationship intangible assets.

We determined the fair value of the Title365 reporting unit utilizing an income approach derived from a discounted cash flow methodology. The excess of the carrying value over the fair value is recognized as an impairment loss and allocated to assets for which the carrying value exceeds the respective asset’s fair value. Certain assets, such as property and equipment and operating lease right-of-use assets, were not allocated any impairment as the values of such assets approximated their respective carrying amounts. For customer relationships intangible asset, the fair value was also determined under an income approach derived from a discounted cash flow methodology. We also estimated the fair value of the Blend Platform reporting unit and reconciled the aggregate fair values of our reporting units to our market capitalization adjusted for an estimated control premium. In estimating the fair value of the reporting units and intangible assets, we considered a number of factors, including business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors and management's judgment in applying them in the impairment tests of goodwill and intangible assets.

Based on the results of these analyses, we determined that the carrying values of goodwill and customer relationship intangible assets exceeded their respective estimated fair values and recorded impairment charges of $287.2 million and $162.5 million, respectively, which resulted in the full write off of the goodwill and customer relationship intangible assets. Refer to Note 5, “Goodwill and Intangible Assets,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

Key Factors Affecting Our Performance

Transaction Volume

Our success-based business model results in our revenue growing as we increase our transaction volume on our software platform and declining as transaction volume on our software platform decreases. As a result, our success is in part based on our ability to address the evolving needs of our customers and increase their usage of our software platform and by attracting new customers and growing our relationships with existing customers.

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Because our revenue growth is dependent on transaction volume growth, when our transaction volume declines for any reason, our revenue declines accordingly. The transaction volumes could decline for reasons including but not limited to, reduced demand for our products and services, insufficient growth in the number of financial services firms that utilize our products and services or the lack of expansion of products and services within our existing customer base, transaction volume and mix, particularly with our significant customers, increased competition, or a decrease in the growth or reduction in size of our overall market. In 2022, we have seen industry mortgage transaction volumes decline 56% year-over-year, which impacted both of our segments due to the factors listed above as well as factors outside of our control. The mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and general economic activity, also typically impacts demand for mortgage and mortgage-related products. The industry estimates forecast a continued decline in total market transaction volume in the next 12 months. In our Title365 segment, we have experienced lower than anticipated title transaction volume since the closing of the acquisition and may experience further reductions in the future.

In order to address the evolving needs of our customers and increase their usage of our software platform, under our “Customer First” model, we focus on building successful long-term relationships and aligning revenue growth with value delivery. We invest in our customers’ success, beginning with an initial onboarding and rollout plan for each customer. We also monitor utilization rates by customers on our software platform to manage expanded use over time. Our proven ability to grow transaction volume in the past was and we believe in the future will be a function of product depth, technological excellence, and the ability of our sales and marketing teams to match our solutions with the strategic objectives of our customers. Our software platform enables customers to process transaction volumes more effectively and create a better consumer experience.

By increasing transaction volume on our software platform, we also enable and drive our marketplace business. Our curated set of integrated marketplaces enable consumers to shop for products and services at the precise moment of need as they apply for loans and other products. These marketplaces enable consumers to find real estate agents, insurance carriers, and automobiles for sale online by quickly locating service providers and compare the rates. As we enable a greater volume and diversity of transactions on our software platform, we can help a greater number of consumers locate competitive service providers and build trust with the Blend brand. Revenue from our marketplace business is driven by our transaction volume and success of matching consumers with service providers.

Investments in Growth

Our ability to maintain a differentiated platform and offering is dependent upon our speed of innovation as we operate in industries characterized by rapidly changing technology, evolving industry standards, and frequent new product introductions. We will invest in our software platform to drive innovation and maintain our position as a leading provider of software for financial services firms for any banking product. To drive adoption and increase penetration within our customer base, we will continue to rapidly introduce new products and features. While we focus today on consumer banking, we believe we can rapidly expand our library of modular components to support commercial banking products as well. In addition, our low-code, drag-and-drop design tools will enable our customers to bring new, innovative products to market quickly and positions us with what we believe is a market-leading combination of platform capabilities and out-of-the-box product offerings. We believe that investment in research and development will contribute to our long-term growth but will also negatively impact our short-term profitability.

Additionally, as our existing platform components mature, we will need to successfully integrate new products on our platform, including by achieving interoperability between such new products and our existing products, as well as upgrading the decisioning, verification, and automation components of our existing platform in order to continue to help our customers adapt quickly to constantly changing market conditions all of which requires significant investment.

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Key Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

Blend Platform - Number of Transactions

Our success in the Blend Platform segment depends in part on increasing the volume of mortgage and consumer banking transactions that take place on our software platform. This occurs as we add new customers and complete more transactions with existing customers, including when our existing customers adopt additional products. Our software platform is built to be extensible, modular, and configurable, so that our customers can easily utilize our pre-built workflow technology, our marketplaces, and our integrations with technology, data, and service providers. We design our new offerings to be highly complementary to existing ones in order to increase the speed of adoption and efficiently scale our revenue. We believe this increasing attachment will increase our revenue.

Title365 - Closed Orders

In our Title365 segment, closed orders represent the number of orders for title insurance or escrow services that were successfully fulfilled in each period with the issuance of a title insurance policy or provision of escrow services. The volume of closed orders is affected by the overall level of real estate activity, which is cyclical in nature and is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, interest rate volatility, consumer confidence, employment and family income levels, and general economic conditions.

We believe that the continued growth in commercial use of the internet will lead to the continued migration of traditional offline markets and industries online. In June 2022, we completed the migration of our largest Title365 customer from traditional title to our software-enabled title solution. In connection with the migration, during the third quarter of 2022, we changed the composition of our reporting segments to align with a change in how our Chief Operating Decision Maker (“CODM”) reviews financial information in order to allocate resources and assess performance. As a result of this change, the Blend Platform segment now includes the software-enabled title component. Prior to the migration, title orders related to our software-enabled title component were not significant and were included in the Title365 segment. We expect the continued migration of the Title365 legacy business to our software-enabled platform over time, and as a result, we expect the Title365 closed orders within the Title365 segment to decrease in future periods and the volume of software-enabled title, escrow, and settlement orders within the Blend Platform segment to increase.

The following table sets forth our key business metrics:

Components of Results of Operations

Revenue

Blend Platform

In our Blend Platform segment, we generate revenue from fees paid by customers to access our platform. Fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering.

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We do not charge for abandoned or rejected applications, even though they cause us to incur costs related to these applications. Arrangements with our customers do not provide the contractual right to take possession of our software at any point in time. Revenue is recognized when access to our platform is provisioned to our customers for an amount that reflects the consideration we expect to be entitled to in exchange for those services. To a lesser extent, we generate revenue from professional services related to the deployment of our platform, premium support services, and consulting services. We also earn revenue through commissions or service fees when consumers use our Blend Platform integrated marketplaces to select a property and casualty insurance carrier, title and settlement services entity, or real estate agent.

Starting in the third quarter of 2022, the revenue in the Blend Platform segment includes revenue from our software-enabled title solution. This revenue is similar to the revenue earned in the Title365 segment further described below, with the distinction that software-enabled technology automates the flow of the title orders from the customer’s loan origination software and passes the orders through the Blend Platform. Refer to Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

Our customers have the ability to access our platform under subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, or under usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at specified prices. Our subscription arrangements are generally noncancelable, and we may also earn additional overage fees if the number of completed transactions exceeds the contractual amounts. Our usage-based arrangements generally can be terminated at any time by the customer. We recognize revenue ratably for our subscription arrangements because the customer receives and consumes the benefits of our platform throughout the contract period. We recognize fees for usage-based arrangements as the completed transactions are processed using our platform. Over the last several quarters, we have seen a shift towards usage-based arrangements in our customer contracts. Revenue from usage-based arrangements represented 51%, 29% and 12% of our Blend Platform segment revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Title365

In our Title365 segment, we earn revenue from title search services for title insurance policies, escrow and other closing and settlement services. In performing title search services, we act as an agent to place and bind title insurance policies with third-party underwriters that ultimately provide the title insurance policy to our customers. Revenue related to title insurance is recognized net of the amount of consideration paid to the third-party insurance underwriters. Our revenues from escrow, closing and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Revenue related to these services is recognized at the closing of the underlying real estate transaction. We also offer title services in connection with a borrower default and with the issuance of a home equity lines of credit and home equity loans. Revenue for default title services and home equity services is recognized at the time of delivery of the title report.

In June 2022, we completed the migration of our largest Title365 customer from traditional title to our software-enabled title solution. In connection with the migration, during the three months ended September 30, 2022, we changed our reporting segments to align with a change in how our CODM reviews financial information in order to allocate resources and assess performance. As a result of this change, revenue from our software-enabled title solution is presented within the Blend Platform segment, resulting in a decrease in revenue within the Title365 segment. Refer to Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

We expect that rising mortgage interest rates in the near term will continue to drive down transaction volume, especially refinance transactions volume, which will adversely affect both Blend Platform and Title365 revenue. While we believe that the Blend Platform segment will continue to deliver positive growth overall, we expect that the title insurance and other services revenue within the Title365 segment will face significant headwinds to growth, and a decline due to the ongoing mortgage industry origination volume decline as described above within Recent Developments. We are continuing to evaluate the rapid changes within the mortgage industry and the impact to our segments and their projected operating results.

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Cost of Revenue

Blend Platform

In our Blend Platform segment, cost of revenue consists primarily of costs of subscribed hosting, support, and professional services. Costs of subscribed hosting services and support revenue consist primarily of expenses related to hosting our services, third-party fees related to platform connectivity services, which include verification of income, assets, and employment, software licenses and expenses related to providing support to our customers. Starting in the third quarter of 2022, the cost of revenue in the Blend Platform segment includes cost of revenue related to our software-enabled title solution, which consists primarily of personnel-related expenses as well as the cost of services provided by external vendors. Costs of professional services consist primarily of personnel-related expenses, including stock-based compensation expense, expenses associated with delivering implementation and other services, travel expenses, and allocated overhead costs. For each application submission, we incur third-party costs as described above, including costs for incomplete transactions for which we do not charge fees to our customers. The timing of those costs may not be aligned with the revenue recognized. We expect our cost of revenue to continue to increase in dollar amounts as we grow our business and revenue and decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period.

Title365

In our Title365 segment, cost of revenue consists of costs of traditional title, escrow and other trustee services, which represent primarily personnel-related expenses of our Title365 segment as well as title abstractor, notary, and the cost of recording services provided by external vendors. In future periods, we expect that cost of revenue as a percentage of revenue will increase in the near term primarily due to the anticipated decline in revenue driven by the decrease in projected mortgage industry origination volume caused by increased interest rates.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense, associated with our engineering personnel responsible for the design, development, and testing of new products and features, professional and outside services fees, software and hosting costs, and allocated overhead costs.

Research and development costs are expensed as incurred. We expect that our research and development expenses will increase in dollar amount as our business grows but will decrease as a percentage of our revenue over the long term as we work towards achieving greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our research and development activities.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expense, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead costs. Sales commissions that are incremental costs of acquiring a contract with a customer as well as associated payroll taxes, are deferred and amortized on a straight-line basis over the estimated period of benefit, which we have determined to be three years. Sales commissions that are not incremental costs of acquiring a contract with a customer are expensed in the period incurred.

We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our direct sales organization and investment in brand and product marketing efforts. We expect, however, that our sales and marketing expenses will decrease as a percentage of our revenue over time as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our sales and marketing activities.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expense for our finance, accounting, legal and compliance, human resources, and other administrative teams, certain executives, as well as stock-based compensation expense related to the stand-alone stock option award granted to our Co-Founder and Head of Blend in March 2021, and professional fees, including audit, legal and compliance, and recruiting services.

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Following our IPO, which was completed in July 2021, we have incurred, and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to publicly listed companies and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. As a public company, we have incurred, and expect to continue to incur increased expenses in the areas of insurance, investor relations, internal audit, and professional services. In addition, general and administrative expenses have increased, and we expect will continue to increase as a result of integrating and operating Title365. As a result, the dollar amount of our general and administrative expenses has increased, but we have taken action to manage further increases in the foreseeable future. We expect, however, that these expenses will decrease as a percentage of our revenue as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our general and administrative activities.

Amortization of acquired intangible assets

Amortization of acquired intangible assets relates to customer relationships acquired in connection with the Title365 business combination, which are amortized over the estimated useful life on a straight-line basis.

Impairment of intangible assets and goodwill

Impairment of intangible assets and goodwill assets relates to charges recorded based on the results of the interim quantitative impairment analyses performed in response to certain triggering events, such as a continued decline in economic and market conditions, decline in our market capitalization, and current and projected declines in the operating results of the Title365 reporting unit. Refer to Note 5, “Goodwill and Intangible Assets,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

Restructuring

In 2022, we executed the 2022 Workforce Reduction Plans as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities, with the focus on streamlining our title operations as well as our general and administrative functions. The charges related to these plans, under which we eliminated approximately 440 positions, comprised of cash expenditures for compensation and severance payments, employee benefits, payroll taxes and related facilitation costs in the year ended December 31, 2022. Refer to Note 14, “Restructuring,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned from our investment portfolio, adjustments to carrying value of investment in non-marketable equity securities and net foreign currency transaction gains or losses.

Interest Expense

Interest expense relates primarily to debt financing used to fund our acquisition of Title365 and includes interest payable under the terms of the Credit Agreement entered into in connection with the closing of the acquisition of Title365 and amortization of debt discounts and debt issuance costs.

Income Taxes

Provision for income taxes consists primarily of U.S. state income taxes and adjustments to the valuation allowance. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that such net deferred tax assets will be realized.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

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(1)Includes stock-based compensation as follows:

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*Certain percentages may not foot due to rounding

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Comparison of the Years Ended December 31, 2022 and 2021

Revenue and Cost of Revenue

Revenue increased $0.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to an increase of $4.3 million, or 4%, in revenue from Title365 offset by a decrease in Blend Platform revenue of $3.5 million, or 3%. The increase in Title365 revenue was primarily due to the inclusion of $70.9 million of revenue from Title365 in the first half of 2022, while the comparative period only included the results of Title365 from the acquisition date of June 30, 2021. In the second half of 2022, Title365 revenue decreased by $66.6 million as compared to the second half of 2021, which was primarily due to a $56.4 million decrease driven by the lower volume of title orders and a $10.2 million decrease due to the migration of the software-enabled title solution to the Blend Platform segment.

Within Blend Platform revenue, Mortgage Banking revenue decreased $24.9 million, or 23%, primarily due to the lower volume of mortgage banking transactions, particularly refinance transactions, with our customers, and Consumer Banking and Marketplace revenue increased $21.1 million, or 91%, primarily due to the inclusion of $10.2 million software-enabled title revenue related to the customers that migrated from the Title365 segment and an increase in the volume of transactions related to our integrated software solutions outside of mortgage, including ancillary products and marketplace offerings.

Cost of revenue increased $27.0 million, or 23%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, driven by an increase in Blend Platform cost of revenue of $12.0 million, or 24%, and an increase in Title365 cost of revenue of $15.0 million, or 22%. The increase in Blend Platform cost of revenue was primarily due to the inclusion of the $11.0 million software-enabled title cost of revenue related to the customers that migrated from the Title365 segment. The increase in Title365 cost of revenue was primarily due to the inclusion of $57.3 million of cost of revenue from Title365 in the first half of 2022, while the comparative period only included the results of Title365 from the acquisition date of June 30, 2021. Title365 cost of revenue decreased by $42.3 million in the second half of 2022 as compared to the second half of 2021, which was primarily due to a $31.3 million decrease driven by the lower volume of title orders and a $11.0 million decrease due to the migration of the software-enabled title solution to the Blend Platform segment.

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Operating Expenses