Blend Labs, Inc. (BLND) FY 2023 MD&A

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.