Thank you for standing by, and welcome to the Blend Labs, Inc. Second Quarter 2025 Earnings Call. I would now like to turn the call over to Meg Nunnally, Head of Investor Relations. Please go ahead.

Good afternoon, and welcome to Blend's Financial Results Conference Call for the Second Quarter of 2025. I'm Meg Nunnally, Blend's Head of Investor Relations. Joining me today is Nima Ghamsari, our Co-Founder and CEO; and Amir Jafari, our Head of Finance and Administration. Before we start today's call, I'd like to note some of the statements on our call will be forward-looking. We also refer to certain non-GAAP measures, which are reconciled to GAAP measures in today's earnings release and in the appendix to our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, all financial measures we'll discuss today, including our profitability, refer to non-GAAP. Also, certain statements made during today's conference call regarding Blend and its operations, in particular, its guidance for the third quarter and full year 2025 and expectations about our markets, our strategic investments, product development plans and operational targets may be considered forward-looking statements under the federal securities laws. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, could cause actual results, events or circumstances to differ materially from those described in these statements. Please see the risk factors we've identified in our most recent 10-K, 10-Q and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law. All comparisons made in the course of this call are against continuing operations for the same period in the prior year, unless otherwise stated. Lastly, we'll be providing a copy of our prepared remarks on our website by the conclusion of today's call, and an audio replay will also be available soon after the call. I'll now turn the call over to Nima.

Hello, everyone. This is our second quarter earnings call, and it's the middle of 2025, but it feels like an annual call since it is our fourth consecutive quarter of solid results. We've now posted 4 quarters of year-over-year total revenue growth and 4 quarters of non-GAAP operating profitability. I did want to take a moment to acknowledge the news we released earlier today regarding the leadership transition. I want to thank Amir for his contributions. He took us on the hard work of navigating the company through a challenging period and has set us on a path towards a brighter future. We wish him great success in his future endeavors. Our strong results today are a reflection of the hard work we did in 2023 and the first half of 2024 to get our house in order and refocus on our strength as a platform company with our simplified Blend strategy. We turned the corner around the middle of 2024 and entered 2025 ready to execute. There are three key areas I'd like to highlight where we feel very confident and excited for the future. One, expanding our market share with new logos; two, expanding take rate with existing customers; and three, growing consumer banking to diversify our revenue base. Our sales momentum accelerated in Q2 with 23 newer expanded deals, which is double Q1. This growth was driven by a healthy mix of new customer acquisitions and deep product expansions from existing customers, reinforcing Blend's position as a long-term multiproduct platform partner. In addition to the expansion deal we previewed in May, we signed additional 7-figure expansions. This figure also includes 3 net new logos in the independent mortgage bank or IMB vertical, where we've built a dedicated business unit that brings innovation and go-to-market under a single leader, allowing us to focus on this vertical and capture market share ahead of a market rebound. Taken together, these customer wins and expansions have propelled our remaining performance obligations balance, or RPO, to a new record for Blend of $190 million. Our sales momentum is helping us drive market share gains. For the customers we signed over the last 12 months, these new logos represent more than 80 basis points of 2024 market volumes based on the Home Mortgage Disclosure Act, or HMDA data. Growing share directly translates into Blend revenue growth as new customers ramp. Of the 17 mortgage customers we've signed in the last 12 months, 6 are already live and ramping on our platform. But even more exciting than our trend in new customers is our trend on churn. Our customer base always comes first, and we consider customer satisfaction and retention as essential to our success. Looking back, it's no secret that 2023 was a rough year for the mortgage industry, which was unprofitable and cutting costs by any means necessary. That year, we received churn notices from a decent number of customers going out of business or cutting costs. But in 2024, that number declined by 70%. And so far this year, 7 months in, we have received 0 churn notices from customers. The foundation of any vertical SaaS business is this customer base, and I feel momentum qualitatively and I see momentum quantitatively in these numbers. Getting to this point in the cycle wasn't easy, but now that we're here, we have a great foundation for the future to build market share with newly signed customers. Looking forward, on our last earnings call, I talked about the wave of customer inquiries we received in the wake of the announcement that Rocket Mortgage is acquiring Mr. Cooper. Lenders understand that consumers are looking for simplicity and personalization that comes from tech-enabled solutions. Blend can help lenders achieve this goal, and we're seeing both existing customers and prospects who are choosing to invest now to stay competitive rather than wait for the cycle to turn and potentially get caught flat-footed. To put some quantification around this, our current pipeline consists of a range of customers representing more than 4% of the 2024 HMDA market share. In addition to growing our market share with new logos, we can also grow revenue by providing more value to our existing customers and in turn expanding our take rate with existing customers. As we help our customers succeed, we'll succeed and pass this down to shareholders. Within our mortgage suite, the main way we measure take rate is economic value per funded loan or EVPFL, which represents the per loan contractual rates we receive for mortgages and mortgage-related products. In the second quarter of 2025, our EVPFL was $88, which was in line with the forecast we provided in May. Our EVPFL is now near trough levels after our strategic move to simplify Blend and shift a set of formerly direct services, including home insurance, income verification and finally, title to a lower revenue but higher-margin partnership model. We said in May that we expected the second quarter to be the trough for EVPFL, though Amir will talk in a minute about some of the near-term headwinds that may adversely impact third and fourth quarter numbers. Over the longer term, we continue to expect an upward trend in EVPFL as existing customers add new products and new customers launch with multiproduct solutions. In the medium term, we believe the rollout of Rapid Refi has the best potential to drive EVPFL expansion in our mortgage suite. We launched Rapid Refi in February 2025 and discussed the product in some detail on our last earnings call. We believe Blend's Rapid Refi solution is the industry's fastest, most automated and hyper-personalized refinance solution. Customers are willing to pay more for Rapid Refi because it drives better customer conversion, engagement and loyalty. The product is especially appealing to customers looking to prepare in advance of a market rebound. When volumes do recover, the mix shift towards our Rapid Refi product has the potential to add an extra kicker to our EVPFL. Our focus today is on signing new customers so that both Blend and our customers are ready if and when a refinance wave comes. In the first half of 2025, we signed 4 customers with Rapid Refi, and we're just getting started. The other key product for driving EVPFL over the medium to long term is Blend Close. Blend Close product revenue nearly doubled this quarter compared to the second quarter of 2024. eClose adoption is becoming widespread, especially as a low-friction add-on. We're finding that customers often want to include Blend Close in expansions, indicating it's viewed as an essential next step in mortgage modernization. In addition to Rapid Refi and Blend Close, our new ecosystem approach as part of our simplified Blend strategy is an avenue for long-term EVPFL expansion. One example of this is Upfront Title. We announced our Upfront Title partnership with Doma in July. Upfront Title is a solution that integrates a faster and more cost-effective title product directly into the Blend platform. Since our pilot launch in 2024, we've already seen strong adoption with 2 major lenders, a top 5 bank and a top 5 servicer, and we have a large pipeline of interest. Beyond that, we have more that we're building behind the scenes that should increase our value to our customers and therefore, drive up value per unit that we capture. I'll talk more about AI later, but this is an area where I see hundreds of dollars of opportunity per loan for us and our customer base. Shifting gears, while we're working to gain share and expand our take rate within the mortgage suite, we're also seeing rapid growth in our consumer banking suite. Consumer banking represented 36% of total revenue in the second quarter of 2025, up from 28% 1 year ago. This mix shift is driven by the segment's rapid growth. Year-over-year growth in the second quarter was 43%. Out of the 23 wins and expansions we posted for the second quarter, 18 included core consumer banking or home equity products. Continued growth of our consumer banking suite is highly strategic to us, not only because of the revenue uplift, but also for diversification of revenue streams, which makes our business more stable over the long term. The pipeline for consumer banking continues to expand as well. Our open pipeline is up 18% year-over-year at the end of the second quarter. Before turning the call over to Amir, I wanted to summarize where we are today and where we're going in the future. We've been through the gauntlet, but we're coming out the other side stronger, and we're committed to driving value for our customers and sustainable growth for shareholders. Our recent new customer wins, our progress on value-added products and our growing consumer banking business all give us confidence on the path forward. We're energized, excited and staying ready to capitalize as volumes recover. One final topic I'd like to preview with you is the potential for AI to shape the future of the industry. Blend is uniquely positioned as a technology leader with deep relationships in an industry that has historically been burdened with highly manual and time-consuming processes. Legacy loan origination processes have many stare and compare moments, starting with initial documents that are submitted all the way up to post close when quality control teams pour over the data once again. It's tedious, repetitive and subject to human error, making it an excellent candidate for AI. Blend is currently piloting a new AI tool that sits across documents, data and origination guidelines. The AI tool can identify gaps and potential discrepancies with lightning speed and efficiency. We view it like having the smartest underwriter sitting in the room and checking everything upfront on every loan. By saving time and the painful back-and-forth process, we believe we can potentially save customers thousands of dollars while also capturing better economics for Blend. We'll be moving forward with the pilot and rollout and hope to share more in coming quarters.

Thank you, Nima. I'd like to say that while I will be moving on from Blend, I'm extremely proud of what we've achieved during my time here. Everything we've done, including our simplified Blend strategy has made Blend stronger. We cleared one of the final hurdles in implementing our simplified Blend strategy when we announced the signing of a definitive agreement to sell Title365 to Covius in June. We expect that transaction to close later this year, subject to regulatory approvals. With this transition, we are now fully aligned both operationally and strategically around a software-first model that scales through partnerships and platform innovation rather than own services. With our simplified platform focus, we're staying ready to capitalize when volumes recover. Let's dive into the results. Total revenue in the second quarter of 2025 was $31.5 million, ahead of the midpoint of our guidance and up 10% year-over-year. As Nima mentioned, this is our fourth consecutive quarter of year-over-year growth. Growth was driven by a 43% increase in consumer banking suite revenue to $11.4 million and partially offset by a 3% decrease in mortgage suite revenue to $18 million. A 43% increase in consumer banking suite revenue was broad-based across all product lines, including core consumer banking products like deposit account openings, credit cards and vehicle loans as well as home equity lending products, which are included in our consumer banking suite. Overall volumes for our mortgage suite were roughly flat year-over-year. The 3% decrease in mortgage suite revenue was primarily driven by lower EVPFL, which was $88 for the second quarter of 2025 versus $97 a year ago. We, of course, anticipated lower EVPFL as a consequence of our shift to a platform model, and this accounted for $5 of the step down as we decreased low-margin add-on product revenue by $12 per loan and increased high-margin partnership revenue by $7 per loan. To reiterate, our focus is to optimize the operating profit and margins of these partnership transitions. Total revenue also includes $2.1 million of professional services revenue in the second quarter. Looking back to consolidated results. Our total gross profit was $23.3 million. After excluding stock-based compensation and capitalization of amortized software, our non-GAAP gross profit was $24 million, and our non-GAAP gross margin was 76%, up from 71% in the second quarter of 2024. Non-GAAP operating expenses were $19.3 million, down $6.6 million year-over-year. Non-GAAP operating income was positive $4.7 million, above the midpoint of our guidance and representing a non-GAAP operating margin of 15%. This is our fourth consecutive quarter of positive non-GAAP operating income. Free cash flow for the quarter was negative $9 million, which compares to negative $5.1 million in the same quarter last year. Our balance sheet remains strong, thanks to the work we did in 2024 to clear away debt and realign the cost structure of the business for sustainable growth. As of June 30, 2025, we had approximately $93.3 million of cash, cash equivalents and marketable securities, inclusive of restricted cash. Year-to-date through June 30, we repurchased approximately 1.3 million shares worth more than $4 million. As of June 30, we had $20.9 million remaining under our repurchase authorization, and we continue to view this as an opportunity for further capital allocation given current stock trading levels. Next, I want to provide some additional color on EVPFL and RPO. EVPFL for the second quarter came in at $88, which is in line with the guidance we provided in May. EVPFL has been coming down in recent quarters due to our strategic decision to sell and transition to a partnership model for our homeowner insurance and income verification businesses as part of our simplified Blend strategy. We have previously said that we expect the second quarter of 2025 to be a trough as we're moving past the strategic transition headwind. While we are indeed near trough levels, we have another near-term headwind that we expect to impact EVPFL for the rest of 2025. This near-term headwind is primarily related to a large strategic deal we signed with a top 5 IMB that has lower upfront pricing. The size, scope and long-term nature of this deal made it more than worth the near-term drag on EVPFL. With this in mind, we expect third quarter EVPFL to be approximately $85 to $86, and we expect to exit 2025 near the mid- to upper 80s. Longer-term, we still expect uplift from value-add products as Nima discussed. Shifting to RPO. For the second quarter, RPO set another record, coming in at $190 million. This is up from $158 million in the first quarter of 2025. As a reminder, RPO stands for remaining performance obligations. This balance represents commitments and minimums in customer contracts for services expected to be provided in the future that have not been recognized as revenue. Before I turn to guidance, I'd like to offer some commentary on industry volumes. As a reminder, we use HMDA data as our benchmark for total market size. We believe this bottoms-up data set represents the best way we can understand how our business is performing within the market in a detailed way. For 2024, HMDA mortgage volumes were approximately 4 million. For full year 2025, we're estimating market volumes of 4.24 million to 4.64 million, representing year-over-year growth of 5% to 15%. We've been giving these estimates on a quarterly basis. As previously noted, we estimated first quarter 2025 market volumes were 800,000 to 900,000 units and second quarter volumes were 1.15 million to 1.25 million. Our estimate for the third quarter is 1.16 million to 1.26 million units, which at the midpoint represents quarter-over-quarter growth of approximately 0.8%. We'd expect a slight volume downtick between Q3 and Q4, in line with normal seasonal patterns. Our current expectation for the fourth quarter is 1.13 million to 1.23 million units. Now turning to our financial expectations for the third quarter. We expect total revenue between $31.5 million and $33.5 million, with the midpoint representing a year-over-year decline of 2%. Our total non-GAAP operating income is expected to be between $3 million and $4.5 million. We've previously said we expect full-year non-GAAP operating expenses to be in the range of $85 million to $90 million. We're actively making adjustments to the business in response to ongoing pressure in the mortgage market that could result in operating expenses coming in below that range. We'll be able to provide further updates on our next earnings call.

And your first question comes from the line of Dylan Becker with William Blair.

Maybe Nima, starting with you. I know there's been a little bit more near-term rate volatility and some kind of pump takes on origination volumes over the past few years here. But I wonder how you're kind of thinking about the factors that are contributing to potential unlock of overall volumes, whether rates, pricing, supply, et cetera, and kind of what you're hearing there? And then maybe pairing that with the momentum you guys are seeing in the home equity product on the consumer side that maybe makes you a little bit more insulated regardless of which directions rates move.

Yes. Thanks for the question, Dylan. A couple of things I'd say, the small rate movements make a big difference in our customers' volume basis. And so we've seen that a few times late '24, we saw that once. And then even recently when rates came down on Friday because of the jobs report, we saw that as well. So on the one hand, it's something we pay very close attention to. But on the other hand, it's something that's out of our control. And so the things that are in our control is one of the things that you called out, which is a budding home equity business. And I talked about Rapid Refi in my prepared remarks, but another one of our Rapid products is Rapid Home Equity, which is a far more automated, far higher conversion home equity product that we're really excited about. It's getting great uptake from our customers. I mean they really love the concept of giving someone a real home equity offer that they can act on in the moment and it creates more value for them, creates more value for us in turn. So not only are we seeing home equity volumes rebound, we signed a number of very large home equity lenders late last year and some this year. And on top of that, we've been adding Rapid Home Equity as an add-on to existing home equity customers. So in some ways, that's helping insulate us from the things that are out of our control like rate movements. But I think we've kind of set ourselves up really well. The last thing I want to highlight as part of that is probably the most important, the thing that I really love the most about this year's numbers is how much we've stabilized our customer base in a time of turmoil, because that's the thing that sets us as a foundation. It sets the foundation for us as a company to not just take advantage of the rate rebound, but come out much stronger when rates do come down. The fact that we have 0 churn this year, churn notices this year from customers. I mean that's quite a feat for any software company, let alone a software company in the space as volatile as the mortgage industry. So very excited about that and something that we really hang our hat on because we've stayed customer-focused. We've made sure we do right by our customers. It doesn't mean we're perfect, but we always follow through on the things that we say we're going to do as best that we can, and our customers all know that we care about them.

Yes. No, certainly. No, I agree wholeheartedly with that and that makes sense, Nima. Maybe, Amir, switching over to you on the per-funded loan metrics. And I do think with a large customer kind of working with them from an economic perspective makes sense with the near-term step down there. But could you maybe remind us the puts and takes of what that kind of implementation and ramp can look like over time as maybe they start onboarding and adopting more products and how we could think about kind of the pace of recovery as Rapid Refi and a handful of these other solutions start to contribute more materially due to the higher ARPU uplift there?

Absolutely. Thank you, Dylan, for the question. I'll begin with the same point that Nima mentioned regarding the customer we signed and the opportunity to not only retain them but also grow alongside them. We have onboarded a very large customer who is already significant in size. In the short term, you will notice the headwind we discussed, which is the pressure on our economic value per funded loan for this customer and our other clients. The expansion of our economic value per funded loan will derive from two key elements. First, it will originate from the ramp-up of our mortgage solution, which is our usual starting point. Second, it will come from the adoption of Close, which we have indicated is highly beneficial for both Blend and our customers. Additionally, regarding what you mentioned, we believe that Rapid Refi, considering the current market conditions—not only in terms of timing but also for its value proposition—will play a significant role in turning us more headwind-centric and enabling us to recover and return our economic value per funded loan to a growth trajectory.

And your next question comes from the line of Ryan Tomasello with KBW.

Nice to see the strong sales momentum. Regarding the 23 deals you called out in the third quarter, can you say what the mix was in terms of new logos versus expansion? And on the new logo front, it sounds like Nima, you're seeing traction there, but just any way to quantify if you're seeing that mix of new logos in terms of deals quarter-to-quarter increase? And then lastly, just on the IMB logos you called out, I think, 3 new logos signed in the quarter here. Any context on what drove those wins, specifically if those were competitive takeaways?

I'll begin by addressing the IMB question. In many instances, we are gaining competitive advantages because reaching this point in the cycle has required significant effort. We're not just stable; we're innovating extensively. While we've already highlighted Rapid Refi, that’s just one example. We're heavily investing in Blend Close and our core platform, and our customers genuinely value these efforts. They are looking for a partner capable of innovating despite market fluctuations. Our resilience is evident, and we will continue to develop new solutions. A common complaint about software providers in our industry is their failure to innovate, resulting in outdated technology. Many tech companies are not benefitting from the current wave of AI as they should. Our resilience has positioned us well in this cycle regarding IMBs. Additionally, we now have a dedicated business unit for IMBs. As you might be aware, IMBs have unique characteristics that set them apart from banks or credit unions, leading to distinct operational needs and priorities. This is why we established a focused IMB business unit, allowing us to build tailored products and provide dedicated support and sales efforts. This approach has generated significant positive momentum with IMBs. They feel more valued now than ever before, as we have always cared for them, but now they can experience that firsthand through a dedicated team. This development is a very encouraging narrative for Blend, especially as the IMB market is substantial and intriguing. With our focused unit, we are poised for continued growth in this sector. Regarding the balance between new logos and expansions, we don’t disclose that information. However, I have found it surprising how difficult it was to sign new logos during the first half of 2024 because many companies were still focused on cost-cutting. Now, not only are we seeing expansions with our existing customers, but our sales pipeline is also strong. This year we have added several prominent new logos, which we have publicly announced, along with smaller companies. Many businesses that paused in 2023 and the first half of 2024 are now returning, recognizing that the market is on the verge of recovery. This positive shift, combined with everything else I have discussed, holds great promise for the future of the industry, with Blend playing a significant role in it.

Great. Amir, I apologize if I missed this in your prepared remarks, but I believe you previously mentioned aiming for a Rule of 40 by the end of this year. Is that still accurate? Or is there anything significant to mention regarding changes in that regard?

Ryan, thanks for the question. We're not in a position to make any changes yet. We're obviously monitoring the macro in its own aggregate. There's a lot of movements, not just to your question, but to what Dylan mentioned earlier. But we expect to be able to come back in the next quarter and either reaffirm or change or update our perspective.

And your next question comes from the line of Aaron Kimson with Citizens.

Nima, I want to start with a bigger picture question. I think it's topical with the release of GPT-5 today, SaaS companies trading off in your vertical software background of Palantir and Blend. How do you think about the relative positioning of vertical software vendors versus horizontal vendors in an agentic AI world, specifically in financial services?

Yes. The unique aspect of vertical software is that it enables customers to achieve real results very quickly. Some of the customers we announced, excluding AI for a moment, have already gone live and scaled significantly, including a top 10 bank. We take great pride in the fact that because this software is purpose-built for our industry and specific use cases, it facilitates much faster returns on investment for our customers. Vertical software tends to be superior in many ways compared to horizontal platforms, which require extensive customization to fit a use case applicable to numerous institutions. With AI, this advantage becomes even more pronounced because the role of agentic AI in our industry, in my view, will be to streamline many manual operations that increase costs for our customers and, ultimately, consumers. For instance, humans currently have to review appraisals and verify three exterior photos and three interior photos, a task that AI can perform very efficiently. There are thousands of similar tasks for each loan. In considering how to modernize and enhance efficiency in this industry, the only viable solution is to manage this level of unstructured complexity and provide simplicity, with a focus on being purpose-built for our sector. Otherwise, every lender would end up developing the same prompts and agents with identical tools for the same applications from the ground up, which is difficult to sustain due to changing rules as organizations like Fannie and Freddie update their guidelines and regulations evolve. Therefore, it is crucial, and I believe vertical software companies are well-equipped to deliver outcomes more rapidly with AI, and I hope that Blend is among them.

Thanks, Aaron. Let me double click into that by just breaking it down into a few pieces. First, as it pertains to home equity, there's a seasonal aspect that we've spoken to. And so you're seeing that uptick from a quarter-over-quarter perspective. Second, we've continued to not just add from the core home equity application, but in essence, our Rapid Home Equity. We're seeing that app gain traction, which implies that our market share and overall, what we're able to achieve has been increasing, hence, the increase that you see relative in the consumer banking numbers. Embedded in those numbers as well, though, is our success as it pertains to non-home equity, so deposits and the other core components, credit cards, auto and so on and so forth. It's the function that all of those are in essence, executing right now, which is why we were able to execute to what we did in Q2. On a prospective basis, to now correlate to your question as it pertains to what Dylan mentioned, there will be a point in time where, again, as you see a very large return and stabilization of mortgage and refi, we expect home equity to somewhat stabilize. You'll see, in essence, one side versus another. But we feel very good because of the market share that we have in home equity, the expansion through Rapid Home Equity, which is really allowing us to drive price uplift. And then lastly, our ability to just bring that together from a whole suite of solutions that just power what we do today.

And your next question comes from the line of Pallav Saini with Canaccord.

This is Pallav Saini on for Joe. I just have one. Nima, you talked about the opportunities in AI and what you can do there for your clients. How should we think about the investment that's needed to get there?

Good question. Yes, I would say to start with, we're very early in our AI journey. So I want to keep that in mind as I answer. One of the things that makes AI very helpful for us is not only the use cases and outcomes it can drive for our customers but also how it enhances our efficiency as an organization through the use of AI tools internally. We apply it throughout our entire product life cycle and in every aspect of our work, including the creation of materials and content. It’s making us more efficient, and even the process of building AI tools is becoming more streamlined each day. I don't know if you saw, but OpenAI released GPT-5 about an hour ago. Developments like this benefit our story and enhance our ability to serve our customers and drive return on investment. While I don't have a specific investment figure for you, I can say that overall, it’s improving our company and will also enhance our customers' experiences and efficiencies.

And there is no further question at this time. That concludes today's call. Thank you all for joining. You may now disconnect.