All right, we are going to continue here at the 46th annual Canaccord Growth Conference. I'm Joe Vaffi, Equity Research Analyst here at Canaccord, focused on the fintech industry. And we are pleased to have back with us today Nima Gamsari, who is the head of Blend Labs. So Blend remains a cutting-edge software company whose platform is used by leading financial institutions take a lot of the pain out of what has become the tedious process of applying for and getting approved for a mortgage not only for purchase but for refi and in this environment HELOC the company's leverages bank workflow know-how and technology platform and is offering a broader suite of bank solutions in the market as well blend touches I'd say over 15% of mortgage volume in the United States with a per transaction revenue model. The interest rate environment remains tough, but blend is still growing with both new logo wins and a nice tailwind emerging from its AI suite. The last job number wasn't so great, so maybe the rate environment, maybe we'll see some changes there. So with that intro, thanks for being with us, Nima.

Thanks for having me.

Great. So So maybe take one minute or two minutes and intro blend people that may not know your story.

Yeah, I mean, the basic story of Blend is we felt that banks and lenders were underserved with technology and that they had a hugely manual process that wasn't very digital. So we set out to start the company in 2012. We grew our market share. We got a lot of mortgage logos, some of the biggest banks, biggest credit unions, biggest mortgage lenders in the world. And over the course of that time, as you become close to your customers as a software company, you get other opportunities with them. So we expanded into HELOC, which he mentioned, personal loans, deposit accounts. So now we have sort of the whole consumer suite on our platform, which allows for a digital onboarding for those products for a bank. I can get through my workflows as a consumer to provide my data, provide my documentation, sign my closing documents, everything from initial touchpoint all the way through the money showing up in my bank account.

That's great. Maybe we'll just stay at a high level for a minute. Any changes that you're seeing in the macro environment, just yourself, your views on it, and then maybe what some of your customers are thinking about it?

Yeah. I mean, the macro, you know, last year our customers came in really optimistic about the macro, and then there was, you know, there were tariffs and things like that that rose rates. And then this year, same thing, and then there was a war that raised rates. but I'd say the nice thing about 2025 and 2026 for our lenders which is a positive thing for us too is that they have really gotten through the tough time of going from 2021 to 2023 when volumes crashed and that they had to reorient their entire businesses and now they're investing in the future and they're investing with us in a lot of ways and they're thinking about the future they're all interested and realize that agentic ai can help their businesses not have to have humans reviewing every document and data point manually which i think we can look forward five years and say that won't be happening we won't have who would buy a loan which investor would buy a loan that was only proven by humans that was touched by humans like what just doesn't make sense that in five years people will still do that and so they're all they all believe in that they all want to work with a partner they can trust who knows the industry really well who has a lot of data in that actually been working with us on that and then i'd say you know while the macro rates are high you know in a weird way it's actually better for us long term because it's created more i guess fewer fewer competitive you know players coming after us than maybe otherwise but also we're seeing our customers who are getting prepared for this wave hopefully that comes this year, but maybe next year, that they're consolidating market share. They're growing their servicing books. They're getting ready for that wave, which is very good for us because I think in a positive upturn, uptick in volume environment where our customers have invested a lot in getting their businesses or buying other businesses or investing in AI, I think they're going to gain a lot of share. And so, you know, we're ready. We're waiting for it. We're profitable now. So we obviously want it to come at some point. We just don't know when.

Great. So a lot of customers kind of gone through their reset, now reevaluating the market. And I think your last point, Nima, was interesting. Your customer set's probably in a position to move the ball forward faster than others in the industry relative to a rebound. Does that make sense?

Yeah, they have our customers, just put some context, We have, you know, somewhere between 200 and 300 customers. It's very focused on the middle and high end of the market, although we do serve community credit unions and community banks and community lenders who serve local communities. But those bigger ones are the ones that have big customer bases. And the smaller ones that serve local communities are very concentrated in those local communities or in very specialized products like veterans loans. And so we have a customer base who is really well positioned. I mean, it's some of the biggest banks. It's the companies that, because it's such a regulated space, I worry less about them getting disrupted than maybe a small mortgage broker or something like that over time. And so they're excited. They're pushing hard. They're building with us. And, yeah, I think it's made me a lot more optimistic this year than even last year where I was already pretty optimistic.

Great. And then HELOC market, you know, people are talking about HELOC, not just yourselves, but others in the industry as being a, you know, pretty strong pocket now. There's a lot of investment focus there. What are you doing there and how do you frame that opportunity?

Well, the nice thing about HELOC is because he, the consumer has built up so much equity in their homes over the last, you know, five, 10 years, and they've spent a lot of time making the payments on time and growing that equity, they can tap that. And so especially if the consumers, you know, you mentioned the jobs report, if the consumer's financial situation gets worse, that will be the most credible way for them to achieve better financial outcomes for themselves, keep their home, do whatever they need to do. And so it's been a big tailwind from that perspective. And then our lenders are using that as a nice hedge against the refi environment so we have similar market share and mortgage that and heloc we actually have a lot of market share and heloc a lot of the biggest heloc providers in the country are on blend and you know i think it's a nice counterbalance to the refi wave not perfect because you know you kind of need both and i think in a steady state environment but the other nice thing it ties really well into autopilot which is product is that the guidelines there are really straightforward the lender owns them and autopilot can just i think completely knock those out of the park where a consumer could show up have an offer a pretty firm offer from the lender in a couple minutes and the money in their account in a few days that's great and i do want to get into copilot in a second but autopilot i'm sorry it's okay pilot yes yeah um there's that other company with the pilot thing in their ai product right yeah but uh the um just i just want to touch on your q2 results because they were just out some of the highlights there and then maybe um you know we'll get into autopilot sounds good so yeah so the q2 results i i'd say on the that's the the one line headline there would be we were above or at the top end of both our net operating income and our revenue and And, you know, part of that was just, I think, strength of the business. You know, we have a great customer base. We did talk about, you know, smaller customers. We are seeing some smaller customer consolidation. We did see some churn to the smaller customer base. Nothing alarming. We still, you know, based on our gross retention numbers, we're still, you know, sort of best-in-class software company, even with that in mind. and we just we like to be transparent with the world and maybe it's good to caveat that it's nothing that we're overly alarmed about right now and then i think where i you know maybe we took some people by surprise in our earnings was talking about where we see the q4 macro uh coming into this year q4 was supposed to be a really good refi quarter and you know unfortunately i you know with rates at 6.7, 6.8, 6.9% because of the war, I don't see it being a good refi quarter. And so, you know, we shared Q4 industry volume numbers with the street in that earnings, and, you know, that is what it is.

You know, the macro is something that – I said this on the call, but, you know, we spend time thinking about the macro to make sure we're profitable and continue to grow despite the macro. but there's only so much we can do we don't want to orient our entire business around the macro i think we want to build and grow through a macro which is where autopilot comes in but um but yeah that just sort of is right sure and you're still growing and you're and the business is is sized today to be profitable in this environment and then you know some things are up to the gods i guess right yeah right so maybe we talk a little bit more about what is in your control which is autopilot and the role out there and what it brings to customers you know kind of early up updates on you know its uh penetration and how you see it kind of you know making its way through customers and maybe through your pnl over time yeah sure so just a little just a quick overview of Autopilot.

It's a product that as the consumer is going through the process, it's underwriting them in real time to investor guidelines, Fannie Mae's guidelines, Freddie Mac's guidelines, or could be custom HELOC guidelines, depending on what the product is, or even custom lender guidelines that are in consumer. It sort of allows for, it's a really smart way that we set it up to allow for any guidelines to go in there. So, you know, it's set up so that it could work with any product. And we started building it in January. We were live in beta or kind of like our pre-pilot in March. By end of March, we were live in production with customers, beta production, just early stage, early access. We gave it to people for free for three months through the end of June. We closed our first deals in Q2 with Autopilot. We're signing for now just to get as much of our customers using it before they see the P&L benefit on their side. We're offering one-year deals with those customers to say, hey, we're not going to grant a long-term price for this now. We're going to go and roll this out to you, sell this to you for a meaningful uplift, but not a 10x uplift. I think we said we signed six deals in Q2. We have a really good pipeline for Q3 of some of the deals with larger banks that take a little bit more time to get through their AI governance committees with security and information security in particular. And I think as those customers sign and roll on, one thing we said last quarter, which we sort of reiterated this quarter, was we think it's going to sort of lead to 10% to 15% incremental growth for us in the medium term in 27. And so incremental on top of other product growth. And the reason we think that is because we have so many of our largest customers who are in pipeline with us. And so we have some visibility into that. It'll take some good execution on our part. But that product is probably the most important thing for the industry that we can do right now. If we can bring their costs down on fulfilling these loans, it's about $11,000 per loan. It's a big deal. And eventually some of that will go through to consumers. But for now, it's just about how do we make sure our customers come out the other side. the most scalable and the most profitable, and that's what's on my mind right now.

That's great. It is early days. It would be interesting to get some of your feedback from clients on this, putting this AI layer in from a compliance regulatory consumer protection, I guess, and that initial feedback and how big customers with that bank mindset are thinking about this you know letting loose ai in their in their infrastructure right yeah and especially in a place where so much money is changing hands yeah like you think about so much money changing hands and a lot of what they they've started to do just like we talk about having our humans be a review and oversight layer of what the ai is doing internally at blend it's the same thing that

we're sort of convincing our customers of because they're like oh yeah that is better i'd rather have an underwriter oversee 200 files that ai has already underwritten and check the work on 200 files that ai is underwritten rather than 20 files that they could do on their own and you know two eyes is better than one in their mind and so you know i'd say the early stats we've seen have been super promising we had about 50 000 loans go through it and cute just to put in perspective we'll do a couple hundred thousand loans a quarter um on our platform on the mortgage side alone And we had about 50,000 applications, I should say, go through our autopilot suite. And from that early data for those early adopter customers, the not surprising benefit to our customers was cycle time reduction and, like, cost savings based. It's a proxy for how much work they have to do on a file. It went down, like, three-ish days already. But the more interesting ROI that I saw from our customers was a much higher conversion benefit. So about a month and a half ago, one of our customers sent me a screenshot. And it was like the sideways thing that showed me their pull through from a customer being committed to them to actually closing. And it went from 59% to 72%. And I was like, oh, so you attribute that to Autopilot? He said, yes, absolutely. Um, and he, and I said, why I was like, that's kind of counterintuitive. Like why is autopilot, which is just helping you process these faster doing that? And he said, well, because we're processing them much faster. And so less people are getting poached by competitors and they're getting less frustrated with us in the process. And there's less time for them to change their mind about their, you know, their refinance or whatever.

Maybe I'll do that later.

It's too much work. And so the conversion benefits actually have a much bigger P and L impact for the lenders than the cost savings. Because the conversion benefit is like there's so much time and money you spend getting these customers to a certain point in the process that if you have fallout after a rate lock, it is a huge expense to you as a lender. And that's all this sunk cost you put into it and lost revenue. You know, each loan is 14-ish thousand in revenue for these lenders.

And so it's a really big deal for them to have high conversion.

And so we've been really excited about that. And I mean, this is a product that is so early. it wasn't even a thought in anyone's mind at blend a year ago because it's just the capabilities weren't out there in the world to make this a reality and so the fact that it's not only a thought but it's real a year later is is awesome but it's it's early days i mean that team is moving so fast and is working so hard to make this better it's going to compound it's going to be a compounding advantage for us and there's data there that we're getting every one of these 50,000 loans, a new data point for our model or harness, I should say, to get better. As we get more and more of these customers going through it, we're finding areas where we can make the harness better and faster and cheaper.

That's great. And, you know, obviously you're ruling it out to existing now. How does it help new logos kind of your pipeline get over the finish line? Do you think it's going to help there? I mean, I think it should, right?

Yeah. I mean, we had our first new logo it's signed in june that was uh that was an autopilot customer from day one it was like the first month that they could really buy it so it was perfect timing um i mean i think everyone's going to need if you could have an extra set of eyes that's much cheaper than your current set of eyes and take a lot of work off your current set of eyes you're going to take it um and so i don't think that's going to be an abnormal thing but the other nice thing about autopilot because of the way that we built it as an open harness meaning it can be used it's hooked into our core platform but um it's not doesn't have to be used with our core platform okay sense all right it can be triggered by like there's lots of customers who really liked blend or loved blend over the years but they're you know they're digital teams or whatever we're saying well you know we really want to use all the integrations and the workflows and the compliance that blend has built and now the intelligence but we really want to plug it into our mobile app right and now with autopilot they can and so it's opened up new conversations that may be around just just autopilot great that maybe didn't exist before so it could be a standalone sale is what you're saying i think it will be i think we'll do our first few standalone sales at some point great and so that could be used in other channels not just your existing channels like Like you could go back to the mortgage broker market or, you know. Yeah, or like if it's the best at underwriting files and then maybe eventually it gets the best at recommending and identifying product opportunities that can save consumers money and then eventually it gets to be the best. It's a compounding advantage thing. If you do that and you offer that as an agent and the alternative for a bank or a lender is to go and, you know, use Claude plus some skill files and we're demonstrably more accurate, and we're cheaper and faster because our harness is more tuned to this specific industry and we have all this data that we're using to make it better every day. And it's an open harness, so it's not like you can use it in any UI. It doesn't take anything away from anybody in your team. It's just using us versus the Claude code harness or something. I think we can be a lot, I mean, it's early.

Yeah, it could be. I don't want to overstate this. Theoretically, you've got a new business line that has a lot less to do with you're looking at financial health of your customers more broadly, right? I think banks need to do a better job at that.

And if banks could do a better job at that, they would be much more profitable as well.

Yeah, there's a lot of cross-selling banks that they don't take advantage of, right? That's great. So you marry your Autopilot with some of your other leading-edge products, your RapidSuite. Maybe we kind of talk about an update on Rapid, um differentiated in the market been out in the market now for about a year which would be great to get an update on customer feedback there uptake how you're how you're viewing it you know competitively etc well one thing that you know our autopilot pipeline in q3 i said is really good but we talked about near-term pipeline in the call and near-term pipeline is things that we think is going to close in the coming quarter, that's been a huge, huge boost for us that we talked about in the Q2 earnings.

But even more somehow, because maybe these deals have been maturing around rapid for a while, a lot of our near-term pipeline, the next quarter out pipeline is rapid. It's been a bright spot. And if you think about what the rapid solutions are, just to summarize, you can make an offer to a consumer in real time for a mortgage, a home equity solution, a refinance, you know, whatever it is, um, in a matter of minutes, a real offer that you can stand behind as a lender and get them to lock their rate. And that's the part that's like, how do you have an amazing experience to do that? And then autopilot takes that from, Hey, now they're excited. They like their rate, help take them to the closing line. Those two things together live very harmoniously.

Yeah. It sounds like, yeah. Autopilot and wrap it together is a great one to punch right that'll be that'll be one of our keynote discussions at our cut we have a customer conference every august we have executives from the top you know 100 or so financial institutions come and it's like a big part of our keynote is talking about how those two things together are so important for them to make a real-time offer to a consumer and then drive them to closing as quickly as possible sure yeah that's great um you know i think we talked about your Q2 performance in general you know operating the business you know profitably in the current environment with upside and a better macro can you just give us remind us where you sit on the balance sheet I know you're buying back stock

even at this point and kind of you know how that fits into your you know your business strategy well it's nice it's nice that we have no you know sort of debt on the business right you know we have we have a great balance sheet we're profitable every we've been profitable since i think it was q3 of 24 every quarter um i think just that if i'm remembering the quarters correctly and so we're going to keep operating the business profitably you know if the share price stays low like we may buy back more we got an authorization i think in q1 earnings we announced it to do a certain amount which we've used some of and we announced publicly um but no our balance sheet is really strong right now you know we don't we don't have any concerns about the balance sheet we feel really good about it and think it's going to grow and that's why we're we bought back some stock good we're going to run out of time nema um any closing thoughts for us what we should be thinking about or tracking or paying attention to here um i mean i think definitely people should pay attention to the autopilot traction the other thing that i talked about in the earnings call that we didn't talk about today was what i call internally blend 3.0 and i talked about this on our earnings, which is we aim to be at the top 1% of agentic adopters internally, because that has compounding benefits to our customers. We've seen 3x engineering throughput year over year. It takes time for that to turn into P&L, because we have to build the products and then sell them to customers and have that turn into revenue, but it's a compounding advantage for us long-term.

Well, I know the Blend platform is super high-quality software, so it'll be interesting to see how that evolves. from here with with those agents at work on your stack so all right well with that thank you very much for being with us Nima thank you