The sharp decline in mortgage refinancing driven by rising mortgage rates prompted cloud banking software provider Blend Labs Inc. to pull hirings ‘very hard’, and company executives say they are also considering layoffs at Title365, the title insurance and settlement services provider Blend acquired last year.
Shares of Blend hit a new all-time low of $4.46 on Friday, a day after the company released a 2022 revenue forecast that co-founder and CEO Nima Ghamsari acknowledged was “well below estimates.” consensual”. Blend said it expects to generate $230 million to $250 million in revenue this year, compared to expectations that the company would generate $343.6 million in revenue, according to an average of estimates from eight tracked analysts. by Yahoo Finance.
Announcing fourth quarter and full year 2021 results, Blend executives said they plan to continue to recruit new customers and grow market share this year. But they also said they were looking for ways to cut costs after posting a net loss of $169.1 million in 2021, up 126% from $74.6 million in 2020.
Blend, which provides a software platform and marketplace that enables banks and mortgage lenders to serve customers from demand to close, went public last July, shortly after paying $422 million to acquire a national provider of title insurance and settlement services, Title365, from Mr. Cooper Grouper.
The Title365 deal, which closed in June, helped Blend boost 2021 revenue by 144% to $234.5 million. But it also contributed to a 129% increase in operating expenses, to $313.2 million, which the company is now looking to reduce.
At the start of last year, Blend employed a total of 577 workers, according to a prospectus filed by the company as part of its IPO. A year later, Blend’s workforce had grown to 2,276, including 587 employees in Chennai, India, brought on board as part of the acquisition of Title365, the company disclosed in its latest annual investor report. In addition to its headquarters in San Francisco, Blend also has offices in Thousand Oaks, California; Coraopolis, Pennsylvania; Omaha, Nebraska; and Maitland, Florida.
Rapid changes in interest rates and rising inflation have led forecasters to predict mortgage lending will fall 35% this year, Ghansari said in a call with investment analysts. Mortgage refinances are expected to drop 70% this year, he said, “particularly affecting refinance-intensive businesses” like Title365 and Blend Title.
“The outlook for the mortgage industry has changed dramatically and rapidly. Arguably, the biggest change in over a decade,” Ghansari said. As Blend customers face “acute” challenges, he said Blend is “well positioned despite these headwinds in the market.”
“Technology is a scalable way to deliver great experiences at a lower cost, and our platform will enable them to significantly improve their profitability and advance their competitive position in the industry throughout this volume decline,” predicted Ghansari.
However, “we are well aware of our need to focus on our costs and ultimately our path to profitability,” Ghansari said, and Blend “is taking steps to align our spending with market realities. “. This is especially important for the more operational parts of our business, such as our former Title365 business. »
Marc Greenberg, Blend’s head of finance and facilities, hinted at the prospect of layoffs in title insurance as the company integrates the “legacy” business it acquired as part of the Title365 deal. in his platform.
According to Blend, the acquisition of Title365 allows the company to further integrate the title, settlement and escrow process into its software platform, in order to develop a market where consumers and financial services companies can choose title insurance partners who provide services at competitive rates. As this happens, the company expects there will be a migration of legacy business from Title365 to Blend’s software platform.
“In our legacy securities business, the volume of transactions was strongly boosted by the refinancing and obviously that was negatively affected significantly,” Greenberg said. “Like our customers, we are looking to dedicate the right level of resources, including the right number of people, to this business.”
A number of mortgage lenders have laid off workers in recent months, including Better, Pennymac, Guaranteed Rate and Keller Mortgage.
“On the software platform, we’re obviously looking very closely at the cost structure, but we don’t want to throw the baby out with the bathwater,” Greenberg said. “We have greatly reduced our hiring, we have reduced our expenses and our staff increases. We are looking for savings on our technology stack and how we can achieve economies of scale even faster. »
The double-digit percentage decline in Blend’s share price on Friday showed investors were disappointed with the company’s more conservative outlook for 2022 growth. But on their call with investment analysts Ghansari and d Other executives highlighted 2021 achievements that they believe have positioned the company for long-term growth.
“We took the company public and made a major acquisition,” Ghansari said. “We increased our estimated mortgage banking market share by approximately 5 percentage points. We delivered and developed flagship products such as Blend Close and Blend Income, and expanded our presence in the consumer banking space with over 70 new customers. As a result, our revenue grew 41% in our Blend platform segment on a full year basis, growing on what turned out to be lower volumes in 2021 than in 2020.”
“We have established ourselves as one of the leading vertical software platform partners in mortgage lending,” said Tim Mayopoulos, the former CEO of Fannie Mae who joined Blend as Chairman in 2019. third of the nation’s largest banks use Blend, as do a quarter of the largest independent mortgage originators.
Growth in transactions processed by Blend, 2019-2021
Mortgage and consumer banking transactions processed on the Blend platform, 2019-2021. Source: Blend Annual Report 2021.
Blend processed over 1.8 million transactions for mortgage lenders last year, representing 38% growth over 2020. While still a fraction of the platform’s business, consumer banking transactions grew by 245% in 2021, to 300,000.
“We introduced a number of big name names in 2021 to the Blend platform, and not just for mortgages, and we look to build on that base for years to come,” Ghansari said.
The new clients included a top 10 bank, a top 25 bank and “some of the biggest mortgage originators who we believe will become long-term winners in the market, including Mr Cooper and Pennymac”, helping Blend to increase its mortgage market share to 15%, Ghansari said.
This market share estimate doesn’t include “many customers who are still in the process of deploying Blend,” Ghansari said. Plus, he said, “we have some bigger ones that we haven’t announced yet just because we have to work with our customers on the timing of those announcements.”
Mixed Revenue Sources, Q4 2021
Q4 2021 mixed revenue streams, in millions. Source: Blend regulatory filing.
With the acquisition of Title365, title insurance is now Blend’s primary source of revenue, generating 55% of the $81 million in revenue the company reported in the fourth quarter.
But long term, Blend executives see title insurance as part of a platform that provides end-to-end service to lenders and consumers.
“What I’ve experienced in this business, since my days running Fannie Mae, is that companies that are clearly market leaders that enter the down phase of the cycle come out even stronger on the other. side,” Mayopolous said. Lenders “know that 2022 will be a year of consolidation in the mortgage industry. If they want to be among the winners, they need to take steps to digitize and streamline the mortgage origination process. »
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