Blend Labs - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $41.4M, up 15% year-over-year; Blend Platform revenue $30.1M and Title revenue $11.3M. Non-GAAP operating income reached $5.2M with a 13% margin, significantly beating the high end of guidance, while GAAP loss from operations narrowed to $1.8M.
• Consumer Banking Suite revenue grew 48% YoY to $9.5M, and management raised its 2023–2026 CAGR target from 35% to 40% for FY 2025 outlook; mortgage suite revenue rose 6% YoY to $18.2M.
• Economic Value per Funded Loan declined sequentially to $96 (from $99 in Q3) due to the homeowner’s insurance (HOI) sale and Truework partnership shift, but contribution profit per funded loan increased; pipeline is ~50% larger YoY, with positive free cash flow expected in Q1 2025.
• Q1 2025 guidance: Blend Platform revenue $25–$27M; Platform non-GAAP net operating income ($1)–$1M; HMDA market size expected at 800k–900k units; Consumer Banking CAGR raised to 40% through 2026.
• Catalysts: general availability of Rapid Home Lending (Rapid Refi and Rapid Home Equity) with up to 1.5x higher pull-through and >50% faster time-to-close, and the Truework partnership expanding VOIE coverage and efficiency.

What Went Well and What Went Wrong

What Went Well

• “Non-GAAP operating profitability” and margin improvement: non-GAAP operating income $5.2M (13%), a new record, significantly beating guidance; GAAP gross margin improved to 60% from 55% YoY.
• Consumer Banking acceleration: $9.5M revenue (+48% YoY), with annual growth of 42% and raised long-term CAGR target to 40% (2023–2026).
• Strategic simplification and partnerships: HOI shift and Truework partnership improved efficiency and contribution profit per funded loan; management emphasized platform-first strategy and an expanding ecosystem (“best-in-class providers”).
  • Quote: “These efforts have led us to our most profitable quarter yet, and sets us up to fully focus on our core mission—delivering frictionless origination software”.

What Went Wrong

• Sequential revenue decline vs Q3 (seasonality and macro headwinds): Q4 revenue $41.4M vs $45.2M in Q3; mortgage industry remained subdued entering Q1 2025.
• Economic Value per Funded Loan lower at $96 vs $99 in Q3 due to HOI sale/partnership and Truework transition; management set a new baseline of $94 for Q1 2025 before recovering to high-90s by year-end.
• Free cash flow remained negative in Q4 (–$7.2M) despite improvement YoY; cash used in operations was –$4.6M in Q4.

Transcript

Winnie Ling (Head of Legal and People)

Good afternoon and welcome to Blend's Fourth Quarter and Full Year 2024 Earnings Conference Call. My name is Winnie Ling, and I'm the Head of Legal and People for the company. Joining us today are Nima Ghamsari, Co-founder and Head of Blend, and Amir Jafari, our Head of Finance and Administration. After Nima and Amir deliver their prepared remarks, we'll open up the call for questions. You can find the supplemental slides on our Investor Relations webpage at investor.blend.com. During the call, we'll refer to certain non-GAAP measures which are reconciled to GAAP results in today's earnings release and in the appendix to our supplemental slides. Non-GAAP results are not intended to be a substitute for GAAP results. Unless otherwise stated, all financial measures we 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 first quarter of 2025 and full year 2025, and expectations about our markets, may be considered forward-looking statements under 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 deviate 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're not undertaking any commitment to update these statements if conditions change, except as required by law. With that said, I'll now turn the call over to Nima.

Nima Ghamsari (CEO)

Good afternoon, everyone. Thank you for joining our earnings call. 2024 was a pivotal year for Blend, one where we sharpened our focus, delivered greater value to customers, and accelerated our path to sustained profitability as a leaner, more software-driven company. In Q4, we continue to strengthen that business. We welcomed several new customers, most notably a top 10 U.S. bank by asset size, and PHH Mortgage, one of the nation's largest home mortgage servicers, who both signed multi-year agreements across our mortgage and home equity solutions. Our consumer banking business grew 42% in 2024, surpassing our 35% CAGR target as discussed at our 2023 Investor Day, with Q4 revenue growing 48% year-over-year, further establishing consumer banking as a key growth driver for Blend and essential for financial institutions modernizing account openings and consumer lending.

Our solid revenue performance, coupled with disciplined expense management, is delivering tangible results now and generating momentum for the future. In Q4, we achieved 15% year-over-year total revenue growth despite a challenging macroeconomic environment. We are at our strongest quarter yet and posted a second consecutive quarter of non-GAAP operating income profitability with $5.2 million in Q4. We are just getting started. Looking ahead, we see several strong tailwinds we believe will allow us to stay on offense and accelerate our plan as the market rebounds. As rates stabilize, demands for Blend's solution increase as financial institutions invest in technology to capture opportunities like refinance and home equity more efficiently. We are seeing this momentum firsthand. Our pipeline is 50% larger than it was this time last year, giving us even more confidence in sustained growth.

With positive free cash flow expected in Q1, we have the flexibility to invest and to focus on driving more cost-effective innovation that attracts even more customers, expands our reach, and generates long-term value for shareholders. With that, I want to start by highlighting our progress in simplifying Blend and evolving into a software-centric platform. A big part of this shift is moving from building and managing everything in-house to partnering with specialized technology and operational providers externally. Historically, we've taken on the complexity of developing and operating products ourselves. With the launch and success of Builder and our desire to drive scale, we recognize the best way to drive high-impact, efficient innovation is to focus on our core origination platform while partnering with best-in-class technology and operational providers who are already leaders in their fields.

By expanding our partner ecosystem, we're able to deliver superior solutions quickly to our customers on a single, flexible platform while also improving our financial efficiency and greatly simplifying our business model. A great example is our homeowners insurance partnership with Covered Insurance Solutions. In just one quarter since shifting the homeowners insurance business from an in-house business to a partnership model, we have reduced our operational expenses more than the lost revenue impact, illustrating the benefits that the strategy can have here. Another example of expanding our partner ecosystem is our strategic partnership with Truework for verification of income. Rather than managing it ourselves, we're partnering with best-in-class providers to deliver a solution with better verification coverage that drives higher success rates for our customers.

That means our customers still get seamless income verification through Blend, but now powered by Truework's expertise and scale, while we get the benefit of greater efficiency and a revenue-sharing model. It is another move towards our platform-first strategy, expanding our ecosystem and driving stronger contribution profit per funded loan. Looking ahead, we plan to continue to open the platform to a wider network of partners with the aim to accelerate innovation and fueling our ecosystem's growth. As part of our ongoing simplification efforts, we have recently signed an agreement with Mr. Cooper that extinguishes the put option they hold in connection with our prior acquisition of Title 365 and extends our partnership through 2028 with a meaningful commitment to each other. This agreement strengthens our relationship with our long-term partner, incorporates new features, and drives simplification of our business.

Moving to our mortgage business, this remains a core part of our strategy and a key revenue driver. Despite macroeconomic uncertainty in 2024, we continue to strengthen our position by deepening relationships with existing customers and expanding our reach to more institutions. In Q4, we welcomed another major industry player with a top 10 largest U.S. bank in the nation by asset size and went live in Blend in under 25 days, demonstrating the flexibility and scalability of our platform. We also signed seven new customers, renewed key contracts with existing clients, and expanded our product offerings with major institutions. These wins reinforce Blend's ability to drive long-term value for financial institutions of all sizes.

We also recognize the unique challenges in the independent mortgage bank space, from operational pressures to the need for greater branch-level flexibility, and that's why we're investing in providing access to the same great technology that top-tier institutions rely on to these smaller institutions. This quarter, we launched a dedicated business unit focused on delivering tailored technology to support IMBs. Hiring Justin Venhousen, a mortgage industry veteran and former Chief Operating Officer at Compass Mortgage, which is one of our customers, to lead this effort. With over 12 years of experience, Justin brings firsthand insight into what the IMBs need to succeed. As part of this initiative to better serve IMBs, we're also proud to offer new features including branch-level configurations, increased disclosure functionality for loan officers, and enhanced hybrid closing offerings. These features, along with our core mortgage product set, are being packaged for IMBs.

We've expanded our relationship with CrossCountry Mortgage, the nation's largest retail mortgage lender, and are excited to collaborate on these new solutions. By democratizing access to the powerful solutions used by top-tier lenders, we're leveling the playing field, helping IMBs compete more effectively and deliver exceptional service to their customers. I want to take a moment to talk about competition. I don't usually talk about competition publicly because I believe Blend has to stand alone in our merits. This quarter was a turning point. We're seeing our competition falter. Succeeding in this industry is all grit. It takes a decade of ongoing focus, passion, and perseverance to truly succeed, and then it doesn't stop there. We've weathered the highs and lows, and we're still here, continuing to invest, innovate, and expand our position. That resilience is driving some results.

While we've seen some churn in the past quarters, which we discussed during our 2023 earnings calls when there was significant turmoil in the market, we also signed several large mortgage lenders in Q4. As these customers ramp up and start originating on our platform, we'll expect to offset that churn further, strengthening our market position. Our grit is why we continue to win, and that's part of why Blend was successful in Q4 and why I believe we'll continue to be successful in the future. Speaking of innovation, I want to highlight our Rapid Refinance solution, which became generally available yesterday. This launch is well-timed with our customers trying to capture refinance volume in the market with greater speed and flexibility. In mid-2024, declining rates triggered a surge in refinance volume, revealing significant pent-up demand.

While a forecast suggests that the rate environment will remain largely flat with slight rate improvements, there could be successive mini-booms with each rate cut as we saw in 2024. It's critical in this environment that our customers retain borrowers and capture market share quickly. There are 7.2 million borrowers with rates above 5.5%, according to the ICE Mortgage Monitor report, and with purchase activity in 2025 expected to increase, we expect demand for refis in the future will continue to grow. We currently have three customers using the rapid refis solution. The first refinance types have been released to general availability, and as adoption accelerates throughout the year, we anticipate a positive impact on our economic value per funded loan. While our Mortgage Suite has been the cornerstone of our business, our Consumer Banking Suite has emerged as a transformative growth engine.

This area has been growing and outpacing our original projections. This represents a significant opportunity for Blend to deliver even more value to our customers and their end users. In consumer banking, we're providing institutions with solutions that go beyond mortgage lending, including both consumer deposit account opening as well as tailored lending solutions. We've seen these solutions deepen customer relationships and help institutions create seamless, modern banking experiences. Our efforts in this space are centered around innovation and scalability. By ensuring institutions of all sizes have access to robust capabilities, we're enabling them to compete effectively and grow alongside their customers. The deposit offering, along with our ability to offer tailored consumer lending modules within the same platform experience, provides our customers a differentiated experience. We believe the market opportunity is there, and we have the tools and team needed to win.

A part of our Consumer Banking Suite revenue line is our home equity business. Building off the success of our flagship home equity product, we have developed a new Rapid Home Equity solution that incorporates next-generation speed into the home equity lending workflow. We have moved this to general availability and are thrilled about the potential this product can offer our customers. With nearly 100 total customers using our flagship home equity solution, including seven of the top 10 home equity originators in the country, we believe this upgrade represents a tangible ROI opportunity for our customers. Early results are showing 1.5x pull-through advantage and decreasing application to funding cycle times by at least 20%, as well as enhancing utilization of home equity lines by consumers for debt consolidation. At Blend, our customers are at the heart of everything we do.

Whether through our Mortgage Suite or our Consumer Banking Suite, we work to enable our customers to meet that evolving need that the consumer has with confidence and agility. Our approach is rooted in listening to our customers and understanding their unique challenges. We are committed to developing solutions that help our customers and prospective customers provide seamless, intuitive, and personalized experience for their end users. From streamlining loan processes to enhancing consumer banking transactions, our platform is designed to empower institutions to stay ahead of the pack. The deals we close in the fourth quarter and our natural expansion of product adoption within our customer base are setting us up for a strong year.

We also feel great about the health of our pipeline, which is now 50% larger than this time last year, and we expect to invest in our sales and marketing function during the year to continue our momentum and capitalize on that pipeline. As we look ahead to 2025, we are continuing to embrace the opportunity to shape the future of Blend with clarity and discipline. While we remain focused on balancing innovation with financial discipline, we acknowledge that the path forward requires us to be both agile and intentional in addressing the challenges and opportunities ahead. We expect to continue to make progress in all areas of our business, but a new initiative that I'm excited to talk about is how we plan to incorporate AI into our platform and solutions. Right now, mortgage origination is expensive and a very manual process, costing lenders around $12,000 per loan.

That is largely because many steps still require human input, reading documents, taking data off of documents, and doing simple calculations. That is starting to change. AI is already making a big difference, helping streamline key steps like identity verification, cutting down on manual checks, and making fraud prevention stronger and more efficient. We estimate that AI can automate up to 90% of the process of what banks and credit unions do today to serve their customers. At Blend, we see an opportunity to help lenders take advantage of this shift and opportunity, and we are already doing that by embedding AI into our core banking processes. One example is our Doc AI solution, which is transforming post-closing operations for lenders. By automating document validation, flagging discrepancies, and streamlining verification, it not only improves accuracy, but also significantly reduces manual workloads.

This means lower operational costs, faster loan processing, and ultimately a more scalable and efficient lending model, key drivers of long-term value for customers. As we continue to scale, our focus is on delivering immediate efficiencies for our customers while laying the foundation for more personalized, intelligent experiences in the future. To lead this effort, Srini Venkatramani joins us in Q4 to drive safe, scalable AI across all our products. We're excited to keep pushing AI forward, and we'll have more updates to share throughout the year. During that time, we'll continue to double down on our core growth areas such as mortgage, IMB, consumer banking, and our rapid products. We believe these represent transformative opportunities for Blend and our customers, and at the same time, we're committed to refining our operations to ensure sustained profitability and build a foundation for long-term success.

While we believe our near-term guidance reflects the measured approach in light of the current macroeconomic environment, we remain confident in the strength of our strategy and the value we are creating for our customers and our shareholders. We expect to achieve our next major financial milestone of becoming free cash flow positive in the first quarter, which we expect will enable us to invest back into the business, expand our sales and marketing organization to capitalize on the growing pipeline, and continue to develop new products. We plan to do this while maintaining profitability in the face of these challenging macroeconomic conditions. Amir will talk about this more, but we are paying close attention to our Rule of 40 for our platform business. We define this as our year-over-year revenue growth plus our non-GAAP operating margin.

Our vision is bold, but it's rooted in the proven success of our platform for strategy and the trust we built with our customers. Together, we're creating a future where financial services are not just more accessible, but truly transformative for the institutions and individuals we serve. With that, I will turn it over to Amir to walk through the financials.

Amir Jafari (CFO)

Thank you, Nima, and good afternoon, everyone. I'm pleased to be joining you today to discuss our financial results for the fourth quarter of 2024. Our fourth quarter marks another period of strong execution, and you can see it in our results. We've continued with another quarter of year-over-year revenue growth. Our consumer banking business continues its acceleration. We made significant progress on our mission to simplify Blend, and we set new records for RPO and operating profitability.

There's a lot to discuss, but let me just remind you that, unless otherwise stated, including our references to profitability, all results are non-GAAP. We made another announcement around the simplification of Blend that I'd like to dive into first. As we continue to simplify Blend, we have partnered with Truework, which Nima mentioned earlier. We expect this partnership to provide greater verification of income capabilities for our customers and allows us to further simplify Blend by moving certain operations to our partner, thereby freeing up internal resources that can be directed elsewhere in the business. This partnership will enable us to expand the product scope while still participating in a portion of the revenue stream, but with the expanded profit to Blend. Going into 2025, we are focused. We have conviction in our short and long-term goals and plan to continue to execute.

We are taking strategic action as a way to maintain and improve the profitability of our business and deliver scale for the future. We continue to execute toward our mission of becoming a platform for all financial institutions. Now let's get into the numbers. Total company revenues in the fourth quarter were $41.4 million ahead of the midpoint of our guidance and representing 15% year-over-year growth. We reported platform revenue of $30.1 million ahead of the midpoint of our guidance and representing 16% year-over-year growth. Our Mortgage Suite revenue was $18.2 million, representing 6% year-over-year growth. We were cautious with our guidance of the mortgage industry last quarter and expected volatility, and are happy with our results in the face of this challenging macroeconomic environment. Our view is that our core growth in Q4 is at or above the mid-20s year-over-year, as measured by price times units.

As a comparison, our recurring customer growth, which normalizes for churn, grew in the mid-30s, as measured in units. These customers have historically grown in line or faster than the market. This implies the market grew somewhere in the mid-30s year-over-year. The discrepancy between our core growth and this implied market growth is primarily a function of the churn notices we received in 2023 that were realized in 2024, which we talked about in past earnings calls during the market turmoil of 2023. However, as the market stabilized, our notice of churn in 2024 was down significantly, and the logos we have announced in Q3 and Q4 of 2024 have yet to meaningfully contribute to volume. Our pipeline going forward continues to be strong. These factors give us confidence in the future of our mortgage business.

In consumer banking, revenue grew 48% from Q4 2023 to a total of $9.5 million. For the full year, revenue grew 42% ahead of the 35% compounded annual growth rate target we shared at our investor day in 2023. We also generated $2.5 million of professional services revenue, up slightly from the $2.3 million we generated during the same period last year. We reported title revenue of $11.3 million ahead of the midpoint and near the high end of our guidance for the quarter. Moving on to gross profit, total company non-GAAP gross profit was $25.1 million, up 26% from the same period last year. Our non-GAAP Blend Platform segment gross margin was 75%, compared with 71% for the same period last year. We reported non-GAAP software gross margin of 79%, in line with the same period last year.

Over the long term, we maintain our expectations that the software business will be generating at least 80% margins. Our non-GAAP title margin came in at 21% for the fourth quarter, compared with 15% that we reported the year prior. Non-GAAP operating costs for the fourth quarter totaled $19.9 million, compared with $33 million in the previous year. We continue to benefit from the efficiency programs implemented over the past year and our commitment to simplifying the business as part of our platform for our strategy. We improved our efficiency as we continue to simplify our business and focus on increasing our margins. Along with continuing year-over-year revenue growth, we expanded our non-GAAP operating profitability in the fourth quarter.

We reported non-GAAP operating profitability of $5.2 million, significantly beating the high end of our guidance, improving by $18.3 million from the same period last year and setting a new record for Blend. With an operating margin of 13%, we are well on our way to achieving our investor day target range of 15%-25%. We believe this is an important turning point for Blend. We are focused on building a sustainable growth business that allows us to reinvest and generate significant shareholder value. Even in the midst of a very challenging macroeconomic environment, we are very proud of our accomplishments and the fundamentals of our business. Free cash flow for the quarter was negative $7.2 million, which compares to negative $20.8 million in the same quarter last year, an improvement of $13.6 million.

We ended the quarter with approximately $106 million of cash, cash equivalents, and marketable securities, inclusive of restricted cash and no debt. We believe the strength of our balance sheet is also a differentiator in allowing us to focus on achieving our strategic initiatives and continue to innovate across the financial industry. Shifting gears to some of our key metrics. In the fourth quarter, our remaining performance obligations landed at $123 million. This is another record for Blend. It represents an increase of $28 million, or 30% compared to the same period last year when RPO was $95 million. This marks the seventh consecutive quarter where our RPO balance increased year-over-year. RPO in the fourth quarter also grew sequentially, with the balance increasing by $16 million, or 15%, compared to the third quarter of 2024, as we've closed a number of important renewals and new deals.

As part of our simplified Blend strategy and software-first initiative, we are expanding our focus from solely measuring economic value per funded loan to begin measuring the contribution profit per funded loan. Contribution profit per funded loan is the gross profit of a loan less the direct expenses. Our announcements today are made through the lens of increasing contribution profit per funded loan. As we turn to our discussion of economic value per funded loan, we will start describing the impact of the decisions on contribution profit per funded loan and our business. Our Mortgage Suite economic value per funded loan declined sequentially to $96 compared to $99 in the third quarter. This decline was expected and driven by the sale and partnership of our homeowner insurance business, referred to as our HOI business.

The sale and partnership of our HOI business is an example of a declining contribution to economic value per funded loan while drastically improving our HOI business contribution profit per funded loan by 1.7 times. This aligns with our strategy to monetize our platform and focus on pure software-centric applications. We've launched a dedicated line of business focused on the independent mortgage banks. We built several new features that continue to differentiate our solution and, more importantly, have already been adopted by IMB customers. This initiative requires catering our solutions specifically to IMBs across the country, which come with a different product package and price point. As we target this customer base, we are focusing on winning logos and getting these customers in the door. These new relationships typically begin with a single product SKU and expand their product scope over time.

As such, this results in a lower economic value per funded loan. However, we anticipate significant market share growth in this area, increased logo wins, and ultimately will drive a higher contribution profit per funded loan over time. Our strategic partnership with Truework for income verification will also have an impact and lower economic value per funded loan over the year as our customers transition to using the platform feature. This partnership will improve efficiency by moving the operational workload to Truework while also providing automation in our verification of income process. Ultimately, this will lead to a higher contribution profit per funded loan over time. As we continue to simplify Blend, we want to provide a very clear outlook for our economic value per funded loan over the year, starting with a new baseline.

The new baseline for our economic value per funded loan will be $94 starting in Q1 2025. The decline is attributed to the IMB customer base that we are targeting and moving our operations to a partnership model with Truework. Despite the decline, these are changes to the business that we view positively as it underscores our focus on simplicity, and we believe it will lead to a more profitable business. We expect this metric to return to the high 90s to exit the year, as we expect to see an additional uptick of our overall close attach rates, with a shift to more hybrid and remote online notarization, as well as the ramp of Rapid Refinance throughout the year. We reaffirm our long-term economic value per funded loan of $170 that we shared with you at our Investor D9ay in 2023.

Currently, our top five customers by economic value per funded loan have a weighted average economic value per funded loan of $177, showing a path to achieve this target as our customers fully utilize our platform and we expand with new products. This is a positive point in Blend's journey. We've demonstrated our ability to generate leverage as we have simplified Blend and executed on our partner ecosystem and platform-first business model. We will continue to execute against our goals, cross-sell our products, and drive operating profit, which we expect to result in further improvement to our business. We are accomplishing these actions at a very low level of activity in the mortgage market and are setting up the business for success at scale. Let me move on to our outlook for the first quarter of 2025.

Our guidance is based on the internal assessment of customer-level growth, as well as our own outlook of Q1 origination activity based on application volume observed to date through our customer base. Despite the Fed's rate cuts to date and expected future cuts, mortgage rates haven't gone down. They have, in fact, gone up. Since we last met, Fannie Mae and MBA agency forecasts for mortgage originations have come down on average 20% for the first quarter of 2025. While we do not solely base our forecasts off of these projections, this is an external resource that shows the magnitude of change in a short period of time and indicates why we are cautious about the overall macroeconomic environment. However, we find these third-party forecasts to be lagging, and we believe that the market will be below the range they provided.

Since we report our share of originations based on HMDA data, as discussed in our last earnings call, we believe that the HMDA market size is going to be between 800,000 and 900,000 units in Q1. We expect platform revenue to be between $25 million and $27 million in the first quarter of 2025, with the midpoint representing 9% growth year-over-year. As with every year's Q1, we will be at a seasonally high point for expenses, but we continue to manage these expenses very tightly. Our Blend Platform-only non-GAAP net operating income is expected to be between negative $1 million and $1 million for the first quarter of 2025, as we expect to offset the macroeconomic pressure in our revenue with diligent expense management. We are continuing to execute, and our next goal is positive free cash flow margin.

We expect our first quarter free cash flow margin to exceed our market normalized rate of 18% as shared at our investor day in 2023. We are doing this at a dramatically different point in the cycle when compared to that expectation, and it is enabling us to invest back into the business. We also want to provide some updates on how we are thinking about the full year 2025. As anticipated, the mortgage market remains subdued so far in Q1. Looking ahead, we project moderate origination growth for the year, though uncertainty remains. Our Q2 outlook anticipates mid-30% sequential growth compared to the agency projections of 40%. We believe their full-year outlook of 12%-13% may be overly optimistic, and internally, we are taking a more cautious approach for annual planning.

We'll continue to monitor market conditions very closely, and we anticipate any stronger-than-expected recovery will be beneficial to our performance. Due to the annual revenue growth performance in our Consumer Banking Suite for 2024, we are increasing our projected compounded annual growth rate to 40% from the 35% target we gave at our analyst day in 2023. As a reminder, this is based off of our 2023 financial results growing through 2026. As we enter the year, we want to provide an overview of our investment thesis and non-GAAP operating expenses. We believe our product roadmap is well-defined, and we expect to continue to invest in innovation. With the pipeline opportunity ahead of us, you will see us increase our investments in sales and marketing functions. We believe that tightly managing our investments in these areas will continue to optimize our overhead cost structure. We will set ourselves up for success.

Finally, we expect to exit the year with a positive Rule of 40 for our platform segment based on the macroeconomic outlook for the year. This will be a big milestone for us as we focus on driving top-line results and profitability. With that, I want to thank you again for joining and hand it back to Nima for closing remarks.

Nima Ghamsari (CEO)

Thanks, Amir. To wrap things up, I want to emphasize that Blend is not just surviving this environment; we're thriving. We're becoming a largely software-only business, laser-focused on what we do best, building incredible technology that empowers financial institutions across the country. We're doing this by, first, simplifying and streamlining our operations and focusing on our core strengths. Second, partnering and building a powerful ecosystem that expands our reach and delivers even more value to our customers.

Third, innovating and leading the charge with AI and other cutting-edge technologies that drive real results for our customers. With a strong pipeline and building momentum for the year to exit with a positive Rule of 40, we are setting up the business to succeed at scale, regardless of environment. We believe the future of finance is software-driven, and Blend is leading the way. Thank you, and let's open it up for questions.

Operator (participant)

We will now begin the question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Your first question comes from the line of Dylan Becker with William Blair. Dylan, please go ahead.

Dylan Becker (Analyst)

Hey, guys. Appreciate the question here. A lot to digest there.

Maybe, Nima, just starting with you from our level. We've talked in the past about the customer economics improving and kind of driving an increased propensity to spend, especially leaning into automation. RPO was very strong. You called out some significant kind of tangible ROI components of customers looking at this. It's just, how should we think about kind of the budget setup in this constrained macro and kind of what customers are asking you for and how they're leaning into you guys maybe for more in this period of uncertainty?

Nima Ghamsari (CEO)

Yeah. Thanks, Dylan. Good question. I think the customers are—you can see this from the closed deals in Q3 and Q4, including the top 10 bank that we announced, and also our pipeline being good. I think they are willing to spend more now, and they've largely stabilized their businesses in 2024. I think that's a positive.

They are taking an approach to the future that is one that is meant to be focused on, how do I build a scalable business? I think that is the most common theme I hear from our customers. They want to build a scalable business themselves. They do not want to be riding highs and lows and hiring thousands of people and then having to let them go when the market crashes again. That is across the board, across all product lines. A lot of what I think about is kind of twofold. First, I am really glad we made the investment in Blend Builder because it allows us to get greater innovation per dollar. It allows us to be efficient in how we build things, and we can build more.

I mean, our Rapid Home Equity solution that we announced some of the early results from is one that we built with a small fraction of a typical team that would have been required to build such a complex solution that integrates all aspects of a home equity loan. It is something that we would not have been able to do without our platform of Blend Builder. That is the first thing. The second thing I will say is a lot of where our customers are leaning into is AI. A lot of the work that they do is very manual, reviewing documents, extracting information from documents manually, comparing documents, comparing screens, doing work in Excel. It is things that AI can do natively, can do natively today.

I hear a lot of it from our customers about, how do I make it so that I can use these new technologies? I had the CEO of a fairly large mortgage customer of ours call me and say, "How do I get started with AI?" It was a good question because there's so much going on. It's hard to keep up. I think that's where we come in. We have a platform that's already ingesting all the documents that consumers are uploading, that is working to get the aggregated loan file, getting all the components of the process that need to happen before closing. We have a natural entry point to help them make their operations materially more efficient. More to come on that, but they're definitely leaning in. They see the opportunity. They want to build more scalable businesses.

I think we're the right partner for them for those things.

Dylan Becker (Analyst)

Okay. Great. Very helpful there, Nima. Maybe switching over to Amir here. Obviously, the mortgage backdrop kind of remains what it is. We have seen rates come down a little bit here. Nima just called out rolling out the rapid refi and home equity. We've talked about cross-selling other solutions. Maybe kind of any general sense of how the growth algorithm shifts between kind of volume and the take rate expansion now that you have kind of more products in market, maybe some being higher SKUs, higher attached, things like that, towards, I think, your comments around the long-term targets kind of being maintained here. Thanks.

Amir Jafari (CFO)

Hey, Dylan. Thank you. We'll use an example to answer it.

To your point and to the points that Nima mentioned, there are two products that we're excited about, both in the rapid category for rapid home lending. On Rapid Refinance, it's going to be a product that, as you see it, in essence, for what we've seen from a pilot customer study so far, the contributions from an ROI perspective, as always, as we take a portion of that in our own success rates, you'll see that start to drive meaningful increases in the economic value per funded loan. It's an example of what we've seen historically, and it's an example of what we'll continue to deliver with Rapid Refinance.

Similarly, on rapid home equity, obviously, a different bucket between the economic value targets that we set for 170, which are specific to the Mortgage Suite, but the same phenomena will contribute, which means that we will continue to have more modern solutions built on Blend Builder, which not only gives us the flexibility, but also increases our customer ROI. As that happens, you're going to see that become accretive and positive, in essence, from a tailwind perspective for Blend.

Dylan Becker (Analyst)

Great. Thanks, guys. Appreciate it.

Operator (participant)

Your next question comes from the line of Seth Gilbert with UBS. Seth, please go ahead.

Seth Gilbert (Analyst)

Thanks for taking the questions. Maybe two, if I can. The first one on the consumer banking side, an increase in the 2023 to 2026 guide means you're guiding to acceleration here from the 42% in 2024. I was wondering if you could talk through the drivers. Is it macro improving that's embedded in this acceleration, more time in the market for some of the products, signing larger customers? Maybe you kind of talk through and rank order some of the drivers.

Amir Jafari (CFO)

I thought that one I'll start in, and Nima can give you an overlay as well. For the most part, what we're seeing on the consumer banking side, that gave us a conviction to increase that 35% compounded annual growth rate, that CAGR to 40%, is actually much more tied to our own execution.

The execution for what we've been able to achieve across deposits and some of the other solutions that we've shared with you, including what we've historically had in that base for personal loans and things like home equity, it's much more, again, it's much more the execution elements and what we're seeing as the overall opportunity size. We've spoken to the opportunity multiple times. We've talked about how consumer banking over time has a greater opportunity pool, and it's an area that we are not just excited about, but we're focused on continuing to execute on.

Seth Gilbert (Analyst)

Got it. Just as a follow-up, can you talk about the non-GAAP net operating income guidance? Have you guys given a historical breakout of the non-GAAP operating income for specifically the Blend Platform? Maybe I might have missed it.

Amir Jafari (CFO)

No, you have not missed it.

This is our first time being very specific about the guide from a non-GAAP perspective tied to Blend Platform. It's where we were comfortable guiding to, and hence the numbers we were able to share today.

Seth Gilbert (Analyst)

Makes sense. What's the best way for investors to look at it? I don't know if we have exactly—I don't think I have in my model a way to look at that in the past and kind of see if the negative $1 million to $1 million guide and have a good handle on it.

Amir Jafari (CFO)

I think the numbers—there's two things. There's both a qualitative aspect and a quantitative aspect that we've historically shared with Title. We've shared that from a Title perspective. There's elements of that business that we've gotten close to, for example, to be break-even. There's seasonality aspects to be considered up as you think about the overall Title business.

Although right now, again, we're not guiding to a specific number, I think there are certain data points that we can kind of refer you to to help with just the gap that you're referencing.

Seth Gilbert (Analyst)

Got it. Thank you.

Operator (participant)

Your next question comes from the line of Aaron Kimson with JMP. Aaron, please go ahead.

Aaron Kimson (Analyst)

Thanks for the question, guys. One of your competitors made a tuck-in acquisition earlier this month that essentially provides connectors into legacy core banking applications. Can you talk a little bit about the time and resources that went into building your composable origination functionality and how important that functionality is when going after larger financial institutions?

Nima Ghamsari (CEO)

Good question. It's interesting because I think a lot of what larger financial institutions were, I think were pretty dominant.

What they really need is a platform that's both scalable, secure, regulated, all the things that are required to work with somebody that large, which obviously we do in multiple areas of the business today, but also something that is sufficiently flexible without creating customization. It's a little convoluted to explain all that, but the simple version is the beautiful thing about Blend Builder is that we moved a lot of the business logic and the workflow into a configuration layer so that it's drag and drop. It means that if we need to make a change to support a slightly different workflow for a very large financial institution, I gave a couple of examples last quarter about customers that are thinking about doing other kinds of loans that we don't support on our platform today, they can actually do that with Blend Builder.

It allows us both to get in the door with ones that need flexibility in the core product lines that we offer, but also the ability to expand in other areas of the bank that maybe would have been much more difficult to do. It was such an important investment for us, not only for the reasons that I just mentioned, working with the top financial institutions, but even creating the most innovative platform at scale. It is so important for us to be able to build these things internally in a very efficient way. We want to be at the cutting edge of innovation. We need to be at the cutting edge of innovation, but we have to do that.

We can now do that in a way with Blend Builder that is, I mean, an order of magnitude cheaper for us than it used to be, and probably an order of magnitude than it would be for anybody else and any competitor in the market. It allows us to get a lot more operational leverage out of our team and make sure our customers are really happy. I mean, some of the things that we're able to implement quickly because we have a platform like that would have taken months for a competitor to do, and we can do it in a week or a weekend. I think that's really special. You're starting to see that in the consumer banking growth numbers.

You're starting to see that as we take even our out-of-the-box package solutions down market to some of those consumer banking customers, but there's still so much more to come there. The rapid products are another example of where we're going to use that as a really big area of strength.

Aaron Kimson (Analyst)

That's really helpful. Thank you. Just as a follow-up, the launch of the IMB-specific unit is interesting given some of the challenges that market's currently facing. Can you help us think about the strategic rationale there and whether you're trying to solidify your positioning with larger IMBs or trying to pursue IMBs more down market versus where you were historically going?

Nima Ghamsari (CEO)

I think largely where we've been the most dominant, the biggest part of our revenue has been the banks and credit unions. We're very happy with that.

We're going to keep investing in them, making sure they're successful. IMBs are a slightly different animal. They're very loan officer-driven. They focus a lot more on things like branch-level flexibility so the branches can have some more entrepreneurial impact on the platform. What we want to do is make sure we're serving them as an independent—not to use that word independent—but independently of the rest of our business and treat that as truly a separate business unit, which allows us to create focus in both parts of the business, the bank and credit union area, as well as the IMB business. They have different needs. It's a huge part of the market. It's one that, while we've served for a long time, with this additional level of focus, I think we can really take it to the next level.

It is not necessarily about going after tiny 10, 20 unit-a-month shops or broker shops. There is a whole middle part of the IMB segment that is pretty large that we want to make sure understands that we have the best technology, that we continue to cater to them. We have already worked with some of the biggest, if not the biggest ones in the country. We want to make sure that our technology is being used across the board. Without this separation, I think it would have been much harder. This is allowing us to create a level of focus on both sides.

Aaron Kimson (Analyst)

Got it. Thanks so much.

Operator (participant)

Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Joseph, please go ahead.

Joseph Vafi (Analyst)

Hey, guys. Good afternoon. Thanks for the opportunity to ask a couple of questions here. I joined a little late.

Hopefully, these did not get asked. Just wondering, Nima, given the kind of current environment on rates, etc., has there been any change in the cadence of discussions with potential new logos? Secondly, would you expect the rapid products to be—when should we kind of really look for some real revenue contribution from the rapid products? Could it be as early as Q2, or how are you seeing the roll-out there? Thanks a lot.

Nima Ghamsari (CEO)

Yeah, I'll take the second question first. The rapid products we announced yesterday to the world, like I think we said, we have three customers live on the rapid refi products and one on the rapid home equity product. The rapid home equity product, the results are stark in the comparison between the rapid solution and our flagship solution, which is the one they have had live for years.

We're already generating revenue from the rapid products. It's still early, though. It takes time to, as you know, sell, implement, get these customers live and ramped up. Throughout the year, you should see that start to ramp up with the rapid products. Going back to your first question, with the macro, I would actually say the macro, while there's a tick up maybe in Q4, if anything, because the customers really stabilized last year, the pipeline seems to have really settled in nicely. We mentioned this in the prepared remarks, but we're up sort of 50% year-over-year in our pipeline. I think a lot of that is due to the strength of the mortgage pipeline coming back. It was sort of in most of 2023, in the first part of 2024, it was very difficult to have conversations.

Now those conversations are real. We've signed a number of really great new logos in Q4. We have more that we're working on right now in Q1. I think one of the things that I'm proud of at the team of Blend is the grit that I mentioned earlier, which is we had to go through a lot in the ups and downs to get to the point where we still have a flagship product in the space. We are the name that they want to work with. They were just maybe worried about whether it was the macro or other things in 2023 and their own issues internally in 2023 and early 2024. The fact that those things have kind of gone away has opened the door to so many new institutions, which I'm very excited about.

Joseph Vafi (Analyst)

Sure. That makes sense. Thanks a lot, Nima.

Operator (participant)

Your next question comes from the line of David Unger with Wells Fargo. David, please go ahead.

David Unger (Analyst)

Hi. Thanks for taking the questions. Just a couple of high-level ones from us. First, can you just talk through some of your headcount plans and your embedded macro assumptions in addition to what was mentioned in your prepared remarks? Start with that one first. Thanks.

Amir Jafari (CFO)

Hey, David. David, from a headcount plan perspective, obviously, the numbers aren't what we'll speak to. What we're focused on right now is making sure that, as a company, Blend is efficient, that we execute. Our plans are to make sure that we leverage, in essence, we're a company built on the backbone of our people and to make sure we invest resources in the right places that just tie to the very small kind of set of strategic actions and outcomes that we have.

We always do it in the lens of the customer ROI and making sure that we deliver value. That has stayed true, candidly, in all of 2024. It's still what stays true today, and it's likely going to be what stays true next year as well in terms of how we decide to make investments from a headcount perspective.

David Unger (Analyst)

Great. And then just to double-click a little bit, obviously, great commentary on pipeline growth of 50%. It'd be good to know which areas are seeing the most strength. And then just talking about the investment in the business and sales and marketing, how should we think about the pace of hiring? Just double-clicking that. Thank you.

Amir Jafari (CFO)

This is an area of excitement for us in the senses we just mentioned. This ties into what Nima was also sharing.

As you're seeing the opportunities increase more, one of the areas that we've obviously said in our prepared remarks, but I'll double down here, is in the world of sales and marketing, is the area that we want to actually be able to continue to invest in and actually increase our investment. We do this with, obviously, a level of diligence. We are fairly methodical in terms of the way that we operate. We make sure we monitor, again, levels of efficiency, for example, things like our magic number. More and more so, what we want to make sure is that there's clear awareness for what Blend does across the entire ecosystem. That is not just the IMBs, but across what we do as a platform, consumer banking, mortgage, and really even some of the future innovations, which, as Nima mentioned, will include AI.

Beyond awareness, we will make sure that there's the right coverage and that we serve each of the segments properly so that we can help every single one of the customers and our prospects really just unlock value. Whether that's a net new land for Blend or an expansion opportunity, that is going to be an area of investment for us.

David Unger (Analyst)

Thank you.

Operator (participant)

Your final question comes from the line of Ryan Tomasello with KBW. Ryan, please go ahead.

Ryan Tomasello (Analyst)

Hi, everyone. Thanks for taking the questions. On the next-gen refi product, I know you've already had a few questions on this, but any way to contextualize what the revenue per funded loan uplift could look like there relative to the core solution? Then how material of a ramp might we expect in 2025 there?

Nima Ghamsari (CEO)

I think it's too early to say final numbers on that, on how much it's going to increase the overall revenue per funded loan. It is materially higher revenue per funded loan because it's so much more of an automated, integrated solution. It drives consumers through that intent to proceed moment all in an integrated way. Similar on the Rapid Home Equity product, the one client that's live, it's a materially higher price point, but the ROI is there for them. Actually, the other thing that that one drives as an example is it drives higher utilization of that credit line because it's helping consolidate higher interest debts, which is good for the consumer, good for the credit union. Obviously, if those things are good there, then the ROI is a no-brainer for them to pay more for these solutions. It is materially higher.

We'll share more about that in future quarters, but it is something that we want to make these more integrated, higher ROI solutions for our customers. In exchange, we want to share in some of that upside with them.

Ryan Tomasello (Analyst)

On consumer banking, I think last year, earlier in the year, you talked about expanding that go-to-market to a broader set of customers beyond the top 40. Any updates on how that is going down market with the consumer banking strategy? It sounds like with this IMB push in mortgage, that also plays into that. Just curious how you're approaching the push down market and what type of investments that might require from a Salesforce perspective. Thanks.

Nima Ghamsari (CEO)

Yeah. Actually, it's interesting because it is a very different motion to go beyond the top 40 or 50, as you mentioned. It's a very different motion.

It's even a different packaging of the product and how you implement. It's sort of different across the board because what they want is a turnkey platform across all their product lines. They want to have something that just works quickly, drives value quickly, increases their deposits, or decreases their consumer lending turn times or increases their consumer lending take rates. It's a very different motion. We started working on that late last year, mid-last year, and we've been pushing hard on it. It's an area that we're very focused on. Still early. The pipeline is good. We're going to keep executing on it and make sure that we deliver throughout the course of the year. It's something that it does take a different approach.

It might even include things like partnerships with some of the major providers in the space because it allows us to get a bigger footprint without having to necessarily have feet inside the door of every single institution. They are already talking to major technology providers every single day. A lot of those guys want to work with us because we are the name brand. We are a product that they know is going to work for their customers. Again, while it is early, we are looking at this sort of in a completely different lens and saying from the ground up, how would we build this if we had to build this from scratch?

Ryan Tomasello (Analyst)

Great. Thanks for taking the questions.

Operator (participant)

There are no further questions at this time. That concludes today's conference call. You may now disconnect.