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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-40599

BLEND LABS, INC.
(Exact name of registrant as specified in its charter)
Delaware 45-5211045
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
415 Kearny Street
San Francisco, California 94108
(650) 550-4810
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A common stock, par value $0.00001 per share BLND New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
As of May 6, 2022, there were 219,974,986 shares of the registrant's Class A common stock outstanding, 12,633,331 shares of the registrant's Class B common stock outstanding, and no shares of the registrant's Class C common stock outstanding.



Table of Contents
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, our ability to determine reserves, and our ability to achieve and maintain future profitability;
our ability to successfully execute our business and growth strategy;
the sufficiency of our cash, cash equivalents, and marketable securities to meet our liquidity needs;
the demand for our products and services;
our ability to increase our transaction volume and to attract and retain customers;
our ability to integrate more marketplaces into our end-to-end consumer journeys;
our ability to develop new products, services, and features and bring them to market in a timely manner;
our ability to make enhancements to our current products;
our ability to compete with existing and new competitors in existing and new markets and offerings;
our ability to successfully acquire and integrate companies and assets, including our ability to integrate Title365 with our operations and our software-enabled platform;
our expectations regarding the migration of the Title365 legacy business to our software-enabled platform;
our ability to maintain the security and availability of our platform;
our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation, privacy, information security, and data protection;
our ability to manage risk associated with our business;
our expectations regarding new and evolving markets;
our ability to develop and protect our brand and reputation;
our expectations and management of future growth;
our expectations concerning relationships with third parties;
our ability to attract and retain employees and key personnel;
our ability to service our existing debt;
our ability to maintain, protect, and enhance our intellectual property;
the increased expenses associated with being a public company;
changes in economic conditions, especially those affecting the levels of real estate and mortgage activity, such as mortgage interest rates, credit availability, real estate prices, inflation, and consumer confidence; and
the impact of the ongoing COVID-19 pandemic, or a similar public health threat, and the effects of the current war in Ukraine and related sanctions, on global markets, general economic conditions in the United States and abroad, and our business and operations.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.



You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.



PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Blend Labs, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
March 31, 2022 December 31, 2021
Assets
Current assets:
Cash and cash equivalents $ 167,666  $ 213,082 
Marketable securities 331,714  334,147 
Trade and other receivables, net of allowance for credit losses of $1,669 and $1,371, respectively
33,621  34,076 
Prepaid expenses and other current assets 27,825  31,713 
Total current assets 560,826  613,018 
Property and equipment, net 5,895  6,155 
Operating lease right-of-use assets 14,245  14,713 
Intangible assets, net 168,935  173,008 
Goodwill 287,228  287,228 
Deferred contract costs 3,326  4,178 
Restricted cash, non-current 5,358  5,358 
Other non-current assets 8,617  8,828 
Total assets $ 1,054,430  $ 1,112,486 
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current liabilities:
Accounts payable $ 2,116  $ 6,160 
Deferred revenue 14,172  8,068 
Accrued compensation 13,489  18,140 
Other current liabilities 24,264  27,662 
Total current liabilities 54,041  60,030 
Operating lease liabilities, non-current 13,684  14,607 
Other non-current liabilities 8,127  13,415 
Debt, non-current, net 214,527  213,843 
Total liabilities 290,379  301,895 
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest 37,077  35,949 
Stockholders’ equity:
Preferred stock, $0.00001 par value: 200,000 shares authorized and no shares issued and outstanding as of March 31, 2022 and December 31, 2021
—  — 
Class A, Class B and Class C Common Stock, $0.00001 par value: 3,000,000 (Class A 1,800,000, Class B 600,000, Class C 600,000) shares authorized; 232,400 (Class A 219,767, Class B 12,633, Class C 0) and 230,324 (Class A 217,691, Class B 12,633, Class C 0) shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
Additional paid-in capital 1,244,466  1,218,213 
Accumulated other comprehensive loss (2,625) (808)
Accumulated deficit (514,869) (442,765)
Total stockholders’ equity 726,974  774,642 
Total liabilities, redeemable noncontrolling interest and stockholders’ equity $ 1,054,430  $ 1,112,486 
See accompanying notes to condensed consolidated financial statements
1


Blend Labs, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
2022 2021
Revenue $ 71,524  $ 31,875 
Cost of revenue 42,655  10,860 
Gross profit 28,869  21,015 
Operating expenses:
Research and development 35,106  17,074 
Sales and marketing 22,341  15,865 
General and administrative 37,102  15,283 
Amortization of acquired intangible assets 4,068  — 
Total operating expenses 98,617  48,222 
Loss from operations (69,748) (27,207)
Interest expense (5,558) — 
Other income (expense), net 91  150 
Loss before income taxes (75,215) (27,057)
Income tax benefit (expense) 2,797  (10)
Net loss (72,418) (27,067)
Less: Net loss attributable to noncontrolling interest 314  — 
Net loss attributable to Blend Labs, Inc. (72,104) (27,067)
Less: Accretion of redeemable noncontrolling interest to redemption value (1,442) — 
Net loss attributable to Blend Labs, Inc. common stockholders $ (73,546) $ (27,067)
Net loss per share attributable to Blend Labs, Inc. common stockholders:
Basic and diluted $ (0.32) $ (0.60)
Weighted average shares used in calculating net loss per share:
Basic and diluted 230,329  45,090 
Comprehensive loss:
Net loss $ (72,418) $ (27,067)
Unrealized (loss) gain on marketable securities (1,845) 15 
Foreign currency translation gain 28  — 
Comprehensive loss (74,235) (27,052)
Less: Comprehensive loss attributable to noncontrolling interest 314  — 
Comprehensive loss attributable to Blend Labs, Inc. $ (73,921) $ (27,052)
See accompanying notes to condensed consolidated financial statements
2


Blend Labs, Inc.
Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity
(In thousands)
(Unaudited)
Three Months Ended March 31, 2022
Redeemable Noncontrolling Interest Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount
Balances as of December 31, 2021     $ 35,949  230,324  $ $ 1,218,213  $ (808) $ (442,765) $ 774,642 
Issuance of common stock upon exercise of stock options, net of repurchases —  1,553  —  1,740  —  —  1,740 
Vesting of early exercised stock options
—  —  —  1,913  —  —  1,913 
Vesting of restricted stock units
—  523  —  —  —  —  — 
Stock-based compensation —  —  —  24,312  —  —  24,312 
Unrealized loss on investments in marketable securities —  —  —  —  (1,845) —  (1,845)
Foreign currency translation gain —  —  —  —  28  —  28 
Accretion of redeemable noncontrolling interest to redemption value 1,442  —  —  (1,442) —  —  (1,442)
Other —  —  —  (270) —  —  (270)
Net loss (314) —  —  —  —  (72,104) (72,104)
Balances as of March 31, 2022     $ 37,077  232,400  $ $ 1,244,466  $ (2,625) $ (514,869) $ 726,974 
See accompanying notes to condensed consolidated financial statements
















3



Blend Labs, Inc.
Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (Continued)
(In thousands)
(Unaudited)
Three Months Ended March 31, 2021
Founders Preferred and Convertible Preferred Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount Shares Amount
Balances as of December 31, 2020     122,379  $ 385,225  47,948  $ $ 50,968  $ (5) $ (272,852) 163,337 
Issuance of Series G Convertible Preferred Stock, net of issuance costs of $299
22,419  309,701  —  —  —  —  —  309,701 
Exercise of Convertible Preferred Stock warrants 2,075  8,014  —  —  —  —  —  8,014 
Issuance of common stock upon exercise of stock options, net of repurchases —  —  4,773  —  4,172  —  —  4,172 
Vesting of early exercised stock options —  —  —  —  157  —  —  157 
Vesting of performance-based Convertible Preferred Stock warrants —  —  —  —  118  —  —  118 
Stock-based compensation —  —  —  —  4,016  —  —  4,016 
Other comprehensive income —  —  —  —  —  15  —  15 
Net loss —  —  —  —  —  —  (27,067) (27,067)
Balances as of March 31, 2021     146,873  $ 702,940  52,721  $ $ 59,431  $ 10  $ (299,919) $ 462,463 
See accompanying notes to condensed consolidated financial statements
4


Blend Labs, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31,
2022 2021
Operating activities
Net loss $ (72,418) $ (27,067)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation 24,312 4,016
Depreciation and amortization 4,601 823
Amortization of deferred contract costs 1,244 1,319
Amortization of debt discount and issuance costs 709
Amortization of operating lease right-of-use assets 785 593
Release of valuation allowance and change in deferred taxes (2,864)
Other 1,049 481
Changes in operating assets and liabilities:
Trade and other receivables 409 133
Prepaid expenses and other assets, current and non-current 2,830 (3,728)
Deferred contract costs, non-current 852 858
Accounts payable (4,314) 509
Deferred revenue 6,104 777
Accrued compensation (4,651) (1,804)
Operating lease liabilities (958) (665)
Other liabilities, current and non-current (3,532) 3,361
Net cash used in operating activities (45,842) (20,394)
Investing activities
Purchases of marketable securities (30,450) (25,400)
Maturities of marketable securities 30,035 34,850
Purchases of property and equipment (268) (302)
Purchase of other investment (3,000)
Net cash (used in) provided by investing activities (683) 6,148
Financing activities
Proceeds from exercises of stock options, including early exercises, net of repurchases 1,202 5,750
Proceeds from issuance of Convertible Preferred Stock, net of issuance costs 309,701
Payment of initial public offering costs (121) (158)
Proceeds from exercises of Convertible Preferred Stock warrants 10,172
Net cash provided by financing activities 1,081 325,465
Effect of exchange rates on cash, cash equivalents, and restricted cash 28
Net (decrease) increase in cash, cash equivalents, and restricted cash (45,416) 311,219
Cash, cash equivalents, and restricted cash at beginning of period 218,440 46,288
Cash, cash equivalents, and restricted cash at end of period $ 173,024 $ 357,507
Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets:
Cash and cash equivalents $ 167,666 $ 352,311
Restricted cash 5,358 5,196
Total cash, cash equivalents, and restricted cash $ 173,024 $ 357,507
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 11 $ 25
Cash paid for interest $ 4,944 $
Supplemental disclosure of non-cash investing and financing activities:
Vesting of early exercised stock options $ 1,913 $ 157
Right-of-use assets obtained in exchange for lease obligations $ 317 $
Accretion of redeemable noncontrolling interest to redemption value $ 1,442 $
See accompanying notes to condensed consolidated financial statements
5

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







1. Description of Business and Basis of Presentation
Description of Business
Blend Labs, Inc. (the “Company,” “Blend,” “we,” “us,” or “our”) was incorporated on April 17, 2012. The Company offers a cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for banking products. The Company’s solutions make the journey from application to close fast, simple, and transparent for consumers, while helping financial services firms increase productivity, deepen customer relationships, and deliver exceptional consumer experiences.

On June 30, 2021, the Company acquired a 90.1% interest in Title365, an underwritten title insurance agency engaged in selling title insurance policies and escrow services throughout the United States. Integrating Title365 with the Company’s software platform enables financial services firms to automate title commitments and streamline communication with consumers and settlement teams, enabling the customers to accelerate the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans.
Basis of Presentation, Principles of Consolidation, and Use of Estimates
The accompanying unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, the unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the unaudited condensed consolidated statements of redeemable noncontrolling interest and stockholders’ equity for the three months ended March 31, 2022 and 2021, and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 reflect all adjustments that are of a normal, recurring nature and that are considered necessary for a fair presentation of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted that would ordinarily be required under U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The accompanying unaudited condensed consolidated financial statements include the accounts of Blend Labs, Inc. and its subsidiaries in which the Company holds a controlling financial interest. Noncontrolling interest represents the minority stockholder’s share of the net income and equity in a consolidated subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the amounts reported in the consolidated financial statements and the notes thereto. Actual results may differ from those estimates. Such estimates include, but are not limited to, estimates of variable consideration, estimates of standalone selling prices of performance obligations in customer contracts with multiple performance obligations, evaluation of contingencies, evaluation of collectability of accounts receivable, determination of reserves for title and escrow losses, determination of period of benefit for deferred contract costs, determination of the incremental borrowing rates used in calculations of lease liabilities, determination of fair value of stock-based compensation, determination of fair value of warrants, valuation of deferred tax assets, valuation of acquired intangible assets, valuation of the redeemable noncontrolling interest, determination of useful lives of tangible and intangible assets, and assessment of impairment of goodwill and intangible assets.
Initial Public Offering and Capital Structure Change
On July 20, 2021, the Company completed its initial public offering (the “IPO”), with a subsequent partial exercise of the underwriters’ option to purchase additional shares on August 17, 2021. The Company issued and sold an aggregate of 22,468,111 shares of Class A common stock, par value $0.00001, at an offering price of $18.00 per share, and received aggregate net proceeds of $366.7 million, after deducting underwriters' discounts and commissions of $27.3 million and offering expenses of $10.4 million.

6

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Immediately prior to the completion of the IPO, the Company filed an Amended and Restated Certificate of Incorporation, which authorized the issuance of 3,200,000,000 shares of capital stock, $0.00001 par value per share, consisting of: 1,800,000,000 shares of Class A common stock; 600,000,000 shares of Class B common stock; 600,000,000 shares of Class C common stock; and 200,000,000 shares of preferred stock.

Upon the effectiveness of the filing of the Amended and Restated Certificate of Incorporation, (i) all outstanding shares of Convertible Preferred Stock converted into 146,872,568 shares of Class A common stock, (ii) all outstanding shares of Class A common stock converted into shares of Class B common stock on a one-for-one basis, (iii) all shares of Class A common stock were reclassified as Class B common stock and all shares of Class B common stock were reclassified as Class A common stock, and (iv) 12,883,331 shares of Class A common stock (as reclassified) beneficially owned by the Co-Founder and Head of Blend were exchanged for an equivalent number of shares of Class B common stock.

At the completion of the IPO, 214,132,175 shares of Class A common stock and 12,883,331 shares of Class B common stock were issued and outstanding. No shares of Class C common stock or preferred stock were issued and outstanding.

The following is a summary of the rights of the holders of the Company’s capital stock:
Common Stock
Subsequent to the IPO, the Company has three classes of authorized common stock: Class A common stock, Class B common stock, and Class C common stock. The rights of the holders of Class A common stock, Class B common stock, and Class C common stock are identical, except with respect to voting and conversion.
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive dividends out of funds legally available if the Company’s board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Company’s board of directors may determine.
Voting Rights
Holders of the Class A common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, holders of the Class B common stock are entitled to 40 votes for each share held on all matters submitted to a vote of stockholders, and holders of the Class C common stock are not entitled to vote on any matter that is submitted to a vote of stockholders, except as otherwise required by law. The holders of the Class A common stock and Class B common stock will vote together as a single class, unless otherwise required by law. At the completion of the IPO, the Co-Founder and Head of Blend held all of the issued and outstanding shares of the Company’s Class B common stock.
No Preemptive or Similar Rights
The Company’s common stock is not entitled to preemptive rights and is not subject to conversion, redemption, or sinking fund provisions.
Right to Receive Liquidation Distributions
If the Company becomes subject to a liquidation, dissolution, or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of the Company’s common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
7

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Conversion of Class B Common Stock
Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. Shares of Class B common stock will automatically convert into shares of Class A common stock upon sale or transfer except for certain transfers described in the Amended and Restated Certificate of Incorporation, such as certain transfers effected for estate planning or charitable purposes.
Conversion of Class C Common Stock
After the conversion or exchange of all outstanding shares of the Company’s Class B common stock into shares of Class A common stock, all outstanding shares of Class C common stock will convert automatically into Class A common stock, on a share-for-share basis, on the date or time specified by the holders of a majority of the outstanding shares of Class A common stock, voting as a separate class.
Preferred Stock
The Company’s board of directors has the authority to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by the Company’s stockholders.
Reverse Stock Split
On June 29, 2021, the Company’s board of directors approved a three-for-one reverse stock split of its capital stock, which the Company’s stockholders subsequently approved on July 2, 2021 and which became effective on July 2, 2021. The authorized number of shares of each class and series of the Company’s capital stock was proportionally decreased in accordance with the three-for-one reverse stock split, and the par value of each class of capital stock was not adjusted as a result of the reverse stock split. All common stock, Convertible Preferred Stock, stock options, warrants, and per share information presented within these consolidated financial statements have been adjusted to reflect this reverse stock split on a retroactive basis for all periods presented.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to these policies during the three months ended March 31, 2022.
Cash and Cash Equivalents
The Company places its cash with high credit quality and federally insured institutions. Cash with any one institution may be in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes the exposure to credit risk is not significant. The Company considers all highly liquid investments with an original maturity date of three months or less at the time of purchase to be cash equivalents. As of March 31, 2022 and December 31, 2021, cash and cash equivalents consisted of cash, money market accounts, and highly liquid investments. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair value due to the short-term nature of the maturities.
Restricted Cash
The Company has classified cash that is not available for use in its operations as restricted cash. Restricted cash consists primarily of collateral for letters of credit related to security deposits for the Company’s office facility lease arrangements. As of both March 31, 2022 and December 31, 2021, the Company had restricted cash of $5.4 million, all of which was classified as non-current.
8

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Escrow or Trust Funds
The Company administers escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and undisbursed amounts received for settlement of mortgage and home equity loans. Cash held by the Company for these purposes was approximately $21.1 million, net of outstanding checks in transit of $56.4 million as of March 31, 2022. Cash held by the Company for these purposes was approximately $27.0 million, net of outstanding checks in transit of $56.2 million as of December 31, 2021. These funds are not considered assets of the Company and, therefore, are not included in the accompanying unaudited condensed consolidated balance sheets; however, the Company remains contingently liable for the disposition of these funds on behalf of its customers.
Trade and Other Receivables and Credit Loss Reserves
The Company reports trade and other receivables net of the allowance for credit losses, in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments—Credit Losses. ASC 326 requires an entity to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company’s estimate of expected credit losses is determined based on expected lifetime loss rates calculated from historical data and adjusted for the impact of current and future conditions, such as the age of outstanding receivables, historical payment patterns, any known or expected changes to the customers’ ability to fulfill their payment obligations, or assessment of broader economic conditions that may impact the customers’ ability to pay the outstanding balances. As of March 31, 2022, the reserve for expected credit losses was $1.7 million. The provision for expected credit losses was $0.3 million for the three months ended March 31, 2022. The uncollectible portion of the receivables written off against reserve for expected credit losses was not material for the three months ended March 31, 2022. As of December 31, 2021, the reserve for expected credit losses was $1.4 million.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable securities, and trade accounts receivable. The Company maintains its cash equivalents primarily in money market funds and highly liquid investments that are issued or guaranteed by the United States government or its agencies. Collateral is not required for trade accounts receivable.

Title365 has agreements with insurance underwriters authorizing the Company to issue title insurance policies on behalf of the insurance underwriters. During the three months ended March 31, 2022, the policies were underwritten by two title insurance companies, which accounted for approximately 62% and 38%, respectively, of title policy fees earned during the period.

The following customers, which generate revenue in both Blend Platform and Title365 segments, comprised 10% or more of the Company’s revenue for the following periods.

Three Months Ended March 31,
Customer
2022 2021
A
N/A1
13%
B 36%
N/A1
(1) revenue from this customer did not exceed 10% for the period presented

The following customers comprised 10% or more of the Company’s trade and unbilled receivables:

Customer
March 31, 2022 December 31, 2021
A 10%
N/A1
B 31% 29%
(1) trade and unbilled receivable balance from this customer did not exceed 10% as of the date presented
9

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Cloud Computing Arrangements
The Company capitalizes certain implementation costs incurred under cloud computing arrangements that are service contracts. Capitalized costs incurred during the application development stage related to the implementation of the hosting arrangements were $1.1 million as of March 31, 2022, of which $0.7 million is presented within prepaid expenses and other current assets, and $0.4 million is presented within other non-current assets on the unaudited condensed consolidated balance sheets. Capitalized costs incurred during the application development stage related to the implementation of the hosting arrangements were $0.7 million as of December 31, 2021, of which $0.3 million is presented within prepaid expenses and other current assets, and $0.4 million is presented within other non-current assets on the unaudited condensed consolidated balance sheets. Amortization of capitalized implementation costs is recognized on a straight-line basis over the term of the associated hosting arrangement when it is ready for its intended use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred.
Title and Escrow Loss Reserve
In the Title365 segment, the Company performs title insurance services and issues a title insurance policy as an agent for a third-party title insurance underwriter. The Company pays part of the title insurance policy fee charged to its customers to the third-party title insurance underwriter as compensation for accepting the risk associated with issuing the title policy. The Company may incur a loss if it does not follow the guidelines outlined in the agency agreements, and in the state of California, the Company is obligated to reimburse the insurance company for up to the first $5,000 in losses related to a claim on a policy issued through Title365. Reserves for estimated future losses on policies issued are established at the time the title insurance revenue is recognized in accordance with ASC 450, Contingencies, and are based on claim loss history, industry trends, legal environment, geographic considerations, and the type of title insurance policies written. As of March 31, 2022 and December 31, 2021, title and escrow loss reserves were $1.6 million, of which $0.2 million is presented within other current liabilities and $1.4 million is presented within other non-current liabilities on the unaudited condensed consolidated balance sheets.
Redeemable Noncontrolling Interest
The Company’s 90.1% ownership of Title365 results in recognition of 9.9% noncontrolling interest, which represents the minority stockholder’s share of the net income and equity in Title365. The Title365 stockholders agreement includes a provision whereby the Company has a call option to purchase the 9.9% noncontrolling interest at a purchase price equal to the greater of (1) $49.5 million plus an amount of interest calculated using an interest rate of 5.0% per annum compounding annually; or (2) 4.4 multiplied by the trailing 12-month EBITDA multiplied by the noncontrolling interest ownership percentage (the “Title365 Call Option”). The Title365 Call Option is exercisable beginning 2 years following the acquisition closing date. The noncontrolling interest holder also holds an option to compel the Company to purchase the remaining 9.9% noncontrolling interest at a price calculated in the same manner as the Title365 Call Option (the “Title365 Put Option”). The Title365 Put Option is exercisable beginning 5 years following the acquisition closing date. Neither the Title365 Call Option nor the Title365 Put Option have an expiration date. As the Title365 Put Option is not solely within the Company’s control, the Company classified this interest as redeemable noncontrolling interest (“RNCI”) within the mezzanine equity section of the unaudited condensed consolidated balance sheets. The RNCI is accreted to the redemption value under the interest method from the acquisition date through the date the Title365 Put Option becomes exercisable. At each balance sheet date, the RNCI is reported at the greater of the initial carrying amount adjusted for the RNCI's share of earnings or losses and other comprehensive income or loss, or its accreted redemption value. The changes in the redemption amount are recorded with corresponding adjustments against retained earnings or, in the absence of retained earnings, additional paid-in-capital. For each reporting period, the entire periodic change in the redemption amount is reflected in the computation of net loss per share under the two-class method as being akin to a dividend. As of March 31, 2022, the redemption amount of the Title365 Put Option as if it was currently redeemable was $51.4 million.






10

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







JOBS Act Accounting Election
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies (that is, those that have not had a Securities Act of 1933, as amended (the “Securities Act”), registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Company intends to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848), with amendments in 2021. This update provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The guidance simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity separately from the host convertible debt or preferred stock. The guidance is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning January 1, 2024. ASU 2020-06 should be applied on a full or modified retrospective basis and early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-18, Business Combinations: Accounting for Contract Assets and Contract Liabilities with Customers (Topic 805). This guidance requires an acquirer in a business combination to use principles in ASC 606 to recognize and measure contract assets and liabilities rather than fair value. The guidance is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning January 1, 2023. ASU 2021-18 should be applied retrospectively to all business combinations that have occurred since the beginning of the annual period that includes the interim period of adoption. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
3. Revenue Recognition and Contract Costs
Disaggregation of Revenue
The following table provides information about disaggregated revenue by service offering:

Three Months Ended March 31,
2022 2021
(In thousands)
Blend Platform revenue:
Mortgage Banking $ 24,484  $ 26,435 
Consumer Banking and Marketplace 7,187  4,648 
Professional Services 1,122  792 
Total Blend Platform revenue 32,793  31,875 
Title365 revenue 38,731  — 
Total revenue $ 71,524  $ 31,875 
11

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








Mortgage Banking revenue represents revenue related to mortgage transactions processed through the Company’s software platform. Consumer Banking and Marketplace revenue represents revenue related to the Company’s integrated software solutions outside of mortgage banking transactions, such as consumer banking revenue (home equity, personal loans, deposit accounts, and all other consumer banking products), ancillary product revenue (income verification and close products), and marketplace revenue (title, insurance, and realty products). Professional Services revenue represents revenue related to the deployment of the Company’s software platform and consulting services. Title365 revenue represents revenue related to title, escrow and other closing and settlement services provided by the Title365 segment.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers:

Contract Accounts
Balance Sheet Line Reference
As of March 31, 2022 As of December 31, 2021
(In thousands)
Contract assets—current Prepaid expenses and other current assets $ 2,559  $ 5,359 
Contract liabilities—current Deferred revenue, current $ (14,172) $ (8,068)

There were no long-term contract assets or deferred revenue as of March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Company recognized $4.4 million and $6.9 million, respectively, of revenue that was included in the deferred revenue balances at the beginning of the respective periods.

During the three months ended March 31, 2022, revenue from performance obligations satisfied in previous periods was not material. During the three months ended March 31, 2021, the Company recognized approximately $5.6 million of revenue from performance obligations satisfied in previous periods. The revenue recognized from performance obligations satisfied in the prior periods primarily related to changes in the transaction price, including changes in the estimate of variable consideration.
Remaining Performance Obligations
As of March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations was $64.6 million. These remaining performance obligations do not include estimates of variable consideration associated with usage-based contracts with termination rights and professional services. The expected timing of recognizing revenue for the transaction price allocated to the remaining performance obligations as of March 31, 2022 was as follows:

(In thousands)
Within one year $ 36,733 
More than one year 27,851 
Total transaction price allocated to the remaining performance obligations $ 64,584 
Deferred Contract Costs
As of March 31, 2022 and December 31, 2021, total unamortized deferred contract costs were $7.5 million and $8.7 million, respectively, of which $4.2 million and $4.5 million was recorded within prepaid expenses and other current assets and $3.3 million and $4.2 million was recorded within deferred contract costs, non-current, on the unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

The amortization of deferred contract costs was $1.2 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively, and is included in sales and marketing expense in the accompanying unaudited condensed consolidated statements of operations.
12

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







4. Investments in Marketable Securities and Fair Value Measurements
The carrying amount, unrealized gain and loss, and fair value of investments in marketable securities by major security type were as follows:

March 31, 2022
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value
Fair Value Hierarchy
(In thousands)
Cash equivalents:  
 
 
 
Money market funds $ 2,572  $ —  $ —  $ 2,572  Level 1
Commercial paper 2,898  —  —  2,898  Level 2
Total cash equivalents 5,470  —  —  5,470 
Marketable securities:
U.S. treasury and agency securities 270,719  —  (2,506) 268,213  Level 2
Commercial paper 26,026  (12) 26,015  Level 2
Debt securities 32,612  —  (126) 32,486  Level 2
Certificates of deposit 5,000  —  —  5,000  Level 2
Total marketable securities 334,357  (2,644) 331,714 
Restricted cash, non-current:
Certificates of deposit 335  —  —  335  Level 2
Total $ 340,162  $ $ (2,644) $ 337,519 

December 31, 2021
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value
Fair Value Hierarchy
(In thousands)
Cash equivalents:  
 
 
 
Money market funds $ 2,357  $ —  $ —  $ 2,357  Level 1
Commercial paper 2,150  —  —  2,150  Level 2
Total cash equivalents 4,507  —  —  4,507 
Marketable securities:
U.S. treasury and agency securities 269,393  —  (745) 268,648  Level 2
Commercial paper 27,187  —  (7) 27,180  Level 2
Debt securities 33,366  —  (47) 33,319  Level 2
Certificates of deposit 5,000  —  —  5,000  Level 2
Total marketable securities 334,946  —  (799) 334,147 
Restricted cash, non-current:
Certificates of deposit 335  —  —  335  Level 2
Total $ 339,788  $ —  $ (799) $ 338,989 

The Company reports its investments in marketable securities at fair value on the consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:

Level 1—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

13

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Level 2—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

The fair value of the Company’s marketable securities classified as Level 2 of the fair value hierarchy is based on quoted market prices for similar instruments.

The following table summarizes the stated maturities of the Company’s marketable securities:

March 31, 2022 December 31, 2021
(In thousands)
Due within one year $ 331,714  $ 202,895 
Due after one year through two years —  131,252 
Total marketable securities $ 331,714  $ 334,147 

The Company evaluates marketable securities in unrealized loss position to determine whether the impairment is due to credit-related factors or other factors. The Company considers the extent to which the fair value is less than cost, the financial condition and near-term prospects of the security issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

The Company does not have an intent to sell any of these securities prior to maturity and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date. Accordingly, as of March 31, 2022, the Company believes that the unrealized losses are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no impairment losses have been recognized in the Company’s unaudited condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, the number of investment positions that are in an unrealized loss position were 65 and 57, respectively. As of March 31, 2022 and December 31, 2021, the Company had no securities that have been in a continuous unrealized loss position for twelve months or greater. The Company determines realized gains or losses on the sale of marketable securities based on a specific identification method.

Accrued interest receivable related to marketable securities was $1.0 million and $1.2 million, as of March 31, 2022 and December 31, 2021, respectively, and is presented within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. The Company does not measure an allowance for credit losses on accrued interest receivable and recognizes interest receivable write offs as a reversal of interest income. No accrued interest was written off during the three months ended March 31, 2022 and 2021.
14

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







5. Goodwill and Intangible Assets
Goodwill
There have been no changes in the carrying amount of goodwill for the three months ended March 31, 2022.
Intangible Assets
Intangible assets consisted of the following:

March 31, 2022
Weighted Average Remaining Amortization Gross Amount Accumulated Amortization Net Book Value
(In Years) (In thousands)
Intangible assets subject to amortization:
Acquired customer relationships 10.3 $ 179,000  $ (12,205) $ 166,795 
Internally developed software 11,391  (11,391) — 
Domain name 9.3 210  (70) 140 
Total finite-lived intangible assets, net 10.2 190,601  (23,666) 166,935 
Indefinite-lived intangible assets:
Acquired licenses 2,000  —  2,000 
Total intangible assets, net $ 192,601  $ (23,666) $ 168,935 

December 31, 2021
Weighted Average Remaining Amortization Gross Amount Accumulated Amortization Net Book Value
(In Years) (In thousands)
Intangible assets subject to amortization:
Acquired customer relationships 10.5 $ 179,000  $ (8,136) $ 170,864 
Internally developed software 11,391  (11,391) — 
Domain name 9.5 210  (66) 144 
Total finite-lived intangible assets, net 10.5 190,601  (19,593) 171,008 
Indefinite-lived intangible assets:
Acquired licenses 2,000  —  2,000 
Total intangible assets, net $ 192,601  $ (19,593) $ 173,008 

Amortization of intangible assets for the three months ended March 31, 2022 and 2021 was $4.1 million and $0.5 million, respectively.

15

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Total future amortization expense as of March 31, 2022 was as follows:

(In thousands)
Remainder of 2022 $ 12,216 
2023 16,289 
2024 16,289 
2025 16,289 
2026 16,289 
Thereafter 89,563 
Total future amortization expense $ 166,935 
6. Significant Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
March 31, 2022 December 31, 2021
(In thousands)
Contract assets $ 2,559  $ 5,359 
Deferred contract costs 4,229  4,564 
Prepaid insurance 3,551  6,521 
Prepaid other 8,601  7,743 
Recording fee advances 4,651  4,243 
Other current assets 4,234  3,283 
Total prepaid expenses and other current assets $ 27,825  $ 31,713 

Recording fee advances represent amounts advanced on behalf of customers in the Title365 segment associated with the recording of mortgage documents. These amounts are primarily recouped within 30 days from funds in the escrow accounts the Company administers.
Property and Equipment, Net
Property and equipment, net, consisted of the following:

March 31, 2022 December 31, 2021
(In thousands)
Computer and software $ 4,413  $ 4,287 
Furniture and fixtures 1,542  1,559 
Leasehold improvements 5,068  4,940 
Total property and equipment, gross 11,023  10,786 
Accumulated depreciation and amortization (5,128) (4,631)
Total property and equipment, net $ 5,895  $ 6,155 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $0.5 million and $0.3 million, respectively.
16

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







Note Receivable
In January 2021, the Company made a $3.0 million investment in a privately-held company via a convertible promissory note. Interest accrues at 2% per annum and outstanding principal and accrued interest is due and payable at the earliest of (i) 60 months from the execution of the note, (ii) an initial public offering, or (iii) change in control, unless otherwise converted to shares of the issuer. The outstanding principal and unpaid accrued interest are convertible into 4,500,000 shares of the issuer’s Series Seed Preferred Stock at the option of the issuer, upon a change in control, upon the issuer’s initial public offering, or upon a qualified equity financing. The conversion option is not bifurcated from the promissory note as the option does not meet the net settlement criteria of a derivative instrument due to the option not being readily convertible to cash. The Company also has a call option to merge the issuer with the Company for aggregate consideration of $500.0 million. The value of the call option was determined to be inconsequential. The note receivable is presented within other non-current assets on the unaudited condensed consolidated balance sheets.
Investments in Non-Marketable Equity Securities
In September 2021, the Company made a $2.5 million equity investment in a privately-held company in exchange for 103,611 shares of Series Growth 1a Preferred Stock. This investment in the equity securities without readily determinable fair value was initially recorded at cost. Subsequently, this investment is measured at cost, less impairment, if any, plus or minus observable price changes in orderly transactions of an identical or similar investment of the same issuer. There were no impairments or adjustments for observable price changes for the three months ended March 31, 2022. This investment is presented within other non-current assets on the unaudited condensed consolidated balance sheets.
Other Current Liabilities
Other current liabilities consisted of the following:

March 31, 2022 December 31, 2021
(In thousands)
Accrued expenses $ 5,615  $ 5,798 
Accrued interest 3,222  3,397
Accrued professional fees 4,402  3,085
Accrued connectivity fees 3,800  4,753
Operating lease liabilities, current portion 4,138  3,856
Payable to Title365 noncontrolling interest holder under transition services agreement 2,201  5,549 
Other 886  1,224 
Total other current liabilities $ 24,264  $ 27,662 

Other Long-Term Liabilities
Other long-term liabilities consisted of the following:

March 31, 2022 December 31, 2021
(In thousands)
Deferred tax liabilities $ —  $ 2,864 
Early exercise liabilities 4,547  6,998 
Payroll tax liabilities 1,513  1,457
Other liabilities 2,067  2,096 
Total other long-term liabilities $ 8,127  $ 13,415 
17

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







7. Leases
The Company leases its facilities under non-cancelable operating leases with various expiration dates. Leases may contain escalating payments. Restricted cash that is not available for use in operations consists of collateral for standby letters of credit related to the Company’s office lease facilities. Restricted cash balances related to lease obligations as of March 31, 2022 and December 31, 2021 were $5.0 million.

The Company’s total operating lease costs were $1.8 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s total operating lease costs include variable costs in the amount of $0.5 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively. Variable lease costs are primarily comprised of maintenance costs and are determined based on the actual costs incurred during the period. Variable lease payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

As of March 31, 2022 and December 31, 2021, the weighted average remaining operating lease term was 4.0 years and 4.3 years, respectively. The weighted average discount rate used to estimate operating lease liabilities for leases that existed as of March 31, 2022 and December 31, 2021 was 7.4% and 7.3%, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $1.3 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, maturities of operating lease liabilities were as follows:

(In thousands)
Remainder of 2022 $ 3,652 
2023 5,525 
2024 5,249 
2025 3,744 
2026 1,048 
Thereafter 1,605 
Total lease payments 20,823 
Less: imputed interest (3,001)
Total operating lease liabilities $ 17,822 
8. Commitments and Contingencies
Contingencies
From time to time and in the normal course of business, the Company may be subject to various legal matters, such as threatened or pending claims or proceedings. There were no such material matters as of March 31, 2022 or December 31, 2021.

Warranties, Indemnifications, and Contingent Obligations
The Company’s platform, products, and services are generally warranted to perform substantially as described in the associated documentation and to satisfy defined levels of uptime reliability. The service-level agreements that provide for defined levels of uptime reliability and performance permit the customers to receive credits or to terminate their agreements in the event that the Company fails to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of reliability and performance as a result of those agreements and historically the Company has not incurred any material costs associated with warranties. Accordingly, the Company has not accrued any liabilities related to these agreements in the unaudited condensed consolidated financial statements.

18

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







The Company enters into indemnification provisions under (i) its agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers, and landlords and (ii) its agreements with investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2022 or December 31, 2021.

The Company has agreed to indemnify its officers and directors to the fullest extent permitted by its amended and restated bylaws and the General Corporation Law of the State of Delaware for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The coverage applies only to acts that occurred during the tenure of the officer or director and has an unlimited term. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of March 31, 2022 or December 31, 2021.
9. Business Combinations
On June 30, 2021, the Company acquired 90.1% of the shares of common stock of Title365, an underwritten title insurance company engaged in the business of selling title insurance policies and escrow services throughout the United States, from Mr. Cooper Group Inc (“Mr. Cooper”). The Title365 acquisition will enable the Company’s customers to streamline the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans.

The total purchase consideration was $417.7 million, of which $416.8 million was cash consideration. The preliminary purchase price allocation is as follows:

June 30, 2021
Preliminary identifiable assets acquired and liabilities assumed (In thousands)
Cash and cash equivalents $ 16,500 
Trade and other receivables 13,848 
Prepaid expenses and other current assets 7,906 
Property and equipment, net 1,048 
Operating lease right-of-use assets 3,520 
Intangible assets 181,000 
Restricted cash, non-current 335 
Accounts payable (1,165)
Accrued compensation (3,492)
Other current liabilities (10,911)
Operating lease liabilities, non-current (1,963)
Other long-term liabilities (42,403)
Net identifiable assets 164,223 
Redeemable noncontrolling interest (33,748)
Goodwill 287,228 
Total purchase consideration $ 417,703 

19

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







June 30, 2021
Fair value of consideration transferred (In thousands)
Cash consideration $ 416,848 
Fair value of replacement share-based payment awards 855 
Total purchase consideration $ 417,703 

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net identifiable assets acquired was allocated to goodwill, which is not expected to be deductible for tax purposes. However, ASC 805-740-30-3 requires that changes in assumptions about the realizability of an acquirer's valuation allowance as a result of a business combination are recorded separately from the business combination accounting. The goodwill, which was recorded to the Title365 segment, predominantly arises due to synergies the Company expects to achieve through integration of Title365 with the Company’s existing software platform, enabling financial services firms to automate title commitments and streamline communication with consumers and settlement teams.

The acquired intangible assets consist of the following:

Fair Value Estimated Useful Life
(In thousands) (In years)
Customer relationships $ 179,000  11
Licenses 2,000  Indefinite
Total intangible assets $ 181,000 

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of the Title365 business. The fair value of customer relationships was estimated using the multi-period excess earnings method. The significant assumptions used in the valuation included the estimated annual net cash flows expected to be generated from the acquired customer portfolio (including appropriate revenue and profit attributable to the asset, attrition curve, tax rate, contributory asset charges, among other factors) and the discount rate. The economic useful life was determined by evaluating several factors, including the estimated cash flows used in the valuation.

Licenses represent intangible assets that legally entitle the Company to conduct business in certain states. The fair value of licenses was determined using the replacement cost method. The significant assumptions used in the valuation included the estimated employee costs and other costs per license application.

Restricted cash consists of certificates of deposit maintained to comply with regulatory requirements.

Other long-term liabilities represents the deferred tax liability resulting primarily from the allocation of a portion of the purchase consideration to non-deductible identifiable intangible assets.

The redemption value of the noncontrolling interest is based on the greater of (1) $49.5 million plus an amount of interest calculated using an interest rate of 5.0% per annum compounding annually; or (2) 4.4 multiplied by the trailing 12-month EBITDA multiplied by the noncontrolling interest ownership percentage. As such, the fair value of the redeemable noncontrolling interest in Title365 was determined using a Monte Carlo simulation whereby a range of possible scenarios of future EBITDA was considered. In each scenario an analysis was performed to determine the optimal decision for the Company on the timing to exercise the call option. Based on the optimal decision in each simulation, the payoff was discounted to the acquisition date and the average of the discounted payoff across the simulation paths was determined to represent the fair value of the noncontrolling interest.
20

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








The allocation of purchase price to acquired net identifiable assets is preliminary as the review of tax returns that provide the underlying tax basis of Title365 assets and liabilities is not yet complete, thus the provisional measurements of fair value of deferred tax liabilities set forth above are subject to change. The Company expects to finalize the allocation of the purchase price as soon as practical, but not later than one year from the acquisition date.

Title365 revenue for three months ended March 31, 2022 was approximately $38.7 million, and Title365 net loss was approximately $3.2 million.
Unaudited Pro Forma Financial Information
The following unaudited pro forma information gives effect to the acquisition of Title365 as if it had been completed on January 1, 2021 (the beginning of the comparable prior reporting period). The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2021, nor does it attempt to represent the results of future operations of the combined entities under the ownership and operation of the Company. The pro forma results of operations also do not include any cost savings or other synergies that may result from this business combination or any estimated costs that have been or will be incurred by the Company to integrate the acquired assets. These pro forma results are based on estimates and assumptions, and include the business combination accounting effects resulting from the transaction, including the amortization charges from acquired intangible assets, employee retention costs, interest expense associated with the credit facility proceeds, which were utilized to partially fund the payment of the purchase consideration, and other purchase accounting adjustments and the related tax effects as though the Company and Title365 were combined as of the beginning of January 1, 2021.

Three Months Ended March 31,
2022 2021
(In thousands)
Revenues(1)
$ 71,524  $ 99,662 
Net loss $ (71,627) $ (19,109)
Net (loss) income attributable to redeemable noncontrolling interest $ (220) $ 1,147 
Net loss attributable to Blend Labs, Inc. $ (71,407) $ (20,256)
(1) As part of the Company’s evaluation of Title365 accounting policies post-acquisition, Title365 revenue was adjusted to be presented net of insurance premiums paid to the underwriters, in accordance with Principal vs. Agent considerations included in ASC 606, Revenue Recognition.
10. Debt Financing
Debt consisted of the following:

March 31, 2022 December 31, 2021
(In thousands)
Term Loan - principal $ 225,000  $ 225,000 
Term Loan - exit fee 4,500  4,500 
Less: unamortized debt discounts and issuance costs (14,973) (15,657)
Total debt $ 214,527  $ 213,843 

On June 30, 2021, in connection with the closing of the acquisition of Title365, the Company entered into a credit agreement (the “Credit Agreement”), which provides for a $225.0 million senior secured term loan (the “Term Loan”) and a $25.0 million senior secured revolving credit facility (the “Revolving Facility”). The Revolving Facility includes $10.0 million sublimit for the issuance of letters of credit. The Revolving Facility also includes a swingline sub-facility (the “Swingline Facility”) that accommodates same-day borrowing of base rate loans. The sublimit for the Swingline Facility is $5.0 million.
21

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








The Term Loan was fully drawn at closing to provide, in part, the cash consideration paid in connection with the acquisition of Title365. The Term Loan was funded and the cash consideration was transferred on July 1, 2021. The Revolving Facility remained available and undrawn as of March 31, 2022.

The borrowings under the Term Loan and Revolving Facility accrue interest at a floating rate which can be, at the Company’s option, either (i) an adjusted LIBOR rate for a specified interest period plus an applicable margin of 7.50% or (ii) a base rate plus an applicable margin of 6.50%. The LIBOR rate applicable to the Term Loan and the Revolving Facility is subject to a floor of 1.00%, and the base rate is subject to a floor of 2.00%. The base rate for any day is a fluctuating rate per annum equal to the highest of (i) the federal funds effective rate in effect on such day, plus 0.50%, (ii) the rate of interest for such day as published in the Wall Street Journal as the “prime rate,” and (iii) the adjusted LIBOR rate for a one-month interest period, plus 1.00%. Interest is payable in cash on a quarterly basis.

In addition to paying interest on amounts outstanding under the Term Loan and the Revolving Facility, the Company is required to pay a commitment fee of 0.50% per annum of the unused commitments under the Revolving Facility. The Company is also required to pay letter of credit fees, customary fronting fees, and other customary documentary fees in connection with the issuance of letters of credit.

The Company incurred approximately $5.7 million of debt issuance costs in connection with the Term Loan, which have been deferred, and the remaining unamortized portion of these costs is presented as a reduction of long-term debt. Debt issuance costs related to the Revolving Facility amounted to $0.5 million, and the remaining unamortized portion of these costs is presented within other current assets on the unaudited condensed consolidated balance sheets.

In connection with the Credit Agreement, the Company issued a Series G preferred stock warrant to purchase 598,431 shares of Class A common stock at an exercise price per share of $13.827822. The terms of the warrant agreement provide the holder with an option to net settle if the fair value of Class A common stock is greater than the exercise price. The net shares to be issued in a cashless exercise are based on the fair value of the Company’s Class A common stock at the time the warrant is exercised. As of March 31, 2022, the warrant has not been exercised. The warrant will expire 10 years from the issue date. The proceeds from the issuance of debt were allocated between the Term Loan and the warrant based on their relative fair values, resulting in a debt discount of approximately $6.8 million for the amount allocated to the warrant and accounted for as paid-in capital.

Under the terms of the Credit Agreement, the lender is entitled to an exit fee in an amount equal to 2.00% of the signing date term facility commitment. The exit fee resulted in an additional debt discount of $4.5 million. The exit fee shall be due and payable on the earliest to occur:
a)    The maturity date of the Term Loan;
b)    The date on which all amounts then outstanding under the Term Loan are paid in full;
c)    The acceleration of the obligations with respect to the Term Loan for any reason;
d)    Any event of default as defined by the Term Loan; and
e)    Any repayment resulting from or in connection with a change of control.

Including the impact of the deferred debt issuance costs and the debt discounts resulting from the exit fee and the warrant, the effective interest rate on the Term Loan was approximately 10.20%. Debt issuance costs, debt discounts, and the Revolving Facility issuance costs are being amortized as interest expense over the term of the Credit Agreement.

The fair value of the Term Loan was approximately $221.1 million and $220.5 million as of March 31, 2022 and December 31, 2021, respectively, and is classified as Level 2 in the fair value hierarchy. The fair value of the Term Loan was measured by applying the income approach, which discounts the future contractual cash flows using a current risk-adjusted rate available to borrowers with similar credit ratings.

The Term Loan and Revolving Facility will mature on June 30, 2026, and the full principal amount of each is due at maturity. No amortization payments are required with respect to either the Term Loan or the Revolving Facility.
22

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








The obligations under the Credit Agreement are guaranteed by all of the Company’s domestic subsidiaries (other than Title365 and its direct and indirect subsidiaries, and subject to certain thresholds and other exceptions), and secured by a lien on substantially all of the Company’s and its subsidiaries’ assets (other than the equity issued by, and the assets of, Title365 and its direct and indirect subsidiaries, and subject to certain thresholds and other exceptions).

The Credit Agreement contains certain customary affirmative and negative covenants, which, in the event of default, may require a mandatory prepayment of amounts due thereunder. The Credit Agreement also contains a minimum liquidity covenant. As of March 31, 2022, the Company was in compliance with these covenants.
11. Stock-Based Compensation
2012 Stock Option Plan
Effective May 1, 2012, the Company adopted the 2012 Stock Plan (the “2012 Plan”). Options granted under the 2012 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (“ISOs”) may be granted only to employees (including officers and directors). Non-qualified stock options (“NSOs”) may be granted to employees and consultants. The exercise price of ISOs and NSOs shall not be less than 100% of the estimated fair value of the common shares on the date of grant, respectively, as determined by the Company’s board of directors. The exercise price of an ISO granted to a 10% or greater stockholder shall not be less than 110% of the estimated fair value of the common shares on the date of grant. Options generally vest over a period of four years.

2021 Equity Incentive Plan
In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective on July 14, 2021. The Company’s prior plan, 2012 Stock Option Plan (the “2012 Plan”), was terminated immediately prior to the effectiveness of the 2021 Plan with respect to the grant of future awards.

The 2021 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to the Company’s employees, directors, and consultants and the Company’s parent and subsidiary corporations’ employees and consultants.

Subject to the adjustment provisions of and the automatic increase described in the 2021 Plan, a total of 23,000,000 shares of the Company’s Class A common stock were reserved for issuance pursuant to the 2021 Plan, plus 36,101,718 shares of the Company’s Class A common stock reserved for future issuance under the 2012 Plan. Subject to the adjustment provisions of the 2021 Plan, the number of shares available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of (a) 34,500,000 shares of Class A common stock, (b) 5% of the total number of shares of all classes of the Company’s common stock outstanding on the last day our immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors (or its committee) may determine. Options granted under the 2021 Plan vest over periods ranging from one to four years.

23

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







A summary of the stock option activity is as follows:

Number of
options
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
(In thousands) (In years) (In thousands)
Balance as of December 31, 2021 31,675  $ 5.81  8.01 $ 108,826 
Granted 378  $ 7.98 
 
 
Exercised (1,654) $ 0.90 
 
$ 7,984 
Cancelled and forfeited (1,677) $ 10.20 
 
 
Balance as of March 31, 2022 28,722  $ 5.86  7.65 $ 67,456 
Vested and exercisable as of March 31, 2022 11,491  $ 3.00  6.60 $ 40,385 

The weighted average grant-date fair value of options granted during the three months ended March 31, 2022 and 2021 was $3.68 and $7.20 per share, respectively. The total fair value of options vested during the three months ended March 31, 2022 and 2021 was $9.0 million and $2.5 million, respectively.

The estimated grant date fair values of the employee stock options granted under the 2012 Plan and 2021 Plan were calculated using the Black-Scholes Merton Option pricing model, based on the following weighted average assumptions:

Three Months Ended March 31,
2022 2021
Expected term (years) 5.28 6.07
Expected volatility 49.82% 32.86%
Risk-free interest rate 1.82% 1.13%
Expected dividend yield

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. treasury zero-coupon issues with remaining terms similar to the expected term of the options at the date of grant.

Expected Term. The expected term represents the period that the Company’s share-based awards are expected to be outstanding. The Company applies the simplified method in determining the expected life of the stock options as the Company has limited historical basis upon which to determine historical exercise periods.

Expected Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

Expected Volatility. Expected volatility of the stock is based on the average historical volatility of the Company’s peer group after consideration of their size, maturity, profitability, growth, risk, and return on investment as the Company has limited historical volatility.

Fair Value. Prior to the IPO, the Company’s board of directors and in part based upon a valuation provided by a third-party valuation firm, determined the fair value of the Company’s common stock in connection with the grant of stock options and stock awards. Due to there being no public market for the Company’s common stock, its board of directors considered the third-party valuation and other factors, including but not limited to, secondary sales of the Company’s common stock, revenue growth, the current status of its operations, its financial condition, its stage of development, and its competition to establish the fair market value of the Company’s common stock at the time of grant of the stock option or stock award. For grants issued subsequent to the Company’s IPO, the Company used the closing market price of its stock on the date of grant.

24

Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







As of March 31, 2022, the total unrecognized stock-based compensation expense for stock options issued under the 2012 Plan and the 2021 Plan was approximately $61.1 million, which is expected to be recognized over a weighted average period of 2.6 years.
Early Exercise of Common Stock Options
The Company’s board of directors has authorized certain stock option holders to exercise unvested options to purchase shares of Class A common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service as a service provider (as defined in the 2012 Plan and the 2021 Plan), at the lower of the fair market value on the date of the repurchase or the original exercise price, until the options are fully vested.

As of March 31, 2022 and December 31, 2021, 1,187,869 and 1,819,558 shares of Class A common stock were subject to repurchase. As of March 31, 2022 and December 31, 2021, the cash proceeds received for unvested shares of Class A common stock presented within other long-term liabilities in the unaudited condensed consolidated balance sheets were $4.5 million and $7.0 million, respectively.
Restricted Stock Units
A summary of the Company’s RSU activity and related information is as follows:

Number of RSUs
Weighted
average
grant date fair value per share
(In thousands)
Balance as of December 31, 2021 2,589  $ 8.91 
Granted 6,259  $ 8.35 
Vested (523) $ 8.79 
Cancelled and forfeited (313) $ 9.07 
Balance as of March 31, 2022 8,012  $ 8.47 

As of March 31, 2022, there was $58.4 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.8 year. RSUs granted under the 2021 Plan generally vest quarterly over a period of one year from the grant date.

The total fair value of RSUs vested during the three months ended March 31, 2022 was $4.7 million.
Performance Stock Award
In March 2022, the Company’s board of directors granted a performance stock award that provides for the issuance of up to 125,732 shares of Class A common stock that will vest in February 2023 upon satisfaction of a performance condition. As of March 31, 2022, the Company believes it is probable that the performance condition will be satisfied and estimates that 40,888 shares will vest. The expense recognized for the three months ended March 31, 2022 was not material.

Non-Plan Co-Founder and Head of Blend Options
In March 2021, the Company’s board of directors granted to its Co-Founder and Head of Blend a stand-alone stock option issued outside of the 2012 Plan covering a maximum of 26,057,181 shares of Class B common stock with an exercise price of $8.58 per share. The award has a 15-year term (subject to earlier termination when shares subject to the award are no longer eligible to vest) and vests upon the satisfaction of a service condition, liquidity event-related performance condition, and performance-based market conditions.

The terms of the award stipulated that if an IPO is completed within 15 months of the date of grant, the first tranche of 1,954,289 shares will vest. The remaining tranches of shares will vest dependent on performance goals tied to the Company’s stock price hurdles with specified expiration dates for each tranche.
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Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








On June 30, 2021, the Company’s board of directors approved a modification to the Co-Founder and Head of Blend award related to market-based performance targets that impact the Company stock price hurdles. The impact of the modification did not result in stock-based compensation expense as of the modification date as the satisfaction of the IPO performance condition was not probable at that time.

The estimated fair value of the first tranche as of the modification date was determined using Black-Scholes Merton Option pricing model, which resulted in fair value of $12.27 per share based on the following assumptions:

Fair value of common stock $18.00
Expected term (years) 7.44
Expected volatility 45.00%
Risk-free interest rate 1.71%
Expected dividend yield

The remaining tranches were valued using a Monte Carlo simulation model. The weighted average estimated fair value of the remaining tranches as of the modification date was $3.80 per share based on the following assumptions:

Fair value of common stock $18.00
Remaining contractual term (years) 14.75
Expected volatility 40.00%
Risk-free interest rate 1.71%
Expected dividend yield

In July 2021, the first tranche of 1,954,289 shares of the Co-Founder and Head of Blend stock option award vested upon completion of the IPO. The total stock-based compensation expense recognized for this award for the three months ended March 31, 2022 was $4.8 million. No expense was recorded for the three months ended March 31, 2021 because the satisfaction of the IPO performance condition was not yet probable. The total unrecognized compensation expense related to the award for all tranches was $41.1 million as of March 31, 2022, which will be recognized over an estimated weighted average remaining period of 3.3 years.
Stock-Based Compensation Expense
The Company’s stock-based compensation expense was as follows:

Three Months Ended March 31,
2022 2021
(In thousands)
Cost of revenue $ 493  $ 58 
Research and development 9,866  1,386 
Sales and marketing 2,523  1,373 
General and administrative 11,430  1,199 
Total $ 24,312  $ 4,016 
12. Income Taxes
The Company recorded a benefit for income taxes of $2.8 million for the three months ended March 31, 2022 consisting of a $2.9 million deferred tax benefit resulting from an adjustment to the valuation allowance and a current tax expense of $67 thousand consisting of state and foreign income taxes. The Company recorded a provision for income taxes of $10 thousand for the three months ended March 31, 2021, consisting primarily of U.S. state income taxes.

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Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







The Company reassessed the ability to realize deferred tax assets by considering the available positive and negative evidence. As of March 31, 2022, the Company concluded that its net deferred tax assets are not more-likely-than-not to be realized and maintained a full valuation allowance against such net deferred tax assets. Primarily as a result of changes in U.S. tax law requiring capitalization and amortization of research and development costs for tax purposes, the Company reduced its valuation allowance by $2.9 million resulting in a corresponding reduction in the net deferred tax liability as of March 31, 2022.

As of March 31, 2022, the Company files tax returns in the U.S. federal and various state jurisdictions. Due to the Company’s U.S. net operating loss carryforwards, its income tax returns generally remain subject to examination by federal and most state tax authorities. Beginning in 2022, the Company’s subsidiary files income taxes returns in India which are subject to examination by tax authorities in India.
13. Net Loss Per Share
The Company computes net loss per share using the two-class method required for multiple classes of common stock. The Company has three classes of authorized common stock for which voting rights differ by class.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted average number of shares of stock outstanding during the period, adjusted for options early exercised and subject to repurchase.

For the calculation of diluted net loss per share, net loss per share attributable to the Company for basic net loss per share is adjusted by the effect of dilutive securities, including awards issued under the Company’s equity compensation plans. Diluted net loss per share attributable to the Company is computed by dividing the resulting net loss attributable to the Company by the weighted average number of fully diluted common shares outstanding.

In connection with the IPO, upon the effectiveness of the filing of the Amended and Restated Certificate of Incorporation, all shares of the Company’s pre-IPO Class A common stock were reclassified as Class B common stock and all shares of the Company’s pre-IPO Class B common stock were reclassified as Class A common stock. All weighted average common stock outstanding and net loss per share amounts presented within these unaudited condensed consolidated financial statements have been adjusted to reflect this reclassification on a retroactive basis for all periods presented.

The following table presents the calculation of basic and diluted net loss per share for Class A and Class B common stock. No shares of Class C common stock were issued and outstanding during the periods presented.

Three Months Ended March 31,
2022 2021
Class A
Common
Class B
Common
Class A
Common
Class B
Common
(In thousands, except per share data)
Numerator:
 
 
 
 
Net loss attributable to Blend Labs, Inc. $ (68,149) $ (3,955) $ (18,039) $ (9,028)
Less: accretion of RNCI to redemption value (1,363) (79) —  — 
Net income (loss) attributable to Blend Labs, Inc common stockholders $ (69,512) $ (4,034) $ (18,039) $ (9,028)
 
 
 
 
Denominator:
Weighted average common stock outstanding, basic and diluted 217,696  12,633  30,051  15,039 
Net loss per share attributable to Blend Labs, Inc.:
Basic and diluted $ (0.32) $ (0.32) $ (0.60) $ (0.60)
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Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)








The following potential shares of common stock were excluded from the computation of diluted net earnings per share attributable to the Company for the periods presented because including them would have been antidilutive as the Company has reported net loss for each of the periods presented:

As of March 31,
2022 2021
(In thousands)
Outstanding stock options 28,722  34,716 
Early exercised options subject to repurchase 1,188  748 
Options exercised via promissory note —  4,000 
Non-plan Co-Founder and Head of Blend options
26,057  26,057 
Unvested restricted stock units 8,012  — 
Unvested performance stock award 126  — 
Common stock warrants 598  — 
Convertible preferred stock warrants —  1,270 
Founders convertible preferred stock —  692 
Convertible preferred stock —  146,181 
   Total antidilutive securities 64,703  213,664 
14. Segment Information
The Company’s operating segments are defined in a manner consistent with how the Company manages its operations and how the Company’s Chief Operating Decision Maker (“CODM”) evaluates the results and allocates the Company’s resources.

Segment profit, which is the measure used by the Company’s CODM to evaluate the performance of and allocate resources to its segments, is calculated as segment revenue less segment cost of revenue. The Company does not evaluate performance or allocate resources based on segment assets, and therefore, such information is not presented.

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Blend Labs, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)







The following table provides information about each reportable segment:

Three Months Ended March 31,
2022 2021
(in thousands)
Segment revenue:
Blend Platform $ 32,793  $ 31,875 
Title365 38,731  — 
Total revenue $ 71,524  $ 31,875 
Segment gross profit:
Blend Platform $ 18,591  $ 21,015 
Title365 10,278  — 
Total gross profit 28,869  21,015 
Operating expenses:
Research and development 35,106  17,074 
Sales and marketing 22,341  15,865 
General and administrative 37,102  15,283 
Amortization of acquired intangible assets 4,068  — 
Total operating expenses 98,617  48,222 
Loss from operations (69,748) (27,207)
Interest expense (5,558) — 
Other income (expense), net 91  150 
Loss before income taxes $ (75,215) $ (27,057)

15. Subsequent Events
In April 2022, the Company committed to a workforce reduction plan (the “Plan”) as part of its broader efforts to improve cost efficiency and better align its operating structure with its business activities. The focus of the Plan is on streamlining the Company’s title operations as well as its general and administrative functions. The Plan includes the elimination of approximately 200 positions across the Company, or approximately 10% of the Company’s current workforce. The Company estimates that it will incur approximately $6.7 million in charges in connection with the Plan, including approximately $6.5 million in cash expenditures for employee benefits, severance payments, payroll taxes and related facilitation costs and approximately $0.2 million in stock-based compensation. The Company expects that execution of the Plan, including cash payments, will be substantially complete in the second quarter of 2022. In addition to the elimination of certain positions, the Company is implementing non-personnel related cost reductions.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other parts of this Form 10-Q and in our Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Blend Labs, Inc. was founded in 2012, with a vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. Our software platform was built in an extensible, modular, and configurable fashion to support continued product expansion. We have technology, data, and service providers on our software platform, including an extensive marketplace of insurance carriers, realtors, and settlement agencies. Our products and marketplaces provide multiple opportunities for us to serve financial services firms and consumers and drive revenue growth.

Our rapid growth reflects continued product innovation and increased transaction volume as we continue to attract financial services firms to our software platform and grow with them as they serve consumers. Financial services firms have been shifting for years to a digital-first approach to acquiring consumers, delivering products, and deepening existing consumer relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. We believe there is a large, untapped opportunity to provide additional product offerings and drive increased transaction volume for financial institutions and consumers using our software platform.

We are continually seeking to enhance the end-to-end banking journeys we power through our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, on June 30, 2021 we acquired 90.1% ownership of Title365, a leading title insurance agency that offers title, escrow and other trustee services.
Recent Developments
Industry Trends and COVID-19 Update
We are now in the third year of the COVID-19 pandemic. While the impact of the pandemic is lessening, new COVID-19 variants are continuing to cause concern and economic disruption. The pandemic has caused us to modify our business practices, including restricting travel, requiring our employees and contractors to work remotely, limiting non-essential visitors to our facilities, and establishing a variety of safety protocols at our facilities.

We believe that the COVID-19 pandemic has accelerated the transformation of financial services firms into digital businesses. It is continuing to cause the regulatory environment to shift in favor of digitization (such as through the use of digital signatures and online notarization) and is driving consumer behavior away from traditional branches and toward digital channels for banking services, which we expect will generate additional opportunities for us in the future. Since the onset of the COVID-19 pandemic and through the end of 2021, we have experienced an increase in demand for our software platform offerings, and we have continued to partner with our financial services customers to expand the scope and availability of products through our platform.

For the three months ended March 31, 2022, we have seen a 7% increase in total banking transactions on our software platform compared to the three months ended March 31, 2021, and we attribute a portion of this increase to the ongoing need for digital transformation at financial services firms. This increase was driven in particular by an increase in consumer banking transactions, which underscores the diversification of our platform’s product suite as the banking industry continues to digitize in order to meet consumers’ expectations on delivering a single platform across all products, channels, and parts of the transaction.

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However, the mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and general economic activity, typically impact the demand for mortgage and mortgage related products. Changes in either of these areas would likely impact our results of operations. Purchase volume and refinance activity were strong in 2021 and 2020 relative to historical averages over the preceding decade; however, variability of interest rates combined with ongoing supply constraints and volatility in the cost and availability of building materials in recent months could result in reductions in future periods.

In January 2022, and subsequently in April 2022, the Mortgage Bankers Association (“MBA”) released its U.S mortgage originations forecast, which indicated that the residential mortgage originations are expected to steadily decline in 2022 and 2023 before leveling out in 2024. In March 2022, for the first time since 2018, the U.S. Federal Reserve raised the federal funds rate by one quarter percentage point and in May 2022 raised it again by another half percentage point, while indicating it expects to raise that interest rate again in the future. The federal funds rate is the benchmark for most interest rates and is the average interest rate that banks pay for overnight borrowing in the federal funds market. As a large portion of our revenue is driven by mortgage and mortgage related transaction volumes, declines in the mortgage origination volumes due to rising interest rates have had, and are likely to continue to have, adverse effects on our business.

For the three months ended March 31, 2022, we have seen a 16% decrease in mortgage transactions on our software platform compared to the three months ended March 31, 2021, and we attribute a portion of this decrease to rapidly rising interest rates, rising inflation, and uncertain worldwide political and economic conditions. Overall industry dollar volumes, as reported by Fannie Mae, have decreased by 44% for that same period.

The future impact of the economic slowdown and COVID-19 pandemic on our business remains uncertain. See the section titled “Risk Factors” for further discussion of the challenges and risks we have encountered and could encounter related to the conditions in our industry, global economy, and COVID-19 pandemic.
Workforce Reduction Plan
In April 2022, we committed to a workforce reduction plan (the “Workforce Reduction Plan” or the “Plan”) as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities. The focus of the Plan is on streamlining our title operations as well as our general and administrative functions. The Plan includes the elimination of approximately 200 positions across the Company, or approximately 10% of our current workforce. We estimate that we will incur approximately $6.7 million in charges in connection with the Plan, including approximately $6.5 million in cash expenditures for employee benefits, severance payments, payroll taxes and related facilitation costs and approximately $0.2 million in stock-based compensation. The execution of the Plan, including cash payments, is expected to be substantially complete in the second quarter of 2022. The eliminated positions represent an annualized compensation expense of approximately $35.4 million. We expect to start realizing these cost savings in the third quarter of 2022. In addition to the elimination of certain positions, we are implementing non personnel related cost reductions.

We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of the Plan. Our implementation of the Plan and related initiatives is subject to risks and uncertainties, including the possibility that there are impediments to our ability to execute the Plan or related initiatives as currently contemplated, the actual charges in implementing the Plan or related initiatives are higher than anticipated, there are changes to the assumptions on which the estimated charges associated with the Plan or related initiatives are based, we are unable to achieve our projected cost savings in connection with the Plan or related initiatives, or there are unintended consequences from the Plan or related initiatives that impact our business.

Key Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Blend Platform - Number of Transactions
Our success in the Blend Platform segment depends in part on increasing the volume of mortgage and consumer banking transactions that take place on our software platform. This occurs as we add new customers and complete more transactions with existing customers, including when our existing customers adopt additional products. Our software platform is built to be extensible, modular, and configurable, so that our customers can easily utilize our pre-built workflow technology, our
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marketplaces, and our integrations with technology, data, and service providers. We design our new offerings to be highly complementary to existing ones in order to increase the speed of adoption and efficiently scale our revenue. This increasing attachment contributes further to our growth.
Title365 - Closed Orders
In our Title365 segment, closed orders represent the number of orders for title insurance and escrow services that were successfully fulfilled in each period with the issuance of a title insurance policy and provision of escrow services. The volume of closed orders is affected by the overall level of real estate activity, which is cyclical in nature and is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, interest rate volatility, consumer confidence, employment and family income levels, and general economic conditions.

We also believe that the continued growth in commercial use of the internet will lead to the continued migration of traditional offline markets and industries online. Accordingly, we expect there to be a migration of the Title365 legacy business to our software-enabled platform over time, and as a result, we expect the Title365 closed orders within the Title365 segment to decrease in future periods and the volume of software-enabled title, escrow, and settlement orders within the Blend Platform segment to increase.

The following tables set forth our key business metrics:

Three Months Ended March 31,
2022 2021
(In thousands)
Blend Platform banking transactions:
   Mortgage banking transactions(1)
376 447
   Consumer banking transactions(1)
155 48
Total Blend Platform banking transactions 531 495
Title365 closed orders 27 N/A
(1) Includes estimated transactions for funded loans not yet reported for the first quarter 2022.
Key Components of Results of Operations
Revenue
Blend Platform
In our Blend Platform segment, we generate revenue from fees paid by customers to access our platform. Fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. We do not charge for abandoned applications or rejected applications, even though they cause us to incur costs related to these applications. Arrangements with our customers do not provide the contractual right to take possession of our software at any point in time. Revenue is recognized when access to our platform is provisioned to our customers for an amount that reflects the consideration we expect to be entitled to in exchange for those services. To a lesser extent, we generate revenue from professional services related to the deployment of our platform, premium support services, and consulting services. We also earn revenue through commissions or service fees when consumers use our Blend Platform integrated marketplaces to select property and casualty insurance carrier, title and settlement services entity, or real estate agent.

Our customers have the ability to access our platform under subscription arrangements, in which customers commit to a minimum number of completed transactions at specified prices over the contract term, or under usage-based arrangements, in which customers pay in arrears a variable amount for completed transactions at specified prices. Our subscription arrangements are generally noncancelable, and we may also earn additional overage fees if the number of completed transactions exceeds the contractual amounts. Our usage-based arrangements generally can be terminated at any time by the customer. We recognize revenue ratably for our subscription arrangements because the customer receives and consumes the benefits of our platform throughout the contract period. We recognize fees for usage-based arrangements as the completed transactions are processed using our platform. Revenue from usage-based arrangements represented 48% and 19% of our Blend Platform segment revenue for three months ended March 31, 2022 and March 31, 2021, respectively.

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Title365
In our Title365 segment, we earn revenue from title search services for title insurance policies, escrow, and other closing and settlement services. In performing title search services, we act as an agent to place and bind title insurance policies with third-party underwriters that ultimately provide the title insurance policy to our customers. Revenue related to title insurance is recognized net of the amount of consideration paid to the third-party insurance underwriters. Our revenues from escrow, closing, and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Revenue related to these services is recognized at the closing of the underlying real estate transaction. We also offer title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans. Revenue for default title services and home equity services is recognized at the time of delivery of the title report.

We expect that rising mortgage interest rates in the near term will drive down transaction volume, which will adversely affect both Blend Platform and Title365 revenue. While we believe that the Blend Platform segment will continue to deliver positive growth, we expect that the title insurance and other services revenue within the Title365 segment will face significant headwinds to growth and a decline due to the projected mortgage industry origination volume decline as described above within Recent Developments. We are continuing to evaluate the rapid changes within the mortgage industry and the impact to our segments and their projected operating results, both in the near term and over a longer time horizon.
Cost of Revenue
Blend Platform
In our Blend Platform segment, cost of revenue consists primarily of costs of subscribed hosting, support, and professional services. Costs of subscribed hosting services and support revenue consist primarily of expenses related to hosting our services, third-party fees related to platform connectivity services, which include verification of income, assets, and employment, software licenses, and expenses related to providing support to our customers. Costs of professional services consist primarily of personnel-related expenses, including stock-based compensation expense, expenses associated with delivering implementation and other services, travel expenses, and allocated overhead costs. For each application submission, we incur third-party costs as described above, including costs for incomplete transactions for which we do not charge fees to our customers. The timing of those costs may not be aligned with the revenue recognized. We expect our cost of revenue to continue to increase in dollar amounts as we grow our business and revenue and decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period.

Title365
In our Title365 segment, cost of revenue consists of costs of title, escrow and other trustee services, which represent primarily personnel-related expenses of our Title365 segment as well as title abstractor, notary, and the cost of recording services provided by external vendors. In future periods, we expect that cost of revenue as a percentage of revenue will increase in the near term primarily due to the anticipated decline in revenue driven by the decrease in projected mortgage industry origination volume caused by the increase in interest rates.
Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense, associated with our engineering personnel responsible for the design, development, and testing of new products and features, professional and outside services fees, software and hosting costs, and allocated overhead costs.

Research and development costs are expensed as incurred. We expect that our research and development expenses will increase in dollar amount as our business grows but will decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our research and development activities.
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Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expense, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead costs. Sales commissions that are incremental costs of acquiring a contract with a customer as well as associated payroll taxes, are deferred and amortized on a straight-line basis over the estimated period of benefit, which we have determined to be three years. Sales commissions that are not incremental costs of acquiring a contract with a customer are expensed in the period incurred.

We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our direct sales organization and investment in brand and product marketing efforts. We expect, however, that our sales and marketing expenses will decrease as a percentage of our revenue over time as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our sales and marketing activities.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expense for our finance, accounting, legal and compliance, human resources, and other administrative teams, certain executives, as well as stock-based compensation expense related to the stand-alone stock option award granted to our Co-Founder and Head of Blend in March 2021, and professional fees, including audit, legal and compliance, and recruiting services.

Following our IPO, which was completed in July 2021, we have incurred, and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to publicly listed companies and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. As a public company, we have incurred, and expect to continue to incur increased expenses in the areas of insurance, investor relations, internal audit, and professional services. In addition, general and administrative expenses have increased, and we expect will continue to increase as a result of integrating and operating Title365. As a result, the dollar amount of our general and administrative expenses has increased, but we are taking action to manage further increases in the foreseeable future. We expect, however, that these expenses will decrease as a percentage of our revenue as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our general and administrative activities.
Amortization of acquired intangible assets
Amortization of acquired intangible assets relates to customer relationships acquired in connection with the Title365 business combination, which are amortized over the estimated useful life on a straight-line basis.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned from our investment portfolio.
Interest Expense
Interest expense relates primarily to debt financing used to fund our acquisition of Title365 and includes interest payable under the terms of the Credit Agreement entered into in connection with the closing of the acquisition of Title365 and amortization of debt discounts and debt issuance costs.
Provision for Income Taxes
Provision for income taxes consists primarily of U.S. state income taxes and adjustments to the valuation allowance. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that such net deferred tax assets will be realized. For the three months ended March 31, 2022, we recognized a benefit for income taxes of $2.8 million, consisting of a $2.9 million deferred tax benefit resulting from a partial release of the valuation allowance and a current tax expense of $67 thousand consisting of state and foreign income taxes. The partial release of the valuation allowance was primarily due to changes in U.S. tax law requiring capitalization and amortization of research and development costs for tax purposes.

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Results of Operations
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

Three Months Ended March 31,
2022 2021
(In thousands)
Revenue $ 71,524  $ 31,875 
Cost of revenue(1)
42,655  10,860 
Gross profit 28,869  21,015 
Operating expenses:
Research and development(1)
35,106  17,074 
Sales and marketing(1)
22,341  15,865 
General and administrative(1)
37,102  15,283 
Amortization of acquired intangible assets 4,068  — 
Total operating expenses 98,617  48,222 
Loss from operations (69,748) (27,207)
Interest expense (5,558) — 
Other income (expense), net 91  150 
Loss before income taxes (75,215) (27,057)
Income tax (expense) benefit 2,797  (10)
Net loss $ (72,418) $ (27,067)
________
(1)Includes stock-based compensation as follows:

Three Months Ended March 31,
2022 2021
(In thousands)
Cost of revenue $ 493  $ 58 
Research and development 9,866  1,386 
Sales and marketing 2,523  1,373 
General and administrative 11,430  1,199 
Total stock-based compensation $ 24,312  $ 4,016 

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Three Months Ended March 31,
2022 2021
(as a % of revenue)*
Revenue 100  % 100  %
Cost of revenue 60  34 
Gross margin 40  66 
Operating expenses:
Research and development 49  54 
Sales and marketing 31  50 
General and administrative 52  48 
Amortization of acquired intangible assets — 
Total operating expenses 138  151 
Loss from operations (98) (85)
Interest expense (8) — 
Other income (expense), net —  — 
Loss before income taxes (105) (85)
Income tax (expense) benefit — 
Net loss (101) % (85) %
____________
*Certain percentages may not foot due to rounding
Comparison of the Three Months Ended March 31, 2022 and 2021
Revenue and Cost of Revenue

Three Months Ended March 31,
2022 2021
$ Change
% Change
(In thousands)
Segment revenue:
Blend Platform:
Mortgage Banking $ 24,484  $ 26,435  $ (1,951) (7  %)
Consumer Banking and Marketplace 7,187  4,648  2,539  55  %
Professional Services 1,122  792  330  42  %
Total Blend Platform 32,793  31,875  918  %
Title365 38,731  —  38,731  N/A
Total revenue $ 71,524  $ 31,875  $ 39,649  124  %
Segment cost of revenue:
Blend Platform $ 14,202  $ 10,860  $ 3,342  31  %
Title365 28,453  —  28,453  N/A
Total cost of revenue $ 42,655  $ 10,860  $ 31,795  293  %
Segment gross profit:
Blend Platform $ 18,591  $ 21,015  $ (2,424) (12  %)
Title365 10,278  —  10,278  N/A
Total gross profit $ 28,869  $ 21,015  $ 7,854  37  %

Revenue increased $39.6 million, or 124%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, driven by an increase of $38.7 million due to the inclusion of revenue from Title365 and an increase in Blend Platform revenue of $0.9 million, or 3%. Within Blend Platform revenue, Mortgage Banking revenue decreased $2.0 million, or (7%), primarily due to the lower volume of mortgage banking transactions with our customers, Consumer Banking and Marketplace revenue increased $2.5 million, or 55%, primarily due to an increase in the volume of transactions related to our integrated software solutions outside of mortgage, including ancillary products and marketplace offerings, and Professional Services revenue increased by $0.3 million or 42%, primarily due to an increase in professional services associated with the deployment and support of our platform.
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Cost of revenue increased $31.8 million, or 293%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, driven by an increase of $28.5 million due to the inclusion of costs associated with the operations of Title365, and an increase in Blend Platform cost of revenue of $3.3 million, or 31%. The increase in Blend Platform cost of revenue was primarily due to a $2.5 million increase in hosting costs to support the volume of transactions on our platform, and a $1.7 million increase in personnel-related expenses attributable to increased headcount.
Operating Expenses

Three Months Ended March 31,
2022 2021
$ Change
% Change
(In thousands)
Operating expenses:
Research and development $ 35,106  $ 17,074  $ 18,032  106  %
Sales and marketing 22,341  15,865  6,476  41  %
General and administrative 37,102  15,283  21,819  143  %
Amortization of acquired intangible assets 4,068  —  4,068  N/A
Total operating expenses $ 98,617  $ 48,222  $ 50,395  105  %
Research and Development
Research and development expenses increased $18.0 million, or 106%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to a $8.5 million increase in personnel-related expenses primarily attributable to an increase in research and development headcount dedicated to the ongoing investment in our products, a $8.5 million increase in stock-based compensation, and a $0.9 million increase in software and hosting services to support the growth in our business and the increased volume of transactions on our platform.
Sales and Marketing
Sales and marketing expenses increased $6.5 million, or 41%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to a $2.9 million increase in personnel-related expenses primarily attributable to an increase in sales and marketing headcount, a $1.8 million increase due to the inclusion of sales and marketing expenses from the operations of Title365, a $1.1 million increase in stock-based compensation, and a $0.5 million increase in trade shows and conference events.
General and Administrative
General and administrative expenses increased $21.8 million, or 143% for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to $10.2 million increase in stock-based compensation, of which $4.8 million related to the stock option award with market-based performance targets granted to our Co-Founder and Head of Blend, $2.9 million increase in insurance related to our public company structure, a $3.9 million increase in personnel-related expenses primarily attributable to an increase in our administrative, finance and accounting, legal, and human resources headcount necessary to support the growth in our business, and a $7.6 million increase due to the inclusion of general and administrative expenses from the operations of Title365. The amounts are offset by a $2.9 million decrease in costs related to Title365 acquisition, primarily due to transaction and diligence costs that were incurred in the first quarter of 2021 and a $0.5 million decrease in professional fees.
Amortization of acquired intangible assets
Amortization of acquired intangibles assets increased $4.1 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, due to the amortization of the customer relationships intangible asset acquired in the Title365 business combination.
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Liquidity and Capital Resources
As of March 31, 2022, our principal sources of liquidity were cash, cash equivalents, marketable securities of $499.4 million, and availability of credit under our $25.0 million senior secured revolving credit facility. Cash and cash equivalents are comprised of bank deposits and money market funds. Marketable securities are comprised of U.S. treasury and agency securities, commercial paper, and corporate debt securities. Most of our cash and cash equivalents are held in the United States. Since our inception, we have financed our operations primarily through proceeds from the issuance of our stock and warrants and cash generated from the sale of our product offerings.

We have generated significant losses from operations and negative cash flows from operating activities in the past as reflected in our accumulated deficit of $514.9 million as of March 31, 2022. We expect to continue to incur operating losses for the foreseeable future due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business.
Credit Agreement
In connection with our acquisition of Title365, on June 30, 2021, we entered into a credit agreement that provides for a $225.0 million term facility and a $25.0 million revolving facility. The term facility was funded on July 1, 2021, and was fully drawn upon to provide, in part, the acquisition consideration being paid in connection with the purchase of a 90.1% interest in Title365. The revolving facility is currently available and undrawn.

There is no amortization of the outstanding principal amount under our credit facility; all principal amounts thereunder are payable on the maturity date (which is the fifth anniversary of the closing of the credit facility).

The obligations under our credit facility are guaranteed by all of our domestic subsidiaries (other than Title365 and its direct and indirect subsidiaries and subject to certain thresholds and other exceptions), and secured by a lien on substantially all of our and our subsidiaries’ assets (other than the equity issued by, and the assets of, Title365 and its direct and indirect subsidiaries and subject to certain thresholds and other exceptions).

Our credit facility subjects us to certain affirmative and negative covenants, financial reporting obligations, and a minimum liquidity threshold that is tested quarterly. It also requires mandatory prepayment of all or a portion of the outstanding debt thereunder in certain circumstances.
Material Cash Requirements
Our material cash requirements arising from known contractual and other obligations primarily relate to our obligations under our Credit Agreement, leases for our office locations, and purchase commitments. There have been no significant changes in our material cash requirements from the contractual obligations described in our Annual Report on Form 10-K for the year ended December 31, 2021.

In April 2022, we committed to a workforce reduction plan as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities. We estimate that we will incur approximately $6.7 million in charges in connection with the Plan, including approximately $6.5 million in cash expenditures for employee benefits, severance payments, payroll taxes and related facilitation costs and approximately $0.2 million in stock-based compensation. We expect that execution of the Plan, including cash payments, will be substantially complete in the second quarter of 2022. In addition to the elimination of certain positions, we are implementing non-personnel related cost reductions.

We believe that current cash, cash equivalents, marketable securities, and the availability of credit under our revolving credit facility will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on continued growth in our customer base, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, and the continuing market adoption of Blend’s software platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled “Risk Factors"—Risks Related to Our Business—Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.
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Cash Flows
The following table summarizes our cash flows for the periods indicated:

Three Months Ended March 31,
2022 2021
(In thousands)
Net cash used in operating activities $ (45,842) $ (20,394)
Net cash (used in) provided by investing activities (683) 6,148 
Net cash provided by financing activities 1,081  325,465 
Effect of exchange rates on cash, cash equivalents, and restricted cash 28  — 
Net (decrease) increase in cash, cash equivalents, and restricted cash $ (45,416) $ 311,219 
Cash Used in Operating Activities
During the three months ended March 31, 2022, we used $45.8 million in cash for operating activities, as compared to $20.4 million used during the three months ended March 31, 2021. Our largest source of operating cash is cash collections from our customers, and our primary uses of cash in operations are for employee-related expenditures, sales and marketing expenses, and third-party hosting costs. The increased use of cash in operating activities during three months ended March 31, 2022 compared to the three months ended March 31, 2021, was primarily due to an increase in our net loss, primarily driven by increased operating costs required to support the growth of our business. Historically, we have generated negative cash flows from operating activities and have supplemented working capital requirements through the sales of equity securities.
Cash (Used in) Provided by Investing Activities
Net cash used in investing activities during the three months ended March 31, 2022 was $0.7 million, which was primarily due to $30.5 million used in purchases of marketable securities, and $0.3 million in purchases of property and equipment, mostly offset by maturities of marketable securities of $30.0 million.

Net cash provided by investing activities during the three months ended March 31, 2021 was $6.1 million, which was primarily the result of the sales and maturities of marketable securities of $34.9 million, partially offset by purchases of marketable securities of $25.4 million, purchase of other investment of $3.0 million, and property and equipment purchases of $0.3 million.
Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2022 was $1.1 million, primarily consisting of proceeds from the exercises of stock options of $1.2 million, net of repurchases.

Net cash provided by financing activities for the three months ended March 31, 2021 was $325.5 million, reflecting net proceeds from issuance of Series G convertible preferred stock of $309.7 million, proceeds from the exercise of convertible preferred stock warrants of $10.2 million, the exercise of stock options of $5.8 million, partially offset by the payment of deferred offering costs of $0.2 million.

Off-Balance Sheet Arrangements
We administer escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and/or undisbursed amounts received for settlement of mortgage and home equity loans. Cash held for these purposes was approximately $21.1 million, net of outstanding checks in transit of $56.4 million as of March 31, 2022. These funds are not considered assets of ours and, therefore, are not included in our consolidated balance sheet; however, we are contingently liable for the disposition of these funds on behalf of consumers. As of March 31, 2022, we did not have any other relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.
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Employee Compensation
We face significant competition for talent from other technology and high-growth companies. To attract and retain top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages and provide a range of health, savings, retirement, time-off, and wellness benefits for our employees.

Additionally, we may consider adopting various employee compensation programs from time to time, including one possible program that would allow employees the opportunity to annually elect the proportion of their compensation that would be provided in the form of cash or equity. The details of any such program, and the extent to which we may implement any such program, have not been determined at this time. If we do decide to adopt a program like this in the future, it could result in us paying a greater percentage of our employees’ compensation in the form of cash or equity, depending on how our employees elect to receive their compensation. This could result in us using a larger amount of our cash reserves for the payment of compensation in future periods or could result in us granting a greater number of our shares subject to equity awards, which could increase our overall dilution, increase our stock-based compensation expense for financial accounting purposes, and increase our tax withholding and remittance obligations. How we determine any such tax withholding obligations would be satisfied could further impact our cash position or increase dilution.

Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with the U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows could be affected.

There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our business. These risks primarily include:
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Interest Rate Risk
We had cash and cash equivalents of $167.7 million and marketable securities of $331.7 million as of March 31, 2022, which consisted of bank deposits, money market funds, U.S. treasury and agency securities, commercial paper, and corporate debt securities. The cash and cash equivalents are held primarily for working capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 100 basis points change in interest rates during any of the periods presented would not have had a material impact on our investments.

As of March 31, 2022, we had $225.0 million of principal outstanding under our Term Loan. An increase of 100 basis points in the applicable interest rate would increase our annual interest expense by approximately $2.3 million. A decrease of 100 basis points in the applicable rate would not have an impact on our annual interest expense as such reduction would be below the minimum rate specified in the Credit Agreement. In April 2022, The LIBOR rate applicable to our Term Loan exceeded the floor of 1.00%, and as result our interest rate increased from 8.50% to 8.74%, which will increase our annual interest expense by approximately $0.5 million.

Our Term Loan carries a floating rate of interest linked to the London Inter-bank Offered Rate, or LIBOR. On July 27, 2017, the United Kingdom Financial Conduct Authority, or FCA, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative immediately after December 31, 2021, for all GBP, EUR, CHF and JPY LIBOR settings and one-week and two-month US dollar LIBOR settings, and immediately after June 30, 2023 for the remaining US dollar LIBOR settings, including three-month US dollar LIBOR. As a result, while the FCA and the submitting LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate, it is possible that beginning in 2022, LIBOR will no longer be available as a reference rate. In particular the borrowings under our credit facility accrue interest at a floating rate which can be, at our option, either (i) an adjusted LIBOR rate for a specified interest period plus an applicable margin of 7.50% or (ii) a base rate plus an applicable margin of 6.50%. While the Term Loan agreement includes an alternative rate to LIBOR, if a change in indices results in interest rate increases on our debt, debt service requirements will increase, which could adversely affect our cash flow and results of operations. We do not expect a materially adverse change to our financial condition or liquidity as a result of any such changes or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere.
Inflation Risk
Inflationary factors such as increases in overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial condition or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of operating expenses as a percentage of revenue, if the selling prices of our products do not increase with these increased costs.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The material weakness occurred in connection with our acquisition of Title365, and was related to the accounting for the Company’s business combination, including a lack of sufficient precision in the performance of reviews supporting the prospective financial information used in the customer relationship intangible asset valuation and a lack of adequate documentation to provide evidence of operating effectiveness of an associated management review control.

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As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we are focused on designing and implementing effective internal controls over financial reporting that will operate in a manner necessary to satisfy the accounting and financial reporting requirements of a public company. In order to remediate the material weakness, we have taken and plan to take the following actions:

the hiring of additional finance and accounting resources with public company experience; and
implementation of additional management review controls and procedures that will challenge the inputs into the projected financial information and thoroughly vet the assumptions in the financial models.

These actions and planned actions are subject to ongoing evaluation by management and will require testing and validation of design and operating effectiveness of internal controls over financial reporting over future periods. The material weakness will not be considered remediated until the applicable controls operate and we conclude, through testing, that these controls are operating effectively. However, there is no assurance as to when such remediation will be completed.

Changes in Internal Control over Financial Reporting

As noted above, we have been implementing measures to remediate the material weakness in our internal control over financial reporting. Other than the remediation efforts underway, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can pro