Executive Summary / Key Takeaways

• Blend Labs is executing a strategic transformation towards a software-first, platform-centric model, divesting non-core assets like its Title business to focus on high-margin software and partnerships.
• This strategic shift, coupled with disciplined cost management, has driven significant financial improvements, including achieving non-GAAP operating profitability ahead of schedule and generating positive free cash flow in Q1 2025.
• The company's core technology, the Blend Builder platform, enables rapid, cost-effective innovation and differentiation through features like Rapid Refi/Home Equity and AI integration, offering quantifiable benefits in efficiency and conversion for financial institutions.
• Growth is accelerating in the Consumer Banking Suite, with the CAGR target increased to 40%, while the Mortgage Suite is poised for leverage as market conditions potentially improve and adoption of value-accretive add-ons increases.
• Despite macroeconomic uncertainties and intense competition, a strong pipeline, record Remaining Performance Obligations (RPO), and a focus on contribution profit per funded loan signal potential for sustained profitable growth and achieving the Rule of 40 target.

A Platform Reimagined: Charting Blend's Software-First Future

Blend Labs, Inc., founded in 2012 with the ambition to simplify financial services and expand access to capital, has embarked on a significant strategic evolution. Initially facing resistance to rapid digital adoption in the mortgage industry, the company found a catalyst in shifting consumer expectations, spurred by market innovators. This historical journey underscores the imperative for financial institutions to embrace digital transformation, a need Blend's cloud-based software platform was built to address. Designed from the ground up to be extensible, modular, and configurable via its Blend Builder framework, the platform powers the end-to-end consumer journey for banking products, establishing a foundational strength in a market ripe for modernization.

At the heart of Blend's value proposition lies its differentiated technology, particularly the Blend Builder platform. This proprietary technology allows financial institutions to configure or build custom workflows using pre-built components, leveraging their existing infrastructure. This modularity is a key differentiator, enabling Blend to innovate faster and more cost-effectively than traditional providers or internal builds. The tangible benefits are evident in specific product performance:

• The Rapid Refi solution, designed for the refinance market, demonstrated pilot conversion improvements of over 50%.
• Customers utilizing the Rapid Home Lending Suite (including Rapid Refi and Rapid Home Equity) are seeing 1.9x higher economic value per funded loan based on signed deals.
• Rapid Home Equity shows a 1.5x pull-through advantage and decreases application-to-funding cycle times by at least 20%.
• Blend Close, the digital closing solution, helped one customer cut loan processing time from seven days to just 48 hours and has shown defect rates on signatures near 0 and saved nearly 1.5 days off typical origination time.
• The Deposit Account Opening Solution led one credit union to a 37% increase in new digital account openings and reduced applications requiring contact center intervention from 32% to just 7%.
• Emerging AI integration is targeting automation of up to 90% of certain manual processes in banking and lending, with capabilities already demonstrated in real-time document processing, aiming to simplify and lower costs significantly.

These quantifiable advantages contribute directly to Blend's competitive moat. While the market is intensely competitive, facing rivals ranging from large financial technology providers like Fiserv (FISV) to specialized software vendors like nCino (NCNO) and Q2 Holdings (QTWO), and even indirect competitors like in-house bank systems, Blend positions itself as a platform uniquely capable of serving across multiple product lines (mortgage, consumer lending, deposit accounts) with a consumer-centric approach. Its network effects, integrating third-party providers for services like income verification (Truework), insurance (Covered), and identity verification (Alloy, Prove), further enhance its ecosystem and customer value, a strength less pronounced in competitors focused solely on back-office or single-point solutions. While Blend's scale is smaller than some rivals, impacting overall operating costs, its agility and innovation speed, powered by Blend Builder, allow it to capture market share and drive higher value per transaction.

Strategic Simplification and Operational Discipline

Blend's recent performance is a direct outcome of its strategic pivot towards a simpler, software-first model. Recognizing the capital-intensive nature of certain business lines and the opportunity to leverage its platform more effectively, the company initiated a process to exit non-core operations. The classification of the Title business as discontinued operations in Q1 2025 marks the final step in this simplification journey, with a potential sale process underway designed to transition to an ongoing software revenue stream. This follows successful transitions in areas like homeowners insurance and income verification through strategic partnerships.

This shift is not merely about divestiture but about enhancing unit economics. By moving operational complexities to specialized partners, Blend aims to capture value through software fees and contribution profit, which is expected to be higher on a per-unit basis compared to the previous in-house model, even if reported revenue per transaction decreases. This focus on contribution profit per funded loan is a key metric management is now emphasizing to guide business decisions and measure the profitability of its core software offerings and partnerships.

Coupled with this strategic realignment, Blend has implemented rigorous operational discipline. Workforce reductions initiated in 2024 and continuing into Q1 2025 (eliminating approximately 5% of the workforce) and facilities restructuring actions have significantly reduced operating expenses. Total operating expenses decreased 28% year-over-year in Q1 2025, driven by these actions and increased capitalization of internal-use software development costs. This disciplined cost management, even amidst continued investment in R&D and go-to-market functions, has been critical to improving financial performance.

Financial Performance: A Turning Point

The impact of Blend's strategic and operational execution is clearly reflected in its recent financial results.

• Total revenue in Q1 2025 reached $26.77 million (GAAP: $26.77 million), representing 12% year-over-year growth for the platform business (excluding discontinued operations).
• This growth was primarily fueled by the Consumer Banking Suite, which saw revenue increase 45% year-over-year to $9.62 million (GAAP: $9.62 million), driven by strong transaction volumes in home equity and deposit account opening.
• The Mortgage Suite revenue saw a slight decrease of 3% year-over-year to $14.64 million (GAAP: $14.64 million) in Q1 2025, reflecting slightly lower industry transaction volumes.
• Professional Services revenue grew 19% year-over-year to $2.51 million (GAAP: $2.51 million).

Gross profit increased year-over-year in Q1 2025, and the platform gross margin improved to 71% (Non-GAAP: 73%), benefiting from the growing contribution of the higher-margin Consumer Banking Suite and consistent cost of revenue despite revenue growth.

A significant milestone was achieved in Q4 2024 with the company reporting its first non-GAAP operating profitability of $5.2 million, followed by $1 million in non-GAAP operating income in Q1 2025. This demonstrates the operating leverage inherent in the platform model and the impact of cost control, even in a challenging market.

Interest expense decreased dramatically (100% YoY in Q1 2025) due to the full repayment of the Credit Agreement debt in April 2024, further improving the bottom line.

Liquidity remains strong, with $104.8 million in cash, cash equivalents, and marketable securities as of March 31, 2025. The company achieved positive free cash flow of $15.5 million in Q1 2025, a record, largely due to cash collections from a prior deal. Management expects Q1 2025 free cash flow margin to exceed the previously targeted market normalized rate of 18%. The balance sheet is debt-free, providing financial flexibility. The share repurchase program also signals management's belief in the company's undervaluation.

Outlook and Future Trajectory

Blend's outlook reflects cautious optimism and a clear path towards sustainable profitable growth, underpinned by its strategic initiatives and market positioning. Management guides for Q2 2025 Platform Revenue between $30.5 million and $32.5 million, representing approximately 10% year-over-year growth at the midpoint. Non-GAAP operating income for Q2 2025 is expected to be between $3.5 million and $5 million.

Key assumptions include HMDA originations ranging from 1.15 million to 1.25 million in Q2 2025, an expected increase from Q1, though management remains cautious about the pace of market recovery compared to some external forecasts. Full-year 2025 Non-GAAP operating expenses are guided to be between $85 million and $90 million, reflecting continued cost discipline alongside targeted investments.

The company is increasing its projected compounded annual growth rate for the Consumer Banking Suite to 40% (from 35%) through 2026, based on strong recent performance and pipeline. The long-term target for Economic Value per Funded Loan (EV/Funded Loan) remains $170, supported by the fact that the top 5 customers already achieve a weighted average of $177. While the EV/Funded Loan is expected to be $88 in Q2 2025 (anticipated as a trough due to strategic transitions and onboarding of large customers starting with core products), management expects it to return to the high 90s by year-end 2025 as accretive solutions like Rapid Refi and Blend Close ramp up.

Remaining Performance Obligations (RPO) reached a record $158.1 million as of March 31, 2025, with approximately half expected to be recognized as revenue over the next 12 months, providing significant revenue visibility. A key target is to achieve a positive Rule of 40 (year-over-year platform revenue growth + non-GAAP operating margin) for the platform segment exiting Q2 2025, demonstrating a balance of growth and profitability.

Risks and Challenges

Despite the positive momentum, Blend faces notable risks. The business remains highly sensitive to macroeconomic conditions, particularly interest rate fluctuations and housing market activity, which directly impact mortgage origination volumes. Customer concentration is a risk, as a small number of large customers contribute a significant portion of revenue. Intense competition from various players in the fintech and banking software space continues to exert pressure on pricing and market share.

The strategic shift and planned divestitures carry execution and integration risks. While the exit of the Title business is intended to simplify operations, the process itself and the transition to a partnership model must be managed effectively. Regulatory compliance in the financial services industry is complex and evolving, potentially increasing costs and limiting operational flexibility. Cybersecurity threats are a constant risk, particularly given the sensitive nature of the data handled by the platform.

Conclusion

Blend Labs is undergoing a significant transformation, shedding non-core assets and sharpening its focus on its core software platform and strategic partnerships. This pivot, combined with stringent cost management, has yielded tangible results, most notably the achievement of non-GAAP operating profitability and positive free cash flow. The company's technological foundation, particularly the Blend Builder platform and innovative solutions like the Rapid suite and AI integration, provides a competitive edge by delivering quantifiable efficiency and conversion benefits to financial institutions. While macroeconomic headwinds and competitive pressures persist, a strong pipeline, record RPO, and accelerating growth in the Consumer Banking Suite signal potential for sustained profitable growth. The focus on improving contribution profit per funded loan and the target of achieving the Rule of 40 underscore a commitment to balancing growth with financial discipline. For investors, Blend's story is one of strategic realignment and operational execution positioning the company for leverage as market conditions potentially improve and adoption of its value-accretive software solutions expands.