All right, everyone, welcome to day two of the 44th Annual Canaccord Conference. I'm Joe Vafi, equity research analyst here at Canaccord, focused on the fintech sector, and we're kicking today off with a really interesting story, Blend Labs. With us here is Nima Ghamsari, who's the co-founder and head of Blend. In our view, Blend is truly a cutting-edge software company whose platform is used by leading financial institutions to take a lot of the pain out of what has always been a tedious process of applying for a mortgage, both in home purchase and refi. The company has leveraged its bank workflow know-how and technology platform, and is now also offering solutions into the consumer bank product sector, like opening up a savings or checking account and other financial products. Blend touches over 20% of U.S. mortgage applications today with a per-transaction revenue model. And with possibly rate cuts on the horizon, refi volumes are already ticking up. We actually upgraded Blend to a buy on Monday, and so we think it's the right time to be taking a closer look at the company, and so thanks for being with us here today, Nima. Great, so maybe to start off, just would love you to, introduce Blend to everybody in your own words. Yeah. Hello, everyone. Yeah, thanks for the upgrade on Monday. I saw that. Yeah, basically when we were founding the company, we saw that despite the mortgage industry being so big, this is right after the financial crisis, being so big and so critical to the financial infrastructure of the country, it was still pretty much all run on paper and filing cabinets and green screens. And, I mean, part of the reason for that was that it's really hard to build technology for this space because it's very regulated. It's very expensive to build things that you sell to banks because banks have long sales cycles and a long payback period. And so, and also there was this culture in Silicon Valley that was focused on things like social media at the time, just 2012, 2013 timeframe, and so we set out to build it. We started the company in 2012. Really got major traction with some of the biggest banks early on, biggest banks and biggest mortgage lenders early on, and sort of started hitting our stride in 2016, 2017. And like you said, now we do about 20% of mortgages in the country. Over time, one of the beautiful things about vertical software is that as you get these banks who wanna use your software and then they start to see adjacent areas where your technology could apply, they pull you into those areas. So it's like vertical software is all about how deep you can go with these, with these guys. And so we started getting pulled into home equity lending, personal loans, credit cards, and, you know, even things like deposit accounts. And we also went deeper in mortgage, where we started doing things, not just the application, but the digital closing, the homeowners insurance, and these are all sort of different parts of our business. But our goal is to go really deep with our customers, and, you know, our customers started at the very biggest banks, and now we sort of go down market as well, and we, we've done. I think we've done quite a, quite a good job of making sure that our customers love us. Like, I got this feedback from the CEO of Veeva, who was like an early, you know, sort of, I don't wanna say friend, but acquaintance of mine, and he's like, "Just if you're a vertical software company, because everything is about depth, be really close to your customers, and they'll stick with you through thick and thin." And they really have, 'cause it's been a brutal past few years for our customers in the mortgage industry, the last three years. It has been brutal, and that brings us to our next question. It's kind of a macro question on... The mortgage market's clearly been tough, but it seems like there are some signs of life out there, and maybe starting with the refi market. So could you give us a sense of what you think, you know, what are you seeing from a macro perspective? And, you know, is this cycle different or the same than others in the past, from your viewpoint? Yeah, well, I'm also on the board. I'm on the board of the Mortgage Bankers Association as well, which is the industry trade group for mortgage. You know, we were talking about this yesterday, where... And if you look at the MBA Refinance Applications Index, which the data came out, I think, today or yesterday, they almost doubled overnight, the refinance applications. And so, part of the reason for that is, and maybe in past cycles, this was a little different in this cycle. In past cycles when rates went down a little bit, people were like: "You know, I don't need to save $50, $100 a month." This time, not only is it critical... Not only is it cheaper and easier for a consumer to refinance this time because of things like Blend, but it's also critical for their personal finances for a consumer to do that. So people are more aware this time. More people are going to refinance. They're gonna refinance multiple times on the way down, because anytime they can save 50 or 100 bucks a month, that's like an extra trip to the grocery store. Yeah. So I definitely see that, and I think, I think actually the... I don't, I don't wanna say the macro's turned around, because purchase volume, people buying and selling homes is still really low. Yeah. Consumers need to be able to benefit financially from saving money on the refinance on their mortgage. Sure. So, yeah, refi first, and, you know, like you said, the economy is a little tight, so people may refi more often until we get to some new rate environment. Yeah, actually, in just one recent product announcement, one of the things that we like to do is be a little bit counter to the current- Mm-hmm ... trend. So in November of last year, sorry, August of last year, we started working on what we call our next-generation refi product, which is intended to exactly solve this problem of every time there's a wave, there's a huge spike in refinances. All of our customers staff up hundreds of people, and then the wave goes away, and then they have to, you know, let go of those people. And in that time, consumers take 90 days or 120 days to get the refinance done. So we started working on this next generation refi product that is basically, like, the consumer shows up, they see their new monthly payment, they go through a few steps, they sign a document, they lock their rate, and they're off to the races. And so we started building this since August, September of last year when nobody was refinancing. And now we're going to market with two or three of the biggest refinance lenders in the country on that to start, and then gonna keep expanding it from there to the rest of our customer base. 'Cause if we can help people refinance and save money, I think that's something that we'll be pretty, pretty proud of. That's great. Yeah, we have some questions on the product, so maybe we'll just jump right to that since we're on the subject. So yeah, so refi, I mean, I'm sure probably everyone's, as a homeowner, maybe has done a refi and, and it can be actually more brutal than I think of, you know, an original purchase, sometimes. I think you're using AI, and I think you have said that you can potentially shrink the application time from maybe a few weeks to a few days with a lot less pain for everybody, right? Yeah, actually in this new product, the time to the rate being locked and the person being off to the races is, like, minutes. Mm. Because most of the information, like, let's say that I'm a bank who gave you your original loan. I already have the information on you. Yeah. As a consumer, you should know me, and you should be able to use that information to tell me what my new rate will be. 'Cause you know your products, and you know me- Right ... and so you should be able to tell me, "Hey, here's your- here's what your new rate is." And so, and so yeah, we think we can shrink that pretty dramatically for our customers, and it's, it's super important because these are the types of things that end up taking a lot of air out of the room when there are a lot of refinances, where you have to be able to. Scale. Yeah, you have to be able to scale. Yeah. So yeah, we are doing, and we're doing some quite interesting things with AI because even though most of the work that we do, most of the core... One of the core tenets of our product is data over documents. We don't want to collect documents from the consumer 'cause that's not the right way to do things in 2024, but sometimes certain things are documents. Like, if you need to verify proof of citizenship, you have to get a certain document. And so one of the nice things is AI can, in real time, in the flow, read... Nowadays, it can do this. It couldn't do this a year ago. It can read the document, completely untrained, understand it, compare it to the data the consumer provided, and then tell the consumer, "Hey, this doesn't look right. This, you know, this name doesn't match. Is this actually the correct name?" And so those kinds of things are things that are currently done a week later by humans when they get around to it, and they cause days and weeks to be put, pushed into the process, and so we think we can make this a real-time process by incorporating AI. That's great, and I know it's just kind of rolling out, which is great timing, right? Maybe- Feels like the stars are aligning. Yeah, or I had a fortune cookie once that I opened it up. It said, "Luck favors the prepared mind." And so, you know, you set yourself up for some luck by being prepared sometimes, right? So- Luck favors the prepared mind. Yeah ... and the optimists. Yeah. You have to believe that these things are possible, and that they're worth doing, and that if you do them, things will be better. Yeah. Because so many people, there are so many reasons that these things can't work out. Right, especially when the cycle, you're in the bottom of the cycle, and it doesn't feel like it's the right thing to do, right? There's no light at the end of the tunnel yet. Right. Right, right. Now it feels like there's a light at the end of the tunnel. Yeah, yeah. And so how does this product roll out? I mean, I think you've got it. You're working with a couple early customers on it. You know, if refi gets really big in six months, can you... is it ready for, you know, uptake across a large part of your customer base, do you think? Yeah, and just for context, we have hundreds of financial institutions as customers. The nice thing about this product is, 'cause we're already integrated to those hundreds of- Yeah ... financial institutions, it's using the same integrations, and actually, it's even using the same... Like, if you go to these websites of these banks, and you click Apply Now, it goes to Blend. So it's using that same entry point, and it's just automatically identifying, hey, this is a person who already has a loan with the bank, and here's their current rate, and here's their loan amount, and here's what we could save them. And so it just sort of, because this, our platform is pretty dynamic, it can do those kinds of things in real time. So it's not gonna be an overnight scale thing- Yeah ... so I just, I want to caveat it with that. Yeah. But it's not like it's gonna require us to go and do a whole- Right ... other 10-year sales motion to these banks. It was designed to be a nice add-on sale that's kind of seamless in the software stack, something like that, right? Yeah, and that have clear ROI metrics, too. That's great. And so maybe we'll just stay on some of your other newer products since we're talking products. So your closing product's also pretty cool, and it's starting to get good traction in the market. I mean, I guess everybody who's done a mortgage knows that you gotta go to the notary and sign, like, 1,000 documents by hand. Blend now has a pure electronic closing product, which takes all that pain out of the process, and it does. And I think you're getting good uptake from your customers on it, is that right? Yeah. It's interesting because, you know, I was on site with a client earlier this week, and they're a client on the deposit account side and the consumer banking side, but not the mortgage side yet, and so they were talking to us. I was in Chicago. They were talking to us about, you know, potentially getting on our mortgage platform, too, and they're excited about it, and we were talking about digital closings. And for those of you who've done a digital or a mortgage closing, it's a freaking terrible process. And with Blend, it's not. It's like a pretty simple, it's an integrated process in your current flow. You sign some documents digitally ahead of the closing, and the day of the closing, you do a very short session with a video notary, and you're done. And then if you're refinancing, your new loan's in place, you know, the money gets wired to the old lender, if it's a different lender, and paid off, and then you get the savings for your next monthly payment. And I was talking to this big credit union, and they were saying, "Well, we looked at the digital closing space a couple years ago, and nobody really wanted to do it." And I think that part of the reason that things like any new technology, whether it's AI or digital closing, part of those things that... Part of the reason that those things don't get as much traction as fast as they should in this industry is that there's all this mythology around, "Well, nobody really wants to..." When we first started the company, people were like, "Nobody really wants to apply for a mortgage on their mobile device. It's a complicated process. Why would you wanna apply for a mobile device?" Well, if you take all the friction out, turns out 60%+ of our consumers who apply on Blend, 60%+ apply on a mobile device, and low-income consumers only have mobile devices. Right. They don't have computers. And so part of our job is to build the technology and make it so great, and then be a little bit of myth busters out there. Yeah. And so I was a little bit of myth buster with them. I shared our numbers with them around digital closings. It turns out consumers do prefer to close digitally, and they get huge benefits by closing digitally. And not only do they get benefits because they can close the loan sooner digitally, which means their savings kick in sooner, or they can move into the house on time. Not only do they get benefits, but it saves the lenders days- Mm ... of back and forth, and work, and about 25% error rate on documents that are signed the old-fashioned way, goes to almost 0% with digital. It's hard to mess up a digital signing, but it's easy to mess up a paper signing, and so if you're a lender, it's a no-brainer, and it's just like... it's just- but this industry has, you know, 50 years of history, and lots of mythology, and lots of things that we have to fight through. And I feel like we're, as the leading provider in this industry, I feel like we're the ones who are driving the forefront of this industry, and so we got a lot of work to do, but it's getting... Yeah, the digital closing product is getting huge traction. You know, not to get into the numbers, but our Economic Value per funded loan, which is essentially like our revenue per funded loan, but you know, we adjust for any accounting things that we have to do, is a lot of the growth in that number- It's growing higher. It's grown a lot. It's grown from 60-ish to 100-ish in the last couple of years, and it's 'cause things like digital closings and digital homeowners insurance are really taking a lot of foothold in the market. That's great. Yeah. We're gonna touch on your EV per loan, and its trends going higher, and there's some attach rate on close in there now. There's some attach rate in some of your other products, like, I believe, like income verification- And income, yeah. ... income, things like that. And there's obviously zero attach rate in for refi now. Yeah. Right? But- Currently, yeah. Yeah. So but that's kinda like a loan. That's kind of the flagship kind of product because you're not a, you're not purchasing a loan, right? So- Yeah ... that may not move the EV per loan, but I think we'll charge a higher for these super automated flows, like this new refinance one- Yeah ... 'cause it's such as these are really complex products. We make it really simple for the consumer, but the amount of things that have to get integrated- It's a lot of value for the bank. - automated refinance. Yeah. It's a lot of work for us. Right. The bank closes a lot more loans, a lot cheaper. We'll probably charge more money for that product, but it's still too soon to tell. Right. But you're still saving the bank a lot of money per loan, so you're charging them maybe $90-$100 to totally automate this process, or mostly automate it. And it'd be, I think, for the audience, it would be interesting for them to understand, like, what the estimated savings is and benefits for the bank for that $90 they pay you. Well, with the current products- Yeah ... we've done, we've done sort of ROI analyses on both the mortgage product and digital closing product, and so we have really hard numbers on the website, and I don't wanna get them exactly- Yeah ... I don't wanna get them exactly right, but it's on, in the ballpark of, they pay us around $70 for the base product on average, and they save around $700. So it's roughly 10-to-1. That's actually something I target. I target a 10-to-1 return rate. Okay. If I save them $1,000, I wanna charge them $100, because it's just, it's a good... Makes it a no-brainer for them. I don't need to milk every last dollar from the customer. I wanna get as many customers to do more and more with us over time. And then the closing product's similar, it saves them a lot of money and a lot of time, and so we get, you know, about $40-$50 a unit there, whenever it does attach. That's great. And then, I mean, it's been a big year for Blend. From a financial perspective, there was an overhang in the stock a few quarters ago with the term loan that was gonna come due, was it 2025, was that gonna come due, or 2026? 2026. It was gonna be current in 2025 and due in 2026. Due in 2026. But you kind of proactively took that overhang out of the equation with a, convertible preferred investment, or a convertible bond, a convertible equity investment. Paid your term loan off, and that convert, I believe, is now in the money, right? So, cleaned up balance sheet and, cash on the, on the balance sheet now, and then I believe you're also expected to... I think you just re-iterated on your call that you're going to achieve non-GAAP operating profit in Q4, right? Yeah. And then cash flow. And then free cash flow soon. ... soon after. Yeah. So, you're kind of in a self-funded model at this point, moving forward. So maybe any kind of thoughts on what that means for the business from here? It's been a tough couple years, you know, you know, trying to get to non-GAAP profit while the mortgage volumes have been down, et cetera, but you may have more strategic optionality now in terms of moving the, the product set forward or, or other things. Well, yeah, I think, I mean, people understand that mortgage rates are high, but they don't understand that... And we're in a volume-based business model. Mm-hmm. And volumes came down in refi, 90%, and in purchase, you know, 50-ish%. And so it was a pretty stark contrast from... Now, granted, they were at pretty high levels before that, so I don't wanna assume that that's the norm either. But yeah, we had a lot of work to do. We, we got to work, the team here got to work, and we have gotten the ship to a point where we feel like the profitability is imminent, and free cash flow positive is also imminent. And so we're, we, you know, like you said, I feel like we're in a self-funded mode now, and there's one other thing that we've done the last three years, which has let us not only do that, but be able to innovate, 'cause we're building a lot of really cool things. It's important for us to continue to build a lot of really cool things for our customers to keep benefiting, for us to become that vertical software company that we wanna be, and we think we can be, and that's that we have invested in this underlying platform where I think this is gonna be the thing that powers all of lending, consumer banking, not just in the U.S., but globally, and it's gonna be able... It allows us to innovate very fast and very cheap, and we call it Blend Builder. Yep. And essentially what we've done is we've taken all the primitives of banking and lending, so asset verification, credit pulls, income verification, you know, calculation of fees and APR, decisioning, all the different integrations and all the ecosystem providers around fraud and identity verification, and we've integrated them into this platform, and we've made it drag and drop. You know, for example, we don't do anything in solar lending today. We have a big bank customer who wants to use to do solar lending on Blend, and previously, of course, we would've had to say no, because we didn't have this drag-and-drop platform. Mm-hmm. Our team was on-site in Austin this week. I couldn't be there 'cause I had a bunch of other stuff on the road, but they sent me a text. The client sent me a text and was like: "Oh, my God, I, I just saw Blend Builder again, and every time I see it, it gets better, and we're like, we're so excited to do the solar lending thing on Blend Builder." And so not only is it something that allows our customers to innovate in ways that we hadn't really thought of, but for us, because we've taken the hard part, which is orchestration layer, and created that and integrated all the pieces and made an ecosystem, now actually innovating and building these applications is an order of magnitude cheaper for us, and which is super important, 'cause capital efficiency is very, very important right now. And so, for example, this refi product, which is the most integrated, the most complex product we've ever built, we've been building for about nine months. I think I said we started, like, late last year, and with a small team of, like, six people, and it's, like, going. It's in, you know, it's in beta right now with one of our big customers. It's gonna be rolled out to production soon. But six people building a product that complex would not have been possible- Without Blend Builder. without Blend Builder, and so I'm really happy we made that investment. I'm sure it was painful for our investors while we were making that investment, but I think it's gonna pay a lot of dividends for us going forward. And the self-funded mode means we can do more of those things and do those things faster and roll them out to the market faster and find ways to scale ourselves in ways that we couldn't do before. Great. We have a couple more minutes, and, you know, there's a lot to talk about, but, you know, if we are here at the cusp of maybe a rate environment becoming more attractive, and we're starting to see it in refi, I think you already have about 39 or 40 of the top lending institutions in the country as customers, so pretty well covered. It feels like most big lenders know who Blend is at this point. You're kind of in a self-funded mode. Does it make sense to ramp your sales force now ahead of things? Is this the time, you know, you know, you're in a better state of profitability? Would that be something to consider, or do you think that you've got kind of the bases covered on the go-to-market at this point? No, I think it is the time, because not only do we have more things to sell on the mortgage side to our existing customer base- Right, you've got Builder and the consumer product suite. We've got the whole consumer side, which is doing really well on the top. It's kind of we followed the same playbook there, where we went to the top of the market with consumer banking, and so we have a bunch of the really big institutions, one of the biggest banks doing personal loans and credit cards, one of the biggest credit unions doing all deposit accounts, and so we did really well on the top of the market, and now we gotta take that amazing top-of-the-market solution and scale it in a really repeatable way for the next, you know, anybody below the top 50, up till the number 1,000. Those customers can be really big customers for us, but in order to do that, we need to make sure that we have the right scalable sales model, and so we're not gonna go gangbusters and hire 100 salespeople. But these sales are really complex sales, even just the 1,000th biggest financial institution, and so we need to make sure they're getting the care and attention they need. Yeah, I do think it's the time to start thinking about that. Great. Yeah, so, you know, broadly, you know, we follow the fintech sector, and we've definitely seen over the last year or two in this rate environment, there's definitely, like, a war for deposits going on out there. Definitely. And so banks need really good solutions in kind of core consumer banking functionality to attract and retain customers, or else with this interest rate environment, they'll go somewhere else and try to shop for a higher interest on their savings or their checking because they can. And if you don't have great customer experience in your core banking products, then, you know, you're at risk, so that's a good backdrop there. So we're out of time, Nima, but, you know, Blend, a great story. A transaction-based volume business and mortgage. We could be at a great turning point, and this company touches over 20% of mortgage volume in the U.S. today. So- Yeah. Thanks for being with us. Thank you, Joe. All right. Appreciate it.