Blend Labs(BLND) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Q2 2022, detailing a significant net loss primarily due to a large impairment charge, despite substantial revenue growth driven by an acquisition Condensed Consolidated Balance Sheets Total assets significantly decreased to $599.3 million as of June 30, 2022, primarily due to impairment charges on goodwill and intangible assets, while cash and marketable securities totaled $450.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $132,683 | $213,082 | | Marketable securities | $317,812 | $334,147 | | Intangible assets, net | $13,136 | $173,008 | | Goodwill | $47,132 | $287,228 | | Total assets | $599,324 | $1,112,486 | | Liabilities & Equity | | | | Total liabilities | $281,882 | $301,895 | | Total stockholders' equity | $279,188 | $774,642 | | Total liabilities and stockholders' equity | $599,324 | $1,112,486 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q2 2022, revenue increased 104% to $65.5 million, but a $391.8 million impairment charge resulted in a $477.2 million net loss Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Revenue | $65,539 | $32,062 | | Gross profit | $25,265 | $19,702 | | Impairment of intangible assets and goodwill | $391,823 | $0 | | Loss from operations | ($471,416) | ($39,634) | | Net (loss) income | ($477,202) | $5,766 | | Net loss per share, basic and diluted | ($2.06) | $0.00 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities increased to $92.6 million, leading to an $80.4 million decrease in total cash and equivalents Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($92,600) | ($53,101) | | Net cash provided by investing activities | $10,857 | $39,289 | | Net cash provided by financing activities | $1,239 | $342,607 | | Net (decrease) increase in cash | ($80,399) | $328,795 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, including a $391.8 million impairment charge from the Title365 acquisition, workforce reductions, and disaggregated revenue trends - Due to declining economic conditions and market capitalization, the company performed an interim impairment analysis as of June 30, 2022, resulting in a $151.7 million impairment of customer relationships and a $240.1 million impairment of goodwill for the Title365 reporting unit[96][100][104] Disaggregated Revenue by Service Offering (in thousands) | Service Offering | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Blend Platform Revenue | | | | Mortgage Banking | $23,891 | $25,390 | | Consumer Banking and Marketplace | $8,512 | $5,569 | | Professional Services | $1,198 | $1,103 | | Total Blend Platform | $33,601 | $32,062 | | Title365 Revenue | $31,938 | $0 | | Total Revenue | $65,539 | $32,062 | - The company initiated a workforce reduction plan in April 2022, eliminating approximately 200 positions for a charge of about $6.4 million. A subsequent plan in August 2022 will eliminate another 220 positions for an estimated charge of $4.0 million[189][213] - For the six months ended June 30, 2022, one customer (Customer B) accounted for 33% of total revenue. This same customer accounted for 22% of trade and unbilled receivables as of June 30, 2022[61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting the impact of macroeconomic headwinds on the mortgage industry, a significant impairment charge, and cost efficiency measures, while maintaining strong liquidity - Management notes a decline in the mortgage origination outlook due to rising interest rates and inflation. Mortgage transactions on the platform decreased 25% YoY in Q2 2022, while overall industry originations fell 37%[225][226] - A $391.8 million impairment charge ($240.1 million for goodwill, $151.7 million for customer relationships) was recorded for the Title365 reporting unit due to declining market conditions and operating results[231][234] - An April 2022 workforce reduction plan eliminated approximately 200 positions with approximately $6.4 million charge. An August 2022 plan will eliminate approximately 220 more positions with an estimated approximately $4.0 million charge[228][229] - As of June 30, 2022, principal sources of liquidity were $450.5 million in cash, cash equivalents, and marketable securities, plus a $25.0 million undrawn revolving credit facility[293] Results of Operations Total revenue increased 104% to $65.5 million in Q2 2022, primarily due to the Title365 segment, but operating expenses surged to $496.7 million due to a significant impairment charge, resulting in a $477.2 million net loss Revenue and Gross Profit by Segment - Q2 2022 vs Q2 2021 (in thousands) | Segment | Q2 2022 Revenue | Q2 2021 Revenue | Q2 2022 Gross Profit | Q2 2021 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Blend Platform | $33,601 | $32,062 | $20,373 | $19,702 | | Title365 | $31,938 | N/A | $4,892 | N/A | | Total | $65,539 | $32,062 | $25,265 | $19,702 | Operating Expenses - Q2 2022 vs Q2 2021 (in thousands) | Expense Category | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $35,500 | $20,884 | 70% | | Sales and marketing | $22,438 | $18,271 | 23% | | General and administrative | $36,472 | $20,181 | 81% | | Impairment of intangible assets and goodwill | $391,823 | $0 | N/A | | Restructuring | $6,380 | $0 | N/A | | Total operating expenses | $496,681 | $59,336 | 737% | Liquidity and Capital Resources The company maintains strong liquidity with $450.5 million in cash and marketable securities and an undrawn $25.0 million revolving credit facility, deemed sufficient for the next 12 months - Principal sources of liquidity as of June 30, 2022, were cash, cash equivalents, and marketable securities of $450.5 million, and an available $25.0 million revolving credit facility[293] - The company has a $225.0 million term loan facility, fully drawn in July 2021 to fund the Title365 acquisition[295] Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($92,600) | ($53,101) | | Net cash provided by investing activities | $10,857 | $39,289 | | Net cash provided by financing activities | $1,239 | $342,607 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk from its floating-rate term loan and investment portfolio, alongside inflation risk, though the latter has not yet had a material impact - The company has a $225.0 million term loan with a floating interest rate. A 100 basis point increase would raise annual interest expense by about $2.3 million[322] - The term loan is linked to LIBOR, which is being phased out. The credit agreement includes an alternative rate, but a change could still increase interest rates[323] - Inflationary factors could increase overhead costs, but the company does not believe inflation has had a material impact on its financial condition or results of operations to date[324] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting related to the Title365 acquisition, with remediation efforts underway - Disclosure controls and procedures were deemed not effective as of June 30, 2022, due to a material weakness in internal control over financial reporting[325] - The material weakness relates to the accounting for the Title365 business combination, specifically a lack of precision in reviews of financial information used for intangible asset valuation[326] - Remediation efforts include hiring additional finance and accounting personnel and implementing additional management review controls[328] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently party to any litigation expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not presently party to any litigation that it believes would be likely to have a material adverse effect on its business[334] Item 1A. Risk Factors This section details significant business risks, including historical net losses, customer concentration, acquisition integration challenges, economic sensitivity, cybersecurity threats, and a material weakness in internal controls - The company has a history of net losses and may not achieve profitability. Revenue is concentrated with a small number of key customers, with the top five in the Title365 segment accounting for 83.1% of segment revenue in the six months ended Dec 31, 2021[346][354] - The business is highly sensitive to economic conditions affecting real estate and mortgage activity, such as interest rates, credit availability, and inflation[339][394] - The company faces risks from integrating the Title365 acquisition, potential impairment of goodwill, cyberattacks, and reliance on third-party providers like AWS[361][372][549] - A material weakness in internal control over financial reporting has been identified related to the Title365 acquisition. The multi-class stock structure concentrates approximately 70% of voting power with the CEO, Nima Ghamsari[442][567] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered equity sales and details the use of $366.7 million net proceeds from its July 2021 IPO for general corporate purposes, with no material change in plans - The company received net proceeds of $366.7 million from its July 2021 IPO[597] - The proceeds are intended for general corporate purposes, with no material change in the planned use since the IPO prospectus was filed[598][599] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[600] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[601] Item 5. Other Information The company reports no other information for this item - None[601] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications and XBRL data files - This section lists required certifications and XBRL data files as exhibits to the report[605]