Blend Labs(BLND) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements for Blend Labs, Inc. for Q2 and H1 2023 and 2022 Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for Blend Labs, Inc. for Q2 and H1 2023 and 2022 Condensed Consolidated Balance Sheets Total assets decreased from $432.8 million to $350.5 million, driven by reduced cash, with declining stockholders' equity | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | |:---|:---|:---| | Cash and cash equivalents | $34,980 | $124,199 | | Marketable securities | $230,618 | $229,948 | | Total current assets | $309,370 | $396,096 | | Total assets | $350,496 | $432,764 | | Total current liabilities | $34,876 | $35,473 | | Total liabilities | $265,867 | $268,843 | | Total stockholders' equity | $41,267 | $123,172 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Net loss significantly reduced for Q2 and H1 2023 due to lower operating expenses and no prior year impairment charges | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total revenue | $42,815 | $65,539 | | Total cost of revenue | $19,322 | $40,274 | | Gross profit | $23,493 | $25,265 | | Total operating expenses | $60,214 | $496,681 | | Loss from operations | $(36,721) | $(471,416) | | Net loss | $(41,489) | $(477,202) | | Net loss per share (Basic and diluted) | $(0.18) | $(2.06) | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total revenue | $80,151 | $137,063 | | Total cost of revenue | $40,805 | $82,929 | | Gross profit | $39,346 | $54,134 | | Total operating expenses | $137,503 | $595,298 | | Loss from operations | $(98,157) | $(541,164) | | Net loss | $(107,683) | $(549,620) | | Net loss per share (Basic and diluted) | $(0.45) | $(2.38) | Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders' Equity Total stockholders' equity decreased from $123.2 million to $41.3 million due to net loss and noncontrolling interest accretion | Metric | December 31, 2022 (in thousands) | June 30, 2023 (in thousands) | |:---|:---|:---| | Redeemable Noncontrolling Interest | $40,749 | $43,362 | | Total Stockholders' Equity | $123,172 | $41,267 | | Net loss (Six Months Ended) | $(110,296) | $(551,925) (for 2022) | - Accretion of redeemable noncontrolling interest to redemption value was $(3,648) thousand for the six months ended June 30, 2023, compared to $(38,450) thousand for the same period in 2022[19][25] Condensed Consolidated Statements of Cash Flows Operating cash outflow decreased, investing cash inflow reduced, and financing shifted to outflow from share repurchases | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Net cash used in operating activities | $(81,043) | $(92,600) | | Net cash provided by investing activities | $2,278 | $10,857 | | Net cash (used in) provided by financing activities | $(3,510) | $1,239 | | Net decrease in cash, cash equivalents, and restricted cash | $(82,262) | $(80,399) | | Cash, cash equivalents, and restricted cash at end of period | $47,295 | $138,041 | Notes to Condensed Consolidated Financial Statements Detailed notes cover business, accounting policies, revenue, investments, assets, liabilities, equity, compensation, restructuring, and taxes 1. Description of Business and Basis of Presentation Blend Labs provides cloud-based software for financial services, with Title365 acquisition and segment reclassification, impacted by macro factors - Blend Labs, Inc. offers a cloud-based software platform for financial services firms, powering end-to-end consumer journeys for banking products[28] - The company acquired 90.1% ownership of Title365, a title insurance agency, on June 30, 2021[30] - In March 2023, the company reclassified its digitally-enabled title component from the Blend Platform segment to the Title segment to align with CODM review[31] - Macroeconomic factors, including rising interest rates and declining mortgage origination activity, have impacted the company's results of operations, with a decline in 2022 continuing into 2023[42] 2. Summary of Significant Accounting Policies Details significant accounting policies including cash, receivables, credit risk, noncontrolling interest, and new accounting standards - Restricted cash, primarily collateral for office facility leases, increased from $5.4 million at December 31, 2022, to $12.3 million at June 30, 2023[44] - The reserve for expected credit losses on trade and other receivables decreased from $0.4 million at December 31, 2022, to $0.2 million at June 30, 2023[45] - Two title insurance companies accounted for approximately 71% and 29% of title policy fees during the six months ended June 30, 2023[49] | Customer | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |:---|:---|:---| | A | 18% | 30% | | Customer | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | A | 18% | 33% | - The redemption amount of the Title365 Put Option was $54.5 million as of June 30, 2023, up from $53.2 million at December 31, 2022[51] - The company adopted ASU 2020-04 (Reference Rate Reform) and ASU 2021-08 (Business Combinations) in 2023, with no material impact on financial statements[55][56] 3. Revenue Recognition and Contract Costs Revenue disaggregation recast in Q1 2023 with Composable Origination, from software, professional services, and Title, with usage-based shift - In Q1 2023, the company recast revenue disaggregation due to the introduction of Composable Origination, reclassifying digitally-enabled title revenue to the Title segment[60][161][637] | Revenue Stream | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Mortgage Suite | $22,271 | $26,976 | | Consumer Banking Suite | $5,844 | $4,604 | | Professional services | $2,216 | $2,021 | | Traditional Title | $9,313 | $31,861 | | Digitally-enabled Title | $3,171 | $77 | | Total Revenue | $42,815 | $65,539 | - Usage-based arrangements accounted for 60% of Blend Platform segment revenue for the six months ended June 30, 2023, up from 52% in the prior year[206] - The aggregate transaction price allocated to remaining performance obligations as of June 30, 2023, was $53.2 million[85][671] - Amortization of deferred contract costs was $0.7 million for the three months ended June 30, 2023, and $1.7 million for the six months ended June 30, 2023[86] 4. Investments and Fair Value Measurements Investment portfolio of cash equivalents and marketable securities experienced unrealized losses due to interest rate changes | Investment Type | June 30, 2023 Fair Value (in thousands) | December 31, 2022 Fair Value (in thousands) | |:---|:---|:---| | Money market funds | $23,275 | $26,389 | | U.S. treasury and agency securities | $137,013 | $196,816 | | Commercial paper | $25,496 | $23,686 | | Debt securities | $68,109 | $4,446 | | Total marketable securities | $230,618 | $224,948 | - The company's marketable securities had unrealized losses of $(890) thousand at June 30, 2023, and $(934) thousand at December 31, 2022, primarily due to changes in interest rates[64][673][89] | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Interest income | $3,200 | $300 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Interest income | $6,100 | $400 | 5. Intangible Assets Intangible assets include licenses and a domain name; customer relationships written off in 2022, leading to immaterial 2023 amortization | Intangible Asset | June 30, 2023 Net Book Value (in thousands) | December 31, 2022 Net Book Value (in thousands) | |:---|:---|:---| | Domain name | $119 | $127 | | Acquired licenses | $2,000 | $2,000 | | Total intangible assets, net | $2,119 | $2,127 | - Amortization of acquired intangible assets was immaterial for the three and six months ended June 30, 2023, compared to $4.0 million and $8.1 million, respectively, in 2022, due to the full write-off of customer relationship intangible assets in 2022[646][219][258] 6. Significant Balance Sheet Components Details balance sheet components including property, equity investments, convertible note, cloud costs, and other liabilities | Property and Equipment, Net | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | |:---|:---|:---| | Computer and software | $6,295 | $5,843 | | Furniture and fixtures | $1,816 | $1,886 | | Leasehold improvements | $4,894 | $4,884 | | Total property and equipment, gross | $13,005 | $12,613 | | Accumulated depreciation and amortization | $(8,032) | $(6,871) | | Total property and equipment, net | $4,973 | $5,742 | - Depreciation expense for the three months ended June 30, 2023 and 2022 was $0.6 million For the six months, it was $1.3 million (2023) and $1.1 million (2022)[93] - The company holds a $5.4 million equity investment in a privately-held company, measured at cost, with no impairments or observable price changes in the current periods[94] - A $3.0 million convertible promissory note investment in a privately-held company is held, accruing 2% interest, with a call option to merge the issuer for $500.0 million[72] | Other Current Liabilities | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | |:---|:---|:---| | Accrued expenses | $2,647 | $3,051 | | Accrued professional fees | $2,507 | $2,615 | | Accrued connectivity fees | $3,483 | $3,143 | | Operating lease liabilities, current portion | $4,220 | $4,089 | | Total other current liabilities | $15,016 | $15,459 | - Title and escrow loss reserves were $1.8 million at June 30, 2023, down from $2.1 million at December 31, 2022[75] 7. Leases Leases facilities under non-cancelable operating leases, with total costs of $1.6 million (Q2) and $3.3 million (H1) | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total operating lease costs | $1,600 | $1,800 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total operating lease costs | $3,300 | $3,600 | - The weighted average remaining operating lease term was 3.4 years as of June 30, 2023, with a weighted average discount rate of 8.0%[127] | Maturity Period | Operating Lease Liabilities (in thousands) | |:---|:---| | Remainder of 2023 | $2,567 | | 2024 | $5,108 | | 2025 | $4,253 | | 2026 | $1,303 | | 2027 | $1,094 | | Thereafter | $1,259 | | Total lease payments | $15,584 | | Less: imputed interest | $(2,128) | | Total operating lease liabilities | $13,456 | 8. Commitments and Contingencies Subject to legal matters and contingencies, including litigation accruals and contingent liability for customer escrow funds - The company had a litigation contingency accrual of approximately $0.5 million as of June 30, 2023, down from $0.7 million at December 31, 2022[128] - The maximum potential amount of future payments under indemnification provisions is unlimited, but no material costs have been incurred to date[129] - Cash held for escrow and trust deposits was approximately $3.8 million (net of outstanding checks) as of June 30, 2023, for which the company is contingently liable[100][654] 9. Debt Financing Holds a $225.0 million senior secured term loan and $25.0 million revolving credit facility, with a 14.51% effective interest rate - The company has a $225.0 million senior secured term loan and a $25.0 million senior secured revolving credit facility, both maturing on June 30, 2026[101][686] | Debt Component | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | |:---|:---|:---| | Term Loan - principal | $225,000 | $225,000 | | Term Loan - exit fee | $4,500 | $4,500 | | Less: unamortized debt discounts and issuance costs | $(11,260) | $(12,699) | | Total debt | $218,240 | $216,801 | - The effective interest rate on the Term Loan was approximately 14.51% as of June 30, 2023, compared to 10.44% as of June 30, 2022[275][282][657] - The company was in compliance with all debt covenants, including a minimum liquidity covenant, as of June 30, 2023[688] 10. Stockholder's Equity Features three common stock classes with differing voting rights, with Co-Founder Nima Ghamsari holding significant control - Class A common stock has one vote per share, Class B has 40 votes per share, and Class C has no voting rights[135][585] - Nima Ghamsari, Co-Founder, beneficially owns all issued and outstanding Class B common stock, representing approximately 63% of total voting power as of June 30, 2023[585] - The company has 200,000,000 shares of preferred stock authorized but none issued and outstanding as of June 30, 2023[13][658] 11. Stock-Based Compensation Grants stock options, RSUs, and PSUs, with total stock-based compensation expense significantly decreasing in Q2 and H1 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total stock-based compensation expense | $14,364 | $29,248 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total stock-based compensation expense | $30,756 | $53,560 | - The total fair value of options vested decreased from $10.3 million (Q2 2022) to $2.8 million (Q2 2023) and from $19.3 million (H1 2022) to $6.7 million (H1 2023)[112] - Unrecognized stock-based compensation expense for stock options was approximately $16.7 million as of June 30, 2023, to be recognized over 2.6 years[114] - Unrecognized stock-based compensation expense for RSUs was $23.6 million as of June 30, 2023, to be recognized over 2.1 years[146] - A stand-alone stock option for the Co-Founder and Head of Blend had $16.9 million in unrecognized compensation expense as of June 30, 2023, to be recognized over 3.7 years[150] 12. Restructuring Implemented multiple workforce reductions in 2022-2023, incurring $2.3 million (Q2) and $15.1 million (H1) in restructuring charges - The company executed workforce reduction plans in April, August, and November 2022, and January 2023, eliminating approximately 10%, 10%, 6%, and 28% of the workforce, respectively[182] | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Restructuring charges | $2,349 | $6,380 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Restructuring charges | $15,132 | $6,380 | - A restructuring liability of $0.5 million remained as of June 30, 2023, primarily for accrued severance[185] 13. Income Taxes Recorded immaterial income tax provision for Q2 and $0.1 million for H1 2023, with a full valuation allowance against deferred tax assets - Income tax expense for the three months ended June 30, 2023, was immaterial, and $0.1 million for the six months, consisting of state and foreign income taxes[155] - The company maintains a full valuation allowance against its net deferred tax assets, concluding they are not more-likely-than-not to be realized[186] 14. Net Loss Per Share Net loss per share computed using the two-class method, with potential common shares excluded from diluted EPS due to antidilutive effect | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |:---|:---|:---| | Net loss per share (Basic and diluted) | $(0.18) | $(2.06) | | Weighted average shares outstanding | 244,262 | 232,501 | | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net loss per share (Basic and diluted) | $(0.45) | $(2.38) | | Weighted average shares outstanding | 242,861 | 231,421 | - Total antidilutive securities, including stock options, RSUs, PSUs, and warrants, were 69,296 thousand as of June 30, 2023, and 61,185 thousand as of June 30, 2022[190] 15. Segment Information Segment reporting changed in March 2023, reclassifying digitally-enabled title; Blend Platform gross profit increased, Title decreased - Segment reporting changed in March 2023, moving the digitally-enabled title component from Blend Platform to Title segment[161] | Segment | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Blend Platform Revenue | $30,331 | $33,601 | | Title Revenue | $12,484 | $31,938 | | Total Revenue | $42,815 | $65,539 | | Blend Platform Gross Profit | $22,140 | $20,373 | | Title Gross Profit | $1,353 | $4,892 | | Total Gross Profit | $23,493 | $25,265 | | Segment | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Blend Platform Revenue | $55,035 | $66,177 | | Title Revenue | $25,116 | $70,886 | | Total Revenue | $80,151 | $137,063 | | Blend Platform Gross Profit | $38,235 | $40,548 | | Title Gross Profit | $1,111 | $13,586 | | Total Gross Profit | $39,346 | $54,134 | 16. Subsequent Events Committed to a fifth workforce reduction plan on August 9, 2023, eliminating 150 positions and 20 vacancies - On August 9, 2023, the company committed to a fifth workforce reduction plan (August 2023 Plan) to eliminate approximately 150 positions and 20 vacancies[195][202][319][664] - The August 2023 Plan is estimated to incur approximately $7.2 million in charges, primarily for severance and benefits, with execution expected to be substantially complete in Q3 2023[202][319][664] - The eliminated positions represent annualized compensation expenses of approximately $33.0 million[319] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers financial condition, operations, macroeconomic impacts, workforce reductions, and liquidity challenges Overview Blend Labs simplifies financial services with its cloud platform, introducing Composable Origination for custom workflows - Blend Labs, Inc. provides a market-leading cloud-based software platform for financial services firms, designed to power end-to-end consumer journeys for banking products[197] - The company recently introduced Composable Origination, enabling customers to build custom solutions or configure workflows with pre-built solutions like Instant Home Equity, Deposit Accounts, and Credit Cards[168] Recent Developments Mortgage transactions declined due to rising interest rates; company implemented multiple workforce reductions, including a fifth plan - Mortgage transactions on the platform decreased by 31% for the three months ended June 30, 2023, compared to the prior year, primarily due to rising interest rates and decreased housing affordability[170] - Overall industry origination volumes, as reported by the MBA, decreased by 37% over the same period[170] - The company implemented several workforce reduction actions since April 2022, including a fifth plan (August 2023 Plan) to eliminate approximately 150 positions and 20 vacancies, incurring estimated charges of $7.2 million[171][202][319] Key Business Metrics Key metrics show substantial declines: mortgage banking transactions down 31% and Title closed orders down 64% for Q2 2023 | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Number of mortgage banking transactions | 239 | 348 | | Title closed orders | 5 | 14 | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Number of mortgage banking transactions | 420 | 728 | | Title closed orders | 9 | 41 | - The Blend Platform segment's success depends on increasing mortgage and consumer banking transaction volume through new customers and increased adoption of products by existing customers[173] - The Title segment's closed orders are affected by overall real estate activity, which is cyclical and influenced by factors like mortgage credit availability and interest rates[204] Components of Results of Operations Outlines revenue, cost of revenue, and operating expense components, detailing sources and cost management actions - Blend Platform revenue is generated from subscription and usage-based arrangements, with a shift towards usage-based contracts (60% of segment revenue for H1 2023)[206][227] - Title segment revenue includes title search, escrow, and other closing and settlement services, recognized net of third-party underwriter payments[228] - Cost of revenue for Blend Platform includes hosting, support, and third-party connectivity fees, while Title segment costs include personnel and external vendor services[208][209] - Operating expenses, including R&D, sales & marketing, and G&A, primarily consist of personnel-related expenses and stock-based compensation[210][211][234] - No amortization of acquired intangible assets was recorded in 2023 due to the full write-off of customer relationship intangible assets in 2022[235] Results of Operations Operations show significant revenue and cost of revenue decreases, substantial operating expense reduction, and improved net loss | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total Revenue | $42,815 | $65,539 | | Total Cost of Revenue | $19,322 | $40,274 | | Gross Profit | $23,493 | $25,265 | | Total Operating Expenses | $60,214 | $496,681 | | Loss from Operations | $(36,721) | $(471,416) | | Net Loss | $(41,489) | $(477,202) | | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | |:---|:---|:---| | Total Revenue | $80,151 | $137,063 | | Total Cost of Revenue | $40,805 | $82,929 | | Gross Profit | $39,346 | $54,134 | | Total Operating Expenses | $137,503 | $595,298 | | Loss from Operations | $(98,157) | $(541,164) | | Net Loss | $(107,683) | $(549,620) | - Impairment of intangible assets and goodwill decreased by $391.8 million (100%) for both the three and six months ended June 30, 2023, as charges were recorded in 2022[247][259] - Interest expense increased by 39% (Q2) and 38% (H1) due to higher interest rates on the Term Loan[275][261] - Other income (expense), net, increased significantly due to higher interest income on the investment portfolio[276][283] Comparison of the Three Months Ended June 30, 2023 and 2022 Q2 2023 total revenue decreased 35% to $42.8 million, driven by Title segment decline; operating expenses reduced 88% | Segment Revenue | 2023 (in thousands) | 2022 (in thousands) | $ Change | % Change | |:---|:---|:---|:---|:---| | Blend Platform | $30,331 | $33,601 | $(3,270) | (10%) | | Title | $12,484 | $31,938 | $(19,454) | (61%) | | Total Revenue | $42,815 | $65,539 | $(22,724) | (35%) | - Mortgage Suite revenue decreased by 17%, while Consumer Banking Suite revenue increased by 27% for the three months ended June 30, 2023[216][271] - Total cost of revenue decreased by 52% to $19.3 million, driven by lower volume in both Title and Blend Platform segments[245] | Operating Expense | 2023 (in thousands) | 2022 (in thousands) | $ Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $22,091 | $35,500 | $(13,409) | (38%) | | Sales and marketing | $16,128 | $22,438 | $(6,310) | (28%) | | General and administrative | $19,646 | $36,472 | $(16,826) | (46%) | | Impairment of intangible assets and goodwill | $0 | $391,823 | $(391,823) | (100%) | Comparison of the Six Months Ended June 30, 2023 and 2022 H1 2023 total revenue decreased 42% to $80.2 million, with Title segment down 65%; operating expenses reduced 77% | Segment Revenue | 2023 (in thousands) | 2022 (in thousands) | $ Change | % Change | |:---|:---|:---|:---|:---| | Blend Platform | $55,035 | $66,177 | $(11,142) | (17%) | | Title | $25,116 | $70,886 | $(45,770) | (65%) | | Total Revenue | $80,151 | $137,063 | $(56,912) | (42%) | - Mortgage Suite revenue decreased by 25%, while Consumer Banking Suite revenue increased by 30% for the six months ended June 30, 2023[252][279] - Total cost of revenue decreased by 51% to $40.8 million, driven by lower volume in both Title and Blend Platform segments[253] | Operating Expense | 2023 (in thousands) | 2022 (in thousands) | $ Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $48,348 | $70,606 | $(22,258) | (32%) | | Sales and marketing | $33,696 | $44,779 | $(11,083) | (25%) | | General and administrative | $40,327 | $73,574 | $(33,247) | (45%) | | Impairment of intangible assets and goodwill | $0 | $391,823 | $(391,823) | (100%) | | Restructuring | $15,132 | $6,380 | $8,752 | 137% | Liquidity and Capital Resources Liquidity from $265.6 million cash, equivalents, and marketable securities, plus $25.0 million credit facility, deemed sufficient - Principal sources of liquidity as of June 30, 2023, were $265.6 million in cash, cash equivalents, and marketable securities, plus an undrawn $25.0 million revolving credit facility[285] - The company had an accumulated deficit of $1,269.6 million as of June 30, 2023, and expects to continue incurring operating losses[262] - Management believes current liquidity is sufficient to fund operations for at least the next 12 months[290] - Net cash used in operating activities decreased to $81.0 million for the six months ended June 30, 2023, from $92.6 million in the prior year[291] - Net cash provided by investing activities decreased to $2.3 million for the six months ended June 30, 2023, from $10.9 million in the prior year[322] - Net cash used in financing activities was $3.5 million for the six months ended June 30, 2023, primarily due to share repurchases for tax settlements[323] Critical Accounting Estimates Financial statements rely on estimates for revenue, stock compensation, intangible assets, and noncontrolling interest - Key estimates include revenue recognition, stock-based compensation, valuations of acquired intangible assets and redeemable noncontrolling interest, and common stock valuations[295][475] - No material changes to critical accounting estimates were reported since the Annual Report on Form 10-K for the year ended December 31, 2022[326] Recent Accounting Pronouncements Adopted ASU 2020-04 and 2021-08 with no material impact, evaluating ASU 2020-06 and 2022-03 for future effects - Adopted ASU 2020-04 (Reference Rate Reform) and ASU 2021-08 (Business Combinations) in 2023, with no material impact[55][56] - Currently evaluating ASU 2020-06 (Debt with Conversion and Other Options) and ASU 2022-03 (Fair Value Measurement), both effective January 1, 2024, for potential impact[57][58] Item 3. Quantitative and Qualitative Disclosures About Market Risk Exposed to interest rate risk from floating-rate Term Loan, with a 100 basis point change impacting annual interest expense by $2.3 million - The company's $225.0 million Term Loan accrues interest at a floating rate (adjusted Term SOFR or base rate plus a margin)[298] - A hypothetical 100 basis point increase in the applicable interest rate would increase annual interest expense by approximately $2.3 million[298] - Inflation has not had a material impact on financial condition or results of operations to date, but future high inflation could adversely affect operating results[299] Item 4. Controls and Procedures Disclosure controls and procedures deemed effective as of June 30, 2023, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[300] - No material changes in internal control over financial reporting were identified during the period[301] - Control systems provide reasonable, not absolute, assurance, and are subject to inherent limitations such as human error, collusion, or management override[302] PART II. OTHER INFORMATION Item 1. Legal Proceedings Not currently party to material litigation, but future legal actions to defend proprietary rights may incur costs - The company is not currently involved in litigation expected to have a material adverse effect on its business[304] - Future litigation may be necessary to defend proprietary rights, and outcomes are uncertain, potentially incurring costs and diverting management resources[333] Item 1A. Risk Factors Outlines significant risks including industry dependence, interest rate sensitivity, net losses, customer concentration, and competition - The business is substantially dependent on revenue from the financial services industry, particularly the mortgage industry, making it vulnerable to economic downturns and interest rate changes[309][310][311] - The company has a history of net losses and may not achieve profitability due to significant investments and declining revenue in the current macroeconomic environment[313][341] - A large percentage of revenue is concentrated with a small number of key customers, posing a risk if these relationships are terminated or business levels significantly reduced[372] - The company faces intense competition and risks related to integrating acquisitions (like Title365), managing growth, and adapting to rapid technological changes[345][355][358][350] - Cyberattacks, security breaches, and failures in internal controls or compliance with evolving privacy and financial regulations could severely impact the business and reputation[364][428][451][459][465] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Completed IPO on July 20, 2021, issuing 22.5 million Class A shares at $18.00, generating $366.7 million net proceeds - The company completed its IPO on July 20, 2021, issuing 22,468,111 shares of Class A common stock at $18.00 per share[611] - Aggregate net proceeds from the IPO were $366.7 million, after deducting underwriters' discounts and offering expenses[611] - No material change in the planned use of IPO proceeds has occurred[611] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report - Not applicable; no defaults upon senior securities to report[604] Item 4. Mine Safety Disclosures No mine safety disclosures; details Rule 10b5-1 trading arrangement by Amir Jafari for Class A Common Stock - No mine safety disclosures are applicable[603] - Amir Jafari, Head of Finance and Administration, adopted a Rule 10b5-1 trading arrangement on June 14, 2023, to purchase approximately $200,000 of Class A Common Stock[605] Item 5. Other Information No additional material information beyond other disclosures in the report - No other information to report[572] Item 6. Exhibits Lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The exhibit index includes certifications from the Principal Executive Officer and Principal Financial Officer, XBRL instance documents, and the Inline XBRL formatted cover page[606][614] Signatures Report signed by Nima Ghamsari (CEO) and Amir Jafari (CFO) on behalf of Blend Labs, Inc. on August 9, 2023 - The report is signed by Nima Ghamsari (Principal Executive Officer) and Amir Jafari (Principal Financial Officer) on August 9, 2023[609][616]