Blend Labs, Inc. (BLND) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Blend's Second Quarter 2021 Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Crystal Sumner, Head of Legal, Compliance and Risk. You may begin.

Good afternoon, everyone, and thank you for joining us today to discuss Blend's Fiscal 2021 Second Quarter Results. I'm joined on the call today by Nima Ghamsari, Co-Founder and Head of Blend; Marc Greenberg, Head of Finance; and Tim Mayopoulos, President. Before we start, I would like to note that certain statements made during today's conference call regarding Blend and its operations may be considered forward-looking statements under federal securities laws. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, could cause actual results, events or circumstances to differ materially from those described in these statements. Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on the company's website at blend.com under the Investor Relations section and on the SEC's website at sec.gov. You should not put undue reliance on any forward-looking statements. Also note that any forward-looking statements we make on this call are based on information available to us and assumptions and beliefs as of today's date. We disclaim any obligation to update any forward-looking statement, except as required by law. During this call, we will be discussing certain non-GAAP financial measures. Information regarding our non-GAAP financial results, including a reconciliation of such non-GAAP results to the most directly comparable GAAP financial measures may be found in our earnings release, which is available on the company's website under the Investor Relations section and included as an exhibit to our Form 8-K furnished with the SEC before this call. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. I would also like to mention that there are slides and product demos for your reference available for download at investor.blend.com. With that, I would now like to turn it -- turn the call over to Co-Founder and Head of Blend, Nima Ghamsari. Nima, you may begin.

Thanks, Crystal, and thank you all for joining us today. I'm Nima Ghamsari, Head of Blend, and I'm also one of the founders. And the last 2 months have been a very exciting time for Blend. We've grown our revenue quarter-over-quarter despite a national softening in mortgage volumes, which indicates that we are growing our customer base, expanding our customer relationships and diversifying our product offerings. We also executed a successful IPO in that time period, with strong investor interest and support, and so a special thank you to our customers and team members for helping us get through that milestone. We believe that banking will look very different in the future than it does today, and it's that future that we're constantly moving towards and preparing for. We started Blend 9 years ago to take friction out of banking and make the process of getting a loan or opening a deposit account as easy as anything else that they would do online. And above all else, we wanted to bring simplicity and transparency to financial services. But today, the banking industry still heavily relies on paper documents, making the approval process for these products slow, expensive and more susceptible to error and fraud. Many of you have likely had that experience personally, I know I have, opening accounts or getting a loan, visiting a branch, having to sign a stack of paper. And the good news is, with our help, our customer base is committing to making this a better experience for everyone. We see a future of proactive finance where consumers receive personalized, data-based suggestions from their financial services firms, and that's focused on driving their financial wellness, the consumer's financial wellness. We predict that consumers will be able to open their mobile phone, and in just an instant, see everything that their financial services firm can do for them, tailored to their specific financial situation. With that future in mind, Blend's platform is designed to power any banking product using data-driven workflows. That means from the moment the consumer starts with their financial services firm, to the moment they digitally sign their final documents, we've centered the experience around their unique data profile, including their assets, their income, tax history, credit history, everything an underwriting team needs to make a credit decision in real-time. Through our products, financial services firms are able to deliver those real-time customer experiences across important financial moments in people's lives. We estimate the serviceable addressable market of Blend's current product offerings is greater than $33 billion, and we expect this market to grow over time as we add more products to our software platform, develop additional marketplaces and expand internationally. Financial services firms choose us as a strategic innovation partner today, and we believe they will continue to do so in the future because we are well positioned to help them in critical ways. First, unlike legacy point solutions that focus on individual product lines, we sell a single software platform designed to power the end-to-end journey across products and channels. Second, our software platform is flexible and modular, enabling financial services firms to innovate rapidly in response to new opportunities and changing market conditions. Third, we have an extensive and rapidly growing partner ecosystem that use our platform as a way to gain adoption of new fintech innovations. And our customers love that because it helps their end customer, the consumer, get the best experience. And last, we attract and retain the best software engineering talent at Blend to continue innovating and building the value for the financial services industry. Turning to the specifics for the second quarter. We achieved strong revenue performance and continue to make progress on adding new customers and expanding value to existing customers. Our revenue reflects growth across our mortgage and consumer banking product lines, our home ownership journey marketplaces and the volume of banking transactions that we facilitate on behalf of our customers. In the second quarter, we continued to gain market share across banks, credit unions, nonbank lenders and fintechs as the consumer expectations and COVID-19 pandemic-fueled behavior shifts continued to drive industry-wide digitization. Key customer wins include: Mr. Cooper, a top-15 nonbank mortgage lender for our mortgage, title and close products; KeyBank, a top-20 U.S. bank for our mortgage product; BECU, one of the nation's largest credit unions for our consumer banking suite; and Bilt Technologies, a modern card company for renters for our credit card product. We are excited to partner with Mr. Cooper across our mortgage, title and close products as we work to deliver an end-to-end digital home purchase and refinance experience with their customers. Bilt Technologies represents an increase in the trend of fintechs who typically have great in-house tech talent, partnering with Blend to accelerate their ability to put appropriate infrastructure in place and effectively originate all of their products. In all, customers signed in the second quarter added a capacity of around 270,000 annual banking transactions to our base. This number represents banking transaction volume at our signed customers, volume that we will have the ability to capture in the coming quarters as we work to onboard them onto the Blend platform. Since we expect that we will be talking about new customers on our earnings calls going forward, I would like to take a brief moment to provide some context around the journey, from signing to going live, on our platform. You'll hear us refer to 4 phases that signify their stage in the onboarding process. Those 4 phases are: signed, in deployment, live and growth. Customers generally contribute to revenue in the live and growth phases. While the length of time to onboard a customer varies by type and the nature of products that they initially adopt, it generally takes between 1 and 3 quarters to progress from signed to live and another quarter or 2 to then move to the growth stage. We drove progress moving customers to the in-deployment, live and growth stages in the second quarter, including Utah Community Credit Union for our consumer banking product suite; Fairway Independent Mortgage for our mortgage product; and BMO Harris Bank for our personal loans. Fairway, a top-10 mortgage lender, has gone live with Blend to drive efficiency in its mortgage operations and is in the midst of a Blend rollout to hundreds of branches across the country. BMO Harris Bank is in the top 25 banks in the United States and a long-standing customer. Our partnership started off in mortgage and expanded to home equity loans and lines of credit, and they're now deploying Blend to power personal loans. Overall, we have good momentum in setting the foundation for future market share expansion and are continuing to gain traction at the high end of the market. As of today, we serve 32 of the top 100 U.S. financial services firms by assets under management, up from 31 at the end of 2020, and 28 of the top 100 U.S. nonbank mortgage lenders, up from 24 at the end of 2020. Another achievement for us was our acquisition of Title365, which we closed on June 30, 2021. Title, escrow and settlement services are a key piece of the one-stop shop for homeownership and home refinance that Blend is building, but they are currently paper- and labor-intensive. We have already started the process of building a software-driven title agency, Blend Title, internally. But in Title365, we found a great match to expedite our transformation of this set of services. In Title365, we acquired a highly experienced and talented team, combined with operational scale and sought-after licenses and relationships, that allow us to continue to serve our customers in new ways and across all 50 states. We also expect that the acquisition will continue to accelerate growth of our core platform revenue as we complete the integration and shift legacy Title volume onto our software-driven Blend platform. We frequently have been asked why an innovative Silicon Valley software company would undertake the process of acquiring and transforming a services business to drive growth. The answer for us is simple, our business with the key services businesses that support the home ownership journey can and will be embedded in a digital mortgage process, which we power today, and the Blend platform is rapidly becoming the foundation for that transformation. By acquiring an ad-scale title business and migrating customers and services onto Blend's software platform, we can accelerate our strategy to power the end-to-end journey for any banking product, including mortgages and home equity loans and in the process, more quickly scale the innovations we've already made on our platform to digitize title insurance. Over time, the acquisition creates substantial upside for Blend's customers, financial services firms, for consumers and therefore, ultimately Blend's shareholders, by driving core platform revenue growth. With the acquisition closed, we are executing on our integration plan and are eager to continue our work with the talented Title365 teams as a member of Blend. So far, what we've seen is what we expected, and we are fully integrating Title365 into the Blend platform and business model. As for our progress on key integration milestones. First, the Title365 team has quickly become an integral part of Blend as we have retained Title365's capable leadership team and key staff. Second, we are proceeding with critical technology integrations necessary to deliver our software-enabled title escrow and settlement services to existing Blend customers. We are fully resourcing those efforts and they are a top priority for our team. Third, Mr. Cooper is in deployment with the Blend platform, including our enhanced title, escrow and settlement services as of early Q3. We expect them to go live on Blend in the first half of 2022. As Mr. Cooper is the largest Title365 customer, its adoption of Blend will facilitate migrating Title365's legacy business to Blend's software-enabled title, escrow and settlement services. We also expect to launch pilots of the joint Blend and Title365 experience with a select group of mutual customers by year-end. Those efforts are likewise on track. In the meantime, we will continue to deliver Title365's services to existing customers. Those customers have responded favorably to the acquisition, save for the attrition of a handful of legacy Title365 customers who are not inclined to be on the Blend platform, including some who view Blend as a potential competitor. We fully expected and planned for this limited attrition and took it into account in our assessment of the deal. And lastly, we have seen significant interest from Blend customers in the Blend Title solution, including interest from a number of our largest customers. For all of these reasons, we remain confident in our ability to execute and deliver on the premise of the acquisition of Title365. As we look ahead to the balance of the year and into 2022, our priorities are deepening our customer relationships, we're always focused on our existing customers, growing market share and delivering ongoing product improvement and innovation while we execute on the pace of our Title365 integration. Blend is keeping an eye on the very long term as a key long-term partner of digitization for the financial services industry. With that, I'll turn it over to Marc.

Thanks, Nima, and thank you all for joining us to review the results of our second fiscal quarter 2021. Before I dive in, I want to remind you that our acquisition of Title365 closed on June 30, 2021. Our reported results for the second quarter and for the first half of the year do not include the impact or the results of Title365, unless noted as pro forma. Beginning with the third quarter and moving forward, we will report results, including the contributions of Title365, and we'll share year-over-year comparisons on a pro forma basis as if we owned Title365 for the comparable year-over-year periods. Total Blend revenues for the second quarter of 2021 were $32.1 million compared with $21.9 million in the second quarter of the prior year. This represents an increase of 46% year-over-year. This growth featured strong transaction volumes, demonstrating increased utilization and adoption of our platform, even though total industry-wide mortgage originations were roughly flat to the prior year. In terms of success-based volumes, we completed over 520,000 banking transactions on our platform in the second quarter of 2021, up 51% year-over-year. Note that we also generate a small percentage of banking transactions under enterprise license agreements with certain customers that are not included in our reported transaction volume. Looking further at our Blend P&L for the second quarter, our gross profit was $19.7 million compared to $13.3 million in the prior period. Our non-GAAP gross profit was $19.9 million compared with $13.3 million in the prior year period. In our current stage of development, we are focusing on absolute gross profit dollar growth more than margin expansion. We expect gross profit to improve in the future as we add more products to the platform and progress further on Title365 integration. Blend operating costs for the second quarter of 2021 were $59.3 million or 185% of revenue compared to $34.1 million or 155% of revenue in the second quarter of 2020. Non-GAAP operating costs for the second quarter of 2021 were $46.2 million or 144% of revenue compared with $29.6 million or 136% of revenue in the second quarter of 2020. The largest driver of operating expenses was an increase in our headcount, which increased to 917 by the end of the quarter. Note that this does not include employees we added from the Title365 acquisition. We continue to invest in our operations across the company, particularly in R&D to push product enhancements and invest in future products and sales and marketing to best serve our customers and in G&A to meet operating needs, support growth and scale and meet the demands of being a public company. These investments deepen the competitive moat we've built over the past 9 years by strengthening our ability to innovate at a faster pace than IT teams at the largest financial services firms can build similar capabilities in-house. Our spending is reflected in the loss from operations for the second quarter of 2021 of $39.6 million compared with a loss of operations of $20.8 million in the second quarter of 2020. Non-GAAP loss from operations for the second quarter of 2021 was $26.3 million compared with $16.4 million in the second quarter of 2020. In the second quarter of 2021, we incurred $6.6 million in transaction and integration costs related to our acquisition of Title365. Our net income for the second quarter of 2021 was $5.8 million compared with a net loss of $20.6 million in the second quarter of 2020. Our net income for the second quarter of 2021 includes a onetime income tax benefit of $45.3 million, primarily due to the release of our historical deferred tax asset valuation allowance in connection with the acquisition of Title365. Our non-GAAP net loss for the second quarter of 2021 was $26.2 million compared with $16.1 million in the second quarter of 2020. Now turning to our balance sheet. Our cash, cash equivalents and marketable securities at June 30, 2021 on a pro forma basis were $630 million, which reflects $377 million in net proceeds from the IPO, $219 million in net proceeds from the term loan financing and a disbursement of $420 million for the Title365 purchase consideration, which was disbursed in early July. Our reported cash at June 30 also includes $17 million received in connection with the acquisition of Title365, effectively reducing the purchase price consideration to $403 million, net of cash acquired. Now I'll turn to our outlook. For the remainder of this year, our revenue will come from 2 primary sources: first, Blend platform revenue, which consists of our mortgage and consumer banking products, our homeownership journey marketplaces and new products that we continue to roll out on the platform; and second, from Title365, which will begin to meaningfully appear in our revenue in the third quarter. As we migrate customers, we expect this revenue will convert to platform revenue in future periods. With that, for the full year 2021, we anticipate revenue of between $226 million and $232 million and pro forma revenue, which includes the impact of the Title365 revenue for the first half of 2021, of between $365 million and $371 million. To wrap up, we had a solid second quarter, and we're optimistic about our future growth potential as we continue to bring new customers onto the Blend platform, increase the ROI and value delivered and drive forward with integrating Title365 into our business. And to our new followers in the investment community, I'm looking forward to engaging with you and updating you on all our progress in the years to come. With that, I'll turn the call back over to Nima for his closing remarks.

Thank you, Marc. This is an exciting time for Blend, and I'm proud of the team for their efforts and their dedication to our customers. It's incredibly hard work, it's very complex, but we're diligently working to meet challenges in partnership with our customers. Blend's foundation is strong, and I'm confident that we'll continue to add value to our customers and the industry at large as we move forward as a public company. We're happy with our growth today, and we're confident that Blend will continue to expand and advance our vision of bringing simplicity and transparency to financial services. With that, I'll open it up to your questions.

[Operator Instructions] Our first question is from Bhavan Suri with William Blair.

Nice job and congrats on a solid quarter at the gate there as a publicly traded company. I guess I wanted to touch a little bit on the Blend Close products. We know the mortgage rates and we know kind of the refi rates are flat year-over-year, but you've seen great growth. Blend Close has seen a pretty substantial interest since launch, whatever, 25%, 30%, attach in a few quarters. Just then can you give us a little more color on the demand for close? And how do you expect that to play out over the next, let's say, 18 to 24 months? So a longer time frame, but it feels like that should be an obvious no-brainer attach. How should we think about that?

Yes. Thanks, Bhavan. We -- just for people who don't know, Blend Close is our digital closing product, so it allows a consumer to, instead of going in and signing a stack of paper at the closing table, they can either be entirely online with a video notary or parts of it online and then close with a much smaller stack, just a couple of papers, at the end of the process. And for those of you who have closed a loan, a mortgage loan in particular, it's a very onerous process. It is sort of -- that is where the industry is going. We talk about digital transformation tailwinds for Blend. And this is a great example of one where this process is going digital. Our customers want an end-to-end solution. I've been on the road with our customers for the past 2 weeks -- or past week or so, into the next week as well. And one of the most common areas that we hear from our customers is how do we make the closing process better, and not just with closing, but eventually, how do we make the back and forth of the title company, along the way, better. And so it's an area of great interest and where it's a product we're extremely confident in as a result.

Great. Great. That's helpful. And then I know you don't talk about things in sort of a take-rate basis, but by my calculation, so to try and do that math, it looked like take rates sort of have come down a little bit. And help us just understand or unpack that a little bit. I think, by my calculations, there was kind of -- or revenue per transaction, let's call it that, was down marginally from Q1, but trying to understand some of the dynamics that played out there, I think that would be helpful.

Yes. I'll give a quick note of color. I mean 2 things, one, there are -- as Marc mentioned in his portion, there are some transactions that are not accounted for in the Q2 numbers because we had some enterprise license agreements as well. So it might even be a little up, but it's because as we expand into other product lines, our mortgage business continues to grow. But as we expand into other product lines, some of the price points for those other nonmortgage banking product lines, so for example, personal loans, deposit accounts, credit cards, those price points are different. And so as a result, the overall transaction volume will continue to go up if that continue -- if that trend continues -- or went up and transaction -- dollars per transaction that we get from the banking transaction revenue goes down.

Okay. Okay. I'll jump back in the queue, but I would love to unpack that a little bit. I guess congrats on a good start as a public company.

Our next question is from Michael Turrin with Wells Fargo Securities.

And congrats on the first quarter as a public company. Nima, you mentioned, at the outset, 46% growth is still strong but the sequential growth number is more modest here. How much of that core slowdown is a function of the macro environment? And then in terms of guidance, can you just maybe talk a bit more around what you're assuming in terms of just the overall mortgage environment for the rest of the year?

Yes. Marc, do you want to take this, or you want me to?

Sure, sure. I can start with the guidance on the second half of the year. Our guidance continues to reflect the Fannie and MBA forecasts as of last month and we're off to a really solid start in Q3. If volume is higher than what those industry forecasters have predicted, there's definitely room for upside. And there really hasn't been a major shift in any of the component parts since the IPO. So that part of the process is something that we're working. From in terms of sequential quarters, the mortgage market was down, I think, 1%, Q1 to Q2. Over time, I think that we'll be less exposed, to Nima's earlier point, about revenue per transaction as the mix continues to evolve towards consumer banking. We're less exposed to the mortgage market. But from an existing revenue perspective, that down 1% kind of influenced the Q1 to Q2 sequential.

Okay. That's helpful. And then maybe touching on the prior question, it would be great to hear more just on where you are on Blend's journey towards diversifying in other areas of consumer banking outside of mortgage. It seems like you solved the difficult problem of mortgage first. But wondering if you could talk more about how much expansion opportunity that can open up within your existing customer base over time.

Yes. And just a little color from this tour I've been, I worked with a lot of customers this week, like I mentioned. And for a diversified financial institution that offers all these products, being able to offer all these products and have one end customer experience is incredibly important to them. A lot of the meetings were with CIOs, CTOs, digital officers for these financial institutions. And so it is very core to their strategy long-term, which is why we have a lot of upside. And in that part of the pie, because it's much earlier, it continues to grow on an absolute basis and as a percentage of our total transaction volume. Meaning, in some ways, it's becoming a bigger and bigger part of our pie already. As we've continued to roll it out, we have some very large -- we've announced some very large customers, and we're in process with some other ones, to continue to grow that product suite in terms of how we -- how it's used by our customers and the capabilities it offers to the customers who are using it.

And Nima, I can just add, BMO Personal Loans was one of the big deals we announced this quarter. BECU was a consumer banking deal that was also announced this quarter.

And our next question is from Joseph Vafi with Canaccord Genuity.

Just wondering, moving forward -- and by the way, congratulations, obviously, on getting out of the box here. Is net retention something that you're going to be providing annually, or is that something you can provide now? And if not now, maybe just some color on maybe the trajectory of net retention from Q1, and then I'll have a quick follow-up.

Thanks, Joseph, and good to chat with you again. Net revenue retention remains a super positive metric for us, but we're not planning on disclosing it on a quarterly basis. So we're -- we do have a really strong customer retention. Like I said, it really does reflect the company's focus on our customers. But on a quarterly basis, it's not something we're going to disclose.

Okay. And then any update on the marketplace and the opportunity there and maybe any progress that occurred during the quarter on the marketplace side.

Tim, do you want to talk a little bit about the title acquisition and how that's contributing -- or how that's starting out? That was a recent one. That's a big part of our marketplace, obviously.

Sure. So as Nima notes, this is a big expansion in our marketplace offerings. We are pleased with the way the integration of Title365 is going. There have been no surprises there. And first, we've been really pleased that we've been able to retain a really talented executive team there and the key staff. We're making good progress on the integrations that need to be done, and we have prioritized those within our company. We've got -- and we have Mr. Cooper, which is a very significant Title365 customer coming on to the Blend software platform. We started that deployment in early Q3, and we would expect Mr. Cooper to go live on Blend in the first half of next year. And since they are the largest Title365 customer, the adoption of Blend will facilitate migrating their business onto our software-enabled title, escrow and settlement platform. We also expect that we'll be able to launch pilots with some joint customers that we have between Blend and Title365 before the end of the year. And as I think Nima would report from his visits with customers, as he mentioned, he's been out on the road this week and will be out on the road again next week, a lot of interest from our customers. But we're still early in the process of scaling up the title business, but we are encouraged by what we see here in the early days of the integration.

Yes. And just to touch on the other marketplace opportunities, we call it marketplace on this call, but the way our customers talk about it is whether it's in the home space, it's the homeownership journey, if it's in the auto space, it's the auto line journey or the auto ownership journey. And so they think about it as, from their consumer standpoint, how they're feeling through the process, and having that be a one-stop shop remains really important to us. As we look at the growth we've had in Q2 to Q1, just on those products, and we have some numbers from Title365 that we can share on the revenue side for the overall company, but we continue to see a lot of growth in our marketplace businesses, and we're very excited about them because it creates that one-stop shop for the consumer, where they can do all the things they need in one place.

And our next question is from Karl Keirstead with UBS.

And congrats. Maybe I'll ask 2. Nima, congratulations on the KeyBank win. You mentioned that it covers mortgage, title and close. But I was just curious, did KeyBank have another third party that you displaced? Did they have a homegrown system? I would be curious about that. And also, you probably don't want to size a win like this, but where might it rank in Blend's largest deals? Does it hit the top 5 or top 10? Any color there would be great. And I'll just ask my second question to Marc now. Marc, most of the underwriting analyst models were on a pro forma basis. Obviously, you've printed on core Blend. Are you at liberty maybe to give us what the pro forma with Title365 would have been in 2Q? That might be helpful.

Marc, do you want to start with sharing the pro forma on Q2 and then I can talk about KeyBank?

Sure. Of course, of course. So for the 3 months ended June 30, 2021, pro forma revenues were $98.2 million and pro forma net loss was $31.2 million. And for the 3 months ended June 30, 2020 -- is that helpful, Karl, or are you -- is it that one?

Yes. And it would also be great if just to be comparable to the $26.3 million non-GAAP operating loss for core Blend, if you have a similar number for Title365, that would be great, or give a pro forma non-GAAP operating loss.

Sure. Let me start with the pro forma and then we can come back to the second piece. So like I said, 3 months ended June 30, 2021, revenues of $98.2 million, net loss of $31.2 million. 3 months ended June 30, 2020, $73.6 million, a net loss of $28.4 million. And then the 6 months comparable numbers, 6 months 2021, $203.2 million revenue, $44.1 million net loss. And 6 months ended June 30, 2020, $132.6 million in revenue, $12.9 million in net loss.

And then on KeyBank, Key is a very interesting new customer for us. We're very excited to be partnering with them. They are 1 of the 20 largest banks in the U.S. so that will help you, I think, size. You probably have a sense of which large banks in the U.S. we work with, work with a number of them, so can help you size, in terms of banks, where that fits in our overall ecosystem. And they didn't have -- they had started some internal build work, but they had really -- I think they were really evaluating a few different paths for going down, and they felt that we were both the best short-term partner and long-term partner for them as a company to really start to create that experience that their customers are trying to expect from them as well as the efficiency that the customers are starting to expect from them. So we're very excited about that partnership, and we think it's going to be a -- they're very motivated. We want to work closely with them to get this thing to be live quickly, to go back to our analogies, and get their customers through that -- starting to go through that digital funnel.

Congratulations, Nima.

And our next question is from Terry Tillman with Truist Securities.

Nima, Marc, Tim and Crystal, congratulations from me as well on the IPO and the quarter. Maybe just the first question relates to -- well, I actually have 2 questions. One is a 2-parter, so I'm sorry in advance. But Nima, you talked about the reality of a softening mortgage market, but you did have 51% year-over-year transaction growth, which was strong, and that may not even be all the transactions. But is there some dynamic here where you've still got customers that really aren't even at full scale yet that's helping otherwise a soft mortgage market? Is that part of it? And then the second part of the first question is have you all seen historical kind of pattern recognition in a softening market? Do they actually accelerate kind of deal activity to transform? Do they slow down? Or what happens when they see a softening market on sales cycles? And then I had a follow-up.

Sure. So when markets are very hot like they were last year, if anything, it slows down sales cycles because new customers are so busy with their existing volume. And so it's been great that we've been able to sign customers during that time. But we expect that when we signed some good customers this quarter -- we shared the capacity numbers of new customer capacity we've signed. Marc shared it during his section. I can give you that exact number as well, but Marc shared that during his section of the -- just the overall -- the overview. And then to your second question around the mortgage market softening in general, we did -- we do have more runway. As we sign new customers, it does take time to go through those 4 stages. We kind of shared the approximate time it takes to go through those 4 stages. So yes, even though the mortgage origination market was down about 2% year-over-year, between quarter 2 last year and quarter 2 this year, our volumes grew 51% in the transaction market. That shows 2 things. One, we're helping our customers roll out more, use more of our products, signing new customers, but it also means that we're expanding to other product lines along this larger digitization tailwind across the entire financial services sector. And so those are some of the reasons that we're able to grow. And yes, we still have more hunger, and we're not -- not every customer is fully at scale, rolled out with every loan. We still have a lot of opportunity to continue to grow our existing customers as we get them through these phases of our rollout funnel.

Got it. I guess my second question and it's a 1-parter, I think. You talked about seeing some good early signals from folks around Title365 that might then look at Blend Title going forward. But I'm curious about -- we're not talking about next year yet, so Marc's not on the hook yet for guidance. But as we move into next year, is there a sense that folks could take Blend Title and it could become meaningful in terms of the contribution next year? Or is next year really going to be more about progressing the shift from Title365 on to your platform? And that's really more where Blend Title comes in next year.

This is Tim. I think we're going to see a combination of those things, so we're going to see a combination of Title365 volume coming on to the Blend software platform. But I think given the interest we are seeing from existing Blend customers and new customers, such as KeyBank, to be on the Blend Title platform, I think we will start to see growth there as well. So I don't know that we're in a position to size that at the moment, but I think we will see both components of that.

And our next question is from Josh Beck with KeyBanc.

And my congrats as well on life, new to the public markets at least. I wanted to ask, I guess, one of the things that stood out to me was basically the breadth of the customer wins, so mortgage, credit card, consumer banking suite. You obviously had some fintech-oriented companies, traditional financial institutions. So it was pretty broad. I guess my question is did that surprise you at all? Should we, obviously, invest in the vision, but should we expect this type of breadth in terms of new wins as we go through the balance of this year and into next?

No, it did not surprise us. In fact, this is what we've been building towards, being able to offer these products, really starting last year and at scale and then this year -- I think the last year in the beginning and then this year at scale. And so no, I mean, I think the fact that even fintechs and proptechs use us as their platform, as their software platform, it speaks volumes to the quality of our platform as well as the ability it creates for even the most tech-forward organizations to accelerate their tech-forwardness, if that makes -- it's obviously a word that I made up, but being able to offer that to even the most tech-forward organizations is part of what gives the CIOs and the CTOs and the traditional firms confidence that we will be a great partner for them as well. And so no, it didn't surprise me. I think it is what we expected, and we continue to work with our customers on, if it's on the mortgage side, getting the products like Blend Close and Blend Title and things that we can do to transform that homeownership journey that we talked about. And if it's for a multi-product bank or a multi-product credit union, how do we help them have one platform, one software platform that can power all of their major product lines? So that is the trajectory of the company. That is something that we're very excited about to work with our customers on, and we expect to continue to be able to do that with our customers over time. And by the way, during this 1 week of travel that I've been doing with my customers this week and next week is it's just -- that has been the theme over and over again. They want to hear, they want to see what we can do for them because there's so much they have to accomplish to serve the changing needs of the customer, that these are the things that they're talking to us about.

Excellent. Well, obviously, a great validation of the breadth of your platform, so very good to hear. My follow-up is a little bit more nitpicky on the financial items. Marc, just to clarify, when you gave us those net loss numbers, were those GAAP or non-GAAP figures? So that was part A. The second part is was that acquisition-related expense in the quarter? How should we be thinking about modeling that moving forward?

Thanks, Josh. So those are GAAP numbers. We'll have to come back to you with non-GAAP. I think you might be able to do the math, but it's not something we're disclosing in our Q so I need to think about how exactly to maneuver that one. Those are GAAP revenues and GAAP net loss. The difference would be stock-based comp, right, and the amortization of the warrants. So there's not a ton of non-GAAP adjustments. We did adjust, in our non-GAAP, the onetime acquisition and integration charges, but it's fairly limited. And then your second question...

I think you may have -- was the -- I believe it was $6.6 million of acquisition-related expenses in the quarter. Are you thinking about that as onetime or...

Yes, that's exactly right. Those are onetime charges. And then I think your second question was around how to model that. I think -- I mean I think we're in the integration process with Title365. We're bringing them -- their financial team over, and we're -- we've already built that into the model. It's something we had been planning, and it's something that the team has been super thoughtful about as -- that as we move forward. So we're planning on -- we're still investing. We've retained their key leadership, their key staff, and we're continuing to drive that business forward.

And our next question is from Mike Ng with Goldman Sachs.

I just have 2. First, can you just talk a little bit about the sales efforts to continue driving new customer momentum? And to the extent you're able to talk about it, just a little color around the new customer pipeline. And then second, I'm just wondering if you could give us a little bit more color around the 270,000 annual banking transactions that will be added. Any thoughts to think about when that will actually be fully migrated to the Blend platform? And is there any thoughts you might be able to share in terms of how to think about the revenue contribution there? Should we just apply the standard revenue per banking transaction to that?

Sure. So yes, on the -- I guess, that's a 2-part question on the sales -- one was sales pipeline, the other was the transaction volume that we added this quarter in terms of new capacity. So on the sales pipeline, we don't disclose it, but our pipeline is very strong. I mean a lot of it, candidly, is it's a combination of existing customers who want to do more with us because we have great customers. And you saw the net retention numbers. We have great customers who rely on us and work with us, and we're very excited to do more with them. And then some of it is net new logos. And we announced -- we shared some of those on the call today: KeyBank, Mr. Cooper, BECU and Bilt. And so it's a mix of both, and we feel very good about the pipeline going forward. Typically, just the way that our business works, it tends to be mostly sort of weighted to the back half of the year, just that's the natural order of things for our business because that's how bank buying cycles often work. But we saw strong numbers in Q2 of this year, and we are continuing to work the pipeline to make sure we're serving our customers' needs. And then in terms of the implementation time for existing customers, I think in terms of revenue per transaction, I think what you suggested is a pretty reasonable methodology. We don't have a specific methodology for how we would model those out, although we do see that we do have a breakdown over time of different product lines. But in terms of rollout time, it's those phases that we mentioned. So those are -- the ones that we just signed are signed. And then they're -- if they -- we sign them in Q2, they will typically go -- from going from that to live is 1 to 3 quarters, depending on the size of the customer and the complexity of the customer. And so those are kind of the approximate time lines that I would build into your models.

Great. And if I could sneak in a housekeeping question. I was just wondering, Marc, if you could provide the pro forma gross profit numbers for the quarter as well, if you have that off-hand.

Yes. Unfortunately, we can't share that one at the moment.

And our next question is from Arvind Ramnani with Piper Sandler.

Maybe my first question is around the Blend core platform targets for FY '21. I'm just trying to get the revenue target for FY '21 that's more comparable to your $32.1 million in 2Q, the Blend core platform. And if you've already provided that, I apologize if I missed it.

No, Arvind, thanks for the question. We're not actually breaking it down at the moment in terms of guidance. We're just -- we're sharing a top line revenue number and not splitting between core platform and Title365 legacy. But it is about 2/3 Title365 and 1/3 Blend-ish.

Okay. Okay. That's helpful. And then just -- I know you had said you don't provide specifics around the pipeline, but can you maybe talk about kind of the pipeline of deals now -- that you're seeing now versus like 6 months back? I'm trying to get a sense of kind of the robustness of the market and just kind of the brand awareness and kind of the compelling offering that may have seen kind of an increase in your overall pipeline?

We don't have the exact pipeline. I guess one thing we can -- I can share is that the amount of capacity we added in Q2 of this year versus Q2 of last year was about twice as much. And that is, I think, has a pretty good indicator of how much COVID digital tailwinds and just generally, the digital transformation tailwinds are working with Blend. People are -- and this is even before the IPO, which has additional tailwinds. Now our customers who rely on us to be a company they can rely on for decades, now they know that we have this additional set of things that we do as a company to make them feel confident that we will do that. So we added roughly twice the amount of capacity this quarter than we did in the same quarter last year, the new loan capacity or new account capacity. If that's -- I don't know if that gives you a good sense of the trajectory of the pipeline.

Yes. It certainly does. And -- but just a quick follow-up to that. How much was -- how much of this kind of lift is because of sort of pent-up demand or delayed decision-making? And basically, what I'm trying to understand is kind of the sustainability of the level of interest. I mean you kind of -- looking ahead over the next couple of years, do you think this level of interest will continue to sustain at these levels? Or do you think this was more because of some amount of delayed decision-making in -- over the last 12 to 18 months?

Well, I think the interesting thing -- one interesting thing is we just have more products to offer now. So putting aside any delayed decision-making, it used to be, 3 years ago, all we would offer you pretty much was a mortgage product. And then, this year, now we can offer mortgage, credit card, I think we offer an entire platform. And on top of that, we have these add-ons, which you don't count as our transaction capacity that we're adding, but those are add-ons that increase the value we're creating per transaction for our customers and therefore, the revenue they pay us. And so the combination of those 2 things, both the breadth of what we can offer now and the depth of how we'll be able to add to those transactions, not in terms of numbers but in terms of depth per transaction, I think it will continue. As long as we're continuing to build things that drive this digital transformation, we will continue to have opportunities to make add-ons to our customers and grow with our customers as they have new needs in the market.

Great. And just last one for me. Just given the breadth of these services, is your level of conversations being elevated? Another way of asking it really is were some of the bank partners looking at you as a point provider earlier on but now kind of looking at you more as a platform provider, like has that perception changed from kind of providing a point solution versus a platform solution?

Definitely. Yes. And I think that has come with both the combination of us offering these other product lines but also offering services that are helpful across product lines, meaning, for example, when we have a product that we're building that can help with income across multiple product lines. So if you need to verify income for any loan type, those are the kinds of things that we'll be able to offer in the future. And so those kinds of things make us more of a platform, and that is reflected in who wants to spend time with us when we're out in the field. So this week, like I mentioned, lots of CIOs, CTOs, Chief Digital Officers, who are responsible for their overall digital strategy for the firm, for their overall technology strategy, and those are the people who are fitting us in and trying to figure out how we can help them accelerate that strategy. And so yes, absolutely. And that's -- those are often the people that the business has to lean on to be able to drive their overall architecture. And so that's really important for us to have those levels of conversations.

And we have reached the end of our question-and-answer session. I'll now turn the call back over to management for any closing remarks.

No closing remarks. Thanks, everyone. Glad to have this first call for the quarter done. We're very excited about our customer base and the growth this quarter, and so we'll continue to keep our heads down and focus on driving this transformation. Thank you all for joining.

Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.