Blend recorded a profit in 2Q due to tax asset reversal

Blend Labs posted a small profit for the second quarter, but that was entirely the result of a one-time income tax benefit, otherwise the company would have again posted a loss in the period.

Furthermore, the numbers do not reflect its acquisition of Title365 since the deal did not close until June 30. The San Francisco-based company completed its initial public offering on July 16.

Blend had second quarter net income of $5.8 million, which is inclusive of a $45.3 million release of its historical deferred tax asset valuation allowance in connection with the acquisition of Title365. The company provided a non-GAAP net loss figure — which also includes stock-based compensation and acquisition related expenses — of $26.2 million. During the conference call, it gave a pro forma net loss as if it owned Title365 during the quarter of $31.2 million.

"In the last few months, we've grown our revenue quarter over quarter despite national softening mortgage volumes, which indicates that we are growing our customer base, expanding our customer relationships and diversifying our product offerings," Nima Ghamsari, co-founder and head of Blend, said during the call.

In the first quarter Blend reported a net loss of $27.1 million, while one year ago, it lost $20.6 million.

Even without Title365, revenue at the company grew to $32.1 million in the second quarter from $31.9 million in the first quarter and $21.9 million in the second quarter of 2020.

"This growth featured strong transaction volumes, demonstrating increased utilization and adoption of our platform, even though total industry wide mortgage originations were roughly flat in the prior year," said Marc Greenberg, head of finance.

For the rest of the year, Blend's revenue will come from two sources, Greenberg said: platform revenue, which consists of its mortgage and consumer banking products, its homeownership journey marketplaces and any new products that it rolls out; and from business generated through Title365.

"Our guidance continues to reflect the Fannie and MBA forecasts as of last month, and we're also having a really solid start in Q3," Greenberg said. "If volume is higher than what those industry forecasters have predicted, there's definitely room for upside."

So for the full year, Blend anticipates revenue between $226 million and $232 million; on a pro forma basis, if the company had owned Title365 for the full year, revenue would be $365 million and $371 million.

"Our mortgage business continues to grow, but as we expand to other nonmortgage banking product lines, for example, personal loans, deposit accounts, credit cards, those price points are different," Ghamsari said. "And so as a result, the overall transaction volume will continue to go up, [but] dollars per transaction that we get from the banking transaction revenue goes down."

As Blend's product mix shifts more towards consumer banking, the company will be less exposed to mortgage market volatility, Greenberg said.

The integration of Title365 has not presented any surprises so far, added Tim Mayopoulos, Blend's president.

"We've been really pleased that we've been able to retain a really talented executive team there and the key staff," Mayopoulos said. "We're making good progress on the integration that needs to be done, and we have prioritized those within our company."

Furthermore, Title365's former owner and largest customer, Mr. Cooper, is coming on to the Blend software platform. "We started that deployment in early 3Q, and we would expect Mr. Cooper to go live on Blend in the first half of next year," Mayopoulos said. "We also expect that we will be able to launch pilots with some joint customers that we have between Blend and Title365 before the end of the year."