Blend Labs Inc

NYSE:BLND

Earnings Call Transcript 2023-Q2

[Winnie Ling, Head, Legal]

Good afternoon, and welcome to Blend's Second Quarter 2023 Earnings Conference Call. My name is Winnie Ling, and I'm Head of Legal for the company. Leading today's call are Nima Ghamsari, Co-Founder and Head of Blend; and Amir Jafari, our Head of Finance and Administration. After the prepared remarks, our team will questions moderated by our Investor Relations lead, Bryan Michaleski. You can find the supplemental slides on our Investor Relations web page at investor.blend.com.

During the call, we will refer to certain non-GAAP measures, which are reconciled to GAAP results in today's earnings release and in the appendix to our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Also, certain statements made during today's conference call regarding Blend and its operations, in particular, its guidance for 2023 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 see the risk factors we've identified in our most recent 10-K, 10-Qs and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law.

I'll now turn the call over to Nima.

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Thanks, Winnie, and good afternoon, everyone. Our second quarter results exceeded expectations for the second quarter in a row, demonstrating continued progress on our strategic priorities. Even if it's a tough market, we are deepening wallet share with our mortgage customers and our Blend Builder platform, a key driver of our growth strategy is gaining traction, unlocking efficiencies and speeding time to revenue for both us and our customers. And with that, we're accelerating on our path to profitability.

We outperformed the top end of our total company revenue guidance owing to strong performance in our mortgage suite of services as well as our growing revenue diversification as we begin to deploy our Builder enabled Consumer Banking product lines to more customers. I'm also encouraged to see this translate into a pipeline of nearly 40 opportunities between our Mortgage and Consumer Banking products even as market conditions remain dynamic.

In Q2, we saw this increase as our customers begin to crystallize their budgets for the upcoming year, keeping our sales efforts in full swing. So far in 2023, we've deployed 18 Consumer Banking products. This translated into strong results from our Blend Platform segment, which also exceeded the high end of our prior guidance, and we improved our software margin meaningfully quarter-over-quarter on top of that. We have also taken significant steps to streamline and improve how we operate as a company, and we are seeing these savings show up in our results in a meaningful way. As a result, in Q2, we surpassed the 50% operating loss reduction target we set last year, and we did it 2 quarters ahead of our original goal. This is a testament to our focus on execution regardless of the operating environment.

On top of that, there is more work being done on the efficiency side, which you may have seen from our additional cost reduction announcement effective today. We also achieved 2 sequential quarterly reductions of non-GAAP operating expenses since the start of the year and have lowered our expense rate by nearly $100 million on an annualized basis since this time last year. We did this all while maintaining the high quality of service support our customers expect from Blend, and we're just getting started on leveraging the efficiencies that Blend Builder can provide us.

To wrap up the highlights, we know that exceeding well in the current environment will pay dividends as market conditions improve. We have a great customer base that continues to grow, and we continue to expand those customers' use of our products, all the while Blend Builder is live and enabling our customer success.

With that, let's cover our 3 company priorities for the year and how we're progressing on our mission to bring simplicity and transparency to financial services. Let's start with our first key strategic priority, which is to support our mortgage customers through a very challenging period.

Mortgage rates are at 23-year highs and origination volumes are still bring as a result. This is a real headwind for our customers and for Blend. But we aren't planning around a recovery. We are planning to be profitable in this type of environment. That leaves us with 2 things in our control on the revenue side. One is helping our customers grow market share by giving the most value they can out of our core product, and the second is providing accretive add-ons that drive even more value per unit to our customers and more revenue to Blend. And we're seeing that play out in practice in our customer base today.

First, many customers who leverage our technology to power their businesses continue to outperform the broader mortgage origination market. And as a result, they are taking more market share. We only report market share biannually due to a lag in the metric and the timing of the measurements of the industry side, but you've seen us grow there. And because we continue to roll out new value-add features like soft credit polls and our Spanish language intake form and things like condition think which drive efficiency, our customers largely run with us with more value and at higher prices.

On top of that, our add-on products such as Blend Close and Blend Income, deliver meaningful improvements in cost and time to close rates. Especially in a margin pressure environment, these gains are front of mind for mortgage customers who want to deliver the highest quality experience at the lowest cost to their customers. And in aggregate, these things ultimately are reflected in our growing mortgage revenue per transaction, which increased to $93 in Q2 from $77 in the same period last year. So while short- and medium-term macro headwinds persist, we're focusing on what's in our control, driving adoption and utilization growth of our value-add features maintaining strong retention and growing our mortgage market share, all while continuing to set the foundation for our next-generation mortgage products on the Builder platform. But this is only one of our bright spots, which leads me to the second big priority for the year, growing adoption of our Builder enabled Consumer Banking products.

In 2023 alone, as I said earlier, we have deployed 18 Consumer Banking products and 25 since Q2 of last year, and we're already seeing revenue growth from these rollouts in our Consumer Banking suite revenue. In addition, our customers are interested and they see the value in Blend Builder. We have an active backlog of over a dozen projects underway, which will continue to drive incremental growth as these REITs go live and ramp over time.

And while we continue to see market environment lengthening our sales cycles, the level of pipeline that we see gives us a high degree of confidence in the long-term outlook for Blend and Blend Builder and our ability to transform the banking space. And just as our Builder platform generates value for our customers, there are also several other positive outcomes for our business.

I'll let Amir cover this in more detail, but overall, we are seeing the benefits that a platform model has on improving the stability and diversification of our revenue profile and lengthening our customer relationships with us as they make longer and larger commitments and that will become apparent in our growing remaining performance obligation.

In all, over the past decade, we became a leader in innovation, establishing a stronghold in the mortgage market winning leading market share with quality financial institutions and expanding across the entire Consumer Banking portfolio, all while developing and strengthening the transformational Blend Builder platform that will propel our mission forward. And now as we enter our next chapter in which we shift from building to deploying, we are in a position to leverage the efficiency of the Blend Builder to deliver more innovation per dollar for our customers, which brings me to our third priority, our path to profitability.

Now the Builder has scaled across many of our customers and as our primary internal development tool for new products, Blend is foundationally set up to be more efficient. We can innovate on Builder and order of magnitude faster and with marginal costs. As a quick example, one of our larger long-time clients in the unsecured loan origination space came to us with around 40 new feature enhancement requests as they try to navigate a complicated macro.

We scoped the work to add this to our original platform, and those 40 features would have taken 6 or more months to do across multiple people to implement. In addition, some of the requests were specific to that client making it difficult to support because we have a standardized product. And so overall, this path would have taken significant resources and cost and led to a less than happy client.

Fortunately, we had already been in the process of migrating that client to our Builder platform, and we scoped the 40 enhancement requests on the new platform ahead of that go live. Not only were many of these features simple configurations, but the one specific to that client were handled by our professional services team as configurations in their unique environment, allowing us to keep our gold standard products to be standardized while offering the customer the flexibility they need. This meant that the entire request list or almost the entire request list could be done in weeks and at a much, much lower cost. Our customers can be more successful, happier and at a lower cost with Blend.

In short, Builder allows for a fundamental shift in our operating model. It has been a big investment to get here, but the leverage it gives us sets us up well for the next decade. So what does this mean practically? Well, today, we announced a few key changes in support of this to further accelerate our cost of profitability and make the most of that platform. First, this ability to build products faster and cheaper allows us to deliver more innovation per dollar that we spend, and we have tightened our research and development spend going forward as a result. We believe we can do this without sacrificing innovation and, in fact, in some areas, increase our pace of innovation and new product development. And as a side note for investors, please come to our Investor Day in September, which is directly after our customer conference, Blend Forum, where we'll be announcing some new products.

But we aren't stopping there. We're also reducing and focusing our sales and marketing spend around the Blend Builder platform and the related mortgage investors for our customers. We know sales efficiency matters and the market is tight, and we're paying very close attention to how we spend our sales and marketing dollars and making sure we get the best ROI.

And this overall simplified organization as a whole has meaningful effects on the required corporate support in our general and administrative functions, leading to further lowering costs in those areas. But while the reductions we are announcing today are sizable, they are targeted to the areas I just mentioned. And importantly, there are certain areas we're not touching. For example, our customer support and customer success teams are largely remaining intact and in some cases, growing because we want to be responsive to customers who are navigating a very complicated macro situation. And professional service and integration are very important to work through the backlog of customer rollouts, which drive more value to them and more revenue to Blend.

I also want to address our Title business. We have achieved a number of goals with this business over the past couple of years by digitizing key parts and Title process. We have also significantly improved the cost structure and operating model for Title for turning it to positive gross margins despite record low volumes. With the steps we've undertaken to date, including today, we are on track to return the Title business to positive non-GAAP operating profit contribution within the next several quarters. This is now a more sustainable business for us with operating leverage potential as the refi market ultimately returns.

We remain committed to our Title business and our customers. And as a result of all of these efforts across Blend, we are even leaner and more focused today. We expect that these actions will further accelerate our path to profitability, and we expect those savings to start materializing in our bottom line in Q3. And because of our overall long-term foundational investments with Blend Builder, we believe we can not only be profitable with this expense base, but we can continue to innovate, grow our customer base and our product suite ultimately expanding our addressable market even further.

Now let me turn it over to Amir to talk through our key numbers for Q2 and our guidance for the next quarter.

[Amir Jafari]

Thank you, Nima, and good afternoon, everyone. I'm pleased to be joining you today to discuss our financial results for the second quarter. As Nima highlighted, we delivered another great quarter, executing ahead of our targets, both for revenue and non-GAAP operating loss. We are also continuing to take the necessary steps that allow us to both control our own future and ensure we achieve our long-term goals, including our path to profitability.

As I jump into the results, let me just remind you that unless otherwise stated, all results are non-GAAP. Total company revenues in the second quarter were $42.8 million, outperforming the top end of our outlook by 4%. We reported platform revenue of $30.3 million, which was 8% ahead of guidance. We credit this outperformance to 2 dimensions. First, our customer base is demonstrating resilience in a tougher origination environment by gaining share in a market where volumes were a little better than we expected.

Second, our customers are demonstrating faster adoption and go-live of Blend's add-on products. Similar trends are benefiting our Consumer Banking suite revenue as our backlog converts to new deployments reaching go-live at a time when the industry is seeing stronger-than-expected personal loan volumes.

Our Mortgage Banking suite revenue declined by 17% year-over-year to $22.3 million despite the origination environment declining 37% over the same period as measured by the Mortgage Bankers Association. As we gain traction with the customers through continued adoption of add-on products, coupled with the customer renewals and new logos, we are generating improved mortgage suite revenue per transaction.

Our fee per funded loan rose to $93 from $77 in the same period last year. Our Consumer Banking suite revenue totaled $5.8 million in Q2, an increase of 27% as compared to the prior year period. This growth reflects new deployments and ramp-ups on the Builder platform over the past year, particularly our home equity solution. We also generated $2.2 million of professional services revenue, up 10% from last year due to fees associated with Consumer Banking deployments. We reported Title revenue of $12.5 million, in line with our expectations amidst the challenging refinance environment.

Moving on to gross profit. Total company non-GAAP gross profit was $23.8 million, down only 8% from last year against the 35% decline in total revenue. Non-GAAP platform gross margins improved meaningfully, reaching 74% compared with 61% a year prior. Looking specifically at Blend's platform performance, gross profit on a dollar basis increased 9% despite a 37% decrease in market origination volume over the same period. This is strong evidence that our software platform business model, combined with the cost optimization and efficiency programs we've undertaken are materially improving our ability to generate incremental profits in a lower market volume environment. We also reported record non-GAAP software gross margins of approximately 81% in the second quarter, up from 73% for the same period last year.

Our gross margin expansion reflects the benefit of increased higher-margin Consumer Banking suite revenues as well as the vendor optimizations we've implemented within our mortgage suite. Effectively, we are lowering the cost of power of the origination of the same loan while delivering more value for customers through add-on products, which in turn is driving higher per loan funded loan rates. Q2 gross margin performance demonstrates that we remain well ahead of our target ranges for this year. While gross margins can fluctuate a bit quarter-to-quarter, partly due to the differences in timing of certain expenses, we expect 2023 will remain strong, and we believe 80% is an achievable run rate for our software business by next year.

I also want to point out the progress we've made involving our professional services model to realize the benefits of the investment in our configurable platform. As more of our deployment shift to Blend Builder, we are deploying more efficiently, positioning us to drive industry standard gross margins from this line item. In our Title segment, we made great progress this quarter to align the cost to deliver this service in a very low refinance volume environment. We achieved our goal of returning to positive gross margins in Q2 and have undertaken additional actions to further support our operating profitability goals for this business.

As Nima mentioned, we've executed a business process redesign that focuses Title on becoming a profitable entity that will operate sustainably and is ready for scale. Some of these undertakings include: first, reducing processing times by leveraging technology and workflow enhancements that translates to productivity gains measured by orders processed per associate; second, implementing a flatter organization structure and reducing the span of control; and third, optimizing our utilization of lower-cost resources, including our in-house offshore team. We believe these measures will return Title to positive operating profit within the next several quarters even with the current market conditions.

Non-GAAP operating costs for the second quarter totaled $41.6 million compared with $65.3 million in the previous year. We are delivering on our operational excellence goals at a faster rate than expected. The actions we announced in January of 2023 are now fully realized. We successfully executed against every target is now evident in our financial results. At the same time, as we've directed more organizational effort towards our platform strategy, we also launched a deeper examination into areas where we felt we have more opportunity to drive incremental operational excellence. You're seeing that in the restructuring initiatives we announced today which are expected to reduce our operating expenses an additional $33 million on an annualized basis. We're confident this was the right time to take these actions as we move expeditiously from Blend's first phase to Phase 2. As Builder deployments accelerate, we are restructuring our operating model to support customer growth, rapid deployment and outstanding service with the goal of achieving operating excellence across the company.

Additionally, our Builder platform enables us to continue our pace of innovation much more efficiently serving both our Mortgage and Consumer Banking customers. I want to reiterate a point Nima made here as well. The changes that we have made were designed to not have any impact on the level of service our customers expect from us or the speed at which we can deploy these solutions for them. We have always wanted to align our success with our customers, and this remains core to us as we enter the second phase. We believe these changes have put our business in a position to maximize value for our customers and shareholders as the market conditions improve.

Putting all of this together, our non-GAAP loss from operations was $17.9 million versus $39.5 million in the prior year. This step function improvement reflects the velocity of our strategic actions, as I described a moment ago. This surpasses our $20 million net operating loss target for Q4 2023, 2 quarters ahead of the target we established this time last year. This achievement is a testament to our evolving operational focus and commitment to execution regardless of the operating environment. This gives us strong confidence we are well on our way to reaching our next goal of becoming a profitable company next year.

The business is positioned to benefit from higher revenue, better margins and now much greater financial leverage. I'm encouraged that as performance optimization becomes core to our culture, we are finding new ways to do this better every day. This new culture and the ability to leverage the investment we made in our platform is what has enabled us to accelerate the achievement of the ambitious operating loss targets we established last year and drive us to profitability faster than we had initially thought possible. We are making an incredible amount of progress, and we are excited to share more details about how this informs our long-term outlook for Blend at our Investor Day in late September.

Now turning to our balance sheet. Our cash, cash equivalents, marketable securities, inclusive of restricted cash totaled $278 million as of the end of the second quarter. With the actions we've undertaken, we remain confident our business remains well capitalized to reach our profitability goals, and we have ample liquidity based on our current projections in this macro environment. I also want to note that our remaining performance obligations topped $50 million this quarter at $53.2 million at the end of Q2. As we've discussed on recent calls, our business model is evolving constructively as part of our broader transition to a platform-first organization.

Generally, as our customers add more products out of renewal, they are increasingly entering into platform deals with longer and larger commitments. This strengthens the foundation of our customer relationships, and importantly, brings 2 primary economic benefits for Blend. First, we are increasing the stability of our future cash flows by adding a recurring SaaS-like fee while retaining the upside associated with our consumption-based model. Second, we believe this shift in payment terms should improve our overall free cash flow with more fees being paid in advance. We are at the beginning of this shift. And as we migrate to the platform model with more customers, you will see the growth in RPO and free cash flow benefits in our financial performance.

We are encouraged by the stability of the business and the results we've seen to date. That said, industry and macro conditions related to the mortgage origination market remains highly uncertain and that is reflected in our guidance for Q3. We expect platform revenue to be between $27 million and $30 million in Q3 2023. We expect our Title business revenue to be between $11 million and $12 million. Our total company revenue outlook is expected to be between $38 million and $42 million for Q3. Our total non-GAAP net operating loss is expected to be between $17.5 million and $15.5 million for Q3, with the midpoint representing an 8% sequential improvement from the prior quarter and a greater than 50% improvement year-over-year. We expect to continue to see sequential improvement in our operating loss through the balance of this year and believe our strong business performance and cost actions we've undertaken have accelerated us reaching our non-GAAP profitability goal earlier in 2024 than originally planned.

With that, let me turn the call back to Nima for his closing remarks.

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Thanks, Amir. We are exiting this quarter feeling energized about our position and our opportunity. I'm proud of the accelerated progress we've made on our 2023 priorities and our path to profitability. We still have more work to do. And while we cannot control the market, we can control how we deliver for customers to help them optimize performance and build for the future. If we continue to focus on this objective we will strengthen Blend's business and performance as well.

With that, thank you again for joining. Bryan, we are now ready for questions.

[Bryan Michaleski, IR]

Thank you, Nima and Amir, for your remarks. We'll now turn to the Q&A portion of the call. Our first question comes from Michael Ng with Goldman Sachs.

[Michael Ng, Goldman Sachs Group]

I just have two, both on gross margins. You saw a lot of gross margin trend in the quarter, 81% in software, and you talked about the higher-margin Consumer Banking suite and vendor optimization and mortgage. I was just wondering if you could expand on both those points. Is there something inherent in Consumer Banking that gives it a higher margin than mortgage? And then within the vendor optimizations, are you just using different or less expensive, like API tools? What exactly is that vendor optimization? And then I have a second question, which is just about the trajectory of gross margins for the rest of the year. Amir you talked about 80% software gross margins for next year. But is this 81% gross margin for the rest of the year, a good way to think about the back half?

[Amir Jafari]

Thanks, Michael. I think a few follow-ups that we'll just help give you a little bit of clarity to the questions. The best way to think about what we did on gross margins and the execution that we're able to deliver, it's more so from just a structural shift that we're able to execute against with Builder, first and foremost. So that ties it to your question with regards to what we see in the Consumer Banking space and the margin upside that we're seeing from a mix perspective.

For the follow-up aspect with regards to just vendors, it's not so much that we're changing the APIs. It's just we're continuing to optimize how the -- we are shift in essence, this whole notion that we talk about from Phase 1 to Phase 2 in the platform, it enables us to actually allow us to be lower cost in certain aspects of the business, which also then enable us to drive higher margins. The last part of your question, I think, again, to the prepared remarks, what we stated is we feel very comfortable that in 2024, we'll be able to execute at these levels on a consistent basis.

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Yes. And just one note from a product perspective, Michael. On the Consumer Banking side, there are fewer the products that are offered in terms of how banks offer these products are simpler. And so, there's fewer vendors that we bundle in together. So yes, it's structurally higher margin. But our mortgage product has additional margin opportunity as well as we optimize the vendors under the hood.

[Bryan Michaleski, IR]

Our next question comes from Matt Stotler with William Blair.

[Matthew Stotler, William Blair & Company]

Just two for me. One, good to see the revenue per transaction and mortgage suite increase year-over-year. It was down a little bit sequentially. So I'd love to just get some color on the dynamics that can influence that on a quarterly basis. How you're thinking about that in the second half of the year? The second question would be just an update on attach rate with new products like land income. An update there would be helpful as well.

[Amir Jafari]

Let me start with the PF just to help. I think what you're seeing is really just movements from a timing and a mix perspective quarter-over-quarter. What we said last quarter is that we expect it to be in the mid- to high 80s, where again, we're executing ahead of that. We're seeing strong adoption of the value add-on solutions -- the add-on solutions that we provide just given the value that they add. So that's what's driving the upside on the $93. And then on the -- for the second part of the question, if you can just repeat that one more time, and I'll answer it.

[Matthew Stotler, William Blair & Company]

Sure. Just looking for an update on the attach rate that you're seeing with newer products like Blend Income, what that's looking like in the installed base at this point and where that can go?

[Amir Jafari]

Yes, absolutely. Well, I think, again, we haven't shared the attach a very specific to Blend Income. But what you're able to see is the follow-through of Blend Income and also what we do, for example, to Close and some of our other solutions, the ability to actually allow this to attach to what we do in terms of renewals with our existing mortgage customers. It's those 2 outcomes together that are actually driving an increase in our funded loan rates into the first part of your question. So we're seeing stronger just adoption in general. We're seeing it come through in terms of the results and what you saw this quarter in terms of the $93.

[Bryan Michaleski, IR]

Our next question comes from Joe Meares from Truist.

[Joseph Meares, Truist Securities]

I appreciate it. Earlier in the quarter, you announced the availability of soft credit functionality, noting that it saves lenders $50 per file. I'm just curious how this is trending so far, if you have any early customer feedback and if there's any pricing uplift from this future?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

It's a feature that's built into our platform today, and it's just -- we always try to add new functionality for our customers, and that's what creates more value for them. And ultimately, when it comes to renewal time, if we're creating more value, they're often willing to renew with us at higher rates. So you're kind of seeing that in our customer base today. So we don't charge extra for that feature. And it's very important. Basically, the thing it solves is not only cost but additionally, it's also a conversion because there's a concept called trigger leads in the industry. It's a hot topic in the Mortgage Bankers Association, where when you get your credit polls for a mortgage somewhere, you're probably get 25 other calls from other lenders trying to sell you something.

And by using soft credit during that prequalification pre-approval shopping phase, we're able to help the customer get what they want the consumer get what they want, which is an approval without bombarding them with hundreds of calls and maybe tearing them away from the lender that applied they applied with. And so it's been a really important feature for our customer base. We're going to continue to investing in our products and our customer base to make sure they're getting the value they need to get through this really tough cycle.

[Joseph Meares, Truist Securities]

That's great. And I bet the consumer will appreciate not getting bombarded as well. Just as a follow-up, how are you thinking about the product portfolio in the higher for longer interest rate environment? I appreciate the consumer portion grew very strongly. But if you're cutting R&D with this new cost savings, are you going to be able to continue to develop new products on the consumer side? How are you guys thinking about that?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Yes. I want to go back to something I said in the prepared remarks, which is that Blend Builder is a fundamental structural shift in how we can build things. And it's really only this year that we're starting to see those benefits or maybe late last year we started. But because we're able to make changes, and I gave that example of a customer that had 40 new feature requests. I mean any company taking on 40 new feature requests, it would be a bear and you couldn't do all of them. You'd have to get on your road map and the speed at which we're able to iterate on Blend Builder because we've made the DNA of any lending product or account opening drag and drop. Because we've been able to do that or at least many pieces of it, almost all the pieces of it. It just allows us to innovate more with less.

And I think the real show of strength for our company is a how much you can get done per dollar per unit of energy spend, and that's something that we're really gearing towards going forward. So no, actually, I think our innovation will speed up. And I gave it a plug during the prepared remarks, please come to the Investor Day, if you can -- it's going to be following our customer forum, which is late September, and we're going to be announcing some really great new product features and new products for our customer base who they need to see this kind of innovation from us to continue to bet on us, and so we're going to keep innovating.

[Bryan Michaleski, IR]

Our next question comes from David Unger with Wells Fargo.

[David Unger, Wells Fargo Securities]

Just one for me. Just wondering how AI CoPilot is going with the customers any initial observations you can share with us in terms of productivity gains with the banks?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

We haven't launched anything formally there I do think lending and banking where a lot of the recent innovation in AI has been around how you can understand using natural language. You can understand the natural language that a person puts in and really understand the intent of that question, that natural language and then use that to eventually formulate a response.

I think because most people interact with their bank, a lot of times, in person or on the phone and especially the mortgage on person or on the phone quite a bit, and that's using natural language. AI is sort of uniquely positioned to help here. And so we're excited -- we're not ready to share anything broadly yet, but we're excited about the space, and we think it can be used in our customer base and drive a material benefit in how they can serve their customers, the end consumer who wants to build to interact, however they want to interact with their bank, and we can help enable that over time.

[Bryan Michaleski, IR]

Our final question comes from Ryan Tomasello with KBW.

[Ryan Tomasello, KBW]

Just unpacking the cost reductions a bit more. I mean, how long should we expect these to take to phase in? And any updated timing on cash flow breakeven beyond operating income breakeven? And I guess just thinking about the uncertain volume environment next year, do you feel like you've cut as much as you can hear or are still other levers that you'd be willing to pull in order to hit these targets?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Thanks, Ryan. I'll try to get through each of them. Let me know if there's something I missed. First, in terms of just the phasing, it's immediate. So there is no phasing. You'll see the, in essence, the outcomes flow through instantaneously. Second, with regards to the cash flow breakeven, we shared, obviously, in the last call that we were accelerating our path to profitability by a full year from 2025 to 2024.

You can -- again, our targets are to allow our operating profit to match what we target from a free cash flow perspective. And so I think our intention is to have a very similar time line. Third, with regard to just the other components that you asked, I think for us, I mean, if you can remind me your last question, right, really quick because I want to ask for both of them.

[Ryan Tomasello, KBW]

Well, just to clarify, I mean the cash flow breakeven target, I think would be inclusive of the $30-or-so million of financing costs. So just wanted to clarify that what the timing looks like there from a breakthrough perspective? And then just the last question was if there's any other levers you're willing to pull depending on how the mortgage volume environment shakes out next year, just feel like you could cut any further?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

Yes, absolutely. It was the levers one that I missed. Thank you. First, I think, again, the actions that we've taken, that allow us to achieve our path to profitability, which we spoke to at an even accelerated rate. And that implies that even if the mortgage volumes were to remain at these levels, we feel very confident with our future and the targets that we've set just period for us. And that's how we -- that's how we've kind of in rolled this out.

The second part of that with regards to levers. What we said in Q1 and really we're reemphasizing that is we will continue to look for different ways to become more efficient the level of focus that we have internally today from the lens of operational excellence are not going to stop. We're going to continue down this path. And so we'll continue to look at those. And Ryan, let me know if I missed anything.

[Ryan Tomasello, KBW]

No. I just had another follow-up. If I could squeeze one in, would be just around the capital structure. I believe you alluded to it in the past, but just any thoughts around being opportunistic with potential restructuring or negotiation around the term loan or the put option with the Title business. Anything that you could explore there to alleviate some of those overhangs? Or do you feel like now you're on a path just in terms of organic execution to have those be manageable from here?

[Nima Ghamsari, Co-Founder, Chairman, CEO & Head, Blend]

The answer to both, Ryan. I think we feel very strong about where we are as a company and where we've positioned ourselves. We'll always be strategic in terms of not just how we listen and explore options, but also the actions that we take. We recognize the difference right now from a from what we guided to from a net operating loss perspective to an essence of your question about free cash flow, the biggest driver there is obviously our interest expense. And so that's top of mind for us. We have a great partner in that Ryan. And so look, we are going to stay very strategic. We'll explore options, but it's -- we're again, I think what's more important to the question you're asking is, we feel very good about where we are today to be able to sustain with or without this type of optionality in front of us.

[Bryan Michaleski, IR]

Seeing no further questions, this does conclude today's earnings call. Thank you for joining. Have a nice day.