BLEND LABS, INC. 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Form 10-Q and in our Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. OverviewBlend Labs, Inc. was founded in 2012, with a vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. Our software platform was built in an extensible, modular, and configurable fashion to support continued product expansion. We have technology, data, and service providers on our software platform, including an extensive marketplace of insurance carriers, realtors, and settlement agencies. Our products and marketplaces provide multiple opportunities for us to serve financial services firms and consumers and drive revenue growth. Our rapid growth reflects continued product innovation and increased transaction volume as we continue to attract financial services firms to our software platform and grow with them as they serve consumers. Financial services firms have been shifting for years to a digital-first approach to acquiring consumers, delivering products, and deepening existing consumer relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. We believe there is a large, untapped opportunity to provide additional product offerings and drive increased transaction volume for financial institutions and consumers using our software platform. We are continually seeking to enhance the end-to-end banking journeys we power through our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, onJune 30, 2021 we acquired 90.1% ownership ofTitle365 , a leading title insurance agency that offers title, escrow and other trustee services. Recent Developments
Industry Trends and COVID-19 Update
We are now in the third year of the COVID-19 pandemic. While the impact of the pandemic is lessening, new COVID-19 variants are continuing to cause concern and economic disruption. The pandemic has caused us to modify our business practices, including restricting travel, requiring our employees and contractors to work remotely, limiting non-essential visitors to our facilities, and establishing a variety of safety protocols at our facilities. We believe that the COVID-19 pandemic has accelerated the transformation of financial services firms into digital businesses. It is continuing to cause the regulatory environment to shift in favor of digitization (such as through the use of digital signatures and online notarization) and is driving consumer behavior away from traditional branches and toward digital channels for banking services, which we expect will generate additional opportunities for us in the future. Since the onset of the COVID-19 pandemic and through the end of 2021, we have experienced an increase in demand for our software platform offerings, and we have continued to partner with our financial services customers to expand the scope and availability of products through our platform. For the three months endedMarch 31, 2022 , we have seen a 7% increase in total banking transactions on our software platform compared to the three months endedMarch 31, 2021 , and we attribute a portion of this increase to the ongoing need for digital transformation at financial services firms. This increase was driven in particular by an increase in consumer banking transactions, which underscores the diversification of our platform's product suite as the banking industry continues to digitize in order to meet consumers' expectations on delivering a single platform across all products, channels, and parts of the transaction. 30 -------------------------------------------------------------------------------- However, the mortgage market is heavily influenced by government policies and overall economic conditions. The real estate environment, including interest rates and general economic activity, typically impact the demand for mortgage and mortgage related products. Changes in either of these areas would likely impact our results of operations. Purchase volume and refinance activity were strong in 2021 and 2020 relative to historical averages over the preceding decade; however, variability of interest rates combined with ongoing supply constraints and volatility in the cost and availability of building materials in recent months could result in reductions in future periods. InJanuary 2022 , and subsequently inApril 2022 , theMortgage Bankers Association ("MBA") released itsU.S mortgage originations forecast, which indicated that the residential mortgage originations are expected to steadily decline in 2022 and 2023 before leveling out in 2024. InMarch 2022 , for the first time since 2018, theU.S. Federal Reserve raised the federal funds rate by one quarter percentage point and inMay 2022 raised it again by another half percentage point, while indicating it expects to raise that interest rate again in the future. The federal funds rate is the benchmark for most interest rates and is the average interest rate that banks pay for overnight borrowing in the federal funds market. As a large portion of our revenue is driven by mortgage and mortgage related transaction volumes, declines in the mortgage origination volumes due to rising interest rates have had, and are likely to continue to have, adverse effects on our business. For the three months endedMarch 31, 2022 , we have seen a 16% decrease in mortgage transactions on our software platform compared to the three months endedMarch 31, 2021 , and we attribute a portion of this decrease to rapidly rising interest rates, rising inflation, and uncertain worldwide political and economic conditions. Overall industry dollar volumes, as reported by Fannie Mae, have decreased by 44% for that same period. The future impact of the economic slowdown and COVID-19 pandemic on our business remains uncertain. See the section titled "Risk Factors" for further discussion of the challenges and risks we have encountered and could encounter related to the conditions in our industry, global economy, and COVID-19 pandemic.
Workforce Reduction Plan
InApril 2022 , we committed to a workforce reduction plan (the "Workforce Reduction Plan" or the "Plan") as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities. The focus of the Plan is on streamlining our title operations as well as our general and administrative functions. The Plan includes the elimination of approximately 200 positions across the Company, or approximately 10% of our current workforce. We estimate that we will incur approximately$6.7 million in charges in connection with the Plan, including approximately$6.5 million in cash expenditures for employee benefits, severance payments, payroll taxes and related facilitation costs and approximately$0.2 million in stock-based compensation. The execution of the Plan, including cash payments, is expected to be substantially complete in the second quarter of 2022. The eliminated positions represent an annualized compensation expense of approximately$35.4 million . We expect to start realizing these cost savings in the third quarter of 2022. In addition to the elimination of certain positions, we are implementing non personnel related cost reductions. We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of the Plan. Our implementation of the Plan and related initiatives is subject to risks and uncertainties, including the possibility that there are impediments to our ability to execute the Plan or related initiatives as currently contemplated, the actual charges in implementing the Plan or related initiatives are higher than anticipated, there are changes to the assumptions on which the estimated charges associated with the Plan or related initiatives are based, we are unable to achieve our projected cost savings in connection with the Plan or related initiatives, or there are unintended consequences from the Plan or related initiatives that impact our business. Key Business Metrics
In addition to the measures presented in our consolidated financial statements, we use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Blend Platform - Number of Transactions
Our success in the Blend Platform segment depends in part on increasing the volume of mortgage and consumer banking transactions that take place on our software platform. This occurs as we add new customers and complete more transactions with existing customers, including when our existing customers adopt additional products. Our software platform is built to be extensible, modular, and configurable, so that our customers can easily utilize our pre-built workflow technology, our
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marketplaces, and our integrations with technology, data, and service providers.
We design our new offerings to be highly complementary to existing ones in order
to increase the speed of adoption and efficiently scale our revenue. This
increasing attachment contributes further to our growth.
In ourTitle365 segment, closed orders represent the number of orders for title insurance and escrow services that were successfully fulfilled in each period with the issuance of a title insurance policy and provision of escrow services. The volume of closed orders is affected by the overall level of real estate activity, which is cyclical in nature and is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, interest rate volatility, consumer confidence, employment and family income levels, and general economic conditions. We also believe that the continued growth in commercial use of the internet will lead to the continued migration of traditional offline markets and industries online. Accordingly, we expect there to be a migration of theTitle365 legacy business to our software-enabled platform over time, and as a result, we expect theTitle365 closed orders within theTitle365 segment to decrease in future periods and the volume of software-enabled title, escrow, and settlement orders within the Blend Platform segment to increase.
The following tables set forth our key business metrics:
Three Months Ended March 31,
2022 2021
(In thousands)Blend Platform banking transactions:
Mortgage banking transactions(1) 376 447 Consumer banking transactions(1) 155 48 Total Blend Platform banking transactions 531 495 Title365 closed orders 27 N/A
(1) Includes estimated transactions for funded loans not yet reported for the first quarter 2022.
Key Components of Results of Operations
Revenue
Blend Platform
In our Blend Platform segment, we generate revenue from fees paid by customers
to access our platform. Fees are assessed based on completed transactions, such
as a funded loan, new account opening, or closing transaction. We do not charge
for abandoned applications or rejected applications, even though they cause us
to incur costs related to these applications. Arrangements with our customers do
not provide the contractual right to take possession of our software at any
point in time. Revenue is recognized when access to our platform is provisioned
to our customers for an amount that reflects the consideration we expect to be
entitled to in exchange for those services. To a lesser extent, we generate
revenue from professional services related to the deployment of our platform,
premium support services, and consulting services. We also earn revenue through
commissions or service fees when consumers use our Blend Platform integrated
marketplaces to select property and casualty insurance carrier, title and
settlement services entity, or real estate agent.
Our customers have the ability to access our platform under subscription
arrangements, in which customers commit to a minimum number of completed
transactions at specified prices over the contract term, or under usage-based
arrangements, in which customers pay in arrears a variable amount for completed
transactions at specified prices. Our subscription arrangements are generally
noncancelable, and we may also earn additional overage fees if the number of
completed transactions exceeds the contractual amounts. Our usage-based
arrangements generally can be terminated at any time by the customer. We
recognize revenue ratably for our subscription arrangements because the customer
receives and consumes the benefits of our platform throughout the contract
period. We recognize fees for usage-based arrangements as the completed
transactions are processed using our platform. Revenue from usage-based
arrangements represented 48% and 19% of our Blend Platform segment revenue for
three months ended March 31, 2022 and March 31, 2021 , respectively.
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--------------------------------------------------------------------------------In ourTitle365 segment, we earn revenue from title search services for title insurance policies, escrow, and other closing and settlement services. In performing title search services, we act as an agent to place and bind title insurance policies with third-party underwriters that ultimately provide the title insurance policy to our customers. Revenue related to title insurance is recognized net of the amount of consideration paid to the third-party insurance underwriters. Our revenues from escrow, closing, and settlement services are primarily associated with managing the closing of real estate transactions, including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, and providing notary and other real estate or title-related activities. Revenue related to these services is recognized at the closing of the underlying real estate transaction. We also offer title services in connection with a borrower default and with the issuance of home equity lines of credit and home equity loans. Revenue for default title services and home equity services is recognized at the time of delivery of the title report. We expect that rising mortgage interest rates in the near term will drive down transaction volume, which will adversely affect both Blend Platform andTitle365 revenue. While we believe that the Blend Platform segment will continue to deliver positive growth, we expect that the title insurance and other services revenue within theTitle365 segment will face significant headwinds to growth and a decline due to the projected mortgage industry origination volume decline as described above within Recent Developments. We are continuing to evaluate the rapid changes within the mortgage industry and the impact to our segments and their projected operating results, both in the near term and over a longer time horizon. Cost of Revenue Blend Platform In our Blend Platform segment, cost of revenue consists primarily of costs of subscribed hosting, support, and professional services. Costs of subscribed hosting services and support revenue consist primarily of expenses related to hosting our services, third-party fees related to platform connectivity services, which include verification of income, assets, and employment, software licenses, and expenses related to providing support to our customers. Costs of professional services consist primarily of personnel-related expenses, including stock-based compensation expense, expenses associated with delivering implementation and other services, travel expenses, and allocated overhead costs. For each application submission, we incur third-party costs as described above, including costs for incomplete transactions for which we do not charge fees to our customers. The timing of those costs may not be aligned with the revenue recognized. We expect our cost of revenue to continue to increase in dollar amounts as we grow our business and revenue and decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period.
In ourTitle365 segment, cost of revenue consists of costs of title, escrow and other trustee services, which represent primarily personnel-related expenses of ourTitle365 segment as well as title abstractor, notary, and the cost of recording services provided by external vendors. In future periods, we expect that cost of revenue as a percentage of revenue will increase in the near term primarily due to the anticipated decline in revenue driven by the decrease in projected mortgage industry origination volume caused by the increase in interest rates. Operating Expenses Research and Development Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense, associated with our engineering personnel responsible for the design, development, and testing of new products and features, professional and outside services fees, software and hosting costs, and allocated overhead costs. Research and development costs are expensed as incurred. We expect that our research and development expenses will increase in dollar amount as our business grows but will decrease as a percentage of our revenue over the long term as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our research and development activities. 33 --------------------------------------------------------------------------------
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expense, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead costs. Sales commissions that are incremental costs of acquiring a contract with a customer as well as associated payroll taxes, are deferred and amortized on a straight-line basis over the estimated period of benefit, which we have determined to be three years. Sales commissions that are not incremental costs of acquiring a contract with a customer are expensed in the period incurred. We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our direct sales organization and investment in brand and product marketing efforts. We expect, however, that our sales and marketing expenses will decrease as a percentage of our revenue over time as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our sales and marketing activities.
General and Administrative
General and administrative expenses consist primarily of personnel-related
expenses, including stock-based compensation expense for our finance,
accounting, legal and compliance, human resources, and other administrative
teams, certain executives, as well as stock-based compensation expense related
to the stand-alone stock option award granted to our Co-Founder and Head of
Blend in
Following our IPO, which was completed inJuly 2021 , we have incurred, and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to publicly listed companies and costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC . As a public company, we have incurred, and expect to continue to incur increased expenses in the areas of insurance, investor relations, internal audit, and professional services. In addition, general and administrative expenses have increased, and we expect will continue to increase as a result of integrating and operatingTitle365 . As a result, the dollar amount of our general and administrative expenses has increased, but we are taking action to manage further increases in the foreseeable future. We expect, however, that these expenses will decrease as a percentage of our revenue as we achieve greater scale in our business, although the percentage may fluctuate from period to period depending on the timing and extent of our general and administrative activities.
Amortization of acquired intangible assets
Amortization of acquired intangible assets relates to customer relationships
acquired in connection with the
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned from our investment portfolio.
Interest Expense Interest expense relates primarily to debt financing used to fund our acquisition ofTitle365 and includes interest payable under the terms of the Credit Agreement entered into in connection with the closing of the acquisition ofTitle365 and amortization of debt discounts and debt issuance costs.
Provision for Income Taxes
Provision for income taxes consists primarily ofU.S. state income taxes and adjustments to the valuation allowance. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is not more likely than not that such net deferred tax assets will be realized. For the three months endedMarch 31, 2022 , we recognized a benefit for income taxes of$2.8 million , consisting of a$2.9 million deferred tax benefit resulting from a partial release of the valuation allowance and a current tax expense of$67 thousand consisting of state and foreign income taxes. The partial release of the valuation allowance was primarily due to changes inU.S. tax law requiring capitalization and amortization of research and development costs for tax purposes. 34
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Results of OperationsThe following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:
Three Months Ended March 31,
2022 2021
(In thousands)
Revenue $ 71,524 $ 31,875
Cost of revenue(1) 42,655 10,860
Gross profit 28,869 21,015
Operating expenses:
Research and development(1) 35,106 17,074
Sales and marketing(1) 22,341
15,865
General and administrative(1) 37,102
15,283
Amortization of acquired intangible assets 4,068 - Total operating expenses 98,617 48,222 Loss from operations (69,748) (27,207) Interest expense (5,558) - Other income (expense), net 91 150 Loss before income taxes (75,215) (27,057) Income tax (expense) benefit 2,797 (10) Net loss$ (72,418) $ (27,067) ________
(1)Includes stock-based compensation as follows:
Three Months Ended March 31,
2022 2021
(In thousands)
Cost of revenue $ 493 $ 58
Research and development 9,866 1,386
Sales and marketing 2,523 1,373
General and administrative 11,430 1,199
Total stock-based compensation $ 24,312 $ 4,016
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Three Months Ended March 31,
2022 2021
(as a % of revenue)*
Revenue 100 % 100 %
Cost of revenue 60 34
Gross margin 40 66
Operating expenses:
Research and development 49 54
Sales and marketing 31 50
General and administrative 52 48
Amortization of acquired intangible assets 6 -
Total operating expenses 138 151
Loss from operations (98) (85)
Interest expense (8) -
Other income (expense), net - -
Loss before income taxes (105) (85)
Income tax (expense) benefit 4 -
Net loss (101) % (85) %
____________*Certain percentages may not foot due to rounding
Comparison of the Three Months Ended
Revenue and Cost of Revenue
Three Months Ended March 31,
2022 2021 $ Change % Change
(In thousands)
Segment revenue:
Blend Platform:
Mortgage Banking $ 24,484 $ 26,435 $ (1,951) (7 %)
Consumer Banking and Marketplace 7,187 4,648 2,539 55 %
Professional Services 1,122 792 330 42 %
Total Blend Platform 32,793 31,875 918 3 %
Title365 38,731 - 38,731 N/A
Total revenue $ 71,524 $ 31,875 $ 39,649 124 %
Segment cost of revenue:
Blend Platform $ 14,202 $ 10,860 $ 3,342 31 %
Title365 28,453 - 28,453 N/A
Total cost of revenue $ 42,655 $ 10,860 $ 31,795 293 %
Segment gross profit:
Blend Platform $ 18,591 $ 21,015 $ (2,424) (12 %)
Title365 10,278 - 10,278 N/A
Total gross profit $ 28,869 $ 21,015 $ 7,854 37 %
Revenue increased $39.6 million , or 124%, for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 , driven by an increase of
$38.7 million due to the inclusion of revenue from Title365 and an increase in
Blend Platform revenue of $0.9 million , or 3%. Within Blend Platform revenue,
Mortgage Banking revenue decreased $2.0 million , or (7%), primarily due to the
lower volume of mortgage banking transactions with our customers, Consumer
Banking and Marketplace revenue increased $2.5 million , or 55%, primarily due to
an increase in the volume of transactions related to our integrated software
solutions outside of mortgage, including ancillary products and marketplace
offerings, and Professional Services revenue increased by $0.3 million or 42%,
primarily due to an increase in professional services associated with the
deployment and support of our platform.
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Cost of revenue increased $31.8 million , or 293%, for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021 , driven by an
increase of $28.5 million due to the inclusion of costs associated with the
operations of Title365 , and an increase in Blend Platform cost of revenue of
$3.3 million , or 31%. The increase in Blend Platform cost of revenue was
primarily due to a $2.5 million increase in hosting costs to support the volume
of transactions on our platform, and a $1.7 million increase in
personnel-related expenses attributable to increased headcount.
Operating Expenses
Three Months Ended March 31,
2022 2021 $ Change % Change
(In thousands)
Operating expenses:
Research and development $ 35,106 $ 17,074 $ 18,032 106 %
Sales and marketing 22,341 15,865 6,476 41 %
General and administrative 37,102 15,283 21,819 143 %
Amortization of acquired intangible assets 4,068 - 4,068 N/A
Total operating expenses $ 98,617 $ 48,222 $ 50,395 105 %
Research and Development
Research and development expenses increased $18.0 million , or 106%, for the
three months ended March 31, 2022 compared to the three months ended March 31,
2021 . The increase was primarily due to a $8.5 million increase in
personnel-related expenses primarily attributable to an increase in research and
development headcount dedicated to the ongoing investment in our products, a
$8.5 million increase in stock-based compensation, and a $0.9 million increase
in software and hosting services to support the growth in our business and the
increased volume of transactions on our platform.
Sales and Marketing
Sales and marketing expenses increased$6.5 million , or 41%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily due to a$2.9 million increase in personnel-related expenses primarily attributable to an increase in sales and marketing headcount, a$1.8 million increase due to the inclusion of sales and marketing expenses from the operations ofTitle365 , a$1.1 million increase in stock-based compensation, and a$0.5 million increase in trade shows and conference events.
General and Administrative
General and administrative expenses increased$21.8 million , or 143% for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily due to$10.2 million increase in stock-based compensation, of which$4.8 million related to the stock option award with market-based performance targets granted to our Co-Founder and Head of Blend,$2.9 million increase in insurance related to our public company structure, a$3.9 million increase in personnel-related expenses primarily attributable to an increase in our administrative, finance and accounting, legal, and human resources headcount necessary to support the growth in our business, and a$7.6 million increase due to the inclusion of general and administrative expenses from the operations ofTitle365 . The amounts are offset by a$2.9 million decrease in costs related toTitle365 acquisition, primarily due to transaction and diligence costs that were incurred in the first quarter of 2021 and a$0.5 million decrease in professional fees.
Amortization of acquired intangible assets
Amortization of acquired intangibles assets increased$4.1 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , due to the amortization of the customer relationships intangible asset acquired in theTitle365 business combination. 37 -------------------------------------------------------------------------------- Liquidity and Capital Resources As ofMarch 31, 2022 , our principal sources of liquidity were cash, cash equivalents, marketable securities of$499.4 million , and availability of credit under our$25.0 million senior secured revolving credit facility. Cash and cash equivalents are comprised of bank deposits and money market funds. Marketable securities are comprised ofU.S. treasury and agency securities, commercial paper, and corporate debt securities. Most of our cash and cash equivalents are held inthe United States . Since our inception, we have financed our operations primarily through proceeds from the issuance of our stock and warrants and cash generated from the sale of our product offerings. We have generated significant losses from operations and negative cash flows from operating activities in the past as reflected in our accumulated deficit of$514.9 million as ofMarch 31, 2022 . We expect to continue to incur operating losses for the foreseeable future due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business. Credit Agreement In connection with our acquisition ofTitle365 , onJune 30, 2021 , we entered into a credit agreement that provides for a$225.0 million term facility and a$25.0 million revolving facility. The term facility was funded onJuly 1, 2021 , and was fully drawn upon to provide, in part, the acquisition consideration being paid in connection with the purchase of a 90.1% interest inTitle365 . The revolving facility is currently available and undrawn.
There is no amortization of the outstanding principal amount under our credit facility; all principal amounts thereunder are payable on the maturity date (which is the fifth anniversary of the closing of the credit facility).
The obligations under our credit facility are guaranteed by all of our domestic subsidiaries (other thanTitle365 and its direct and indirect subsidiaries and subject to certain thresholds and other exceptions), and secured by a lien on substantially all of our and our subsidiaries' assets (other than the equity issued by, and the assets of,Title365 and its direct and indirect subsidiaries and subject to certain thresholds and other exceptions). Our credit facility subjects us to certain affirmative and negative covenants, financial reporting obligations, and a minimum liquidity threshold that is tested quarterly. It also requires mandatory prepayment of all or a portion of the outstanding debt thereunder in certain circumstances.
Material Cash Requirements
Our material cash requirements arising from known contractual and other
obligations primarily relate to our obligations under our Credit Agreement,
leases for our office locations, and purchase commitments. There have been no
significant changes in our material cash requirements from the contractual
obligations described in our Annual Report on Form 10-K for the year ended
InApril 2022 , we committed to a workforce reduction plan as part of our broader efforts to improve cost efficiency and better align our operating structure with our business activities. We estimate that we will incur approximately$6.7 million in charges in connection with the Plan, including approximately$6.5 million in cash expenditures for employee benefits, severance payments, payroll taxes and related facilitation costs and approximately$0.2 million in stock-based compensation. We expect that execution of the Plan, including cash payments, will be substantially complete in the second quarter of 2022. In addition to the elimination of certain positions, we are implementing non-personnel related cost reductions. We believe that current cash, cash equivalents, marketable securities, and the availability of credit under our revolving credit facility will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on continued growth in our customer base, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, and the continuing market adoption of Blend's software platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled "Risk Factors"-Risks Related to Our Business-Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations." 38 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2022 2021
(In thousands)
Net cash used in operating activities $ (45,842) $ (20,394)
Net cash (used in) provided by investing activities (683) 6,148
Net cash provided by financing activities 1,081 325,465
Effect of exchange rates on cash, cash equivalents, and restricted cash
28 -
Net (decrease) increase in cash, cash equivalents, and restricted cash
$
(45,416)
Cash Used in Operating Activities
During the three months endedMarch 31, 2022 , we used$45.8 million in cash for operating activities, as compared to$20.4 million used during the three months endedMarch 31, 2021 . Our largest source of operating cash is cash collections from our customers, and our primary uses of cash in operations are for employee-related expenditures, sales and marketing expenses, and third-party hosting costs. The increased use of cash in operating activities during three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , was primarily due to an increase in our net loss, primarily driven by increased operating costs required to support the growth of our business. Historically, we have generated negative cash flows from operating activities and have supplemented working capital requirements through the sales of equity securities.
Cash (Used in) Provided by Investing Activities
Net cash used in investing activities during the three months endedMarch 31, 2022 was$0.7 million , which was primarily due to$30.5 million used in purchases of marketable securities, and$0.3 million in purchases of property and equipment, mostly offset by maturities of marketable securities of$30.0 million .
Net cash provided by investing activities during the three months ended
Cash Provided by Financing Activities
Net cash provided by financing activities for the three months endedMarch 31, 2022 was$1.1 million , primarily consisting of proceeds from the exercises of stock options of$1.2 million , net of repurchases. Net cash provided by financing activities for the three months endedMarch 31, 2021 was$325.5 million , reflecting net proceeds from issuance of Series G convertible preferred stock of$309.7 million , proceeds from the exercise of convertible preferred stock warrants of$10.2 million , the exercise of stock options of$5.8 million , partially offset by the payment of deferred offering costs of$0.2 million .
Off-Balance Sheet Arrangements
We administer escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and/or undisbursed amounts received for settlement of mortgage and home equity loans. Cash held for these purposes was approximately$21.1 million , net of outstanding checks in transit of$56.4 million as ofMarch 31, 2022 . These funds are not considered assets of ours and, therefore, are not included in our consolidated balance sheet; however, we are contingently liable for the disposition of these funds on behalf of consumers. As ofMarch 31, 2022 , we did not have any other relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes. 39 --------------------------------------------------------------------------------
Employee Compensation
We face significant competition for talent from other technology and high-growth
companies. To attract and retain top talent, we have had to offer, and believe
we will need to continue to offer, highly competitive compensation packages and
provide a range of health, savings, retirement, time-off, and wellness benefits
for our employees.
Additionally, we may consider adopting various employee compensation programs
from time to time, including one possible program that would allow employees the
opportunity to annually elect the proportion of their compensation that would be
provided in the form of cash or equity. The details of any such program, and the
extent to which we may implement any such program, have not been determined at
this time. If we do decide to adopt a program like this in the future, it could
result in us paying a greater percentage of our employees' compensation in the
form of cash or equity, depending on how our employees elect to receive their
compensation. This could result in us using a larger amount of our cash reserves
for the payment of compensation in future periods or could result in us granting
a greater number of our shares subject to equity awards, which could increase
our overall dilution, increase our stock-based compensation expense for
financial accounting purposes, and increase our tax withholding and remittance
obligations. How we determine any such tax withholding obligations would be
satisfied could further impact our cash position or increase dilution.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope
and terms pursuant to which we agree to indemnify customers, vendors, lessors,
business partners, and other parties with respect to certain matters, including,
but not limited to, losses arising out of the breach of such agreements,
services to be provided by us, or from intellectual property infringement claims
made by third parties. In addition, we have entered into indemnification
agreements with our directors and certain officers and employees that require
us, among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors, officers, or employees.
No demands have been made upon us to provide indemnification under such
agreements, and there are no claims that we are aware of that could have a
material effect on our consolidated balance sheets, consolidated statements of
operations and comprehensive loss, or consolidated statements of cash flows.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the related notes
thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in
accordance with the U.S. generally accepted accounting principles, or U.S. GAAP.
The preparation of our condensed consolidated financial statements in accordance
with GAAP requires us to make estimates, judgments, and assumptions that affect
the reported amounts of assets, liabilities, revenue, costs, and expenses, and
related disclosures. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Our actual results may differ from these estimates under
different assumptions or conditions. To the extent that there are differences
between our estimates and actual results, our future financial statement
presentation, financial condition, results of operations, and cash flows could
be affected.
There have been no material changes to our critical accounting policies and
estimates as described in our Annual Report on Form 10-K for the year ended
Recent Accounting PronouncementsRefer to Note 2, "Summary of Significant Accounting Policies," of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
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