Blend Labs Inc

1. Description of Business and Basis of Presentation

Description of Business

Blend Labs, Inc. (the “Company,” “Blend,” “we,” “us,” or “our”) was incorporated on April 17, 2012. The Company offers a cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for banking products. The Company’s solutions make the journey from application to close fast, simple, and transparent for consumers, while helping financial services firms increase productivity, deepen customer relationships, and deliver exceptional consumer experiences.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, the unaudited condensed consolidated statements of redeemable noncontrolling interest, Series A Redeemable Convertible Preferred Stock (the “Series A redeemable convertible preferred stock” or “Series A Preferred Stock”), and stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 reflect all adjustments that are of a normal, recurring nature and that are considered necessary for a fair statement of the results for the periods shown in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial reporting periods. Accordingly, certain information and footnote disclosures have been condensed or omitted that would ordinarily be required under U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The accompanying unaudited condensed consolidated financial statements include the accounts of Blend Labs, Inc. and its subsidiaries in which the Company holds a controlling financial interest. Noncontrolling interest represents the minority stockholder’s share of the net income or loss and equity in a consolidated subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the notes thereto. Actual results may differ from those estimates. Such estimates include, but are not limited to, estimates of variable consideration, evaluation of contingencies, determination of the incremental borrowing rates used in calculations of lease liabilities, determination of fair values of stock-based compensation, marketable securities, determination of the fair value of each of the Series A Preferred Stock and the Warrant, determination of fair values of assets transferred and performance obligations committed to under the strategic partnership agreement, assessment of expected credit losses on notes receivable, valuation of deferred tax assets, valuation of acquired intangible assets, valuation of the redeemable noncontrolling interest, determination of useful lives of tangible and intangible assets and capitalized internal-use software development costs, assessment of impairment of long-lived assets, and valuation of equity securities without readily determinable fair value.

Risks and Uncertainties

The Company has been and may continue to be affected by various macroeconomic factors, including interest rate environment, housing affordability, and worldwide political and economic conditions. The global financial markets have recently experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, rising interest rates, inflation, increases in unemployment rates and uncertainty about economic stability. The real estate environment, including interest rates and the general economic environment, typically impacts the demand for mortgage and mortgage related products. Recent changes in these areas have impacted the Company’s results of operations. Recent increases in interest rates due to efforts by the U.S. Federal Reserve (the “Federal Reserve”) to manage rising inflation, combined with ongoing supply constraints, resulted in a decline in mortgage origination activity for 2022 and 2023. The demand for mortgage and mortgage related products continued to be sensitive to these factors, and any material changes in Federal Reserve policy, interest rates or housing supply are expected to impact overall origination activity levels during 2024.

The Company’s operations are principally funded by available liquidity from cash, cash equivalents and investments. The Company has incurred net losses in each period since inception, and its limited operating history in an evolving industry makes it difficult to accurately forecast the impact of macroeconomic or other external factors on its business and may increase the risk that the Company may not be able to achieve or maintain profitability in the future, or otherwise suffers adverse impacts on its operational and financial results.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to these policies during the three and nine months ended September 30, 2024, with the exception of the policy related to the issuance of the Series A Preferred Stock as described below.

Cash and Cash Equivalents

The Company places its cash with high credit quality and federally insured institutions. Cash with any one institution may be in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes the exposure to credit risk is not significant. The Company considers all highly liquid investments with an original maturity date of three months or less at the time of purchase to be cash equivalents. As of September 30, 2024 and December 31, 2023, cash and cash equivalents consisted of cash, money market accounts, and highly liquid investments with original maturities less than 90 days. The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents approximate fair value due to the short-term nature of the investments.

Restricted Cash

The Company has classified cash that is not available for use in its operations as restricted cash. Restricted cash consists primarily of collateral for letters of credit related to security deposits for the Company’s office facility lease arrangements and collateral for surety bonds related to the Title segment. As of September 30, 2024 and December 31, 2023, the Company had restricted cash of$7.3 million, all of which was classified as non-current.

Trade and Other Receivables and Credit Loss Reserves

The Company reports trade and other receivables net of the allowance for credit losses, in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments—Credit Losses. ASC 326 requires an entity to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company’s estimate of expected credit losses is determined based on expected lifetime loss rates calculated from historical data and adjusted for the impact of current and future conditions, such as the age of outstanding receivables, historical payment patterns, any known or expected changes to the customers’ ability to fulfill their payment obligations, or assessment of broader economic conditions that may impact the customers’ ability to pay the outstanding balances. As of each of September 30, 2024 and December 31, 2023, the reserve for expected credit losses was $0.1 million. The provision for expected credit losses and the uncollectible portion of the receivables written off against reserve for expected credit losses were not material for the three and nine months ended September 30, 2024 and 2023.

Capitalized Internal-Use Software

The Company capitalizes certain costs incurred in the development of its platform and product offerings when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. These capitalized costs include personnel and related expenses and stock-based compensation for employees who are directly associated with and who devote time to internal-use software projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements to the existing software are also capitalized, while the costs incurred for minor modifications, as well as training and maintenance are expensed as incurred. The capitalized internal-use software development costs are reported in property and equipment, net, in the condensed consolidated balance sheets. Capitalized internal-use software development costs are amortized using the straight-line method over an estimated useful life of the software, as the straight-line recognition method best approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software, license, or lease the software to third parties.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable securities, and trade accounts receivable. The Company maintains its cash equivalents primarily in money market funds and highly liquid investments that are issued or guaranteed by the United States government or its agencies. As of September 30, 2024 and December 31, 2023, cash and cash equivalents was $55.0 million and$31.0 million, respectively, and included $2.3 million and $1.9 million, respectively, of cash held in a foreign jurisdiction. Collateral is not required for trade accounts receivable.

Title365 has agreements with insurance underwriters authorizing the Company to issue title insurance policies on behalf of the insurance underwriters. The policies are underwritten by two title insurance companies, which accounted for approximately 61% and 39% during the nine months ended September 30, 2024, and 70% and 30% during the nine months ended September 30, 2023, respectively, of title policy fees earned during the period.

The following customer comprised 10% or more of the Company’s revenue for the following periods:

The following customers comprised 10% or more of the Company’s trade and unbilled receivables:

Redeemable Noncontrolling Interest

The Company’s 90.1% ownership of Title365 results in recognition of 9.9% noncontrolling interest, which represents the minority stockholder’s share of the net income and equity in Title365. The Title365 stockholders agreement includes a provision whereby the Company has a call option to purchase the 9.9% noncontrolling interest at a purchase price equal to the greater of (1) $49.5 million plus an amount of interest calculated using an interest rate of 5.0% per annum compounding annually; or (2)4.4 multiplied by the trailing 12-month EBITDA multiplied by the noncontrolling interest ownership percentage (the “Title365 Call Option”). The Title365 Call Option became exercisable beginning 2 years following the acquisition closing date. The noncontrolling interest holder also holds an option to compel the Company to purchase the remaining 9.9% noncontrolling interest at a price calculated in the same manner as the Title365 Call Option (the “Title365 Put Option”). The Title365 Put Option is exercisable beginning 5 years following the acquisition closing date. Neither the Title365 Call Option nor the Title365 Put Option have an expiration date. However, pursuant to the Title365 stockholders agreement, the Company also has certain bring-along rights that it can exercise under certain circumstances, which may result in the Title365 Put Option being extinguished. As the Title365 Put Option is not solely within the Company’s control, the Company classified this interest as redeemable noncontrolling interest (“RNCI”) within the mezzanine equity section of the unaudited condensed consolidated balance sheets. The RNCI is accreted to the redemption value under the interest method from the acquisition date through the date the Title365 Put Option becomes exercisable. At each balance sheet date, the RNCI is reported at the greater of the initial carrying amount adjusted for the RNCI's share of earnings or losses and other comprehensive income or loss, or its accreted redemption value. The changes in the redemption amount are recorded with corresponding adjustments against retained earnings or, in the absence of retained earnings, additional paid-in-capital. For each reporting period, the entire periodic change in the redemption amount is reflected in the computation of net loss per share under the two-class method as being akin to a dividend. As of September 30, 2024 and December 31, 2023, the redemption amount of the Title365 Put Option as if it was currently redeemable was$58.0 million and $55.9 million, respectively.

Series A Preferred Stock

On April 29, 2024, the Company entered into an Investment Agreement (the “Investment Agreement”) with Haveli Brooks Aggregator, L.P. (“Haveli”) and issued 150,000 shares of the Company’s Series A Preferred Stock. The Series A Preferred Stock is classified as mezzanine equity due to the redemption features that are not solely within the Company’s control. The Series A Preferred Stock is accreted to its maximum redemption value over theseven year term, using the effective interest method. The increases in the redemption amount are recorded with corresponding adjustments against additional paid-in capital, in the absence of retained earnings. For each reporting period, the entire periodic change in the redemption amount is reflected in the computation of net loss per share under the two-class method as being akin to a dividend, by reducing the income (or increasing the loss) attributable to common stockholders.

JOBS Act Accounting Election

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies (that is, those that have not had a Securities Act of 1933, as amended (the “Securities Act”), registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Company intends to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The guidance simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity separately from the host convertible debt or preferred stock. The guidance is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning January 1, 2024. ASU 2020-06 should be applied on a full or modified retrospective basis and early adoption is permitted. The adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820). This update clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. The guidance is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning January 1, 2024. Early adoption is permitted. The adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280). This update improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, for all public entities to enable investors to develop more decision-useful financial analyses. The guidance is effective for the Company for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740). This update improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance is effective for the Company for annual reporting periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. This update improves the disclosures about a public entity’s expenses, primarily through additional disclosures of specific information about certain costs and expenses in the notes to financial statements. The guidance is effective for the Company for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

3. Revenue Recognition and Contract Costs

Disaggregation of Revenue

The following table provides information about disaggregated revenue by service offering:

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers:

There wereno long-term contract assets or deferred revenue as of September 30, 2024 and December 31, 2023.

During the three months ended September 30, 2024 and 2023, the Company recognized $8.6 million and $5.6 million, respectively, of revenue that was included in the deferred revenue balances at the beginning of the respective periods. During the nine months ended September 30, 2024 and 2023, the Company recognized $6.7 million and $7.7 million, respectively, of revenue that was included in the deferred revenue balances at the beginning of the respective periods.

During the three and nine months ended September 30, 2024, the Company recognized revenue of approximately $1.9 million and $0.3 million, respectively, related to performance obligations satisfied in previous periods. During the three and nine months ended September 30, 2023, the Company recognized revenue of approximately $0.2 million and $1.9 million, respectively, related to performance obligations satisfied in previous periods. The revenue reduced or recognized from performance obligations satisfied in the prior periods primarily related to changes in the transaction price, including changes in the estimate of variable consideration.

Remaining Performance Obligations

As of September 30, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations was $107.4 million. These remaining performance obligations represent commitments in customer contracts for services expected to be provided in the future that have not been recognized as revenue. The expected timing of revenue recognition for these commitments is largely driven by the Company’s ability to deliver in accordance with relevant contract terms and when the Company’s customers utilize services, which could affect the Company’s estimate of when the Company expects to recognize revenue for these remaining performance obligations. The Company expects to recognize approximately half of the remaining performance obligations as revenue over the next 12 months. The Company expects the majority of non-current remaining performance obligations to be recognized over the next 13 to 24 months.

Deferred Contract Costs

As of September 30, 2024 and December 31, 2023, total unamortized deferred contract costs were $3.2 million and $3.5 million, respectively, of which $1.1 million and $1.0 million was recorded within prepaid expenses and other current assets and $2.1 million and $2.5 million was recorded within deferred contract costs, non-current, on the unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.

The amortization of deferred contract costs was $0.3 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $0.8 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively, and is included in sales and marketing expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

4. Investments and Fair Value Measurements

The carrying amount, unrealized gain and loss, and fair value of investments by major security type were as follows:

Restricted cash that is not available for use in operations consisted of $5.0 million collateral for standby letters of credit related to the Company’s office lease facilities, $1.9 million collateral for surety bonds related to the Title segment and $0.3 million statutory deposits required under the California insurance code as of September 30, 2024 and December 31, 2023.

Marketable securities consist primarily of U.S. treasury and agency securities, commercial paper, and corporate debt securities. The Company classifies its marketable securities as available-for-sale securities at the time of purchase and reevaluates such classification at each balance sheet date. The Company has classified its investments as current based on the nature of the investments and their availability for use in current operations.

The fair value of the Company’s investments in money market funds classified as Level 1 of the fair value hierarchy is based on real-time quotes for transactions in active exchange markets involving identical assets. The fair value of the Company’s investments in commercial paper and marketable securities classified as Level 2 of the fair value hierarchy is based on quoted market prices for similar instruments. The Company’s certificates of deposit are short-term in nature and are carried at amortized cost, which approximates fair value; as such, the certificates of deposit are classified within Level 2 of the fair value hierarchy.

The following table summarizes the stated maturities of the Company’s marketable securities and other investments:

The Company evaluates marketable securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or other factors. The Company considers the extent to which the fair value is less than cost, the financial condition and near-term prospects of the security issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

The Company does not have an intent to sell any of these securities prior to maturity and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date. Accordingly, the Company believes that generally the unrealized losses are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no impairment charges or allowance for credit losses have been recognized in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, the number of investment positions that are in an unrealized loss position were 0 and 28, respectively. As of September 30, 2024, the Company hadno securities that have been in a continuous unrealized loss position for twelve months or greater. As of December 31, 2023, the Company hadfour securities, with an aggregate fair value of $16.0 million, that have been in a continuous unrealized loss position for twelve months or greater. The Company determines realized gains or losses on the sale of marketable securities based on a specific identification method.

The Company recognized interest income from its investment portfolio of $1.5 million and $2.7 million for the three months ended September 30, 2024 and 2023, respectively and $4.2 million and $8.8 million for the nine months ended September 30, 2024 and 2023, respectively. Accrued interest receivable related to marketable securities was $0.3 million and $0.9 million, as of September 30, 2024 and December 31, 2023, respectively, and is presented within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. The Company does not measure an allowance for credit losses on accrued interest receivable and recognizes interest receivable write offs as a reversal of interest income. No accrued interest was written off during the three and nine months ended September 30, 2024 and 2023.

5. Intangible Assets

Intangible assets consisted of the following:

Amortization of intangible assets for the three and nine months ended September 30, 2024 and 2023 was immaterial.

6. Significant Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

Recording fee advances represent amounts advanced on behalf of customers in the Title segment associated with the recording of mortgage documents. These amounts are primarily recouped within 30 days from funds in the escrow accounts the Company administers.

Property and Equipment, Net

Property and equipment, net, consisted of the following:

Depreciation expense for the three months ended September 30, 2024 and 2023 was $0.5 million and $0.6 million, respectively. Depreciation expense for the nine months ended September 30, 2024 and 2023 was $1.5 million and $1.9 million, respectively.

Amortization of capitalized internal use software development costs for the three and nine months ended September 30, 2024 was $0.2 million. Amortization of capitalized internal use software development costs for the three and nine months ended September 30, 2023 wasimmaterial.

Notes Receivable

In 2021, the Company made a $3.0 million investment in a privately-held company via a convertible promissory note. In 2023, the Company made an additional $2.5 million investment into the issuer via another convertible promissory note. Interest accrues at 2% per annum and outstanding principal and accrued interest is due and payable at the earliest of (i)60 months from the execution of each note, respectively, (ii) an initial public offering, or (iii) change in control, unless otherwise converted to shares of the issuer. The outstanding principal and unpaid accrued interest on the notes is convertible into 4,500,000 shares of the issuer’s Series Seed Preferred Stock and 2,192,308 shares of the issuer’s Series A Preferred Stock, respectively, at the option of the issuer, upon a change in control, upon the issuer’s initial public offering, or upon a qualified equity financing. The conversion options are not bifurcated from the promissory notes as the options do not meet the net settlement criteria of a derivative instrument due to the options not being readily convertible to cash. The Company also has a call option to merge the issuer with the Company for aggregate consideration of $500.0 million. The value of the call option was determined to be inconsequential.

At each reporting date, the Company evaluates the collectability of the notes receivable in accordance with ASC 326, Financial Instruments—Credit Losses. As of September 30, 2024 and December 31, 2023, the Company determined that no credit loss existed for the convertible promissory notes, and no provision for expected credit losses was recognized. The notes receivable are presented within other non-current assets on the unaudited condensed consolidated balance sheets.

Investments in Non-Marketable Equity Securities

The Company holds an equity investment in a privately-held company in exchange for 103,611 shares of Series Growth 1a Preferred Stock. This investment in the equity securities without readily determinable fair value is measured at cost, less impairment, if any, plus or minus observable price changes in orderly transactions of an identical or similar investment of the same issuer.

As of September 30, 2024, the carrying value of this investment was $9.8 million, inclusive of a cumulative upward adjustment of $7.3 million, of which $4.4 million was recognized during the first quarter of 2024 to reflect observable price changes. As of December 31, 2023, the carrying value of this investment was $5.4 million, inclusive of cumulative upward adjustment of $2.9 million.

The Company determined the adjustment by measuring the security at fair value using the option pricing model (“OPM”) as of the date the observable transaction occurred. Observable transactions, such as the issuance of new equity by an investee, are indicators of investee enterprise value and are used to estimate the fair value of the Company’s investment in the equity security. An OPM is utilized to allocate value to the various classes of securities of the investee, including classes owned by the Company. Such information, available to the Company from the investee entity, is supplemented with the Company’s estimates such as volatility, expected time to liquidity and the rights and obligations of the securities the Company holds. The inputs to valuation techniques used to measure fair value of the Company’s non-marketable equity security are classified as Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.

The gain resulting from the adjustment to the carrying value of the non-marketable security is presented within other income (expense) in the unaudited condensed consolidated statements of operations and comprehensive income (loss). There were no impairments for thethree and nine months ended September 30, 2024. This investment is presented within other non-current assets on the unaudited condensed consolidated balance sheets.

Cloud Computing Arrangements

The Company capitalizes certain implementation costs incurred during the application development stage under cloud computing arrangements that are service contracts. The carrying value of the capitalized costs was $0.1 million as of September 30, 2024 and December 31, 2023, which is presented within prepaid expenses and other current assets. Amortization of capitalized implementation costs is recognized on a straight-line basis over the term of the associated hosting arrangement when it is ready for its intended use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred.

Other Current Liabilities

Other current liabilities consisted of the following:

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

Title and Escrow Loss Reserve

The Company performs title insurance services and issues title insurance policies as an agent for a third-party title insurance underwriters. The Company may incur a loss if it does not follow the guidelines outlined in the agency agreements. Reserves for estimated future losses on policies issued are established at the time the title insurance revenue is recognized. As of September 30, 2024, title and escrow loss reserves were $1.1 million, of which $0.1 million, is presented within other current liabilities and $1.0 million is presented within other non-current liabilities on the condensed consolidated balance sheets. As of December 31, 2023, title and escrow loss reserves were $1.5 million, of which $0.2 million is presented within other current liabilities and $1.3 million is presented within other non-current liabilities on the condensed consolidated balance sheets.

7. Leases

The Company leases its facilities under non-cancelable operating leases with various expiration dates. Leases may contain escalating payments.

The Company’s total operating lease costs were $2.8 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively. The Company’s total operating lease costs were $6.2 million and $5.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company’s total operating lease costs included variable costs in the amount of $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $1.7 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively. Variable lease costs are primarily comprised of maintenance costs and are determined based on the actual costs incurred during the period. Variable lease payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

As of September 30, 2024 and December 31, 2023, the weighted average remaining operating lease term was 1.8 years and 3.1 years. The weighted average discount rate used to estimate operating lease liabilities for leases that existed as of September 30, 2024 and December 31, 2023 was 8.4% and 8.1%, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $2.6 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $5.2 million and $3.7 million for the nine months ended September 30, 2024 and 2023, respectively.

In the three months ended September 30, 2024, the Company restructuredtwo of its facilities and transferredtwo of its lease agreements, one in connection with the strategic partnership and sale of the insurance business and another in connection with the transfer of the Company's subsidiary in India to a third party. Refer to Note 13, Restructuring, and Note 17, Strategic Partnership and Sale of Insurance Business, for details.

As of September 30, 2024, maturities of operating lease liabilities were as follows:

8. Commitments and Contingencies

Contingencies

From time to time and in the normal course of business, the Company may be subject to various legal matters, such as threatened or pending claims or proceedings. The litigation contingencies, if realized, could have a material negative impact on the Company’s financial condition, results of operations, and cash flows. The Company recognizes a provision for litigation losses when a contingent liability is probable and the amount thereof is estimable. Costs associated with the Company's involvement in legal proceedings are expensed as incurred. Amounts accrued for litigation contingencies are based on the Company’s best estimates, assessments of the likelihood of damages, and the advice of counsel and often result from a series of judgments about future events and uncertainties that rely heavily on estimates and assumptions, therefore the actual settlement amounts could differ from the estimated contingency accrual and result in additional charges or reversals in future periods. The Company had a litigation contingency accrual of approximately $0.3 million and $1.1 million as of September 30, 2024 and December 31, 2023, respectively, which is presented within other current liabilities in the unaudited condensed consolidated balance sheets.

Warranties, Indemnifications, and Contingent Obligations

The Company’s platform, products, and services are generally warranted to perform substantially as described in the associated documentation and to satisfy defined levels of uptime reliability. The service-level agreements that provide for defined levels of uptime reliability and performance permit the customers to receive credits or to terminate their agreements in the event that the Company fails to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of reliability and performance as a result of those agreements and historically the Company has not incurred any material costs associated with warranties. Accordingly, the Company has not accrued any liabilities related to these agreements in the unaudited condensed consolidated financial statements.

The Company enters into indemnification provisions under (i) its agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers, and landlords and (ii) its agreements with investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2024 or December 31, 2023.

The Company has agreed to indemnify its officers and directors to the fullest extent permitted by its amended and restated bylaws and the General Corporation Law of the State of Delaware for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The coverage applies only to acts that occurred during the tenure of the officer or director and has an unlimited term. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

Escrow or Trust Funds

The Company administers escrow and trust deposits held at third-party financial institutions representing funds received under real estate contracts, escrowed funds received under escrow agreements, and undisbursed amounts received for settlement of mortgage and home equity loans. These funds are not considered assets of the Company and, therefore, are not included in the accompanying unaudited condensed consolidated balance sheets; however, the Company remains contingently liable for the disposition of these funds on behalf of its customers. Cash held by the Company for these purposes was approximately $23.2 million, net of outstanding checks in transit of $35.8 million as of September 30, 2024, and approximately $3.2 million, net of outstanding checks in transit of $27.8 million as of December 31, 2023.

9. Debt Financing

Debt consisted of the following:

On June 30, 2021, in connection with the closing of the acquisition of Title365, the Company entered into a credit agreement, as amended from time to time (the “Credit Agreement”), which provided for a $225.0 million senior secured term loan (the “Term Loan”) and a $25.0 million senior secured revolving credit facility (the “Revolving Facility”). The Revolving Facility included $10.0 million sublimit for the issuance of letters of credit. The Revolving Facility also included a swingline sub-facility (the “Swingline Facility”) that accommodated same-day borrowing of base rate loans. The sublimit for the Swingline Facility was $5.0 million.

The Term Loan was fully drawn at closing to provide, in part, the cash consideration paid in connection with the acquisition of Title365. The Term Loan was funded and the cash consideration was transferred on July 1, 2021. The Term Loan maturity date was June 30, 2026, and the full principal amount was due at maturity. No amortization payments were required with respect to the Term Loan.

The borrowings under the Term Loan accrued interest at a floating rate which were, at the Company’s option, either (i) an adjusted Term SOFR rate for a specified interest period plus an applicable margin of 7.50% or (ii) a base rate plus an applicable margin of 6.50%. The Term SOFR rate applicable to the Term Loan was subject to a floor of 1.00%, and the base rate was subject to a floor of 2.00%. The base rate for any day was a fluctuating rate per annum equal to the highest of (i) the federal funds effective rate in effect on such day, plus 0.50%, (ii) the rate of interest for such day as published in the Wall Street Journal as the “prime rate,” and (iii) the adjusted Term SOFR rate for a one-month interest period, plus 1.00%. Interest was payable in arrears for the elected specified interest period.

Under the Revolving Facility, the Company was required to pay a commitment fee of 0.50% per annum of the unused commitments.

The Company was also required to pay letter of credit fees, customary fronting fees, and other customary documentary fees in connection with the issuance of letters of credit.

The Company incurred approximately $5.7 million of debt issuance costs in connection with the Term Loan, which had been deferred, and the remaining unamortized portion of these costs was presented as a reduction of long-term debt on the condensed consolidated balance sheet as of December 31, 2023.

In connection with the Credit Agreement, the Company issued a Series G preferred stock warrant to purchase 598,431 shares of Class A common stock at an exercise price per share of $13.827822 (the “Series G Warrant"). The terms of the warrant agreement for the Series G Warrant provide the holder with an option to net settle if the fair value of Class A common stock is greater than the exercise price. The net shares to be issued in a cashless exercise will be based on the fair value of the Company’s Class A common stock at the time the Series G Warrant is exercised. As of September 30, 2024, the Series G Warrant has not been exercised. The Series G Warrant will expire 10 years from the issue date. The proceeds from the issuance of debt were allocated between the Term Loan and the Series G Warrant based on their relative fair values, resulting in a debt discount of approximately $6.8 million for the amount allocated to the Series G Warrant and accounted for as paid-in capital.

In October 2022, the Company entered into the First Amendment (the “Amendment”) to the Credit Agreement. The Amendment replaced the reference rate from LIBOR to SOFR as a result of the expected cessation of LIBOR and in accordance with the Credit Agreement.

On November 27, 2023, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which amended the Credit Agreement to, among other things, (i) terminate the Revolving Facility and (ii) amend the maturity date of the Term Loan to provide for a springing maturity extension to June 30, 2027, in the event that certain conditions were satisfied. These conditions had not been met as of the date of the termination of the Credit Agreement. In connection with the Second Amendment, the Company voluntarily prepaid outstanding Term Loan under the Credit Agreement in an aggregate principal amount of $85.0 million.

For the year ended December 31, 2023, in connection with prepayment made under the Second Amendment, the Company recognized approximately $4.0 million loss, consisting of the proportionate write-off of unamortized debt issuance costs and debt discounts due to the partial extinguishment of the Term Loan and the write off of unamortized portion of debt issuance costs related to the termination of the Revolving Facility.

On April 29, 2024, in connection with the issuance of the Series A Preferred Stock, the Company paid approximately $146.1 million to repay all amounts outstanding and payable under the Credit Agreement, including the exit fee of $4.5 million, and terminated the Credit Agreement.

For the quarter ended June 30, 2024, in connection with the full repayment of amounts outstanding and payable under the Credit Agreement and the termination of the Credit Agreement, the Company recognized approximately a $5.5 million loss consisting of the full write-off of unamortized debt issuance costs and debt discounts due to the full extinguishment of the Term Loan. The loss is presented within other income (expense), net in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

Including the impact of the deferred debt issuance costs and the debt discounts resulting from the exit fee and the Series G Warrant, the effective interest rate on the Term Loan was approximately 14.55% as of April 29, 2024. Debt issuance costs, debt discounts, and the Revolving Facility issuance costs were being amortized as interest expense over the term of the Credit Agreement.

As a result of the failure to execute control agreements for all applicable deposit and investment securities accounts in a timely manner, the Company was out of compliance with certain non-financial covenants as well as the minimum liquidity covenant as of December 31, 2023. Subsequent to December 31, 2023, the Company had remedied the failures. As of the date of termination of the Credit Agreement, the Company was in compliance with these covenants.

The fair value of the Term Loan was approximately $136.5 million as of December 31, 2023, and was classified as Level 2 in the fair value hierarchy. The fair value of the Term Loan was measured by applying the income approach, which discounts the future contractual cash flows using a current risk-adjusted rate available to borrowers with similar credit ratings.

10. Redeemable Preferred Stock

On April 29, 2024, the Company entered into the Investment Agreement with Haveli and issued 150,000 shares of Series A Preferred Stock, for an aggregate purchase price of $150.0 million. The Company incurred $10.1 million of issuance costs. Net proceeds from the transaction in the amount of $139.9 million were used to repay in full the amounts outstanding under the Credit Agreement.

The Series A Preferred Stock has the following rights:

Conversion Rights

Each share of the Series A Preferred Stock is convertible into Class A common stock at the option of the holders thereof at any time at an initial conversion rate of 307.6923 shares of common stock per $1,000 principal amount (equivalent to an initial conversion price of approximately $3.25 per share).

Redemption Rights

The Series A Preferred Stock includes the following redemption provisions:

•At any time following the fifth anniversary of issuance, a majority of the holders of the Series A Preferred Stock have the right to cause the Company to redeem in whole, but not in part the shares of Series A Preferred Stock for cash. The per share amount of such redemption will equal the then-current liquidation preference multiplied by (i)150% if the redemption occurs on or after the fifth anniversary and prior to the sixth anniversary of the Issuance Date, (ii)175% if the redemption occurs on or after the sixth anniversary and before the seventh anniversary of the Issuance Date, and (iii)200% if the redemption occurs on or after the seventh anniversary of the Issuance Date.

•At any time following the seventh anniversary of issuance, the Company may redeem in whole, but not in part all of the Series A Preferred Stock in cash for a per share amount equal to the then-current liquidation preference multiplied by 200%.

•Upon notice of a change of control, holders of Series A Preferred Stock may elect to convert the shares into Class A common stock. If the holder does not elect to convert shares, the Company will be required to redeem the Series A Preferred Stock in cash for a price per share equal to the greater of (i) the amount of cash and the fair market value of any other property that the holder would have received on an as-converted basis at the then-current conversion price and (ii)200% of the then-current liquidation preference.

Dividend Rights

The holders of the Series A Preferred Stock are entitled to receive any dividends paid and distributions made to the holders of the Class A common stock to the same extent in kind and amount of consideration that would be payable on an as-converted basis as of the same record date and payment date of any dividend paid or distribution made to the holders of the Class A common stock. Dividends do not accrue on the Series A Preferred Stock.

Voting & Consent Rights

The holders of the Series A Preferred Stock are entitled to vote, as a single class, with the holders of the Class A common stock and the holders of any other class or series of capital stock of the Company then entitled to vote with the Class A common stock on all matters submitted to a vote of the holders of Class A common stock (and, if applicable, holders of any other class or series of capital stock of the Company). The Company requires the affirmative approval of the holders of a majority of the Series A Preferred Stock then outstanding, voting as a single class, in connection with certain corporate actions or events of the Company that may have a material effect on the value of the Series A Preferred Stock.

Governance Rights

So long as Haveli, together with the other permitted transferees, beneficially owns at least 33% of the shares of Series A Preferred Stock purchased by Haveli in connection with the Investment Agreement on an as-converted basis, Haveli will have the right to designate a director nominee for election to the Company’s board of directors.

Liquidation Preference

The Series A Preferred Stock has a liquidation preference of $1,000 per share and ranks senior to the Class A common stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. As of September 30, 2024, the Series A Preferred Stock has a liquidation preference of $150.0 million.

The Series A Preferred Stock is not mandatorily redeemable and as such is not required to be classified as a liability. The Series A Preferred Stock is redeemable at the option of the holder starting with the 5-year anniversary of issuance, or redeemable upon notice of change of control. As the redemption of the Series A Preferred Stock is not solely within the Company’s control, it is classified as mezzanine equity in the unaudited condensed consolidated balance sheets.

As of September 30, 2024, the Series A Preferred Stock has a maximum redemption value of $300.0 million. The carrying value of the Series A Preferred Stock is accreted to its maximum redemption value over theseven year term, using the effective interest method. The increases in the redemption amount are recorded with corresponding adjustments against additional paid-in capital, in the absence of retained earnings. For each reporting period, the entire periodic change in the redemption amount is reflected in the computation of net loss per share under the two-class method as being akin to a dividend, by reducing the income (or increasing the loss) attributable to common stockholders.

In connection with the issuance of the Series A Preferred Stock, the Company issued a warrant (the “Warrant”) to Haveli to purchase up to 11,111,112 shares of Class A common stock, at a purchase price of $4.50 per share. The number of shares and exercise price are subject to anti-dilution adjustments for splits, dividends, capital reorganizations, reclassifications and similar transactions. The Warrant is exercisable for a period of 24 months from issuance, subject to the expiration or early termination of the applicable waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended. The Warrant has not been exercised as of September 30, 2024. The net proceeds were allocated to the Series A Preferred Stock and the Warrant based on their relative fair values as of the issuance date, in the amount of $130.8 million and $9.1 million, respectively. The proceeds allocated to Warrant were accounted for as paid-in capital.

The Series A Preferred Stock does not contain any embedded features that are required to be bifurcated.

11. Stockholder’s Equity

The following is a summary of the rights of the holders of the Company’s capital stock:

Common Stock

The Company hasthree classes of authorized common stock: Class A common stock, Class B common stock, and Class C common stock. The rights of the holders of Class A common stock, Class B common stock, and Class C common stock are identical, except with respect to voting and conversion.

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive dividends out of funds legally available if the Company’s board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Company’s board of directors may determine.

Voting Rights

Holders of the Class A common stock are entitled toone vote for each share held on all matters submitted to a vote of stockholders, holders of the Class B common stock are entitled to 40 votes for each share held on all matters submitted to a vote of stockholders, and holders of the Class C common stock are not entitled to vote on any matter that is submitted to a vote of stockholders, except as otherwise required by law. The holders of the Class A common stock and Class B common stock will vote together as a single class, unless otherwise required by law. At the completion of the IPO, the Co-Founder and Head of Blend held all of the issued and outstanding shares of the Company’s Class B common stock.

No Preemptive or Similar Rights

The Company’s common stock is not entitled to preemptive rights and is not subject to conversion, redemption, or sinking fund provisions.

Right to Receive Liquidation Distributions

If the Company becomes subject to a liquidation, dissolution, or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of the Company’s common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Conversion of Class B Common Stock

Each share of Class B common stock is convertible at any time at the option of the holder intoone share of Class A common stock. Shares of Class B common stock will automatically convert into shares of Class A common stock upon sale or transfer except for certain transfers described in the Amended and Restated Certificate of Incorporation, such as certain transfers effected for estate planning or charitable purposes.

Conversion of Class C Common Stock

After the conversion or exchange of all outstanding shares of the Company’s Class B common stock into shares of Class A common stock, all outstanding shares of Class C common stock will convert automatically into Class A common stock, on a share-for-share basis, on the date or time specified by the holders of a majority of the outstanding shares of Class A common stock, voting as a separate class.

Preferred Stock

Subject to the protective provisions afforded to the holders of the Series A Preferred Stock, the Company’s board of directors has the authority to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by the Company’s stockholders. As of September 30, 2024, the Company had 200,000,000 shares authorized and 150,000 shares of preferred stock issued and outstanding.

Share Repurchase Program

In August 2024, the Company's board of directors authorized the repurchase of up to $25.0 million of the Company’s Class A common stock. Repurchases may be made from time to time through open market repurchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate the Company to acquire any particular amount of its Class A common stock, and it may be suspended at any time at the Company’s discretion. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. The share repurchase program has no set expiration date. The Company did not make any share repurchases under the repurchase program during the three months ended September 30, 2024.

12. Stock-Based Compensation

2012 Stock Option Plan

Effective May 1, 2012, the Company adopted the 2012 Stock Plan (the “2012 Plan”). Options granted under the 2012 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) may be granted only to employees (including officers and directors). Non-qualified stock options (“NSOs”) may be granted to employees and consultants. The exercise price of ISOs and NSOs shall not be less than 100% of the estimated fair value of the common shares on the date of grant, respectively, as determined by the Company’s board of directors. The exercise price of an ISO granted to a 10% or greater stockholder shall not be less than 110% of the estimated fair value of the common shares on the date of grant. Options generally vest over a period offour years. No further grants may be made under the 2012 Plan.

2021 Equity Incentive Plan

In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective on July 14, 2021. The Company’s prior plan, 2012 Plan, was terminated immediately prior to the effectiveness of the 2021 Plan with respect to the grant of future awards.

The 2021 Plan provides for the grant of ISOs, to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of NSOs, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to the Company’s employees, directors, and consultants and the Company’s parent and subsidiary corporations’ employees and consultants.

Subject to the adjustment provisions of and the automatic increase described in the 2021 Plan, a total of 23,000,000 shares of the Company’s Class A common stock were reserved for issuance pursuant to the 2021 Plan, plus 36,101,718 shares of the Company’s Class A common stock reserved for future issuance under the 2012 Plan. Subject to the adjustment provisions of the 2021 Plan, the number of shares available for issuance under the 2021 Plan also includes an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of (a)34,500,000 shares of Class A common stock, (b)5% of the total number of shares of all classes of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors (or its committee) may determine. Options granted under the 2021 Plan generally vest over periods ranging fromone tofour years.

A summary of the stock option activity is as follows:

No options were granted during the three and nine months ended September 30, 2024 and 2023.

The number of options unvested as of September 30, 2024 and December 31, 2023 was 1,871 and 3,172, respectively. The weighted average grant-date fair value of these unvested options was $1.92 and $2.57 per share as of September 30, 2024 and December 31, 2023, respectively.

The total fair value of options vested during the three months ended September 30, 2024 and 2023 was $1.0 million and $2.8 million, respectively. The total fair value of options vested during the nine months ended September 30, 2024 and 2023 was $3.6 million and $9.6 million, respectively.

The aggregate intrinsic value of options exercised during the three and nine months ended September 30, 2024 was $0.1 million and $0.7 million, respectively. The aggregate intrinsic value of options exercised during the three and nine months ended September 30, 2023 wasimmaterial.

As of September 30, 2024, the total unrecognized stock-based compensation expense for stock options issued under the 2012 Plan and the 2021 Plan was approximately $3.4 million, which is expected to be recognized over a weighted average period of 2 years.

Early Exercise of Common Stock Options

The Company’s board of directors has authorized certain stock option holders to exercise unvested options to purchase shares of Class A common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service as a service provider (as defined in the 2012 Plan and the 2021 Plan), at the lower of the fair market value on the date of the repurchase or the original exercise price, until the options are fully vested. The cash proceeds received for unvested shares of Class A common stock are presented within other long-term liabilities in the unaudited condensed consolidated balance sheets.

As of September 30, 2024, no shares of Class A common stock were subject to repurchase. As of December 31, 2023,123,611 shares of Class A common stock were subject to repurchase, and the cash proceeds related to these shares were $0.4 million.

Restricted Stock Units

A summary of the Company’s RSU activity and related information is as follows:

As of September 30, 2024, there was $24.7 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years. RSUs granted under the 2021 Plan generally vest quarterly over a period ofone year from the grant date.

The total fair value of RSUs vested during the three months ended September 30, 2024 and 2023 was $4.3 million and $5.7 million, respectively. The total fair value of RSUs vested during the nine months ended September 30, 2024 and 2023 was $14.0 million and $30.1 million, respectively.

Performance Stock Units

In 2023, the Company’s board of directors granted a total of 5,500,000 restricted stock units with performance vesting conditions (“PSUs”) to certain senior executives. In 2024, a total of 800,000 PSUs were forfeited. The PSUs will vest infour tranches upon continued service and satisfaction of certain market-based performance targets related to the Company’s stock price hurdles. The estimated weighted average grant date fair value of the PSUs was $0.65 per share, which was determined using a Monte Carlo simulation model. The significant assumptions in the Monte Carlo simulation model include the risk-free interest rate, expected volatility of the Company’s stock price, and expected life of the award. The total stock-based compensation expense recognized for PSUs for the three and nine months ended September 30, 2024 was $0.5 million and $1.5 million, respectively. The total stock-based compensation expense recognized for PSUs for the three and nine months ended September 30, 2023 was $0.2 million and $0.3 million, respectively. The total unrecognized compensation expense related to PSUs was $1.4 million as of September 30, 2024, which will be recognized over an estimated weighted average remaining period of 1.6 years.

Non-Plan Co-Founder and Head of Blend Options

In March 2021, the Company’s board of directors granted to its Co-Founder and Head of Blend a stand-alone stock option issued outside of the 2012 Plan covering a maximum of 26,057,181 shares of Class B common stock with an exercise price of $8.58 per share. The award has a 15-year term (subject to earlier termination when shares subject to the award are no longer eligible to vest) and vests upon the satisfaction of a service condition, liquidity event-related performance condition, and performance-based market conditions.

The terms of the award stipulated that if an IPO is completed within 15 months of the date of grant, the first tranche of 1,954,289 shares will vest. The remaining tranches of shares will vest dependent on performance goals tied to the Company’s stock price hurdles with specified expiration dates for each tranche. In July 2021, the first tranche of the Co-Founder and Head of Blend stock option award vested upon completion of the IPO.

The remaining tranches were valued using a Monte Carlo simulation model. The weighted average estimated fair value of the remaining tranches as of the modification date was $3.80 per share based on the following assumptions:

The total stock-based compensation expense recognized for this award for each of the three months ended September 30, 2024 and 2023 was $1.5 million. The total stock-based compensation expense recognized for this award for the nine months ended September 30, 2024 and 2023 was $4.4 million and $10.9 million, respectively.

The total unrecognized compensation expense related to the award was $9.6 million as of September 30, 2024, which will be recognized over an estimated weighted average remaining period of 3 years.

Stock-Based Compensation Expense

The Company’s stock-based compensation expense was as follows:

(1) Net of $0.8 million and $1.9 million of additions to capitalized internal-use software for the three and nine months ended September 30, 2024, respectively, andnone for the three and nine months ended September 30, 2023.

13. Restructuring

Workforce Reduction Plans

In 2023, the Company executedtwo workforce reduction initiatives. In January 2023, the Company committed to a workforce reduction plan (the “January 2023 Plan”), which eliminated approximately 340 positions, or 28% of the Company’s then-current workforce. In August 2023, the Company committed to an additional workforce reduction plan (the “August 2023 Plan”). The August 2023 Plan eliminated approximately 150 positions, or 19% of the Company’s then-current workforce.

In 2024, the Company continued its workforce reduction initiatives with the elimination of certain additional positions in January (the “January 2024 Plan”) and September (the “September 2024 Plan” and together with the January 2024 Plan, the “workforce reduction plans”). The Company executed these workforce reduction initiatives as part of its broader efforts to improve cost efficiency and better align its operating structure with its business activities, with the focus on streamlining the Company’s title operations as well as its general and administrative functions. The execution of the January 2024 Plan was substantially completed in the second quarter of 2024. The execution of the September 2024 Plan is expected to be substantially completed in the fourth quarter of 2024.

The restructuring charges attributable to the workforce reduction plans amounted to approximately $1.7 million and $2.9 million for the three and nine months ended September 30, 2024, respectively. The restructuring charges attributable to the workforce reduction plans, not including executive transition costs, amounted to approximately $9.1 million and $23.1 million for the three and nine months ended September 30, 2023, respectively. Remaining charges related to the September 2024 plan are not expected to be material.

The restructuring charges for workforce reduction plans consisted primarily of cash expenditures for compensation, severance, and transition payments, employee benefits, payroll taxes and related facilitation costs. The restructuring charges attributable to the August 2023 plan also include an accelerated expense of $2.1 million consisting of prepaid cash bonuses issued in the first and second quarter of 2023 to certain employees in lieu of previously committed equity-based awards.

Lease Termination and Abandonment

For the quarter ended September 30, 2024, the Company entered into an agreement to fully terminateone of its leases incurring a net $1.2 million restructuring charge primarily related to the early termination fee, and abandoned another leased facility, incurring a $3.3 million restructuring charge primarily related to accelerated amortization of the right-of-use asset and disposal of the accompanying leasehold improvements. The remaining $3.5 million lease liability related to the abandoned lease facility is presented under Other current liabilities and the Company will continue to make payments under the lease agreement until the end of the lease term on September 30, 2025.

Executive Transition Costs

Effective March 16, 2023, Marc Greenberg stepped down as Head of Finance of the Company, and as the Company’s principal financial officer under Section 16a-1(f) of the Exchange Act. In connection with Mr. Greenberg’s resignation as Head of Finance, the Company entered into a discretionary retention bonus letter with Mr. Greenberg, which provided that the Company would pay Mr. Greenberg a bonus (the “Bonus Payment”) equal to the amount by which the aggregate value of his total compensation is less than $1,458,333 for the period between September 1, 2022 through the March 31, 2023, provided Mr. Greenberg remained continuously employed by the Company through March 31, 2023. The Bonus Payment was made in cash or fully vested shares of Class A Common Stock of Blend of equivalent value, as determined by the Company’s Compensation Committee in its sole discretion. Mr. Greenberg’s last day of employment with Blend was April 3, 2023, and subsequently he received the Bonus Payment in cash in the amount of $0.9 million. In addition to the Bonus Payment, Mr. Greenberg received a severance package, which included 9 weeks of severance and other benefits in accordance with Company practices.

Effective February 1, 2023, Crystal Sumner stepped down as Head of Legal, Compliance, and Risk and Corporate Secretary of the Company. In connection with Ms. Sumner’s departure, the Company entered into a transition agreement with Ms. Sumner, pursuant to which Ms. Sumner received a transition payment equal to 9 weeks of Ms. Sumner’s then-current base salary in accordance with Company practices.

The restructuring charges attributable to the executive transaction costs were $1.1 million for the nine months ended September 30, 2023.

The reconciliation of the restructuring liability balances is as follows:

14. Income Taxes

The provision for income taxes was less than $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The Company recorded a provision for income taxes of $0.1 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three and nine months ended September 30, 2024 three and nine months ended September 30, 2024 and 2023 was (0.2)%. The effective tax rates differ from the federal statutory rate primarily due to a valuation allowance on the Company’s deferred tax assets.

The Company reassessed the ability to realize deferred tax assets by considering the available positive and negative evidence. As of September 30, 2024, the Company concluded that its net deferred tax assets are not more-likely-than-not to be realized and maintained a full valuation allowance against such net deferred tax assets.

As of September 30, 2024, the Company files tax returns in the U.S. federal and various state jurisdictions. Due to the Company’s U.S. net operating loss carryforwards, its income tax returns generally remain subject to examination by federal and most state tax authorities. Beginning in 2022, the Company’s subsidiary in India files income tax returns in India which are subject to examination by local tax authorities. This subsidiary is currently under examination by the tax authorities for the fiscal years ended March 31, 2023 and 2022.

15. Net Loss Per Share

The Company hasthree classes of authorized common stock for which voting rights differ by class. The Company computes net loss per share using the two-class method required for multiple classes of common stock.

Under the two-class method, net income (loss) attributable to common stockholders for the period is allocated between shares of common stock and participating securities based upon their respective rights to receive dividends as if all earnings for the period had been distributed.

Basic net loss per share is computed by dividing net loss attributable to each class of stockholders by the weighted average number of shares of stock outstanding during the period, adjusted for options early exercised and subject to repurchase.

Diluted loss per share reflects the potential dilution that could occur if securities, including awards issued under the Company’s equity compensation plans or other contracts to issue common stock, were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company. Diluted net loss per share attributable to the Company is computed by dividing the net loss attributable to the Company by the weighted average number of fully diluted common shares outstanding.

The following table presents the calculation of basic and diluted net loss per share for Class A and Class B common stock. No shares of Class C common stock were issued and outstanding during the periods presented.

The following potential shares of common stock were excluded from the computation of diluted net earnings per share attributable to the Company for the periods presented because including them would have been antidilutive as the Company has reported net loss for each of the periods presented:

16. Segment Information

The Company’s operating segments are defined in a manner consistent with how the Company manages its operations and how the CODM evaluates the results and allocates the Company’s resources.

Segment gross profit, which is the measure used by the Company’s CODM to evaluate the performance of and allocate resources to its segments, is calculated as segment revenue less segment cost of revenue. The Company does not evaluate performance or allocate resources based on segment assets, and therefore, such information is not presented.

The following table provides information about each reportable segment:

17. Strategic Partnership and Sale of Insurance Business

On September 30, 2024, the Company entered into a multi-element transaction which included a strategic partnership agreement as well as the sale of its insurance business. As part of the strategic partnership agreement, the Company granted afive-year term license allowing the partner to integrate its insurance solutions into the Company’s platform for an annual fee plus transaction-based charges. The Company also received $10.1 million in cash proceeds and a warrant to purchase up to 177,516 Class B Units of the partner, at a purchase price of $0.001 per unit (the “Partner Warrant”). The Partner Warrant has a term often years and expires on September 30, 2034. The fair value of the Partner Warrant at the time of grant was approximately $0.7 million.

The Company recognized a gain on the sale of insurance business of $9.2 million, net of transaction costs of $0.3 million, which is presented within other income (expense), net in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024.

The Company has determined thefive-year term license is a performance obligation under ASC 606, Revenue from Contracts with Customers. The Company recognized a deferred revenue liability of $1.0 million related to the performance obligations under the strategic partnership agreement as part of the transaction at closing.